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Carolina Financial Corporation Reports Results for Fourth Quarter of 2017

CHARLESTON, S.C., Jan. 24, 2018 (GLOBE NEWSWIRE) -- Carolina Financial Corporation (the “Company”) (NASDAQ:CARO) today announced financial results for the fourth quarter of 2017.

Operational highlights at and for the three months ended December 31, 2017, include:

  • On November 1, 2017, the Company closed its previously announced acquisition of First South Bancorp, Inc., the holding company for First South Bank, (“First South”) with the operational conversion expected to be completed in the first quarter of 2018. Excluding purchase accounting adjustments, total assets of First South were $1.1 billion, total loans receivable were $774.3 million and total deposits were $952.6 million as of the closing date.

Financial highlights at and for the three months ended December 31, 2017, include:

  • Effective November 1, 2017, the Company completed the previously announced merger of First South Bancorp, Inc. (“First South”).
  • Net income for the fourth quarter 2017 increased 22.9% to $6.3 million, or $0.33 per diluted share, from $5.2 million, or $0.41 per diluted share for the fourth quarter of 2016. Included in earnings are pretax merger-related expenses of $4.1 million for the fourth quarter of 2017 compared to $260,000 for the fourth quarter of 2016.
  • Operating earnings for the fourth quarter of 2017, which exclude certain non-operating income and expenses, increased 93.0% to $11.1 million, or $0.57 per diluted share, from $5.8 million, or $0.46 per diluted share, from the fourth quarter of 2016.
  •  Operating earnings for Q4 2017 have been adjusted to eliminate the following significant items:

/EIN News/ --                   o    Pretax merger-related expenses of $4.1 million.

                  o    The fair value gain on interest rate swaps of $419,000.

                  o    The loss on sale of securities of $242,000.

                  o    The effect of an increase in income tax expense of $2.3 million related to application of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act).

  • Performance ratios Q4 2017 compared to Q4 2016:

                  o    Return on average assets was 0.83% compared to 1.25%.

                  o    Operating return on average assets was 1.46% compared to 1.40%.

                  o    Return on average tangible equity was 8.78% compared to 13.46%.

                  o    Operating return on average tangible equity was 15.44% compared to 15.06%.

  • Loans receivable, excluding acquired loans, grew $187.5 million, or at an annualized rate of 15.9%, since December 31, 2016.
  • Asset quality continues to improve as nonperforming assets to total assets were 0.20% at December 31, 2017 compared to 0.40% at December 31, 2016.
  • Total deposits, excluding acquired deposits, increased $78.3 million since December 31, 2016. Core deposits, excluding core deposits acquired, increased $34.6 million since December 31, 2016.
  • The 2017 Tax Act was signed into law by the President on Friday, December 22, 2017. The changes that most affect businesses include the reduction in the corporate tax rate, change in business deductions, and many international provisions. Generally accepted accounting principles require the effect of a change in tax law or rates be recognized as of the date of enactment. The Company’s net income for the quarter and year ended December 31 2017 was reduced by approximately $2.3 million, primarily due to a lower valuation of deferred income taxes.

“We continue to see the impact of solid organic growth and acquisitions on earnings. Overall operating results for the fourth quarter of 2017 continued to improve with an increase in operating net income of 93.0% compared to the fourth quarter of 2016. We believe we have partnered with a great franchise with the First South acquisition, and are actively working on integration. We expect the systems conversion to occur late in the first quarter of 2018,” stated Jerry Rexroad, the Company’s Chief Executive Officer.

Acquisition of First South Bancorp, Inc.

Effective November 1, 2017, the Company completed its previously announced acquisition of First South. At closing, the holding companies were merged with the Company as the surviving corporation, and First South Bank also merged with and into CresCom Bank, with CresCom Bank surviving the merger.

Under the terms of the merger, First South shareholders received 0.5064 shares of the Company’s common stock. Fractional shares were paid in cash.

The acquisition of First South was accounted for under the acquisition method of accounting. The assets and liabilities of First South have been recorded at their estimated fair values and added to those of the Company as of the merger date. Included in the December 31, 2017 consolidated balance sheet were approximately $728.7 million of acquired loans, net of related purchase accounting adjustments and $939.6 million of deposits. The Company may continue to refine its valuations of acquired assets and liabilities for up to one year following the merger date.

Financial Results

Carolina Financial Corporation

  • The Company reported an increase in net income for the three months ended December 31, 2017 to $6.3 million, or $0.33 per diluted share, as compared to $5.2 million, or $0.41 per diluted share, for the three months ended December 31, 2016. Included in net income for the three months ended December 31, 2017 were pretax merger-related expenses of $4.1 million, compared to $260,000 for the three months ended December 31, 2016.
  • The Company reported an increase in net income for the year ended December 31, 2017 to $28.6 million, or $1.73 per diluted share, as compared to $17.6 million, or $1.42 per diluted share, for the year ended December 31, 2016. Included in net income for the years ended December 31, 2017 and 2016 were pretax merger-related expenses of $6.0 million and $3.2 million, respectively.
  • Operating earnings for the fourth quarter of 2017, which excludes certain non-operating income and expenses, increased 93.0% to $11.1 million, or $0.57 per diluted share, from $5.8 million, or $0.46 per diluted share, from the fourth quarter of 2016.
  • Operating earnings for the year ended December 31, 2017, which excludes certain non-operating income and expenses, increased 67.3% to $33.8 million, or $2.04 per diluted share, from $20.2 million, or $1.64 per diluted share, from the same period of 2016.
  • The Company’s net interest margin-tax equivalent increased to 4.19% for the fourth quarter of 2017 compared to 3.87% for the fourth quarter of 2016.
  • The Company reported book value per common share of $22.76 and $13.23 as of December 31, 2017 and December 31, 2016, respectively. Tangible book value per common share was $15.14 and $12.59 as of December 31, 2017 and December 31, 2016, respectively.
  • At December 31, 2017, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $475.4 million as of December 31, 2017 compared to $163.2 million at December 31, 2016. Tangible equity to tangible assets at December 31, 2017 was 9.7% compared to 9.3% at December 31, 2016.
  • As a result of the 2017 Tax Act, the Company’s net income for the quarter and year ended December 31 2017 was reduced by approximately $2.3 million, primarily from a lower valuation of deferred income taxes.

Community Banking

  • Community banking segment net income increased 32.6% to $6.1 million for the three months ended December 31, 2017 compared to $4.6 million for the three months ended December 31, 2016. Included in net income for the three months ended December 31, 2017 were pretax merger-related expenses of $4.1 million compared to $254,000 for the three months ended December 31, 2016.

  • The community banking segment net income increased 80.4% to $26.8 million for the year ended December 31, 2017 compared to $14.9 million for the year ended December 31, 2016. Included in net income for the year ended December 31, 2017 and 2016 were pretax merger-related expenses of $6.0 million and $3.1 million, respectively.

  • Community banking segment operating earnings increased 115.8% to $11.2 million for the three months ended December 31, 2017 compared to $5.2 million for the three months ended December 31, 2016. Included in earnings for the three months ended December 31, 2017 and 2016 were pretax merger-related expenses of $4.1 million and $254,000, respectively. The community banking segment operating earnings increased 86.7% to $32.6 million for the year ended December 31, 2017 compared to $17.5 million for the year ended December 31, 2016. Included in earnings for the year ended December 31, 2017 and 2016 were pretax merger-related expenses of $6.0 million and $3.1 million, respectively.

  • Provision for loan loss during the three months ended December 31, 2017 was $779,000. There was no provision for loan loss during the three months ended December 31, 2016. Asset quality and historical loss experience continue to remain favorable. The provision for loan loss was primarily driven by the organic loan growth.

  • Non-performing assets were 0.20% and 0.40% of total assets at December 31, 2017 and December 31, 2016, respectively.

  • Loans receivable, gross increased to $2.3 billion at December 31, 2017 compared to $1.2 billion at December 31, 2016. Excluding loans acquired, organic loans increased $187.5 million, or 15.9% over December 31, 2016.

  • The number of checking accounts increased at an annualized rate of 8.7%, excluding First South and Greer checking accounts acquired, since December 31, 2016. Total deposits, excluding acquired deposits, increased $78.3 million since December 31, 2016. As of December 31, 2017 and December 31, 2016, core deposits, defined as checking, savings and money market, comprised approximately 66.8% and 60.6%, respectively, of total deposits.

  • As a result of the Tax Act, the community banking segment’s net income for the quarter and year ended December 31 2017 was reduced by approximately $2.5 million, primarily from a lower valuation of deferred income taxes.

Wholesale Mortgage Banking

  • Net income for the wholesale mortgage banking segment was $117,000 for the three months ended December 31, 2017 compared to $806,000 for the three months ended December 31, 2016.

  • Net income was $2.5 million for the year ended December 31, 2017 compared to $3.5 million for the year ended December 31, 2016.

  • Operating earnings for the wholesale mortgage banking segment were $444,000 for the three months ended December 31, 2017 compared to $806,000 for the three months ended December 31, 2016.

  • Operating earnings for the wholesale mortgage banking segment were $2.8 million for the year ended December 31, 2017 compared to $3.5 million for the year ended December 31, 2016.

  • Net margin was 1.43% for the three months ended December 31, 2017 compared to 1.61% for the three months ended December 31, 2016. Originations for the three months ended December 31, 2017 and 2016 were $239.8 million and $234.9 million, respectively.

  •  Net margin was 1.59% for the year ended December 31, 2017 compared to 1.73% for the year ended December 31, 2016. Originations for the year ended December 31, 2017 and 2016 were $911.0 million and $875.4 million, respectively.

  • Net interest income for the wholesale mortgage banking segment was $388,000 for the three months ended December 31, 2017 compared to $407,000 for the three months ended December 31, 2016. Net interest income for the wholesale mortgage banking segment was $1.6 million for the year ended December 31, 2017 compared to $1.5 million for the year ended December 31, 2016.

  • Mortgage loan servicing income, net of amortization of mortgage servicing rights and subservicing expense, for the wholesale mortgage banking segment was $400,000 and $400,000 for the three months ended December 31, 2017 and December 31, 2016, respectively. Mortgage loan servicing income, net of amortization of mortgage servicing rights and subservicing expense, for the wholesale mortgage banking segment was $1.6 million and $1.6 million for the year ended December 31, 2017 and December 31, 2016, respectively. At December 31, 2017, loans serviced for third parties totaled $2.6 billion.

  • As a result of the Tax Act, the wholesale mortgage banking segment’s net income for the quarter and year ended December 31, 2017 was reduced by approximately $327,000, primarily from a lower valuation of deferred income taxes.

Dividend Declared

On January 24, 2018 the Company declared a $0.05 dividend per common share, payable on April 6, 2018, to stockholders of record on March 6, 2018.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on January 25, 2018. The conference call can be accessed by dialing (866) 464-9448 or (213) 660-0874 and requesting the Carolina Financial Corporation earnings call. The conference ID number is 4095667. Listeners should dial in 10 minutes prior to the start of the call.  The live webcast and presentation slides will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations.”

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations” approximately three hours after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 4095667.

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ:CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of December 31, 2017, Carolina Financial Corporation had approximately $3.5 billion in total assets and Crescent Mortgage Company was licensed to originate loans in 47 states, partnering with community banks, credit unions and mortgage brokers.

Addendum to News Release – Use of Certain Non-GAAP Financial Measures and Forward-Looking Statements

This news release contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). Such statements should be read along with the accompanying tables, which provide a reconciliation of non-GAAP measures to GAAP measures. This news release and the accompanying tables discuss financial measures, including but not limited to, core deposits, tangible book value, operating earnings and net income related to segments of the Company, which are non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

Please refer to the Non-GAAP reconciliation tables later in this release for additional information.

Forward-Looking Statements

Certain statements in this news release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective.  Such forward-looking statements include but are not limited to statements with respect to our plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” as well as similar expressions.  Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate.  Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized.  The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that the future events, plans, or expectations contemplated by the Company will be achieved.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, fourth-party relationships and revenues; (2) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on the Company’s loan portfolio and allowance for loan losses; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (4) the risk that the preliminary financial information reported herein and our current preliminary analysis will be different when our review is finalized; (5) changes in the U.S. legal and regulatory framework including, but not limited to, the Dodd-Frank Act, the Tax Cuts and Jobs Act of 2017 and regulations adopted thereunder; (6) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the Company; (7) the business related to acquisitions may not be integrated successfully or such integration may take longer to accomplish than expected; (8) the expected cost savings and any revenue synergies from acquisitions may not be fully realized within expected timeframes; and (9) disruption from acquisitions may make it more difficult to maintain relationships with clients, associates, or suppliers.  Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).  All subsequent written and oral forward-looking statements concerning the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.


 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    December 31, 2017   December 31, 2016
    (Unaudited)   (Audited)
    (Dollars in thousands)
ASSETS                
Cash and due from banks   $ 25,254       9,761  
Interest-bearing cash     51,298       14,591  
Cash and cash equivalents     76,552       24,352  
Securities available-for-sale     743,239       335,352  
Federal Home Loan Bank stock, at cost     19,065       11,072  
Other investments     3,446       1,768  
Derivative assets     2,803       2,219  
Loans held for sale     35,292       31,569  
Loans receivable, gross     2,319,529       1,178,266  
Allowance for loan losses     (11,479 )     (10,688 )
Loans receivable, net     2,308,050       1,167,578  
                 
Premises and equipment, net     61,406       37,054  
Accrued interest receivable     11,992       5,373  
Real estate acquired through foreclosure, net     3,106       1,179  
Deferred tax assets, net     5,872       8,782  
Mortgage servicing rights     21,003       15,032  
Cash value life insurance     57,195       28,984  
Core deposit intangible     19,601       3,658  
Goodwill     139,617       4,266  
Other assets     9,221       5,939  
Total assets   $ 3,517,460       1,684,177  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Liabilities:                
Noninterest-bearing deposits   $ 520,914       229,905  
Interest-bearing deposits     2,079,315       1,028,355  
Total deposits     2,600,229       1,258,260  
Short-term borrowed funds     338,000       203,000  
Long-term debt     74,759       38,465  
Derivative liabilities     156       342  
Drafts outstanding     7,324       6,223  
Advances from borrowers for insurance and taxes     3,005       1,058  
Accrued interest payable     1,126       327  
Reserve for mortgage repurchase losses     1,892       2,880  
Dividends payable to stockholders     1,051       502  
Accrued expenses and other liabilities     14,537       9,930  
Total liabilities     3,042,079       1,520,987  
Commitments and contingencies                
Stockholders’ equity:                
Preferred stock     —        —   
Common stock     210       125  
Additional paid-in capital     348,037       66,156  
Retained earnings     122,705       98,451  
Accumulated other comprehensive (loss) income, net of tax     4,429       (1,542 )
Total stockholders’ equity     475,381       163,190  
Total liabilities and stockholders’ equity   $ 3,517,460       1,684,177  
                 



 
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    For the Three Months   For the Twelve Months
    Ended December 31,   Ended December 31,
    2017   2016   2017   2016*
    (In thousands, except share data)
Interest income                                
Loans   $ 27,094       14,346       79,300       51,137  
Investment securities     4,966       2,439       14,941       9,274  
Dividends from Federal Home Loan Bank stock     145       86       496       374  
Federal funds sold     —        —        7       5  
Other interest income     164       32       343       124  
Total interest income     32,369       16,903       95,087       60,914  
Interest expense                                
Deposits     3,175       1,523       9,386       5,972  
Short-term borrowed funds     663       189       1,888       509  
Long-term debt     614       529       1,978       2,272  
Total interest expense     4,452       2,241       13,252       8,753  
Net interest income     27,917       14,662       81,835       52,161  
Provision for loan losses     779       —        779       —   
Net interest income after provision for loan losses     27,138       14,662       81,056       52,161  
Noninterest income                                
Mortgage banking income     3,619       4,259       15,140       17,226  
Deposit service charges     1,715       976       4,643       3,688  
Net loss on extinguishment of debt     —        (1,694 )     —        (1,868 )
Net gain (loss) on sale of securities     (242 )     65       933       706  
Fair value adjustments on interest rate swaps     419       998       382       590  
Net increase in cash value life insurance     357       219       1,116       903  
Mortgage loan servicing income     1,968       1,510       6,790       5,748  
Other     1,743       576       4,912       2,304  
Total noninterest income     9,579       6,909       33,916       29,297  
Noninterest expense                                
Salaries and employee benefits     11,341       8,169       37,827       31,475  
Occupancy and equipment     3,218       2,106       10,347       7,942  
Marketing and public relations     235       284       1,417       1,428  
FDIC insurance     341       175       721       702  
Recovery of mortgage loan repurchase losses     (225 )     (250 )     (900 )     (1,000 )
Legal expense     134       121       507       306  
Other real estate (income) expense, net     14       17       54       (20 )
Mortgage subservicing expense     501       504       1,986       1,857  
Amortization of mortgage servicing rights     883       653       2,966       2,312  
Merger related expenses     4,091       260       6,001       3,245  
Other     3,254       2,034       10,220       7,793  
Total noninterest expense     23,787       14,073       71,146       56,040  
Income before income taxes     12,930       7,498       43,826       25,418  
Income tax expense     6,602       2,348       15,261       7,848  
Net income   $ 6,328       5,150       28,565       17,570  
                                 
Earnings per common share:                                
Basic   $ 0.33       0.42       1.75       1.45  
Diluted   $ 0.33       0.41       1.73       1.42  
Weighted average common shares outstanding:                                
Basic     19,207,307       12,336,420       16,317,501       12,080,128  
Diluted     19,443,353       12,585,518       16,550,357       12,352,246  
                                 

* Derived from audited financial statements.


 
CAROLINA FINANCIAL CORPORATION
(Unaudited)
(Dollars in thousands)
 
    At or for the Three Months Ended
Selected Financial Data:   December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
                     
Selected Average Balances:                                        
Total assets   $ 3,048,214       2,230,586       2,166,803       1,768,323       1,651,653  
Investment securities and FHLB stock     647,276       521,569       510,706       373,551       326,485  
Loans receivable, net     2,003,429       1,463,771       1,412,940       1,214,777       1,138,120  
Loans held for sale     25,001       27,282       22,412       17,827       32,951  
Deposits     2,352,303       1,710,263       1,633,285       1,330,805       1,288,665  
Stockholders’ equity     380,529       286,524       277,708       210,071       160,991  
                                         
Performance Ratios (annualized):                                        
Return on average stockholders’ equity     6.65 %     11.16 %     13.45 %     9.34 %     12.80 %
Return on average tangible equity (Non-GAAP)     8.78 %     13.24 %     16.02 %     9.98 %     13.46 %
Return on average assets     0.83 %     1.43 %     1.72 %     1.11 %     1.25 %
Operating return on average equity (Non-GAAP)     11.69 %     11.02 %     13.15 %     10.95 %     14.32 %
Operating return on average tangible equity (Non-GAAP)     15.44 %     13.08 %     15.65 %     11.70 %     15.06 %
Operating return on average assets (Non-GAAP)     1.46 %     1.42 %     1.69 %     1.30 %     1.40 %
Average earning assets to average total assets     89.25 %     91.09 %     90.68 %     91.99 %     93.21 %
Average loans receivable to average deposits     85.17 %     85.59 %     86.51 %     91.28 %     88.32 %
Average stockholders’ equity to average assets     12.48 %     12.85 %     12.82 %     11.88 %     9.75 %
Net interest margin-tax equivalent (1)     4.19 %     3.94 %     4.03 %     3.93 %     3.87 %
Net charge-offs (recovery) to average loans receivable     0.02 %     0.02 %     (0.01 )%     (0.01 )%     (0.12 )%
Nonperforming assets to period end loans receivable     0.30 %     0.44 %     0.48 %     0.52 %     0.58 %
Nonperforming assets to total assets     0.20 %     0.29 %     0.31 %     0.34 %     0.40 %
Nonperforming loans to total loans     0.17 %     0.33 %     0.38 %     0.42 %     0.48 %
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)     0.49 %     0.72 %     0.75 %     0.76 %     0.91 %
Allowance for loan losses as a percentage of non-acquired loans receivable (Non-GAAP)     0.80 %     0.87 %     0.93 %     0.96 %     1.01 %
Allowance for loan losses as a percentage of nonperforming loans (2)     291.79 %     216.53 %     196.85 %     180.66 %     190.01 %
                                         
Nonperforming Assets:                                        
Loans 90 days or more past due and still accruing   $ —        —        —        —        —   
Nonaccrual loans     3,934       4,924       5,461       5,931       5,625  
Total nonperforming loans     3,934       4,924       5,461       5,931       5,625  
Real estate acquired through foreclosure, net     3,106       1,640       1,417       1,479       1,179  
Total nonperforming assets   $ 7,040     $ 6,564     $ 6,878     $ 7,410     $ 6,804  
                                         

(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.

(2) Acquired loans represent 37.8%, 17.3%, 19.4%, 21.4%, and 10.1% of gross loans receivable at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively.


Carolina Financial Corporation
Segment Information
(Unaudited)
(Dollars in thousands)

             
    For the Three Months   For the Twelve Months   Increase (Decrease)
    Ended December 31,   Ended December 31,   Three   Twelve
    2017   2016   2017   2016   Months   Months
Segment net income:                                                
Community banking   $ 6,052       4,565       26,840       14,874       1,487       11,966  
Wholesale mortgage banking     117       806       2,450       3,528       (689 )     (1,078 )
Other     124       (232 )     (786 )     (901 )     356       115  
Eliminations     35       11       61       69       24       (8 )
Total net income   $ 6,328       5,150       28,565       17,570       1,178       10,995  


    For the Three Months Ended
    December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
Segment net income:                                        
Community banking   $ 6,052       7,837       8,443       4,509       4,565  
Wholesale mortgage banking     117       449       1,238       645       806  
Other     124       (320 )     (346 )     (244 )     (232 )
Eliminations     35       27       5       (6 )     11  
Total net income   $ 6,328       7,993       9,340       4,904       5,150  


    For the Three Months Ended December 31, 2017
    Community   Mortgage            
    Banking   Banking   Other   Eliminations   Total
Interest income   $ 31,911       441       10       7       32,369  
Interest expense     4,050       53       402       (53 )     4,452  
Net interest income (expense)     27,861       388       (392 )     60       27,917  
Provision for (recovery of) loan losses     779       —        —        —        779  
Noninterest income from external customers     4,821       4,758       —                9,579  
Intersegment noninterest income     244       —        —        (244 )        
Noninterest expense     19,399       4,171       217               23,787  
Intersegment noninterest expense     —        241               (241 )     —   
Income (loss) before income taxes     12,748       734       (609 )     57       12,930  
Income tax expense (benefit)     6,696       617       (733 )     22       6,602  
Net income (loss)   $ 6,052       117       124       35       6,328  


    For the Three Months Ended December 31, 2016
    Community   Mortgage            
    Banking   Banking   Other   Eliminations   Total
Interest income   $ 16,453       458       4       (12 )     16,903  
Interest expense     2,084       51       155       (49 )     2,241  
Net interest income (expense)     14,369       407       (151 )     37       14,662  
Provision for (recovery of) loan losses     (24 )     24       —        —        —   
Noninterest income from external customers     1,597       5,312       —        —        6,909  
Intersegment noninterest income     261       —        —        (261 )     —   
Noninterest expense     9,706       4,151       216       —        14,073  
Intersegment noninterest expense     —        242       —        (242 )     —   
Income (loss) before income taxes     6,545       1,302       (367 )     18       7,498  
Income tax expense (benefit)     1,980       496       (135 )     7       2,348  
Net income (loss)   $ 4,565       806       (232 )     11       5,150  
 



Carolina Financial Corporation
Segment Information, Continued
(Unaudited)
(Dollars in thousands)

    For the Twelve Months Ended December 31, 2017
    Community   Mortgage            
    Banking   Banking   Other   Eliminations   Total
Interest income   $ 93,319       1,743       31       (6 )     95,087  
Interest expense     12,100       172       1,152       (172 )     13,252  
Net interest income (expense)     81,219       1,571       (1,121 )     166       81,835  
Provision for (recovery of) loan losses     779       —        —        —        779  
Noninterest income from external customers     14,195       19,721       —        —        33,916  
Intersegment noninterest income     1,034               —        (1,034 )     —   
Noninterest expense     53,600       16,620       926               71,146  
Intersegment noninterest expense     —        960       6       (966 )     —   
Income (loss) before income taxes     42,069       3,712       (2,053 )     98       43,826  
Income tax expense (benefit)     15,229       1,262       (1,267 )     37       15,261  
Net income (loss)   $ 26,840       2,450       (786 )     61       28,565  


    For the Twelve Months Ended December 31, 2016
    Community   Mortgage            
    Banking   Banking   Other   Eliminations   Total
Interest income   $ 59,241       1,591       18       64       60,914  
Interest expense     8,148       93       603       (91 )     8,753  
Net interest income (expense)     51,093       1,498       (585 )     155       52,161  
Provision for (recovery of) loan losses     (36 )     36       —        —        —   
Noninterest income from external customers     8,389       20,953       —        (45 )     29,297  
Intersegment noninterest income     966       —        —        (966 )     —   
Noninterest expense     39,226       15,972       842       —        56,040  
Intersegment noninterest expense     —        967       —        (967 )     —   
Income (loss) before income taxes     21,258       5,476       (1,427 )     111       25,418  
Income tax expense (benefit)     6,384       1,948       (526 )     42       7,848  
Net income (loss)   $ 14,874       3,528       (901 )     69       17,570  

Impact of the Tax Cuts and Jobs Act on Income Tax Expense for the Three and Twelve Months Ended December 31, 2017:

    Community   Mortgage            
    Banking   Banking   Other   Eliminations   Total
Increase (decrease) to tax expense   $ 2,504       327       (511 )     —        2,320  


    For the Three Months Ended December 31,
    Loan Originations   Mortgage Banking Income   Margin
    2017   2016   2017   2016   2017   2016
Additional segment information:                                                
Community banking   $ 27,221     $ 29,121       569       476       2.09 %     1.63 %
Wholesale mortgage banking     212,585       234,915       3,050       3,783       1.43 %     1.61 %
Total   $ 239,806       264,036       3,619       4,259       1.51 %     1.61 %


    For the Twelve Months Ended December 31,
    Loan Originations   Mortgage Banking Income   Margin
    2017   2016   2017   2016   2017   2016
Additional segment information:                                                
Community banking   $ 86,732     $ 97,062       2,010       2,063       2.32 %     2.13 %
Wholesale mortgage banking     824,282       875,360       13,130       15,163       1.59 %     1.73 %
Total   $ 911,014       972,422       15,140       17,226       1.66 %     1.77 %
                                                 


Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)

    At the Month Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2017   2017   2017   2017   2016
                     
Core deposits:                                        
Noninterest-bearing demand accounts   $ 520,914       333,267       330,641       298,365       229,905  
Interest-bearing demand accounts     551,308       309,241       298,123       309,961       191,851  
Savings accounts     213,141       69,552       70,336       66,506       48,648  
Money market accounts     452,734       377,754       380,108       363,600       292,639  
Total core deposits (Non-GAAP)     1,738,097       1,089,814       1,079,208       1,038,432       763,043  
                                         
Certificates of deposit:                                        
Less than $250,000     754,137       567,483       539,177       524,836       467,937  
$250,000 or more     107,995       50,357       45,344       44,452       27,280  
Total certificates of deposit     862,132       617,840       584,521       569,288       495,217  
Total deposits   $ 2,600,229       1,707,654       1,663,729       1,607,720       1,258,260  


    At the Month Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2017   2017   2017   2017   2016
                     
Tangible book value per share:                                        
Total stockholders’ equity   $ 475,381       290,224       281,818       271,454       163,190  
Less intangible assets     (159,218 )     (44,953 )     (45,123 )     (45,292 )     (7,924 )
Tangible common equity (Non-GAAP)   $ 316,163       245,271       236,695       226,162       155,266  
                                         
Issued and outstanding shares     21,022,202       16,159,309       16,156,943       16,185,408       12,548,328  
Less nonvested restricted stock awards     (134,302 )     (99,639 )     (101,489 )     (227,439 )     (211,908 )
Period end dilutive shares     20,887,900       16,059,670       16,055,454       15,957,969       12,336,420  
                                         
Total stockholders equity   $ 475,381       290,224       281,818       271,454       163,190  
Divided by period end dilutive shares     20,887,900       16,059,670       16,055,454       15,957,969       12,336,420  
Common book value per share   $ 22.76       18       17.55       17.01       13.23  
                                         
Tangible common equity (Non-GAAP)   $ 316,163       245,271       236,695       226,162       155,266  
Divided by period end dilutive shares     20,887,900       16,059,670       16,055,454       15,957,969       12,336,420  
Tangible common book value per share (Non-GAAP)   $ 15.14       15.27       14.74       14.17       12.59  
                                         



     
    At the Month Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2017   2017   2017   2017   2016
Acquired and non-acquired loans:                                        
Acquired loans receivable   $ 872,020       257,461       278,275       303,244       119,422  
Non-acquired loans receivable     1,436,030       1,227,000       1,157,145       1,113,766       1,058,844  
Total loans receivable   $ 2,308,050       1,484,461       1,435,420       1,417,010       1,178,266  
% Acquired     37.78 %     17.34 %     19.39 %     21.40 %     10.14 %
                                         
Non-acquired loans   $ 1,436,030       1,227,000       1,157,145       1,113,766       1,058,844  
Allowance for loan losses     11,479       10,662       10,750       10,715       10,688  
Allowance for loan losses to non-acquired loans (Non-GAAP)     0.80 %     0.87 %     0.93 %     0.96 %     1.01 %
                                         
Total loans receivable   $ 2,308,050       1,484,461       1,435,420       1,417,010       1,178,266  
Allowance for loan losses     11,479       10,662       10,750       10,715       10,688  
Allowance for loan losses to total loans receivable     0.50 %     0.72 %     0.75 %     0.76 %     0.91 %
                                         



Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)

    For the Three Months Ended   For the Twelve Months Ended
Operating Earnings and Performance Ratios:   December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
  December 31,
2017
  December 31,
2016
Income before income taxes   $ 12,930       11,968       12,013       6,915       7,498       43,826       25,418  
Gain/Loss on sale of securities     242       (368 )     (621 )     (185 )     (65 )     (933 )     (706 )
Net loss on extinguishment of debt     —        —        —        —        1,694       —        1,868  
Fair value adjustments on interest rate swaps     (419 )     (90 )     69       58       (998 )     (382 )     (590 )
Merger related expenses     4,091       311       279       1,319       260       6,001       3,245  
Operating earnings before income taxes     16,844       11,821       11,740       8,107       8,389       48,512       29,235  
Tax expense (1)     5,721       3,926       2,612       2,358       2,627       14,706       9,027  
Operating earnings (Non-GAAP)   $ 11,123       7,895       9,128       5,749       5,762       33,806       20,208  
                                                         
Average equity   $ 380,529       286,524       277,708       210,071       160,991       280,877       151,346  
Less average intangible assets     (92,373 )     (45,035 )     (44,452 )     (13,510 )     (7,979 )     (49,096 )     (5,516 )
Average tangible common equity (Non-GAAP)   $ 288,156       241,489       233,256       196,561       153,012       231,781       145,830  
                                                         
Average assets   $ 3,048,214       2,230,586       2,166,803       1,768,323       1,651,653       2,306,667       1,537,654  
Less average intangible assets     (92,373 )     (45,035 )     (44,452 )     (13,510 )     (7,979 )     (49,096 )     (5,516 )
Average tangible assets (Non-GAAP)   $ 2,955,841       2,185,551       2,122,351       1,754,813       1,643,674       2,257,571       1,532,138  
                                                         
Operating return on average assets (Non-GAAP)     1.46 %     1.42 %     1.69 %     1.30 %     1.40 %     1.47 %     1.31 %
Operating return on average equity (Non-GAAP)     11.69 %     11.02 %     13.15 %     10.95 %     14.32 %     12.04 %     13.35 %
Operating return on average tangible assets (Non-GAAP)     1.51 %     1.44 %     1.72 %     1.31 %     1.40 %     1.50 %     1.32 %
Operating return on average tangible equity (Non-GAAP)     15.44 %     13.08 %     15.65 %     11.70 %     15.06 %     14.59 %     13.86 %
                                                         
Weighted average common shares outstanding:                                                        
Basic     19,207,307       16,029,332       16,029,332       13,919,711       12,336,420       16,317,501       12,080,128  
Diluted     19,443,353       16,187,869       16,180,171       14,139,241       12,585,518       16,550,357       12,352,246  
Operating earnings per common share:                                                        
Basic (Non-GAAP)   $ 0.58       0.49       0.57       0.41       0.47       2.07       1.67  
Diluted (Non-GAAP)   $ 0.57       0.49       0.56       0.41       0.46       2.04       1.64  
                                                         
As Reported:                                                        
Income before income taxes   $ 12,930       11,968       12,013       6,915       7,498       43,826       25,418  
Tax expense (2)     6,602       3,975       2,673       2,011       2,348       15,261       7,848  
Net Income   $ 6,328       7,993       9,340       4,904       5,150       28,565       17,570  
                                                         
Average equity   $ 380,529       286,524       277,708       210,071       160,991       280,877       151,346  
Average tangible equity (Non-GAAP)   $ 288,156       241,489       233,256       196,561       153,012       231,780       145,831  
Average assets   $ 3,048,214       2,230,586       2,166,803       1,768,323       1,651,653       2,306,667       1,537,654  
Return on average assets     0.83 %     1.43 %     1.72 %     1.11 %     1.25 %     1.24 %     1.14 %
Return on average equity     6.65 %     11.16 %     13.45 %     9.34 %     12.80 %     10.17 %     11.61 %
Return on average tangible equity (Non-GAAP)     8.78 %     13.24 %     16.02 %     9.98 %     13.46 %     12.32 %     12.05 %
                                                         
Weighted average common shares outstanding:                                                        
Basic     19,207,307       16,029,332       16,029,332       13,919,711       12,336,420       16,317,501       12,080,128  
Diluted     19,443,353       16,187,869       16,180,171       14,139,241       12,585,518       16,550,357       12,352,246  
Earnings per common share:                                                        
Basic   $ 0.33       0.50       0.58       0.35       0.42       1.75       1.45  
Diluted   $ 0.33       0.49       0.58       0.35       0.41       1.73       1.42  
                                                         

(1) Tax expense is determined using the effective tax rate reflected in the accompanying income statement for the applicable reporting period, adjusted to eliminate the impact of the application of the Tax Cuts and Jobs Act on deferred income tax assets and liabilities.

(2) Income tax expense increased approximately $2.3 million for the quarter and year ended December 31, 2017 due to application of the Tax Cuts and Jobs Act on deferred income tax assets and liabilities.


Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Community Banking Segment
(Unaudited)
(In thousands, except share data)

    For the Three Months Ended   For the Year Ended
    December 31,
2017
  September 30,
2017
  June 30,
2017
  March 31,
2017
  December 31,
2016
  December 31,
2017
  December 31,
2016
Segment net income:                                                        
Community banking   $ 6,052       7,837       8,443       4,509       4,565     $ 26,840       14,874  
Wholesale mortgage banking     117       449       1,238       645       806       2,450       3,528  
Other     124       (320 )     (346 )     (244 )     (232 )     (786 )     (901 )
Eliminations     35       27       5       (6 )     11       61       69  
Total net income   $ 6,328       7,993       9,340       4,904       5,150     $ 28,565       17,570  
                                                         
Community banking segment operating earnings:                                                        
Income before income taxes   $ 12,748       11,714       11,232       6,375       6,545     $ 42,069       21,258  
Tax expense (1) (3)     6,696       3,877       2,789       1,866       1,980       15,228       6,384  
Bank segment net income   $ 6,052       7,837       8,443       4,509       4,565     $ 26,840       14,874  
                                                         
Weighted average common shares outstanding:                                                        
Basic     19,207,307       16,029,332       16,029,332       13,919,711       12,336,420       16,317,501       12,080,128  
Diluted     19,443,353       16,187,869       16,180,171       14,139,241       12,585,518       16,550,357       12,352,246  
                                                         
Earnings per common share:                                                        
Basic   $ 0.33       0.50       0.53       0.32       0.37     $ 1.64     $ 1.23  
Diluted   $ 0.33       0.49       0.52       0.32       0.36     $ 1.62     $ 1.20  
                                                         
Bank segment income before taxes   $ 12,748       11,714       11,232       6,375       6,545     $ 42,069     $ 21,258  
Gain on sale of securities     242       (368 )     (621 )     (185 )     (65 )     (932 )     (706 )
Net loss on extinguishment of debt     —        —        —        —        1,693       —        1,868  
Fair value adjustments on interest rate swaps     (419 )     (90 )     69       58       (998 )     (382 )     (590 )
Merger related expenses (2)     4,091       311       279       1,311       254       5,992       3,137  
Operating earnings before income taxes     16,662       11,567       10,959       7,559       7,429       46,747       24,967  
Tax expense (1)     5,480       3,828       2,721       2,213       2,247       14,140       7,498  
Operating bank segment earnings (Non-GAAP)   $ 11,182       7,739       8,238       5,346       5,182     $ 32,607     $ 17,469  
                                                         
                                                         
Operating bank segment earnings per common share:                                                        
Basic (Non-GAAP)   $ 0.58       0.48       0.51       0.38       0.42     $ 2.00     $ 1.45  
Diluted (Non-GAAP)   $ 0.58       0.48       0.51       0.38       0.41     $ 1.97     $ 1.41  
                                                         

(1) Tax expense is determined using the effective tax rate for the applicable reporting segment for the applicable reporting period which includes the impact of the application of the Tax Cuts and Jobs Act on deferred income tax assets and liabilities.

(2) Remaining merger related costs were incurred within the category “Other” segment earnings.

(3) Income tax expense increased approximately $2.5 million in the Banking Segment for the quarter and year ended December 31, 2017 due to application of the Tax Cuts and Jobs Act on deferred tax assets and liabilities.


For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700

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