Carolina Financial Corporation Reports Results for Third Quarter of 2017

CHARLESTON, S.C., Oct. 19, 2017 (GLOBE NEWSWIRE) — Carolina Financial Corporation (the ”Company”) (NASDAQ:CARO) today announced financial results for the third quarter of 2017. 

Financial highlights at and for the three months ended September 30, 2017, include:

  • Net income for the third quarter 2017 increased 34.5% to $8.0 million, or $0.49 per diluted share, from $5.9 million, or $0.47 per diluted share for the third quarter of 2016.  Included in earnings are pretax merger-related expenses of $0.3 million for the third quarter of 2017. There were no merger-related expenses in the third quarter of 2016.
  • Operating earnings for the third quarter of 2017, which exclude certain non-operating income and expenses, increased 34.3% to $7.9 million, or $0.49 per diluted share, from $5.9 million, or $0.47 per diluted share, from the third quarter of 2016.
  • Performance ratios Q3 2017 compared to Q3 2016:
    – Return on average assets was 1.43% compared to 1.46%.
    – Operating return on average assets was 1.42% compared to 1.45%.
    – Return on average tangible equity was 13.24% compared to 15.93%.
    – Operating return on average tangible equity was 13.08% compared to 15.76%.
    – Average stockholders’ equity to average assets increased to 12.85% compared to 9.67%.
  • Loans receivable, excluding Greer loans acquired in March 2017, grew $111.5 million, or at an annualized rate of 12.6%, since December 31, 2016.
  • Nonperforming assets to total assets were 0.29% at September 30, 2017 compared to 0.40% at December 31, 2016.
  • Total deposits, excluding Greer deposits acquired in March 2017, increased $138.3 million since December 31, 2016. Core deposits, excluding Greer core deposits acquired, increased $78.0 million since December 31, 2016.

“We continue to see the impact of solid organic growth and prior acquisitions on earnings.  Overall operating results for the third quarter of 2017 continued to improve with an increase in net income of 34.5% compared to the third quarter of 2016.  In addition, we look forward to completion of the First South Bancorp, Inc. by the end of the fourth quarter,” stated Jerry Rexroad, Chief Executive Officer.

Financial Results

Carolina Financial Corporation

  • The Company reported an increase in net income for the three months ended September 30, 2017 to $8.0 million, or $0.49 per diluted share, as compared to $5.9 million, or $0.47 per diluted share, for the three months ended September 30, 2016. Included in net income for the three months ended September 30, 2017 were pretax merger-related expenses of $0.3 million.  The Company reported increased net income for the nine months ended September 30, 2017 to $22.2 million, or $1.47 per diluted share, as compared to $12.4 million, or $1.02 per diluted share, for the nine months ended September 30, 2016. Included in net income for the nine months ended September 30, 2017 and 2016 were pretax merger-related expenses of $1.9 million and $3.0 million, respectively. 
  • Operating earnings for the third quarter of 2017, which excludes certain non-operating income and expenses, increased 34.3% to $7.9 million, or $0.49 per diluted share, from $5.9 million, or $0.47 per diluted share, from the third quarter of 2016. Operating earnings for the nine months ended September 30, 2017, which excludes certain non-operating income and expenses, increased 57.75% to $22.8 million, or $1.50 per diluted share, from $14.5 million, or $1.18 per diluted share, from the same period of 2016.
  • The Company’s net interest margin-tax equivalent increased to 3.94% for the third quarter of 2017 compared to 3.75% for the third quarter of 2016.
  • The Company reported book value per common share of $18.07 and $13.23 as of September 30, 2017 and December 31, 2016, respectively.  Tangible book value per common share was $15.27 and $12.59 as of September 30, 2017 and December 31, 2016, respectively.
  • At September 30, 2017, the Company’s regulatory capital ratios exceeded the minimum levels currently required.  Stockholders’ equity totaled $290.2 million as of September 30, 2017 compared to $163.2 million at December 31, 2016. Tangible equity to tangible assets at September 30, 2017 was 11.09% compared to 9.3% at December 31, 2016.

Community Banking

  • Community banking segment net income increased 65.6% to $7.8 million for the three months ended September 30, 2017 compared to $4.7 million for the three months ended September 30, 2016. Included in net income for the three months ended September 30, 2017 were pretax merger-related expenses of $0.3 million.  The community banking segment net income increased 101.7% to $20.8 million for the nine months ended September 30, 2017 compared to $10.3 million for the nine months ended September 30, 2016. Included in net income for the nine months ended September 30, 2017 and 2016 were pretax merger-related expenses of $1.9 million and $3.0 million, respectively. 
  • Community banking segment operating earnings increased 65.7% to $7.7 million for the three months ended September 30, 2017 compared to $4.7 million for the three months ended September 30, 2016. Included in earnings for the three months ended September 30, 2017 were pretax merger-related expenses of $0.3 million.  The community banking segment operating earnings increased 80.7% to $22.2 million for the nine months ended September 30, 2017 compared to $12.3 million for the nine months ended September 30, 2016. Included in earnings for the nine months ended September 30, 2017 and 2016 were pretax merger-related expenses of $1.9 million and $3.0 million, respectively. 
  • No provision for loan loss was recorded during the three months ended September 30, 2017 or 2016.   This was primarily due to continued excellent asset quality, historical loss experience, and the risk characteristics of our loan portfolio.
  • Non-performing assets were 0.29% and 0.40% of total assets at September 30, 2017 and December 31, 2016, respectively.
  • Loans receivable, gross increased to $1.5 billion at September 30, 2017 compared to $1.2 billion at December 31, 2016.
  • The number of checking accounts increased at an annualized rate of 8.9%, excluding Greer checking accounts acquired, since December 31, 2016.  Total deposits, excluding acquired deposits from the Greer acquisition, increased $138.3 million since December 31, 2016. As of September 30, 2017 and December 31, 2016, core deposits, defined as checking, savings and money market, comprised approximately 63.8% and 60.6%, respectively, of total deposits.

Wholesale Mortgage Banking

  • Net income for the wholesale mortgage banking segment was $0.4 million for the three months ended September 30, 2017 compared to $1.4 million for the three months ended September 30, 2016. Net income was $2.3 million for the nine months ended September 30, 2017 compared to $2.7 million for the nine months ended September 30, 2016.
  • Net margin was 1.44% for the three months ended September 30, 2017 compared to 1.94% for the three months ended September 30, 2016. Originations for the three months ended September 30, 2017 and 2016 were $217.0 million and $253.5 million, respectively. Net margin was 1.65% for the nine months ended September 30, 2017 compared to 1.76% for the nine months ended September 30, 2016. Originations for the nine months ended September 30, 2017 and 2016 were $611.6 million and $645.4 million, respectively.
  • Net interest income for the wholesale mortgage banking segment was $0.4 million for the three months ended September 30, 2017 compared to $0.4 million for the three months ended September 30, 2016.  Net interest income for the wholesale mortgage banking segment was $1.2 million for the nine months ended September 30, 2017 compared to $1.1 million for the nine months ended September 30, 2016.
  • Mortgage loan servicing income, net of amortization of mortgage servicing rights and subservicing expense, for the wholesale mortgage banking segment was $0.4 million and $0.4 million for the three months ended September 30, 2017 and September 30, 2016, respectively.  Mortgage loan servicing income, net of amortization of mortgage servicing rights and subservicing expense, for the wholesale mortgage banking segment was $1.3 million and $1.2 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.  At September 30, 2017, loans serviced for third parties totaled $2.5 billion.

Dividend Declared

On October 18, 2017 the Company declared a $0.05 dividend per common share, payable on January 5, 2018, to stockholders of record on December 14, 2017.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on October 20, 2017. 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 99743248. 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 99743248.

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 September 30, 2017, Carolina Financial Corporation had approximately $2.3 billion in total assets and Crescent Mortgage Company was licensed to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers.  On June 11, 2016, Carolina Financial completed its acquisition of Congaree Bancshares Inc.  On January 5, 2017, the Company closed a public offering of approximately 1.8 million shares of its common stock with net proceeds of approximately $47.7 million, net of related expenses. On March 18, 2017, Carolina Financial completed its acquisition of Greer Bancshares Incorporated.   On June 9, 2017, Carolina Financial Corporation announced the execution of an Agreement and Plan of Merger and Reorganization by and between the Company and First South Bancorp, Inc. (“First South”), pursuant to which, subject to the terms and conditions set forth therein, First South will merge with and into the Company, with the Company as the surviving corporation.

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; 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
               
          September 30, 2017   December 31, 2016
          (Unaudited)   (Audited)
          (Dollars in thousands)
ASSETS        
  Cash and due from banks   $    14,046     9,761  
  Interest-bearing cash       31,198     14,591  
    Cash and cash equivalents       45,244     24,352  
  Securities available-for-sale       523,744     335,352  
  Federal Home Loan Bank stock, at cost       10,970     11,072  
  Other investments       2,139     1,768  
  Derivative assets       2,332     2,219  
  Loans held for sale       26,786     31,569  
  Loans receivable, gross       1,484,461     1,178,266  
  Allowance for loan losses       (10,662 )   (10,688 )
    Loans receivable, net       1,473,799     1,167,578  
               
  Premises and equipment, net       46,430       37,054  
  Accrued interest receivable       7,320       5,373  
  Real estate acquired through foreclosure, net       1,640       1,179  
  Deferred tax assets, net       7,668       8,341  
  Mortgage servicing rights, net       17,444       15,032  
  Cash value life insurance       38,317       28,984  
  Core deposit intangible       7,666       3,658  
  Goodwill       37,287       4,266  
  Other assets       7,953       5,939  
    Total assets   $    2,256,739       1,683,736  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Liabilities:        
  Noninterest-bearing deposits   $    333,267       229,905  
  Interest-bearing deposits       1,374,387       1,028,355  
    Total deposits       1,707,654       1,258,260  
  Short-term borrowed funds       180,000       203,000  
  Long-term debt       54,351       38,465  
  Derivative liabilities       201       342  
  Drafts outstanding       5,630       6,223  
  Advances from borrowers for insurance and taxes       3,163       1,058  
  Accrued interest payable       1,053       327  
  Reserve for mortgage repurchase losses       2,129       2,880  
  Dividends payable to stockholders       646       502  
  Accrued expenses and other liabilities       11,688       9,489  
    Total liabilities       1,966,515       1,520,546  
Commitments and contingencies        
Stockholders’ equity:        
  Preferred stock             –  
  Common stock       162       125  
  Additional paid-in capital       168,919       66,156  
  Retained earnings       117,488       98,451  
  Accumulated other comprehensive income (loss), net of tax        3,655       (1,542 )
    Total stockholders’ equity       290,224       163,190  
  Total liabilities and stockholders’ equity   $    2,256,739       1,683,736  
               

                       
CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                       
          For the Three Months   For the Nine Months
          Ended September 30,   Ended September 30,
            2017       2016       2017       2016  
    (In thousands, except share data)
     
  Loans     $    18,960         13,826         52,207         36,791  
  Investment securities       3,761         2,264         9,975         6,835  
  Dividends from Federal Home Loan Bank stock     135         83         351         288  
  Federal funds sold                 3         7         5  
  Other interest income       70         32         178         92  
    Total interest income       22,926         16,208         62,718         44,011  
Interest expense                
  Deposits       2,422         1,570         6,212         4,449  
  Short-term borrowed funds       441         124         1,225         320  
  Long-term debt       514         558         1,364         1,743  
    Total interest expense       3,377         2,252         8,801         6,512  
Net interest income       19,549         13,956         53,917         37,499  
Provision for loan losses                 –                    –   
  Net interest income after provision for loan losses     19,549         13,956         53,917         37,499  
Noninterest income                
  Mortgage banking income       3,625       5,605         11,522       12,967  
  Deposit service charges       1,072       953         2,928       2,712  
  Net loss on extinguishment of debt             (118 )               (174 )
  Net gain on sale of securities       368       111         1,174       641  
  Fair value adjustments on interest rate swaps     90       99         (37 )     (408 )
  Net increase in cash value life insurance     267       226         759       684  
  Mortgage loan servicing income       1,652       1,437         4,822       4,238  
  Other         801       560         2,742       1,728  
    Total noninterest income       7,875       8,873         23,910       22,388  
Noninterest expense                
  Salaries and employee benefits       8,623       8,481         26,487       23,306  
  Occupancy and equipment       2,508       2,067         7,129       5,836  
  Marketing and public relations       385       374         1,182       1,144  
  FDIC insurance       205       180         380       527  
  Provision for (recovery of) mortgage loan repurchase losses     (225 )     (250 )       (675 )     (750 )
  Legal expense       157       80         373       185  
  Other real estate (income) expense, net     (5 )     (96 )       40       (37 )
  Mortgage subservicing expense       494       462         1,485       1,353  
  Amortization of mortgage servicing rights     748       586         2,083       1,659  
  Merger related expenses       311               1,910       2,985  
  Other         2,255       2,006         6,538       5,759  
    Total noninterest expense       15,456       13,890         46,932       41,967  
Income before income taxes       11,968         8,939         30,895         17,920  
Income tax expense       3,975         2,998         8,659         5,500  
  Net income   $    7,993         5,941         22,236         12,420  
                       
Earnings per common share:                
  Basic     $    0.50     $   0.48     $    1.48     $   1.04  
  Diluted   $    0.49     $   0.47     $    1.47     $   1.02  
Weighted average common shares outstanding:              
  Basic         16,029,332         12,327,921         14,980,349         11,995,477  
  Diluted       16,187,869         12,535,551         15,146,972         12,201,721  
                       
                       

CAROLINA FINANCIAL CORPORATION  
(Unaudited)  
(Dollars in thousands)  
   
    At or for the Three Months Ended  
Selected Financial Data:   September 30, 
2017
  June 30, 
2017
  March 31, 
2017
  December 31, 
2016
  September 30, 
2016
 
                       
Selected Average Balances:                      
Total assets   $    2,230,586     $   2,166,803       1,768,323       1,651,653       1,626,717    
Investment securities and FHLB stock       521,569         510,706       373,551       326,485       345,385    
Loans receivable, net       1,463,771         1,412,940       1,214,777       1,138,120       1,093,669    
Loans held for sale       27,282         22,412       17,827       32,951       32,196    
Deposits       1,710,263         1,633,285       1,330,805       1,288,665       1,291,567    
Stockholders’ equity       286,524         277,708       210,071       160,991       157,311    
                       
Performance Ratios (annualized):                      
Return on average equity     11.16 %     13.45 %   9.34 %   12.80 %   15.11 %  
Return on average tangible equity (Non-GAAP)     13.24 %     16.02 %   9.98 %   13.46 %   15.93 %  
Return on average assets     1.43 %     1.72 %   1.11 %   1.25 %   1.46 %  
Operating return on average equity (Non-GAAP)     11.02 %     13.15 %   10.95 %   14.32 %   14.95 %  
Operating return on average tangible equity (Non-GAAP)     13.08 %     15.65 %   11.70 %   15.06 %   15.76 %  
Operating return on average assets (Non-GAAP)     1.42 %     1.69 %   1.30 %   1.40 %   1.45 %  
Average earning assets to average total assets     91.09 %     90.68 %   91.99 %   93.21 %   92.94 %  
Average loans receivable to average deposits     85.59 %     86.51 %   91.28 %   88.32 %   84.68 %  
Average stockholders’ equity to average assets     12.85 %     12.82 %   11.88 %   9.75 %   9.67 %  
Net interest margin-tax equivalent (1)     3.94 %     4.03 %   3.93 %   3.87 %   3.75 %  
Net charge-offs  (recoveries) to average loans receivable     0.00 %     (0.01 )%   (0.01 )%   (0.12 )%   (0.02 )%  
Nonperforming assets to period end loans receivable     0.44 %     0.48 %   0.52 %   0.58 %   0.62 %  
Nonperforming assets to total assets     0.29 %     0.31 %   0.34 %   0.40 %   0.42 %  
Nonperforming loans to total loans     0.33 %     0.38 %   0.42 %   0.48 %   0.37 %  
Allowance for loan losses as a percentage of loans receivable (end                      
of period)     0.72 %     0.75 %   0.76 %   0.91 %   0.91 %  
Allowance for loan losses as a percentage of non-acquired loans                      
receivable (Non-GAAP)     0.87 %     0.93 %   0.96 %   1.01 %   1.03 %  
Allowance for loan losses as a percentage of nonperforming loans     216.53 %     196.85 %   180.66 %   190.01 %   247.72 %  
                       
Nonperforming Assets:                      
Loans 90 days or more past due and still accruing   $          $                
Nonaccrual loans       4,924       5,461     5,931     5,625     4,174    
Total nonperforming loans       4,924       5,461     5,931     5,625     4,174    
Real estate acquired through foreclosure, net       1,640       1,417     1,479     1,179     2,843    
Total nonperforming assets   $    6,564     $ 6,878     7,410     6,804     7,017    
                       
(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.  
   
   

Carolina Financial Corporation                          
Segment Information                          
(Unaudited)                          
(Dollars in thousands)          
                           
    For the Three Months   For the Nine Months   Increase (Decrease)  
    Ended September 30,   Ended September 30,   Three   Nine  
      2017     2016     2017     2016     Months   Months  
Segment net income:                          
Community banking   $    7,837     4,734       20,788     10,309     3,103     10,479    
Wholesale mortgage banking       449       1,402       2,333       2,722       (953 )     (389 )  
Other        (320 )     (228 )     (910 )     (669 )     (92 )     (241 )  
Eliminations       27       33       25       58       (6 )     (33 )  
Total net income   $    7,993       5,941       22,236       12,420       2,052       9,816    
                           
    For the Three Months Ended      
    September 30,
  2017
  June 30,
  2017
  March 31,
2017
  December 31, 
  2016
  September 30, 
  2016
     
Segment net income:                          
Community banking    $    7,837       8,443       4,509       4,565       4,734        
Wholesale mortgage banking       449       1,238       645       806       1,402        
Other        (320 )     (346 )     (244 )     (232 )     (228 )      
Eliminations       27       5       (6 )     11       33        
Total net income   $    7,993       9,340       4,904       5,150       5,941        
                           
    For the Three Months Ended September 30, 2017      
     Community     Mortgage                   
     Banking     Banking     Other     Eliminations    Total      
Interest income   $ 22,460     480     8     (22 )   22,926        
Interest expense     3,086     65     291     (65 )   3,377        
Net interest income (expense)     19,374     415     (283 )   43     19,549        
Provision for (recovery of) loan losses                            
Noninterest income from external customers      3,097     4,778             7,875        
Intersegment noninterest income     242             (242 )          
Noninterest expense     10,999     4,234     223         15,456        
Intersegment noninterest expense         240     2     (242 )          
Income (loss) before income taxes     11,714     719     (508 )   43     11,968        
Income tax expense (benefit)     3,877     270     (188 )   16     3,975        
Net income (loss)   $ 7,837     449     (320 )   27     7,993        
                           
    For the Three Months Ended September 30, 2016      
     Community     Mortgage                   
     Banking     Banking     Other     Eliminations    Total      
Interest income   $   15,760       435       4       9       16,208        
Interest expense       2,102       33       151       (34 )     2,252        
Net interest income (expense)       13,658       402       (147 )     43       13,956        
Provision for (recovery of) loan losses       (12 )     12       –        –        –         
Noninterest income from external customers       2,512       6,361       –        –        8,873        
Intersegment noninterest income       242       (9 )     –        (233 )     –         
Noninterest expense       9,448       4,254       188       –        13,890        
Intersegment noninterest expense       –        240       2       (242 )     –         
Income (loss) before income taxes       6,976       2,248       (337 )     52       8,939        
Income tax expense (benefit)       2,242       846       (109 )     19       2,998        
Net income (loss)   $   4,734       1,402       (228 )     33       5,941        
                           
                           
Carolina Financial Corporation                          
Segment Information, Continued                          
(Unaudited)                          
(Dollars in thousands)          
                           
    For the Nine Months Ended September 30, 2017      
     Community     Mortgage                   
     Banking     Banking     Other     Eliminations    Total      
Interest income   $   61,409       1,302       21       (14 )     62,718        
Interest expense       8,051       119       750       (119 )     8,801        
Net interest income (expense)       53,358       1,183       (729 )     105       53,917        
Provision for (recovery of) loan losses       –        –        –        –        –         
Noninterest income from external customers       9,011       14,899       –        –        23,910        
Intersegment noninterest income       725       64       –        (789 )     –         
Noninterest expense       33,773       12,448       711       –        46,932        
Intersegment noninterest expense       –        720       5       (725 )     –         
Income (loss) before income taxes       29,321       2,978       (1,445 )     41       30,895        
Income tax expense (benefit)       8,533       645       (535 )     16       8,659        
Net income (loss)   $   20,788       2,333       (910 )     25       22,236        
                           
    For the Nine Months Ended September 30, 2016      
     Community     Mortgage                   
     Banking     Banking     Other     Eliminations    Total      
Interest income   $ 42,790     1,133     13     75     44,011        
Interest expense     6,066     42     447     (43 )   6,512        
Net interest income (expense)     36,724     1,091     (434 )   118     37,499        
Provision for (recovery of) loan losses     (12 )   12                    
Noninterest income from external customers     6,773     15,615             22,388        
Intersegment noninterest income     727     25         (752 )          
Noninterest expense     29,523     11,825     619         41,967        
Intersegment noninterest expense         721     6     (727 )          
Income (loss) before income taxes     14,713     4,173     (1,059 )   93     17,920        
Income tax expense (benefit)     4,404     1,451     (390 )   35     5,500        
Net income (loss)   $ 10,309     2,722     (669 )   58     12,420        
                           
    For the Three Months Ended September 30,  
    Loan Originations   Mortgage Banking
Income
  Margin  
      2017     2016     2017     2016     2017     2016    
Additional segment information:                          
Community banking   $    20,342     25,633       500     680     2.46 %   2.65 %  
Wholesale mortgage banking       217,014     253,485       3,125     4,925     1.44 %   1.94 %  
Total    $    237,356     279,118       3,625     5,605     1.53 %   2.01 %  
                           
    For the Nine Months Ended September 30,  
    Loan Originations   Mortgage Banking
Income
  Margin  
      2017     2016     2017     2016     2017     2016    
Additional segment information:                          
Community banking   $    59,511     68,263       1,441     1,586     2.42 %   2.32 %  
Wholesale mortgage banking       611,597     645,412       10,081     11,381     1.65 %   1.76 %  
Total    $    671,108       713,675       11,522       12,967     1.72 %   1.82 %  
                           
                           

Carolina Financial Corporation                            
Reconciliation of Non-GAAP Financial Measures – Consolidated                        
(Unaudited)                            
(In thousands, except share data)            
      At the Month Ended        
      September 30,   June 30,   March 31,   December 31,   September 30,        
        2017       2017     2017     2016     2016          
                               
Core deposits:                            
Noninterest-bearing demand accounts   $    333,267     $   330,641       298,365       229,905       267,892          
Interest-bearing demand accounts       309,241         298,123       309,961       191,851       195,792          
Savings accounts       69,552         70,336       66,506       48,648       47,035          
Money market accounts       377,754         380,108       363,600       292,639       299,960          
  Total core deposits (Non-GAAP)       1,089,814         1,079,208       1,038,432       763,043       810,679          
                               
Certificates of deposit:                            
Less than $250,000       567,483         539,177       524,836       467,937       476,744          
$250,000 or more       50,357         45,344       44,452       27,280       24,853          
  Total certificates of deposit       617,840         584,521       569,288       495,217       501,597          
Total deposits   $    1,707,654     $   1,663,729       1,607,720       1,258,260       1,312,276          
                               
                               
      At the Month Ended        
      September 30,   June 30,   March 31,    December 31,     September 30,         
        2017       2017     2017     2016     2016          
                               
Tangible book value per share:                             
Total stockholders’ equity   $    290,224         281,818       271,454       163,190       160,331          
Less intangible assets       (44,953 )       (45,123 )     (45,292 )     (7,924 )     (8,037 )        
Tangible common equity (Non-GAAP)   $    245,271         236,695       226,162       155,266       152,294          
                               
Issued and outstanding shares       16,159,309         16,156,943       16,185,408       12,548,328       12,546,220          
Less nonvested restricted stock awards       (99,639 )       (101,489 )     (227,439 )     (211,908 )     (216,828 )        
Period end dilutive shares        16,059,670         16,055,454       15,957,969       12,336,420       12,329,392          
                               
Total stockholders equity   $    290,224         281,818       271,454       163,190       160,331          
Divided by period end dilutive shares        16,059,670         16,055,454       15,957,969       12,336,420       12,329,392          
Common book value per share    $    18.07         17.55       17.01       13.23       13.00          
                               
Tangible common equity (Non-GAAP)   $    245,271         236,695       226,162       155,266       152,294          
Divided by period end dilutive shares       16,059,670         16,055,454       15,957,969       12,336,420       12,329,392          
Tangible common book value per share (Non-GAAP) $    15.27         14.74       14.17       12.59       12.35          
                               
                               
      At the Month Ended        
      September 30,   June 30,   March 31,   December 31,     September 30,         
        2017       2017     2017     2016     2016          
Acquired and non-acquired loans:                            
Acquired loans receivable   $    257,461     $   278,275       303,244       119,422       129,505          
Non-acquired loans receivable       1,227,000         1,157,145       1,113,766       1,058,844       1,003,724          
Total loans receivable   $    1,484,461     $   1,435,420       1,417,010       1,178,266       1,133,229          
% Acquired     17.34 %     19.39 %   21.40 %   10.14 %   11.43 %        
                               
Non-acquired loans   $    1,227,000     $   1,157,145       1,113,766       1,058,844       1,003,724          
Allowance for loan losses       10,662         10,750       10,715       10,688       10,340          
Allowance for loan losses to non-acquired loans (Non-GAAP)    0.87 %     0.93 %   0.96 %   1.01 %   1.03 %        
                               
Total loans receivable    $    1,484,461     $   1,435,420       1,417,010       1,178,266       1,133,229          
Allowance for loan losses       10,662         10,750       10,715       10,688       10,340          
Allowance for loan losses to total loans receivable     0.72 %     0.75 %   0.76 %   0.91 %   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 Nine Months Ended
Operating Earnings and Performance Ratios:   September 30, 
  2017
  June 30,
2017
  March 31, 
2017
  December 31, 
2016
  September 30, 
2016
  September 30, 
2017
  September 30,
2016
Income before income taxes   $    11,968         12,013       6,915       7,498       8,939       30,895       17,920  
Gain on sale of securities       (368 )       (621 )     (185 )     (65 )     (111 )     (1,174 )     (641 )
Net loss on extinguishment of debt                 –        –        1,694       118               174  
Fair value adjustments on interest rate swaps       (90 )       69       58       (998 )     (99 )     37       408  
Merger related expenses       311         279       1,319       260       –        1,910       2,985  
Operating earnings before income taxes       11,821         11,740       8,107       8,389       8,847       31,668       20,846  
Tax expense (1)       3,926         2,612       2,358       2,627       2,967       8,876       6,398  
Operating earnings (Non-GAAP)   $    7,895         9,128       5,749       5,762       5,880       22,792       14,448  
                               
Average equity   $    286,524         277,708       210,071       160,991       157,311       258,101       148,134  
Average assets   $    2,230,586         2,166,803       1,768,323       1,651,653       1,626,717       2,055,237       1,500,819  
                               
Average Equity   $    286,524         277,708       210,071       160,991       157,311          
Less average intangible assets       (45,035 )       (44,452 )     (13,510 )     (7,979 )     (8,092 )        
Average tangible common equity (Non-GAAP)   $    241,489         233,256       196,561       153,012       149,219          
                               
Operating return on average assets (Non-GAAP)     1.42 %     1.69 %   1.30 %   1.40 %   1.45 %   1.48 %   1.28 %
Operating return on average equity (Non-GAAP)     11.02 %     13.15 %   10.95 %   14.32 %   14.95 %   11.77 %   13.00 %
Operating return on average tangible equity (Non-GAAP)   13.08 %     15.65 %   11.70 %   15.06 %   15.76 %        
                               
Weighted average common shares outstanding:                            
  Basic       16,029,332         16,029,332       13,919,711       12,336,420       12,327,921       14,980,349       11,995,477  
  Diluted       16,187,869         16,180,171       14,139,241       12,585,518       12,535,551       15,146,972       12,201,721  
Operating earnings per common share:                            
  Basic (Non-GAAP)   $    0.49         0.57       0.41       0.47       0.48       1.52       1.20  
  Diluted (Non-GAAP)   $    0.49         0.56       0.41       0.46       0.47       1.50       1.18  
                               
                               
As Reported:                            
Income before income taxes   $    11,968         12,013       6,915       7,498       8,939       30,895       17,920  
Tax expense       3,975         2,673       2,011       2,348       2,998       8,659       5,500  
Net Income   $    7,993         9,340       4,904       5,150       5,941       22,236       12,420  
                               
Average equity   $    286,524         277,708       210,071       160,991       157,311       258,101       148,134  
Average tangible equity (Non-GAAP)   $    241,489         233,256       196,561       153,012       149,219          
Average assets   $    2,230,586         2,166,803       1,768,323       1,651,653       1,626,717       2,055,237       1,500,819  
Return on average assets     1.43 %     1.72 %   1.11 %   1.25 %   1.46 %   1.44 %   1.10 %
Return on average equity     11.16 %     13.45 %   9.34 %   12.80 %   15.11 %   11.49 %   11.18 %
Return on average tangible equity (Non-GAAP)     13.24 %     16.02 %   9.98 %   13.46 %   15.93 %        
                               
Weighted average common shares outstanding:                            
  Basic       16,029,332         16,029,332       13,919,711       12,336,420       12,327,921       14,980,349       11,995,477  
  Diluted       16,187,869         16,180,171       14,139,241       12,585,518       12,535,551       15,146,972       12,201,721  
Earnings per common share:                            
  Basic   $    0.50         0.58       0.35       0.42       0.48       1.48       1.04  
  Diluted   $    0.49         0.58       0.35       0.41       0.47       1.47       1.02  
                               
                               
(1)  Tax expense is determined using the effective tax rate reflected in the accompanying income statement for the applicable reporting period.
 
 

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 Nine Months Ended
      September 30, 
  2017
  June 30, 
2017
  March 31, 
2017
  December 31, 
2016
  September 30, 
2016
  September 30, 
2017
  September 30, 
2016
Segment net income:                            
Community banking   $    7,837       8,443       4,509       4,565       4,734     $    20,788       10,309  
Wholesale mortgage banking       449       1,238       645       806       1,402         2,333       2,722  
Other       (320 )     (346 )     (244 )     (232 )     (228 )       (910 )     (669 )
Eliminations       27       5       (6 )     11       33         25       58  
Total net income   $    7,993       9,340       4,904       5,150       5,941     $    22,236       12,420  
                               
Community banking segment operating earnings:                            
Income before income taxes   $    11,714       11,232       6,375       6,545       6,975     $    29,321       14,713  
Tax expense (1)       3,877       2,789       1,866       1,980       2,241         8,533       4,404  
Bank segment net income   $    7,837       8,443       4,509       4,565       4,734     $    20,788       10,309  
                               
Weighted average common shares outstanding:                            
  Basic       16,029,332       16,029,332       13,919,711       12,336,420       12,327,921         14,980,349       11,995,477  
  Diluted       16,187,869       16,180,171       14,139,241       12,585,518       12,535,551         15,146,972       12,201,721  
                               
Earnings per common share:                            
  Basic   $    0.50         0.53         0.32         0.37         0.38     $    1.39     $   0.86  
  Diluted   $    0.49         0.52         0.32         0.36         0.38     $    1.37     $   0.84  
                               
Bank segment income before taxes   $    11,714         11,232         6,375         6,545         6,975     $    29,321     $   14,713  
Gain on sale of securities       (368 )       (621 )       (185 )       (65 )       (111 )       (1,174 )       (641 )
Net loss on extinguishment of debt                 –          –          1,693         118                   174  
Fair value adjustments on interest rate swaps       (90 )       69         58         (998 )       (99 )       37         408  
Merger related expenses (2)       311         279         1,311         254         –          3,137         2,883  
Operating earnings before income taxes       11,567         10,959         7,559         7,429         6,883         31,321         17,537  
Tax expense (1)       3,828         2,721         2,213         2,247         2,211         9,115         5,249  
Operating bank segment earnings (Non-GAAP)   $    7,739         8,238         5,346         5,182         4,672     $    22,206     $   12,288  
                               
                               
Operating bank segment earnings per common share:                          
  Basic (Non-GAAP)   $    0.48         0.51         0.38         0.42         0.38     $    1.48     $   1.02  
  Diluted (Non-GAAP)   $    0.48         0.51         0.38         0.41         0.37     $    1.47     $   1.01  
                               
(1)  Tax expense is determined using the effective tax rate computed for the applicable business segment.        
(2)  Remaining merger related costs were incurred within the category “Other” segment earnings.         
   


For More Information, Contact:
William A. Gehman III, EVP and CFO, 843.723.7700