UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

  

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Date of Report (Date of earliest event reported): January 24, 2019

 

 

CAROLINA FINANCIAL CORPORATION

(Exact Name of Registrant As Specified in Its Charter)

 

Delaware

(State or Other Jurisdiction of Incorporation)

 

000-19029 57-1039673
(Commission File Number) (I.R.S. Employer Identification No.)
   
288 Meeting Street, Charleston, South Carolina 29401
(Address of Principal Executive Offices) (Zip Code)

 

 

(843) 723-7700

(Registrant’s Telephone Number, Including Area Code)

 

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

Item 2.02. Results of Operations and Financial Condition

 

On January 24, 2019, Carolina Financial Corporation (the “Company”) issued a news release announcing its results of operations for the three and twelve month periods ended December 31, 2018. A copy of the news release is attached hereto as Exhibit 99.1. The information included herein, as well as in Exhibit 99.1 referenced herein, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in filings under the Securities Act of 1933, as amended (the “Securities Act”).

 

Item 7.01. Regulation FD Disclosure.

 

The Company will hold an investor conference call January 25, 2019 at 10:00 am Eastern Time to disclose its financial results for the three and twelve month periods ended December 31, 2018 . The conference call can be accessed by dialing (866) 464-9448 or (213) 660-0874 and requesting the Carolina Financial Corporation fourth quarter earnings call. The conference ID number is 7660616. 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. A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, News & Market Information and Presentations approximately three hours after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 7660616.

 

A copy of the investor presentation prepared for use by executive management during the investor conference call is furnished as Exhibit 99.2. All of the information in the presentation is presented as of January 24, 2019, and the Company does not assume any obligation to update such information in the future.

 

The information included in the preceding paragraph, as well as in Exhibit 99.2 referenced herein, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act nor shall it be deemed incorporated by reference in filings under the Securities Act.

 

Item 8.01. Other Events.

 

Dividend Announcement

 

On January 23, 2019, the Company’s Board of Directors declared a $0.08 dividend per common share payable on April 5, 2019, to stockholders of record as of March 15, 2019. 

 

Item 9.01. Financial Statements and Exhibits.

 

(d)       Exhibits

 

Exhibit

Number

 

 

Description

99.1   News Release dated January 24, 2019.
99.2   Investor Presentation dated January 24, 2019

   

     

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

  CAROLINA FINANCIAL CORPORATION,
  Registrant
       
       
  By: /s/ William A. Gehman, III  
  Name:   William A. Gehman, III  
  Title: Chief Financial Officer  

 

Dated: January 24, 2019

 

 

 

Carolina Financial Corporation Reports Results for Fourth Quarter of 2018

 

NEWS RELEASE – For Release January 24, 2019 4:00PM

 

For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700

 

Charleston, S.C. January 24, 2019 - Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the fourth quarter of 2018.

 

Financial highlights at and for the three months ended December 31, 2018, include:

 

· Net income for Q4 2018 increased 144.0% to $15.4 million, or $0.68 per diluted share, from $6.3 million, or $0.33 per diluted share for Q4 2017.
· Operating earnings for Q4 2018, which exclude certain non-operating income and expenses, increased 52.1% to $16.9 million, or $0.75 per diluted share, from $11.1 million, or $0.57 per diluted share, for Q4 2017.
· Operating earnings for Q4 2018 have been adjusted to eliminate the following significant items:
o The fair value loss on interest rate swaps of $2.2 million due to the impact of falling long-term interest rates during the quarter on the valuation of longer-duration derivatives that do not meet hedge accounting requirements. The Company uses standalone interest rate swaps to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from timing mismatches between assets and liabilities including duration mismatches, which includes securities. The balance sheet fair value of securities increased $4.1 million at the end of Q4 2018 compared to Q3 2018.
o The gain on sale of securities of $346,000.
· Performance ratios Q4 2018 compared to Q4 2017:
o Return on average assets was 1.67% compared to 0.83%.
o Operating return on average assets was 1.83% compared to 1.46%.
o Return on average tangible equity was 14.53% compared to 8.78%.
o Operating return on average tangible equity was 15.92% compared to 15.44%.
· Loans receivable, gross grew $66.9 million from September 30, 2018, or at an annualized rate of 10.9% and grew $204.8 million, or at a rate of 8.8%, since December 31, 2017.
· Total deposits decreased $41.4 million from September 30, 2018 and increased $113.3 million since December 31, 2017.
· On December 3, 2018, the Company announced that the Board of Directors had approved a plan to repurchase up to $25,000,000 in shares of the Company’s common stock through open market and privately negotiated transactions over the next three years. The Company began stock repurchases on December 4, 2018. During the fourth quarter, the Company repurchased approximately 176,000 shares at an average price of $30.64. Subsequent to December 31, 2018 through January 22, 2019, the Company repurchased an additional 87,000 shares at an average price of $31.42.

 

“We continue to see the impact of solid organic growth and prior acquisitions on earnings. Overall, results for the fourth quarter of 2018 continued to improve with an increase of 144.0% in net income to $15.4 million compared to the fourth quarter of 2017,” stated Jerry Rexroad, the Company’s Chief Executive Officer.

 

     

 

CresCom Bank Expansion to Charlotte, NC Market

 

On January 21, 2019, the Company announced its planned expansion into the Charlotte, North Carolina market and the hiring of Robin Lyle as Charlotte market leader. The expansion brings the Company’s footprint to the center of the state as a natural expansion to the existing footprint across Eastern North Carolina. CresCom Bank finalized the acquisition of Washington, North Carolina-based First South Bank in November 2017, which added 30 locations to its branch network.

 

Financial Results

 

Carolina Financial Corporation

 

· The Company reported an increase in net income for Q4 2018 to $15.4 million, or $0.68 per diluted share, as compared to $6.3 million, or $0.33 per diluted share, for Q4 2017. Included in net income for Q4 2018 was a one-time recovery of interest income of approximately $0.9 million related to a payoff of a purchased credit impaired loan, as well as a fair value loss on interest rate swaps of $2.2 million due to the impact of falling long-term interest rates on the valuation of longer-duration derivatives that do not meet hedge accounting requirements. Interest rate swaps that are not designated as hedges are primarily used to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from timing mismatches between assets and liabilities including duration mismatches, which includes securities. The balance sheet fair value of securities increased $4.1 million at the end of Q4 2018 compared to Q3 2018. Q4 2018 also reflects a $346,000 gain on sale of securities.
· Operating earnings for Q4 2018, which excludes certain non-operating income and expenses, increased 52.1% to $16.9 million, or $0.75 per diluted share, from $11.1 million, or $0.57 per diluted share, from Q4 2017.
· The Company recognized approximately $300,000 less incentive compensation expense in Q4 2018 compared to Q3 2018 as a result of not achieving certain performance metrics.
· The Company reported an increase in net income for the year ended December 31, 2018 to $49.7 million, or $2.26 per diluted share, as compared to $28.6 million, or $1.73 per diluted share, for the year ended December 31, 2017. Included in net income for the year ended December 31, 2018 and 2017 were pretax merger-related expenses of  $15.2 million  and $8.3 million, respectively. 
· Operating earnings for the year ended December 31, 2018, which excludes certain non-operating income and expenses, increased 85.9% to $62.8 million, or $2.86 per diluted share, from $33.8 million, or $2.04 per diluted share, from the same period of 2017.
· The Company’s net interest margin-tax equivalent (NIM) increased to 4.23% for Q4 2018 (including the one-time recovery of interest income of approximately $0.9 million, or 11 bps to NIM) compared to 4.19% for Q4 2017. In addition, in Q4 2018, included in interest income was purchased loan accretion of $1.9 million (23 bps to NIM) and early payoff fees of $414,000 (5 bps to NIM). In Q4 2017, included in interest income was purchased loan accretion of $2.2 million (32 bps to NIM) and early payoff fees of $47,000 (1 bp to NIM).
· The Company reported book value per common share of $25.83 and $22.76 as of December 31, 2018 and December 31, 2017, respectively. Tangible book value per common share was $19.36 and $15.71 as of December 31, 2018 and December 31, 2017, respectively.
· At December 31, 2018, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $575.3 million as of December 31, 2018 compared to $475.4 million at December 31, 2017. Tangible equity to tangible assets at December 31, 2018 was 11.83% compared to 9.73% at December 31, 2017.
     

 

· On June 11, 2018 Carolina Financial Corporation completed the sale of 1.5 million shares of its common stock. The net proceeds of the offering to the Company, after estimated expenses, were approximately $63.1 million.
· During Q4 2018, the Company repurchased approximately 176,000 shares at an average price of $30.64. Subsequent to December 31, 2018 through January 22, 2019, the Company repurchased an additional 87,000 shares at an average price of $31.42.
· Income tax expense increased $239,000 for Q4 2017 and the year ended December 31, 2017 related to application of Tax Cuts and Jobs Act implementation on deferred tax assets and liabilities.

 

Community Banking

 

· Community banking segment net income increased 155.3% to $15.4 million for Q4 2018 compared to $6.1 million for Q4 2017.
· Community banking segment net income increased 84.9% to $49.6 million for the year ended December 31, 2018 compared to $26.8 million for the year ended December 31, 2017.
· Community banking segment operating earnings increased 55.6% to $16.9 million for Q4 2018 compared to $10.9 million for Q4 2017.
· Community banking segment operating earnings increased 95.1% to $62.8 million for the year ended December 31, 2018 compared to $32.2 million for the year ended December 31, 2017.
· Provision for loan loss during Q4 2018 was $750,000. Provision for loan loss during Q4 2017 was $779,000. Asset quality and historical loss experience continue to remain favorable. The provision for loan loss during both 2018 and 2017 was primarily driven by organic loan growth.
· Non-performing assets (NPA) were 0.35% and 0.20% of total assets at December 31, 2018 and December 31, 2017, respectively. While December 2017 reflected historical NPA ratio lows and ratios continue to remain favorable, we have experienced an increase in NPA frequency. Approximately half of the increase relates to five purchased non-credit impaired loans with balances in excess of $500,000.
· Loans receivable, gross increased at a rate of 8.8% to $2.5 billion at December 31, 2018 compared to $2.3 billion at December 31, 2017.
· Total deposits increased $113.3 million since December 31, 2017.
· As a result of the implementation of the Tax Cuts and Jobs Act and the revaluation of deferred tax assets and liabilities, income tax expense was increased $416,000 for Q4 2017 and the year ended December 31, 2017.

  

Wholesale Mortgage Banking

 

· Net income for the wholesale mortgage banking segment was $599,000 for Q4 2018 compared to $117,000 for Q4 2017. The increase in Q4 2018 was primarily due to higher mortgage loan servicing income and reduced income taxes, both as further described below.
· Net income was $2.3 million for the year ended December 31, 2018 compared to $2.5 million for the year ended December 31, 2017. The net decrease in the year ended December 31, 2018 was primarily due to a decrease in mortgage banking income, early lease termination costs incurred, a loss on sale of other real estate, and the impact of Hurricane Florence, net of higher mortgage loan servicing income and reduced income taxes, as further described below.
· Net margin was 1.84% for Q4 2018 compared to 1.43% for Q4 2017. Originations for Q4 2018 and 2017 were $168.0 million and $212.6 million, respectively.
· Net margin was 1.74% for the year ended December 31, 2018 compared to 1.59% for the year ended December 31, 2017. Originations for the year ended December 31, 2018 and 2017 were $744.2 million and $824.3 million, respectively.
· During fiscal 2018 (primarily in the third quarter), the wholesale mortgage banking segment purchased approximately $880 million of servicing from third parties in addition to increasing its servicing portfolio through organic growth.
· As a result of the implementation of Tax Cuts and Jobs Act and the revaluation of deferred tax assets and liabilities, income tax expense was increased $331,000 for Q4 2017 and the year ended December 31, 2017.

 

     

 

Dividend Declared

 

On January 23, 2019 the Company declared a $0.08 dividend per common share, payable on April 5, 2019, to stockholders of record on March 15, 2019. This represents a 14.3% increase in the quarterly dividend. Over the last 4 quarters, the Company has increased its quarterly dividend from $0.04 per share to $0.08 per share, or by 100%, as a result of increased earnings.

 

Conference Call

 

A conference call will be held at 10:00 a.m., Eastern Time on January 25, 2019. 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 7660616. 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.

 

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, “News and Market Information” and “Presentations” approximately three hours after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 7660616.

 

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, 2018, Carolina Financial Corporation had approximately $3.8 billion in total assets and Crescent Mortgage Company was approved to originate loans in 48 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, third-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 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; (9) disruption from acquisitions may make it more difficult to maintain relationships with clients, associates, or suppliers ; and (10) the impact of recent and future hurricanes and other natural disasters on our loan portfolio and the economic prospects of our coastal markets.  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, 2018   December 31, 2017
    (Unaudited)   (Audited)
    (Dollars in thousands)
ASSETS        
Cash and due from banks   $ 28,857       25,254  
Interest-bearing cash     33,276       55,998  
Cash and cash equivalents     62,133       81,252  
Securities available-for-sale     842,801       743,239  
Federal Home Loan Bank stock, at cost     21,696       19,065  
Other investments     3,450       3,446  
Derivative assets     4,032       2,803  
Loans held for sale     16,972       35,292  
Loans receivable, gross     2,524,336       2,319,528  
Allowance for loan losses     (14,463 )     (11,478 )
Loans receivable, net     2,509,873       2,308,050  
                 
Premises and equipment, net     60,866       61,407  
Accrued interest receivable     13,494       11,992  
Real estate acquired through foreclosure, net     1,534       3,106  
Deferred tax assets, net     5,786       2,436  
Mortgage servicing rights     32,933       21,003  
Cash value life insurance     58,728       57,195  
Core deposit intangible     16,462       19,601  
Goodwill     127,592       127,592  
Other assets     12,396       21,538  
Total assets   $ 3,790,748       3,519,017  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Liabilities:                
Noninterest-bearing deposits   $ 547,022       525,615  
Interest-bearing deposits     2,171,171       2,079,314  
Total deposits     2,718,193       2,604,929  
Short-term borrowed funds     405,500       340,500  
Long-term debt     59,436       72,259  
Derivative liabilities     1,232       156  
Drafts outstanding     8,129       7,324  
Advances from borrowers for insurance and taxes     4,100       3,005  
Accrued interest payable     1,591       1,126  
Reserve for mortgage repurchase losses     1,292       1,892  
Dividends payable to stockholders     1,576       1,051  
Accrued expenses and other liabilities     14,414       11,394  
Total liabilities     3,215,463       3,043,636  
Stockholders' equity:                
Preferred stock     —         —    
Common stock     224       210  
Additional paid-in capital     408,224       348,037  
Retained earnings     167,173       123,537  
Accumulated other comprehensive (loss) income, net of tax     (336 )     3,597  
Total stockholders' equity     575,285       475,381  
Total liabilities and stockholders' equity   $ 3,790,748       3,519,017  

 

     

 

CAROLINA FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

  

    For the Three Months   For the Twelve Months
    Ended December 31,   Ended December 31,
    2018   2017   2018   2017*
    (In thousands, except share data)
Interest income                                
Loans   $ 35,214       27,094       133,252       79,300  
Investment securities     7,243       4,966       26,222       14,941  
Dividends from Federal Home Loan Bank stock     253       145       1,004       496  
Other interest income     209       164       580       350  
Total interest income     42,919       32,369       161,058       95,087  
Interest expense                                
Deposits     5,808       3,175       18,727       9,387  
Short-term borrowed funds     1,576       663       6,064       1,888  
Long-term debt     643       614       2,457       1,978  
Total interest expense     8,027       4,452       27,248       13,253  
Net interest income     34,892       27,917       133,810       81,834  
Provision for loan losses     750       779       2,059       779  
Net interest income after provision for loan losses     34,142       27,138       131,751       81,055  
Noninterest income                                
Mortgage banking income     3,593       3,619       15,295       15,140  
Deposit service charges     1,775       1,715       7,755       4,643  
Net gain (loss) on sale of securities     346       (242 )     (1,946 )     933  
Fair value adjustments on interest rate swaps     (2,222 )     419       (340 )     382  
Net increase in cash value life insurance     377       357       1,530       1,116  
Mortgage loan servicing income     2,624       1,968       9,052       6,790  
Debit card income, net     1,246       961       4,809       2,308  
Other     781       1,208       3,741       2,604  
Total noninterest income     8,520       10,005       39,896       33,916  
Noninterest expense                                
Salaries and employee benefits     12,857       11,341       53,517       37,827  
Occupancy and equipment     4,101       3,218       15,961       10,347  
Marketing and public relations     320       235       1,330       1,417  
FDIC insurance     285       341       1,090       721  
Recovery of mortgage loan repurchase losses     (150 )     (225 )     (600 )     (900 )
Legal expense     95       134       422       507  
Other real estate (income) expense, net     (10 )     14       (13 )     54  
Mortgage subservicing expense     696       501       2,468       1,986  
Amortization of mortgage servicing rights     1,239       883       4,206       2,966  
Amortization of core deposit intangible     763       565       3,139       1,037  
Merger-related expenses     —         6,391       15,216       8,301  
Other     3,041       3,115       12,472       9,182  
Total noninterest expense     23,237       26,513       109,208       73,445  
Income before income taxes     19,425       10,630       62,439       41,526  
Income tax expense     3,981       4,302       12,769       12,961  
Net income   $ 15,444       6,328       49,670       28,565  
                                 
Earnings per common share:                                
Basic   $ 0.69       0.33       2.28       1.75  
Diluted   $ 0.68       0.33       2.26       1.73  
Dividends Per Common Share   $ 0.07       0.04       0.25       0.16  
Weighted average common shares outstanding:                                
Basic     22,416,190       19,207,307       21,756,595       16,317,501  
Diluted     22,587,466       19,443,353       21,972,857       16,550,357  

 

* Derived from audited financial statements.

 

     

 

CAROLINA FINANCIAL CORPORATION

(Unaudited)

(Dollars in thousands)

 

    At or for the Three Months Ended
Selected Financial Data:   December 31,
2018 		  September 30,
2018 		  June 30,
2018 		  March 31,
2018 		  December 31,
2017
                     
Selected Average Balances:                    
Total assets   $ 3,700,795       3,663,915       3,627,402       3,522,407       3,048,214  
Investment securities and FHLB stock     838,834       831,793       809,625       770,161       647,276  
Loans receivable, net     2,428,603       2,402,075       2,401,075       2,322,203       2,003,429  
Loans held for sale     20,120       23,692       23,137       21,645       25,001  
Deposits     2,760,156       2,735,346       2,677,401       2,616,640       2,352,303  
Stockholders' equity     569,528       559,401       497,694       477,830       380,529  
                                         
Performance Ratios (annualized):                                        
Return on average stockholders' equity     10.85 %     10.87 %     12.03 %     3.40 %     6.65 %
Return on average tangible equity (Non-GAAP)     14.53 %     14.68 %     17.02 %     4.90 %     8.78 %
Return on average assets     1.67 %     1.66 %     1.65 %     0.46 %     0.83 %
Operating return on average stockholders' equity (Non-GAAP)     11.88 %     10.99 %     12.54 %     12.51 %     11.69 %
Operating return on average tangible equity (Non-GAAP)     15.92 %     14.85 %     17.74 %     18.06 %     15.44 %
Operating return on average assets (Non-GAAP)     1.83 %     1.68 %     1.72 %     1.70 %     1.46 %
Average earning assets to average total assets     89.64 %     89.59 %     89.82 %     89.28 %     89.25 %
Average loans receivable to average deposits     87.99 %     87.82 %     89.68 %     88.75 %     85.17 %
Average stockholders' equity to average assets     15.39 %     15.27 %     13.72 %     13.57 %     12.48 %
Net interest margin-tax equivalent (1)     4.23 %     4.15 %     4.11 %     4.20 %     4.19 %
                                       
Net (recoveries) charge-offs to average loans receivable     (0.02 )%     0.02 %     0.04 %     (0.21 )%     0.02 %
Nonperforming assets to period end loans receivable     0.53 %     0.49 %     0.42 %     0.45 %     0.30 %
Nonperforming assets to total assets     0.35 %     0.32 %     0.28 %     0.30 %     0.20 %
Nonperforming loans to total loans     0.47 %     0.43 %     0.35 %     0.36 %     0.17 %
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)     0.57 %     0.55 %     0.54 %     0.53 %     0.49 %
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)     0.79 %     0.80 %     0.80 %     0.85 %     0.84 %
Allowance for loan losses as a percentage of nonperforming loans (2)     123.13 %     129.26 %     153.84 %     146.93 %     291.81 %
                                         
Nonperforming Assets:                                        
Non-acquired loans 90 days or more past due and still accruing   $ 20       32       19       —         —    
Non-acquired nonaccrual loans     11,726       10,501       8,423       8,649       3,934  
Total nonperforming loans     11,746       10,533       8,442       8,649       3,934  
Real estate acquired through foreclosure, net     1,534       1,601       1,726       1,963       3,106  
Total nonperforming assets   $ 13,280       12,134       10,168       10,612       7,040  

 

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

(2) Acquired loans represent 27.2%, 30.5%, 33.5%, 36.8%, and 41.1%, of gross loans receivable at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017, respectively.

 

     

 

Carolina Financial Corporation

Segment Information

(Unaudited)

(Dollars in thousands)

 

    For the Three Months   For the Twelve Months   Increase (Decrease)
    December 31,   Ended December 31,   Three   Twelve
    2018   2017   2018   2017   Months   Months
Segment net income:                                                
Community banking   $ 15,449       6,052       49,624       26,839       9,397       22,785  
Wholesale mortgage banking     599       117       2,315       2,450       482       (135 )
Other     (594 )     124       (2,266 )     (786 )     (718 )     (1,480 )
Eliminations     (10 )     35       (3 )     62       (45 )     (65 )
Total net income   $ 15,444       6,328       49,670       28,565       9,116       21,105  

 

    For the Three Months Ended
    December 31,
2018 		  September 30,
2018 		  June 30,
2018 		  March 31,
2018 		  December 31,
2017
Segment net income:                                        
Community banking   $ 15,449       15,263       14,928       3,984       6,050  
Wholesale mortgage banking     599       555       598       562       118  
Other     (594 )     (606 )     (568 )     (497 )     124  
Eliminations     (10 )     (8 )     8       7       36  
Total net income   $ 15,444       15,204       14,966       4,056       6,328  

 

    For the Three Months Ended December 31, 2018
    Community   Mortgage            
    Banking   Banking   Other   Eliminations   Total
Interest income   $ 42,577       480       15       (153 )     42,919  
Interest expense     7,494       170       537       (174 )     8,027  
Net interest income (expense)     35,083       310       (522 )     21       34,892  
Provision for loan losses     750       —         —         —         750  
Noninterest income from external customers     2,990       5,507       23       —         8,520  
Intersegment noninterest income     242       36       —         (278 )     —    
Noninterest expense     18,141       4,818       277       1       23,237  
Intersegment noninterest expense     —         240       2       (242 )     —    
Income (loss) before income taxes     19,424       795       (778 )     (16 )     19,425  
Income tax expense (benefit)     3,975       196       (184 )     (6 )     3,981  
Net income (loss)   $ 15,449       599       (594 )     (10 )     15,444  

 

    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 loan losses     779       —         —         —         779  
Noninterest income from external customers     5,247       4,758       —         —         10,005  
Intersegment noninterest income     244       —         —         (244 )     —    
Noninterest expense     22,125       4,171       217       —         26,513  
Intersegment noninterest expense     —         241       —         (241 )     —    
Income (loss) before income taxes     10,448       734       (609 )     57       10,630  
Income tax expense (benefit)     4,396       617       (733 )     22       4,302  
Net income (loss)   $ 6,052       117       124       35       6,328  

 

     

 

Carolina Financial Corporation

Segment Information, Continued

(Unaudited)

(Dollars in thousands)

 

    For the Twelve Months Ended December 31, 2018
    Community   Mortgage            
    Banking   Banking   Other   Eliminations   Total
Interest income   $ 159,483       1,841       56       (322 )     161,058  
Interest expense     25,227       414       2,025       (418 )     27,248  
Net interest income (expense)     134,256       1,427       (1,969 )     96       133,810  
Provision for loan losses     2,034       25       —         —         2,059  
Noninterest income from external customers     18,680       21,106       110       —         39,896  
Intersegment noninterest income     966       99       —         (1,065 )     —    
Noninterest expense     89,459       18,631       1,117       1       109,208  
Intersegment noninterest expense     —         960       6       (966 )     —    
Income (loss) before income taxes     62,409       3,016       (2,982 )     (4 )     62,439  
Income tax expense (benefit)     12,785       701       (716 )     (1 )     12,769  
Net income (loss)   $ 49,624       2,315       (2,266 )     (3 )     49,670  

 

    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       (171 )     13,253  
Net interest income (expense)     81,219       1,571       (1,121 )     165       81,834  
Provision for loan losses     779       —         —         —         779  
Noninterest income from external customers     14,262       19,654       —         —         33,916  
Intersegment noninterest income     966       67       —         (1,033 )     —    
Noninterest expense     55,900       16,614       931       —         73,445  
Intersegment noninterest expense     —         966       1       (967 )     —    
Income (loss) before income taxes     39,768       3,712       (2,053 )     99       41,526  
Income tax expense (benefit)     12,929       1,262       (1,267 )     37       12,961  
Net income (loss)   $ 26,839       2,450       (786 )     62       28,565  

 

    For the Three Months Ended December 31,
    Loan Originations   Mortgage Banking Income   Margin
    2018   2017   2018   2017   2018   2017
Additional segment information:                                                
Community banking   $ 16,935       27,221       509       569       3.01 %     2.09 %
Wholesale mortgage banking     168,002       212,585       3,084       3,050       1.84 %     1.43 %
Total   $ 184,937       239,806       3,593       3,619       1.94 %     1.51 %

 

    For the Twelve Months Ended December 31,
    Loan Originations   Mortgage Banking Income   Margin
    2018   2017   2018   2017   2018   2017
Additional segment information:                                                
Community banking   $ 108,721       86,732       2,352       2,009       2.16 %     2.32 %
Wholesale mortgage banking     744,208       824,282       12,943       13,131       1.74 %     1.59 %
Total   $ 852,929       911,014       15,295       15,140       1.79 %     1.66 %

 

     

 

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,
    2018   2018   2018   2018   2017
                     
Core deposits:                                        
Noninterest-bearing demand accounts   $ 547,022       567,394       577,568       547,744       525,615  
Interest-bearing demand accounts     566,527       579,522       584,719       558,942       551,308  
Savings accounts     192,322       190,946       198,571       212,249       213,142  
Money market accounts     431,246       453,957       458,558       463,676       452,734  
Total core deposits (Non-GAAP)     1,737,117       1,791,819       1,819,416       1,782,611       1,742,799  
                                         
Certificates of deposit:                                        
Less than $250,000     875,749       863,290       788,693       791,789       755,887  
$250,000 or more     105,327       104,514       100,689       102,569       106,243  
Total certificates of deposit     981,076       967,804       889,382       894,358       862,130  
Total deposits   $ 2,718,193       2,759,623       2,708,798       2,676,969       2,604,929  

 

    At the Month Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2018   2018   2018   2018   2017
                     
Tangible book value per share:                                        
Total stockholders' equity   $ 575,285       564,027       551,784       475,046       475,381  
Less intangible assets     (144,054 )     (144,817 )     (145,595 )     (146,387 )     (147,193 )
Tangible common equity (Non-GAAP)   $ 431,231       419,210       406,189       328,659       328,188  
                                         
Issued and outstanding shares     22,387,009       22,570,445       22,570,182       21,057,539       21,022,202  
Less nonvested restricted stock awards     (117,966 )     (135,045 )     (137,345 )     (136,395 )     (134,302 )
Period end dilutive shares     22,269,043       22,435,400       22,432,837       20,921,144       20,887,900  
                                         
Total stockholders' equity   $ 575,285       564,027       551,784       475,046       475,381  
Divided by period end dilutive shares     22,269,043       22,435,400       22,432,837       20,921,144       20,887,900  
Common book value per share   $ 25.83       25.14       24.60       22.71       22.76  
                                         
Tangible common equity (Non-GAAP)   $ 431,231       419,210       406,189       328,659       328,188  
Divided by period end dilutive shares     22,269,043       22,435,400       22,432,837       20,921,144       20,887,900  
Tangible common book value per share (Non-GAAP)   $ 19.36       18.69       18.11       15.71       15.71  

 

    At the Month Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2018   2018   2018   2018   2017
Acquired and non-acquired loans:                                        
Acquired loans receivable   $ 686,401       749,442       813,688       877,012       952,220  
Non-acquired gross loans receivable     1,837,935       1,708,022       1,613,533       1,503,006       1,367,308  
Total gross loans receivable   $ 2,524,336       2,457,464       2,427,221       2,380,018       2,319,528  
% Acquired     27.19 %     30.50 %     33.52 %     36.85 %     41.05 %
                                         
Non-acquired loans   $ 1,837,935       1,708,022       1,613,533       1,503,006       1,367,308  
Allowance for loan losses     14,463       13,615       12,987       12,708       11,478  
Allowance for loan losses to non-acquired loans (Non-GAAP)     0.79 %     0.80 %     0.80 %     0.85 %     0.84 %
                                         
Total gross loans receivable   $ 2,524,336       2,457,464       2,427,221       2,380,018       2,319,528  
Allowance for loan losses     14,463       13,615       12,987       12,708       11,478  
Allowance for loan losses to total gross loans receivable     0.57 %     0.55 %     0.54 %     0.53 %     0.49 %

 

     

 

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
    December 31,
2018 		  September 30, 
2018 		  June 30,
2018 		  March 31,
2018 		  December 31,
2017 		  December 31,
2018 		  December 31,
2017
As Reported:                            
Income before income taxes   $ 19,425       19,431       19,002       4,581       10,630       62,439       41,526  
Tax expense     3,981       4,227       4,036       525       4,302       12,769       12,961  
Net Income   $ 15,444       15,204       14,966       4,056       6,328       49,670       28,565  
                                                         
Average equity   $ 569,528       559,401       497,694       477,830       380,529       526,701       280,877  
Average tangible equity (Non-GAAP)   $ 425,105       414,205       351,703       331,047       288,156       381,110       231,781  
Average assets   $ 3,700,795       3,663,915       3,627,401       3,522,407       3,048,214       3,629,490       2,306,667  
                                                         
Return on average assets     1.67 %     1.66 %     1.65 %     0.46 %     0.83 %     1.37 %     1.24 %
Return on average equity     10.85 %     10.87 %     12.03 %     3.40 %     6.65 %     9.43 %     10.17 %
Return on average tangible equity (Non-GAAP)     14.53 %     14.68 %     17.02 %     4.90 %     8.78 %     13.03 %     12.32 %
Tangible equity to tangible assets     11.83 %     11.72 %     11.45 %     9.65 %     9.73 %     11.83 %     9.73 %
                                                         
Weighted average common shares outstanding:                                                        
Basic     22,416,190       22,678,681       21,243,094       20,908,225       19,207,307       21,756,595       16,317,501  
Diluted     22,587,466       22,898,983       21,454,039       21,119,316       19,443,353       21,972,857       16,550,357  
Earnings per common share:                                                        
Basic   $ 0.69       0.67       0.70       0.19       0.33       2.28       1.75  
Diluted   $ 0.68       0.66       0.70       0.19       0.33       2.26       1.73  
                                                         
                                                         
Operating Earnings and Performance Ratios:                                                        
Income before income taxes   $ 19,425       19,431       19,002       4,581       10,630       62,439       41,526  
(Gain)/loss on sale of securities     (346 )     849       746       697       242       1,946       (933 )
Fair value adjustments on interest rate swaps     2,222       (628 )     (451 )     (803 )     (419 )     340       (382 )
Merger related expenses     —         —         506       14,710       6,391       15,216       8,301  
Operating earnings before income taxes     21,301       19,652       19,803       19,185       16,844       79,941       48,512  
Tax expense (1)     4,379       4,279       4,205       4,242       5,721       17,105       14,706  
Operating earnings (Non-GAAP)   $ 16,922       15,373       15,598       14,943       11,123       62,836       33,806  
                                                         
Average equity   $ 569,528       559,401       497,694       477,830       380,529       526,701       280,877  
Less average intangible assets     (144,423 )     (145,196 )     (145,991 )     (146,783 )     (92,373 )     (145,591 )     (49,096 )
Average tangible common equity (Non-GAAP)   $ 425,105       414,205       351,703       331,047       288,156       381,110       231,781  
                                                         
Average assets   $ 3,700,795       3,663,915       3,627,401       3,522,407       3,048,214       3,629,490       2,306,667  
Less average intangible assets     (144,423 )     (145,196 )     (145,991 )     (146,783 )     (92,373 )     (145,591 )     (49,096 )
Average tangible assets (Non-GAAP)   $ 3,556,372       3,518,719       3,481,410       3,375,624       2,955,841       3,483,899       2,257,571  
                                                         
Operating return on average assets (Non-GAAP)     1.83 %     1.68 %     1.72 %     1.70 %     1.46 %     1.73 %     1.47 %
Operating return on average equity (Non-GAAP)     11.88 %     10.99 %     12.54 %     12.51 %     11.69 %     11.93 %     12.04 %
Operating return on average tangible assets (Non-GAAP)     1.90 %     1.75 %     1.79 %     1.77 %     1.51 %     1.80 %     1.50 %
Operating return on average tangible equity (Non-GAAP)     15.92 %     14.85 %     17.74 %     18.06 %     15.44 %     16.49 %     14.59 %
                                                         
Weighted average common shares outstanding:                                                        
Basic     22,416,190       22,678,681       21,243,094       20,908,225       19,207,307       21,756,595       16,317,501  
Diluted     22,587,466       22,898,983       21,454,039       21,119,316       19,443,353       21,972,857       16,550,357  
Operating earnings per common share:                                                        
Basic (Non-GAAP)   $ 0.75       0.68       0.73       0.71       0.58       2.89       2.07  
Diluted (Non-GAAP)   $ 0.75       0.67       0.73       0.71       0.57       2.86       2.04  

 

(1) Tax expense is determined using the effective tax rate adjusted to eliminate the impact of the non-operating items.

 

     

 

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 Twelve Months Ended
    December 31,
2018 		  September 30, 
2018 		  June 30, 
2018 		  March 31, 
2018 		  December 31, 
2017 		  December 31, 
2018 		  December 31, 
2017
Segment net income:                                                        
Community banking   $ 15,449       15,263       14,928       3,984       6,052       49,624       26,839  
Wholesale mortgage banking     599       555       598       562       117       2,315       2,450  
Other     (594 )     (606 )     (568 )     (497 )     124       (2,266 )     (786 )
Eliminations     (10 )     (8 )     8       7       35       (3 )     62  
Total net income   $ 15,444       15,204       14,966       4,056       6,328       49,670       28,565  
                                                         
Community banking segment operating earnings:                                                        
Income before income taxes   $ 19,424       19,517       18,924       4,545       10,448       62,409       39,768  
Tax expense (1)     3,975       4,254       3,996       561       4,396       12,785       12,929  
Bank segment net income   $ 15,449       15,263       14,928       3,984       6,052       49,624       26,839  
                                                         
Weighted average common shares outstanding:                                                        
Basic     22,416,190       22,678,681       21,243,094       20,908,225       19,207,307       21,756,595       16,317,501  
Diluted     22,587,466       22,898,983       21,454,039       21,119,316       19,443,353       21,972,857       16,550,357  
                                                         
Bank segment earnings per common share:                                                        
Basic   $ 0.69       0.67       0.70       0.19       0.31       2.28       1.64  
Diluted   $ 0.68       0.67       0.70       0.19       0.31       2.26       1.62  
                                                         
Bank segment income before taxes   $ 19,424       19,517       18,924       4,545       10,448       62,409       39,768  
(Gain) loss on sale of securities     (346 )     849       746       692       242       1,941       (932 )
Fair value adjustments on interest rate swaps     2,222       (628 )     (451 )     (755 )     (419 )     388       (382 )
Merger related expenses     —         —         506       14,710       6,391       15,216       8,292  
Operating earnings before income taxes     21,300       19,738       19,725       19,192       16,662       79,954       46,746  
Tax expense (1)     4,371       4,306       4,152       4,288       5,778       17,117       14,540  
Operating bank segment earnings (Non-GAAP)   $ 16,929       15,432       15,573       14,904       10,884       62,837       32,206  
                                                         
                                                         
Operating bank segment earnings per common share:                                                        
Basic (Non-GAAP)   $ 0.76       0.68       0.73       0.71       0.57       2.89       1.97  
Diluted (Non-GAAP)   $ 0.75       0.67       0.73       0.71       0.56       2.86       1.95  

  

(1) Tax expense is determined using the effective tax rate adjusted to eliminate the impact of the non-operating items.

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fourth Quarter 2018 Earnings Release Investor Presentation NASDAQ: CARO January 24, 2019

 
 

2 Disclaimer Certain statements in this presentation 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 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 Carolina Financial Corporation (“Carolina Financial” or the “Company”) or any person that such future events, plans, or expectations will occur or be achieved . In addition to factors previously disclosed in the reports filed by Carolina Financial with the Securities and Exchange Commission (the “SEC”), additional risks and uncertainties may include, but are not limited to : ( 1 ) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third - 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 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 ; ( 9 ) disruption from acquisitions may make it more difficult to maintain relationships with clients, associates, or suppliers ; and ( 10 ) the impact of recent and future hurricanes and other natural disasters on our loan portfolio and the economic prospects of our coastal markets . Additional factors that could cause our results to differ materially from those described in the forward - looking statements can be found in the 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 is expressly qualified in its 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 . This presentation and the accompanying news release contain financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”) . Such statements should be read along with the tables in the accompanying news release, which provide a reconciliation of non - GAAP measures to GAAP measures . This presentation and the accompanying news release discuss financial measures, such as 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 .

 
 

3 Fourth Quarter Highlights • 2018 Q 4 net income increased 144 . 0 % to $ 15 . 4 million, or $ 0 . 68 per diluted share compared to $ 6 . 3 million, or $ 0 . 33 per diluted share for 2017 Q 4 . ( 1 ) • 2018 Q 4 operating earnings (Non - GAAP) increased 52 . 1 % to $ 16 . 9 million, or $ 0 . 75 per diluted share, from $ 11 . 1 million, or $ 0 . 57 per diluted share, for 2017 Q 4 . ( 2 ) • Loans receivable, gross grew $ 66 . 9 million from September 30 , 2018 , or at an annualized rate of 10 . 9 % and grew $ 204 . 8 million, or at a rate of 8 . 8 % since December 31 , 2017 . • Provision for loan losses in 2018 Q 4 of $ 750 , 000 primarily driven by organic loan growth . • Total deposits decreased $ 41 . 4 million from September 30 , 2018 and increased $ 113 . 3 million since December 31 , 2017 . • Tangible common book value per share (Non - GAAP) of $ 19 . 36 at December 31 , 2018 compared to $ 15 . 71 at December 31 , 2017 . • On December 3 , 2018 , the Company announced that the Board of Directors approved a plan to repurchase up to $ 25 , 000 , 000 in shares of the Company’s common stock through open market and privately negotiated transactions over the next three years . During the fourth quarter, the Company repurchased approximately 176 , 000 shares at an average price of $ 30 . 64 . Subsequent to December 31 , 2018 through January 22 , 2019 , the Company repurchased an additional 87 , 000 shares at an average price of $ 31 . 42 . • On January 21 , 2019 , the Company announced its planned expansion to the Charlotte, North Carolina market . (1) All information at and for the period ended December 31, 2018 is preliminary and based on Company data available at the time of the presentation. (2) Operating earnings exclude loss on extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on int erest rate swaps, and merger related expenses, all net of income taxes at the applicable period effective rate.

 
 

4 Community Banking Segment

 
 

5 Community Banking Segment Results Bank Segment Earnings (1) • 2018Q4 community banking segment net income of $15.4 million, or $0.68 per diluted share, versus $6.1 million for 2017Q4, or $0.31 per diluted share. • 2018Q4 operating earnings (Non - GAAP) of $16.9 million, or $0.75 per diluted share, versus $10.9 million for 2017Q4, or $0.56 per diluted share. (2) • Segment Return on Average Assets was 1.67% for 2018Q4 compared to 0.79% for 2017Q4. • Segment Operating Return on Average Assets (Non - GAAP) increased to 1.83% for 2018Q4 from 1.43% for 2017Q4. (2) 2011Y 2012Y ($18.7) (1) Community banking segment earnings as reported in public filings (includes intersegment revenues and expenses and excludes ho ldi ng company expenses). The December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. (2) Operating earnings exclude loss on extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on int erest rate swaps, and merger related expenses, all net of effective income tax rate for the applicable business segment, adjusted for the Tax Act impact on deferred tax ass ets and liabilities. Operating bank segment EPS equals operating bank segment earnings divided by weighted average diluted shares. $6.1 $4.0 $14.9 $15.3 $15.4 $10.9 $14.9 $15.6 $15.4 $16.9 1.43% 1.69% 1.72% 1.68% 1.83% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 $11.0 $12.0 $13.0 $14.0 $15.0 $16.0 $17.0 $18.0 $19.0 $20.0 2017Q4 2018Q1 2018Q2 2018Q3 2018 Q4 Total Community Banking Net Income ($MM) Total Community Banking Operating Earnings ($MM) (Non-GAAP) Community Banking Operating Earnings / Avg. Consolidated Assets (%) (Non-GAAP)

 
 

6 5.32% 5.49% 5.43% 5.51% 5.71% 4.19% 4.20% 4.11% 4.15% 4.23% 0.68% 0.73% 0.85% 0.92% 1.04% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 Net Interest Margin (1) The December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. (2) Net interest margin – tax - equivalent. Yield on loans for GAAP increased 20bps and NIM increased 8bps, from 2018Q3. Significant items included in yield on loans/NIM: • 2018Q4 interest income of $0.9 million related to a payoff of a purchased credit impaired loan increasing loan yield 15bps and NIM 11bps. • Acquired loan accretion income of $1.9 million in 2018Q4 increasing loan yield 31bps and NIM 23bps compared to $2.2 million for 2018Q3 increasing loan yield 37bps and NIM 27bps. • Early loan payoff fees included in interest income of $414 thousand in 2018Q4 increasing loan yield 6bps and NIM 5bps compared to $620 thousand for 2018Q3 impacting loan yield 10bps and NIM 8bps. TEY on securities increased to 3.74% in 2018Q4 compared to 3.59% in 2018Q3. Increase in the cost of funds of 12bps between 2018Q3 to 2018Q4. Continued rate hikes of 25bps each: 12 - 14 - 2017, 3 - 21 - 2018, 6 - 13 - 2018, 9 - 26 - 2018 and 12 - 19 - 2018. Yield on Loans (1) Net Interest Margin (2) Cost of Funds (1)

 
 

7 Bank Segment Operating Efficiencies • Operating Bank Segment noninterest expenses as a percentage of average consolidated assets of 1.96% in 2018Q4 compared to 2.06% in 2017Q4. 2018Q4 incentive compensation was reduced by approximately $300,000 compared to 2018Q3 as a result of not achieving certain incentive targets, reducing Operating Bank Segment noninterest expense ratio 3bps. • Operating Bank Segment efficiency ratio of 45.1% in 2018Q4 compared to 47.4% in 2017Q4. The 2018Q4 efficiency ratio reflects incentive compensation reduced by $300,000 as a result of not achieving certain incentive targets and interest income of $0.9 million related to payoff of a purchase credit impaired loan. The impact of these two items in 2018Q4 improved the efficiency ratio by 1.9%. Operating Bank Segment Noninterest Expenses/Avg. Assets (%) (1)(2)(3) (1) Bank segment operating figures include intersegment revenues and expense and exclude holding company expenses. (2) The December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. (3) Operating bank segment ratios exclude loss on extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on interest rate swaps, and merger related expenses. Operating Bank Segment Efficiency Ratio (1)(2)(3) 2.06% 2.07% 2.08% 2.08% 1.96% 1.50% 1.75% 2.00% 2.25% 2.50% 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 47.4% 48.7% 48.2% 48.2% 45.1% 40.0% 42.5% 45.0% 47.5% 50.0% 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4

 
 

8 Strong Balance Sheet Growth • Loans receivable, gross grew at a rate of 8.8% since 12 - 2017. • Total deposits increased $113.3 million since 12 - 2017. Total Deposits ($MM) (1)(2) Total Loans ($MM) (1)(2) Total Assets($MM) (1)(2) (1) Includes assets acquired and liabilities assumed in acquisitions, net of fair value adjustments. (2) The December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. $2,308 $2,367 $2,414 $2,444 $2,510 $35 $25 $39 $25 $17 $2,343 $2,392 $2,454 $2,469 $2,527 $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 Loans Held for Investment Loans Held for Sale $526 $548 $578 $567 $547 $2,079 $2,129 $2,131 $2,192 $2,171 $2,605 $2,677 $2,709 $2,760 $2,718 $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 Total Non-Interest Bearing Deposits Total Interest Bearing Deposits

 
 

9 Diversified Loan Mix and Solid Asset Quality NPAs/ Assets (%) (1)(2) • We have a diversified loan mix, with a focus on lower risk assets. • Our asset quality remains favorable, with NPA’s / assets of 0.35% at December 31, 2018. • Provision for loan loss of $750,000 in 2018Q4 primarily driven by organic loan growth. (1) Excludes performing troubled debt restructurings (TDRs) and purchased credit impaired loans. (2) December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. NCOs / Average Loans (%) (2) Loan Composition (12/31/2018) (2) 2018Q4 Yield on Loans: 5.71% 1 - 4 Family 29.5% Home Equity and Consumer 4.2% CRE 40.7% C&D 11.4% C&I 14.2% 0.20% 0.30% 0.28% 0.32% 0.35% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18

 
 

10 Noninterest - Bearing Demand 20% Interest - Bearing Demand 21% Money Market & Savings 23% Time Deposits 36% Improving Deposit Mix Deposit Composition (12/31/2018) (1) • We grew Total Deposits $113.3 million since December 31, 2017. 2018Q4 Cost of Deposits: 0.83% (1) The December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. (1)

 
 

11 Wholesale Mortgage Segment

 
 

12 Wholesale Mortgage Segment Wholesale Mortgage Platform (2) • Wholesale Mortgage segment LHFS originations decreased in 2018Q4 compared to 2017Q4; however, the margin still increased 41 bps in 2018Q4 from 2017Q4. • Wholesale Mortgage segment net income of $599,000 or $0.03 per diluted share, for 2018Q4 compared to $117,000 or $0.01 per diluted share, for 2017Q4. (1) The increase was primarily due to higher mortgage loan servicing income on higher average servicing balances as well as reduced income taxes related to application of Tax Cuts and Jobs Act implementation on deferred tax assets and liabilities in 2017. Mortgage Banking Earnings Contribution (1)(2) (1) Wholesale Mortgage segment earnings include intersegment revenues and expenses and exclude holding company expenses. Wholesale mortgage EPS equals segment earnings divided by weighted average diluted shares. (2) The December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. $0.1 $0.6 $0.6 $0.6 $0.6 $ - $0.4 $0.8 $1.2 $1.6 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4

 
 

13 Focus on Stockholder Results • ROAA and ROATCE of 1.67% and 14.53%, respectively, for 2018Q4. • Operating ROAA and ROATCE (Non - GAAP) of 1.83% and 15.92%, respectively, for 2018Q4. • Diluted Earnings Per Share of $0.68 2018Q4 compared to $0.33 for 2017Q4. • Diluted Operating Earnings Per Share (Non - GAAP) of $0.75 for 2018Q4 compared to $0.57 for 2017Q4. • Tangible Common Book Value per share of $19.36 for 2018Q4 compared to $15.71 for 2017Q4. Consolidated Operating ROAA & Operating ROATCE (1)(2) Tangible Book Value per Share & Operating Earnings per Share (1)(2) (1) The December 31, 2018 information is preliminary and based on Company data available at the time of the presentation. (2) Operating earnings exclude extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on interest rate swaps, and merger related expenses, all net of income taxes at the applicable period rate. $15.71 $15.71 $18.11 $18.69 $19.36 $0.57 $0.71 $0.73 $0.67 $0.75 $ - $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 $17.00 $18.00 $19.00 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 Tangible Book Value per Share ($) Operating Earnings per Share ($)