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:

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

Source:Carolina Financial Corporation