Carolina Financial Corporation Reports Results for Second Quarter of 2017

CHARLESTON, S.C., July 20, 2017 (GLOBE NEWSWIRE) -- Carolina Financial Corporation (NASDAQ:CARO) today announced financial results for the second quarter of 2017.

Operational highlights for the three months ended June 30, 2017 include:

  • Carolina Financial Corporation (the “Company” or “Carolina Financial”) announced the execution of an Agreement and Plan of Merger and Reorganization, dated June 9, 2017, 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 (the “Merger”), with the Company as the surviving corporation in the Merger. The Merger Agreement provides that immediately following the Merger, First South’s wholly-owned bank subsidiary, First South Bank, a North Carolina-chartered bank, will merge with and into the Company’s wholly-owned bank subsidiary, CresCom Bank, a South Carolina-chartered bank (the “Bank Merger”), with CresCom Bank as the surviving entity in the Bank Merger.
  • In April 2017, the Company completed the operational conversion of its acquisition of Greer Bancshares Incorporated (“Greer”).

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

  • Net income for the second quarter 2017 increased 229.3% to $9.3 million, or $0.58 per diluted share, from $2.8 million, or $0.23 per diluted share for the second quarter of 2016. Included in earnings are pretax merger-related expenses of $0.3 million and $2.8 million for the second quarter of 2017 and 2016, respectively.
  • Operating earnings for the second quarter of 2017, which exclude certain non-operating income and expenses, increased 78.8% to $9.1 million, or $0.56 per diluted share, from $5.1 million, or $0.42 per diluted share, from the second quarter of 2016.
  • Included in operating earnings for the second quarter of 2017 and 2016 are tax benefits of $1.2 million ($0.07 per diluted share), and $0.4 million ($0.03 per diluted share), respectively, related to excess stock-based compensation.
  • Performance ratios Q2 2017 compared to Q2 2016:
    - Return on average assets improved to 1.72% compared to 0.76%.
    - Operating return on average assets improved to 1.69% compared to 1.38%.
    - Return on average tangible equity was 16.02% compared to 7.96%.
    - Operating return on average tangible equity improved to 15.65% compared to 14.32%.
  • Loans receivable, excluding Greer loans acquired in March 2017, grew $62.5 million, or at an annualized rate of 10.6%, since December 31, 2016.
  • Nonperforming assets to total assets were 0.31% at June 30, 2017 compared to 0.40% at December 31, 2016.
  • Total deposits, excluding Greer deposits acquired in March 2017, increased $94.4 million since December 31, 2016. Core deposits, excluding Greer core deposits acquired, increased $67.4 million since December 31, 2016.

“We are very pleased to announce the signing of a merger agreement with First South. We view this relationship as strategic to our stated objective to be acquisitive, while maximizing shareholder value. This transaction gives us access to a number of high growth markets, including Raleigh and Durham, North Carolina, and provides a strong core deposit franchise. In addition, our overall operating results for the second quarter of 2017 continued to improve with an increase in operating earnings of 78.8% compared to the second quarter of 2016,” stated Jerry Rexroad, Chief Executive Officer.

Financial Results

Carolina Financial Corporation

  • The Company reported an increase in net income for the three months ended June 30, 2017 of $9.3 million, or $0.58 per diluted share, as compared to $2.8 million, or $0.23 per diluted share, for the three months ended June 30, 2016. Included in net income for the three months ended June 30, 2017 and 2016 were pretax merger related expenses of $0.3 million and $2.8 million, respectively. The Company reported increased net income for the six months ended June 30, 2017 of $14.2 million, or $0.94 per diluted share, as compared to $6.5 million, or $0.54 per diluted share, for the six months ended June 30, 2016. Included in net income for the six months ended June 30, 2017 and 2016 were pretax merger related expenses of $1.6 million and $3.0 million, respectively.
  • Operating earnings for the second quarter of 2017, which excludes certain non-operating income and expenses, increased 78.8% to $9.1 million, or $0.56 per diluted share, from $5.1 million, or $0.42 per diluted share, from the second quarter of 2016. Operating earnings for the six months ended June 30, 2017, which excludes certain non-operating income and expenses, increased 72.5% to $14.9 million, or $0.99 per diluted share, from $8.7 million, or $0.72 per diluted share, from the same period of 2016.
  • The Company’s net interest margin-tax equivalent increased to 4.03% for the second quarter of 2017 compared to 3.64% for the second quarter of 2016.
  • The Company reported book value per common share of $17.55 and $13.23 as of June 30, 2017 and December 31, 2016, respectively. Tangible book value per common share was $14.74 and $12.59 as of June 30, 2017 and December 31, 2016, respectively.
  • At June 30, 2017, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $281.8 million as of June 30, 2017 compared to $163.2 million at December 31, 2016. Tangible equity to tangible assets at June 30, 2017 was 11.0% compared to 9.3% at December 31, 2016.
  • Included in operating earnings for the second quarter of 2017 and 2016 are tax benefits of $1.2 million ($0.07 per diluted share), and $0.4 million ($0.03 per diluted share), respectively, related to excess stock-based compensation. Included in operating earnings for six months ended June 30, 2017 and 2016 are tax benefits of $1.4 million ($0.09 per diluted share), and $0.4 million ($0.03 per diluted share), respectively, related to excess stock-based compensation.

Community Banking

  • Community banking segment net income increased 290.5% to $8.4 million for the three months ended June 30, 2017 compared to $2.2 million for the three months ended June 30, 2016. Included in net income for the three months ended June 30, 2017 and 2016 were pretax merger related expenses of $0.3 million and $2.7 million, respectively. The community banking segment net income increased 132.3% to $13.0 million for the six months ended June 30, 2017 compared to $5.6 million for the six months ended June 30, 2016. Included in net income for the six months ended June 30, 2017 and 2016 were pretax merger related expenses of $1.6 million and $2.9 million, respectively.
  • Community banking segment operating earnings increased 88.2% to $8.2 million for the three months ended June 30, 2017 compared to $4.4 million for the three months ended June 30, 2016. Included in earnings for the three months ended June 30, 2017 and 2016 were pretax merger related expenses of $0.3 million and $2.7 million, respectively. The community banking segment operating earnings increased 73.4% to $13.6 million for the six months ended June 30, 2017 compared to $7.8 million for the six months ended June 30, 2016. Included in earnings for the six months ended June 30, 2017 and 2016 were pretax merger related expenses of $1.6 million and $2.9 million, respectively.
  • No provision for loan loss was recorded during the three months ended June 30, 2017 or 2016. This was primarily due to continued excellent asset quality, as well as net recoveries to average loans receivable of (0.01%) and (0.03%) for the three months ended June 30, 2017 and 2016, respectively.
  • Non-performing assets were 0.31% and 0.40% of total assets at June 30, 2017 and December 31, 2016, respectively.
  • Loans receivable, gross increased to $1.4 billion at June 30, 2017 compared to $1.2 billion at December 31, 2016.
  • The number of checking accounts increased at an annualized rate of 11.0%, excluding Greer checking accounts acquired, since December 31, 2016. Total deposits, excluding acquired deposits from the Greer acquisition, increased $94.4 million since December 31, 2016. As of June 30, 2017 and December 31, 2016, core deposits, defined as checking, savings and money market, comprised approximately 64.9% and 60.6%, respectively, of total deposits.

Wholesale Mortgage Banking

  • Net income for the wholesale mortgage banking segment was $1.2 million for the three months ended June 30, 2017 compared to $919,000 for the three months ended June 30, 2016. Net income was $1.9 million for the six months ended June 30, 2017 compared to $1.3 million for the six months ended June 30, 2016.
  • Net margin was 1.69% for the three months ended June 30, 2017 compared to 1.74% for the three months ended June 30, 2016. Originations for the three months ended June 30, 2017 and 2016 were $219.8 million and $200.2 million, respectively. Net margin was 1.74% for the six months ended June 30, 2017 compared to 1.66% for the six months ended June 30, 2016. Originations for the six months ended June 30, 2017 and 2016 were $400.6 million and $387.0 million, respectively.
  • Net interest income for the wholesale mortgage banking segment was $0.4 million for the three months ended June 30, 2017 compared to $0.3 million for the three months ended June 30, 2016. Net interest income for the wholesale mortgage banking segment was $0.8 million for the six months ended June 30, 2017 compared to $0.7 million for the six months ended June 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 for the three months ended June 30, 2017 and June 30, 2016, respectively. Mortgage loan servicing income, net of amortization of mortgage servicing rights and subservicing expense, for the wholesale mortgage banking segment was $0.8 million for the six months ended June 30, 2017 and June 30, 2016, respectively. At June 30, 2017, loans serviced for third parties totaled $2.4 billion, compared to $2.3 billion at December 31, 2016.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on July 21, 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 52128528. 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 52128528.

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 June 30, 2017, Carolina Financial Corporation had approximately $2.2 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
June 30, 2017 December 31, 2016
(Unaudited) (Audited)
(Dollars in thousands)
ASSETS
Cash and due from banks $ 14,965 9,761
Interest-bearing cash 30,064 14,591
Cash and cash equivalents 45,029 24,352
Securities available-for-sale 500,310 335,352
Federal Home Loan Bank stock, at cost 10,545 11,072
Other investments 2,130 1,768
Derivative assets 2,583 2,219
Loans held for sale 36,232 31,569
Loans receivable, gross 1,435,420 1,178,266
Allowance for loan losses (10,750) (10,688)
Loans receivable, net 1,424,670 1,167,578
Premises and equipment, net 46,872 37,054
Accrued interest receivable 7,124 5,373
Real estate acquired through foreclosure, net 1,417 1,179
Deferred tax assets, net 8,057 8,341
Mortgage servicing rights, net 16,692 15,032
Cash value life insurance 38,057 28,984
Core deposit intangible 7,836 3,658
Goodwill 37,287 4,266
Other assets 7,070 5,939
Total assets $ 2,191,911 1,683,736
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 330,641 229,905
Interest-bearing deposits 1,333,088 1,028,355
Total deposits 1,663,729 1,258,260
Short-term borrowed funds 149,000 203,000
Long-term debt 75,327 38,465
Derivative liabilities 249 342
Drafts outstanding 3,869 6,223
Advances from borrowers for insurance and taxes 2,684 1,058
Accrued interest payable 755 327
Reserve for mortgage repurchase losses 2,354 2,880
Dividends payable to stockholders 646 502
Accrued expenses and other liabilities 11,480 9,489
Total liabilities 1,910,093 1,520,546
Stockholders' equity:
Preferred stock - -
Common stock 162 125
Additional paid-in capital 168,509 66,156
Retained earnings 110,166 98,451
Accumulated other comprehensive income (loss), net of tax 2,981 (1,542)
Total stockholders' equity 281,818 163,190
Total liabilities and stockholders' equity $ 2,191,911 1,683,736

CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2017 2016 2017 2016
(In thousands, except share data)
Interest income
Loans $ 18,280 11,880 33,247 22,965
Investment securities 3,661 2,470 6,214 4,622
Dividends from Federal Home Loan Bank stock 115 108 216 205
Federal funds sold 4 2 7 2
Other interest income 63 33 108 59
Total interest income 22,123 14,493 39,792 27,853
Interest expense
Deposits 2,098 1,512 3,790 2,879
Short-term borrowed funds 429 91 784 196
Long-term debt 498 570 850 1,185
Total interest expense 3,025 2,173 5,424 4,260
Net interest income 19,098 12,320 34,368 23,593
Provision for loan losses - - - -
Net interest income after provision for loan losses 19,098 12,320 34,368 23,593
Noninterest income
Mortgage banking income 4,289 4,187 7,897 7,362
Deposit service charges 998 897 1,856 1,759
Net loss on extinguishment of debt - (47) - (56)
Net gain on sale of securities 621 113 806 530
Fair value adjustments on interest rate swaps (69) (226) (127) (507)
Net increase in cash value life insurance 281 229 492 458
Mortgage loan servicing income 1,604 1,413 3,170 2,801
Other 1,081 623 1,941 1,118
Total noninterest income 8,805 7,189 16,035 13,465
Noninterest expense
Salaries and employee benefits 9,255 7,675 17,864 14,825
Occupancy and equipment 2,439 1,927 4,621 3,769
Marketing and public relations 416 385 797 770
FDIC insurance 75 179 175 347
Provision for mortgage loan repurchase losses (225) (250) (450) (500)
Legal expense 151 56 216 105
Other real estate expense, net 26 39 45 59
Mortgage subservicing expense 505 468 991 891
Amortization of mortgage servicing rights 665 541 1,335 1,073
Merger related expenses 279 2,799 1,599 2,985
Other 2,304 1,990 4,283 3,753
Total noninterest expense 15,890 15,809 31,476 28,077
Income before income taxes 12,013 3,700 18,927 8,981
Income tax expense 2,673 864 4,684 2,502
Net income $ 9,340 2,836 14,243 6,479
Earnings per common share:
Basic $ 0.58 $ 0.24 $ 0.95 $ 0.55
Diluted $ 0.58 $ 0.23 $ 0.94 $ 0.54
Weighted average common shares outstanding:
Basic 16,029,332 11,908,282 14,980,349 11,827,428
Diluted 16,180,171 12,076,878 15,144,796 12,001,862

CAROLINA FINANCIAL CORPORATION
(Unaudited)
(Dollars in thousands)
At or for the Three Months Ended
Selected Financial Data: June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
June 30,
2016
Selected Average Balances:
Total assets $ 2,166,803 1,768,323 1,651,653 1,626,717 1,482,963
Investment securities and FHLB stock 510,706 373,551 326,485 345,385 335,105
Loans receivable, net 1,412,940 1,214,777 1,138,120 1,093,669 978,337
Loans held for sale 22,412 17,827 32,951 32,196 24,467
Deposits 1,633,285 1,330,805 1,288,665 1,291,567 1,170,860
Stockholders' equity 277,708 210,071 160,991 157,311 145,656
Performance Ratios (annualized):
Return on average equity 13.45% 9.34% 12.80% 15.11% 7.79%
Return on average tangible equity (Non-GAAP) 16.02% 9.98% 13.46% 15.93% 7.96%
Return on average assets 1.72% 1.11% 1.25% 1.46% 0.76%
Operating return on average equity (Non-GAAP) 13.15% 10.95% 14.32% 14.95% 14.02%
Operating return on average tangible equity (Non-GAAP) 15.65% 11.70% 15.06% 15.76% 14.32%
Operating return on average assets (Non-GAAP) 1.69% 1.30% 1.40% 1.45% 1.38%
Average earning assets to average total assets 90.68% 91.99% 93.21% 92.94% 93.44%
Average loans receivable to average deposits 86.51% 91.28% 88.32% 84.68% 83.56%
Average stockholders' equity to average assets 12.82% 11.88% 9.75% 9.67% 9.82%
Net interest margin-tax equivalent (1) 4.03% 3.93% 3.87% 3.75% 3.64%
Net charge-offs (recovery) to average loans receivable (0.01)% (0.01)% (0.12)% (0.02)% (0.03)%
Nonperforming assets to period end loans receivable 0.48% 0.52% 0.58% 0.62% 0.67%
Nonperforming assets to total assets 0.31% 0.34% 0.40% 0.42% 0.45%
Nonperforming loans to total loans 0.38% 0.42% 0.48% 0.37% 0.37%
Allowance for loan losses as a percentage of loans receivable (end of period) 0.75% 0.76% 0.91% 0.91% 0.96%
Allowance for loan losses as a percentage of non-acquired loans receivable (Non-GAAP) 0.93% 0.96% 1.01% 1.03% 1.10%
Allowance for loan losses as a percentage of nonperforming loans 196.85% 180.66% 190.01% 247.72% 262.68%
Nonperforming Assets:
Loans 90 days or more past due and still accruing $ - - - - -
Nonaccrual loans 5,461 5,931 5,625 4,174 3,920
Total nonperforming loans 5,461 5,931 5,625 4,174 3,920
Real estate acquired through foreclosure, net 1,417 1,479 1,179 2,843 3,272
Total nonperforming assets $ 6,878 7,410 6,804 7,017 7,192
(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 Six Months Increase (Decrease)
Ended June 30, Ended June 30, Three Six
2017 2016 2017 2016 Months Months
Segment net income:
Community banking $ 8,443 2,162 12,951 5,575 6,281 7,376
Wholesale mortgage banking 1,238 919 1,884 1,320 319 564
Other (346) (253) (591) (441) (93) (150)
Eliminations 5 8 (1) 25 (3) (26)
Total net income $ 9,340 2,836 14,243 6,479 6,504 7,764
For the Three Months Ended
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
June 30,
2016
Segment net income:
Community banking $ 8,443 4,509 4,565 4,734 2,162
Wholesale mortgage banking 1,238 645 806 1,402 919
Other (346) (244) (232) (228) (253)
Eliminations 5 (6) 11 33 8
Total net income $ 9,340 4,904 5,150 5,941 2,836
For the Three Months Ended June 30, 2017
Community Mortgage
Banking Banking Other Eliminations Total
Interest income $ 21,691 427 8 (3) 22,123
Interest expense 2,747 42 278 (42) 3,025
Net interest income (expense) 18,944 385 (270) 39 19,098
Provision for loan losses - - - - -
Noninterest income from external customers 3,494 5,311 - - 8,805
Intersegment noninterest income 242 31 - (273) -
Noninterest expense 11,448 4,164 278 - 15,890
Intersegment noninterest expense - 240 2 (242) -
Income (loss) before income taxes 11,232 1,323 (550) 8 12,013
Income tax expense (benefit) 2,789 85 (204) 3 2,673
Net income (loss) $ 8,443 1,238 (346) 5 9,340
For the Three Months Ended June 30, 2016
Community Mortgage
Banking Banking Other Eliminations Total
Interest income $ 14,136 329 4 24 14,493
Interest expense 2,025 4 148 (4) 2,173
Net interest income (expense) 12,111 325 (144) 28 12,320
Provision for loan losses - - - - -
Noninterest income from external customers 2,078 5,111 - - 7,189
Intersegment noninterest income 242 15 - (257) -
Noninterest expense 11,646 3,891 272 - 15,809
Intersegment noninterest expense - 240 2 (242) -
Income (loss) before income taxes 2,785 1,320 (418) 13 3,700
Income tax expense (benefit) 623 401 (165) 5 864
Net income (loss) $ 2,162 919 (253) 8 2,836
Carolina Financial Corporation
Segment Information, Continued
(Unaudited)
(Dollars in thousands)
For the Six Months Ended June 30, 2017
Community Mortgage
Banking Banking Other Eliminations Total
Interest income $ 38,949 822 13 8 39,792
Interest expense 4,965 54 459 (54) 5,424
Net interest income (expense) 33,984 768 (446) 62 34,368
Provision for loan losses - - - - -
Noninterest income from external customers 5,912 10,123 - - 16,035
Intersegment noninterest income 483 64 - (547) -
Noninterest expense 22,772 8,216 488 - 31,476
Intersegment noninterest expense - 480 3 (483) -
Income (loss) before income taxes 17,607 2,259 (937) (2) 18,927
Income tax expense (benefit) 4,656 375 (346) (1) 4,684
Net income (loss) $ 12,951 1,884 (591) (1) 14,243
For the Six Months Ended June 30, 2016
Community Mortgage
Banking Banking Other Eliminations Total
Interest income $ 27,080 698 9 66 27,853
Interest expense 3,964 9 296 (9) 4,260
Net interest income (expense) 23,116 689 (287) 75 23,593
Provision for loan losses - - - - -
Noninterest income from external customers 4,211 9,254 - - 13,465
Intersegment noninterest income 485 34 - (519) -
Noninterest expense 20,075 7,571 431 - 28,077
Intersegment noninterest expense - 481 4 (485) -
Income (loss) before income taxes 7,737 1,925 (722) 41 8,981
Income tax expense (benefit) 2,162 605 (281) 16 2,502
Net income (loss) $ 5,575 1,320 (441) 25 6,479
For the Three Months Ended June 30,
Loan Originations Mortgage Banking Income Margin
2017 2016 2017 2016 2017 2016
Additional segment information:
Community banking $ 24,416 24,629 582 509 2.38% 2.07%
Wholesale mortgage banking 219,793 200,161 3,707 3,678 1.69% 1.84%
Total mortgage banking income $ 244,209 224,790 4,289 4,187 1.76% 1.86%
For the Six Months Ended June 30,
Loan Originations Mortgage Banking Income Margin
2017 2016 2017 2016 2017 2016
Additional segment information:
Community banking $ 39,169 42,308 941 929 2.40% 2.20%
Wholesale mortgage banking 400,623 386,960 6,956 6,433 1.74% 1.66%
Total mortgage banking income $ 439,792 429,268 7,897 7,362 1.80% 1.72%
Carolina Financial Corporation
Segment Information, Continued
(Unaudited)
(Dollars in thousands, except per share information)
For the Three Months Ended June 30, 2017
Community Mortgage
Banking Banking Other Eliminations Total
Additional segment information (Non-GAAP):
Income tax benefit from excess stock-based compensation $ 801 396 - - 1,197
Income tax benefit of excess stock-based compensation on diluted earnings per share $ 0.05 0.02 - - 0.07
For the Three Months Ended June 30, 2016
Community Mortgage
Banking Banking Other Eliminations Total
Additional segment information (Non-GAAP):
Income tax benefit from excess stock-based compensation $ 343 56 - - 399
Income tax benefit of excess stock-based compensation on diluted earnings per share $ 0.02 0.00 - - 0.03
For the Six Months Ended June 30, 2017
Community Mortgage
Banking Banking Other Eliminations Total
Additional segment information (Non-GAAP):
Income tax benefit from excess stock-based compensation $ 1,018 427 - - 1,445
Income tax benefit of excess stock-based compensation on diluted earnings per share $ 0.06 0.03 - - 0.09
For the Six Months Ended June 30, 2016
Community Mortgage
Banking Banking Other Eliminations Total
Additional segment information (Non-GAAP):
Income tax benefit from excess stock-based compensation $ 343 56 - - 399
Income tax benefit of excess stock-based compensation on diluted earnings per share $ 0.02 0.00 - - 0.03

Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)
At the Month Ended
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Core deposits:
Noninterest-bearing demand accounts $ 330,641 298,365 229,905 267,892 246,811
Interest-bearing demand accounts 298,123 309,961 191,851 195,792 166,843
Savings accounts 70,336 66,506 48,648 47,035 46,032
Money market accounts 380,108 363,600 292,639 299,960 296,968
Total core deposits (Non-GAAP) 1,079,208 1,038,432 763,043 810,679 756,654
Certificates of deposit:
Less than $250,000 539,177 524,836 467,937 476,744 480,002
$250,000 or more 45,344 44,452 27,280 24,853 26,532
Total certificates of deposit 584,521 569,288 495,217 501,597 506,534
Total deposits $ 1,663,729 1,607,720 1,258,260 1,312,276 1,263,188
At the Month Ended
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Tangible book value per share:
Total stockholders' equity $ 281,818 271,454 163,190 160,331 155,017
Less intangible assets (45,123) (45,292) (7,924) (8,037) (8,150)
Tangible common equity (Non-GAAP) $ 236,695 226,162 155,266 152,294 146,867
Issued and outstanding shares 16,156,943 16,185,408 12,548,328 12,546,220 12,545,282
Less nonvested restricted stock awards (101,489) (227,439) (211,908) (216,828) (219,228)
Period end dilutive shares 16,055,454 15,957,969 12,336,420 12,329,392 12,326,054
Total stockholders equity $ 281,818 271,454 163,190 160,331 155,017
Divided by period end dilutive shares 16,055,454 15,957,969 12,336,420 12,329,392 12,326,054
Common book value per share $ 17.55 17.01 13.23 13.00 12.58
Tangible common equity (Non-GAAP) $ 236,695 226,162 155,266 152,294 146,867
Divided by period end dilutive shares 16,055,454 15,957,969 12,336,420 12,329,392 12,326,054
Tangible common book value per share (Non-GAAP)$ 14.74 14.17 12.59 12.35 11.92
At the Month Ended
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Acquired and non-acquired loans:
Acquired loans receivable $ 278,275 303,244 119,422 129,505 130,228
Non-acquired loans receivable 1,157,145 1,113,766 1,058,844 1,003,724 937,028
Total loans receivable $ 1,435,420 1,417,010 1,178,266 1,133,229 1,067,256
% Acquired 19.39% 21.40% 10.14% 11.43% 12.20%
Non-acquired loans $ 1,157,145 1,113,766 1,058,844 1,003,724 937,028
Allowance for loan losses 10,750 10,715 10,688 10,340 10,297
Allowance for loan losses to non-acquired loans (Non-GAAP) 0.93% 0.96% 1.01% 1.03% 1.10%
Total loans receivable $ 1,435,420 1,417,010 1,178,266 1,133,229 1,067,256
Allowance for loan losses 10,750 10,715 10,688 10,340 10,297
Allowance for loan losses to total loans receivable 0.75% 0.76% 0.91% 0.91% 0.96%
Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)
For the Three Months Ended
Operating Earnings and Performance Ratios: June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
June 30,
2016
Income before income taxes $ 12,013 6,915 7,498 8,939 3,700
Gain on sale of securities (621) (185) (65) (111) (113)
Net loss on extinguishment of debt - - 1,694 118 47
Fair value adjustments on interest rate swaps 69 58 (998) (99) 226
Merger related expenses 279 1,319 260 - 2,799
Operating earnings before income taxes 11,740 8,107 8,389 8,847 6,659
Tax expense (1) 2,612 2,358 2,627 2,967 1,555
Operating earnings (Non-GAAP) $ 9,128 5,749 5,762 5,880 5,104
Average equity $ 277,708 210,071 160,991 157,311 145,656
Average assets $ 2,166,803 1,768,323 1,651,653 1,626,717 1,482,963
Average Equity $ 277,708 210,071 160,991 157,311 145,656
Less average intangible assets (44,452) (13,510) (7,979) (8,092) (3,076)
Average tangible common equity (Non-GAAP) $ 233,256 196,561 153,012 149,219 142,580
Operating return on average assets (Non-GAAP) 1.69% 1.30% 1.40% 1.45% 1.38%
Operating return on average equity (Non-GAAP) 13.15% 10.95% 14.32% 14.95% 14.02%
Operating return on average tangible equity (Non-GAAP) 15.65% 11.70% 15.06% 15.76% 14.32%
Weighted average common shares outstanding:
Basic 16,029,332 13,919,711 12,336,420 12,327,921 11,908,282
Diluted 16,180,171 14,139,241 12,585,518 12,535,551 12,076,878
Operating earnings per common share:
Basic (Non-GAAP) $ 0.57 0.41 0.47 0.48 0.43
Diluted (Non-GAAP) $ 0.56 0.41 0.46 0.47 0.42
As Reported:
Income before income taxes $ 12,013 6,915 7,498 8,939 3,700
Tax expense 2,673 2,011 2,348 2,998 864
Net Income $ 9,340 4,904 5,150 5,941 2,836
Average equity $ 277,708 210,071 160,991 157,311 145,656
Average tangible equity (Non-GAAP) $ 233,256 196,561 153,012 149,219 142,580
Average assets $ 2,166,803 1,768,323 1,651,653 1,626,717 1,482,963
Return on average assets 1.72% 1.11% 1.25% 1.46% 0.76%
Return on average equity 13.45% 9.34% 12.80% 15.11% 7.79%
Return on average tangible equity (Non-GAAP) 16.02% 9.98% 13.46% 15.93% 7.96%
Weighted average common shares outstanding:
Basic 16,029,332 13,919,711 12,336,420 12,327,921 11,908,282
Diluted 16,180,171 14,139,241 12,585,518 12,535,551 12,076,878
Earnings per common share:
Basic $ 0.58 0.35 0.42 0.48 0.24
Diluted $ 0.58 0.35 0.41 0.47 0.23
(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
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
June 30,
2016
Segment net income:
Community banking $ 8,443 $ 4,509 4,565 4,734 2,162
Wholesale mortgage banking 1,238 645 806 1,402 919
Other (346) (244) (232) (228) (253)
Eliminations 5 (6) 11 33 8
Total net income $ 9,340 $ 4,904 5,150 5,941 2,836
Community banking segment operating earnings:
Income before income taxes $ 11,232 $ 6,375 6,545 6,975 2,785
Tax expense (1) 2,789 1,866 1,980 2,241 623
Bank segment net income $ 8,443 $ 4,509 4,565 4,734 2,162
Weighted average common shares outstanding:
Basic 16,029,332 13,919,711 12,336,420 12,327,921 11,908,282
Diluted 16,180,171 14,139,241 12,585,518 12,535,551 12,076,878
Earnings per common share:
Basic $ 0.53 $ 0.32 $ 0.37 $ 0.38 $ 0.18
Diluted $ 0.52 $ 0.32 $ 0.36 $ 0.38 $ 0.18
Bank segment income before taxes $ 11,232 $ 6,375 6,545 6,975 2,785
Gain on sale of securities (621) (185) (65) (111) (113)
Net loss on extinguishment of debt - - 1,693 118 47
Fair value adjustments on interest rate swaps 69 58 (998) (99) 226
Merger related expenses (2) 279 1,311 254 - 2,697
Operating earnings before income taxes 10,959 7,559 7,429 6,883 5,642
Tax expense (1) 2,721 2,213 2,247 2,211 1,262
Operating bank segment earnings (Non-GAAP) $ 8,238 $ 5,346 5,182 4,672 4,380
Operating bank segment earnings per common share:
Basic (Non-GAAP) $ 0.51 $ 0.38 $ 0.42 $ 0.38 $ 0.37
Diluted (Non-GAAP) $ 0.51 $ 0.38 $ 0.41 $ 0.37 $ 0.36
(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

Source:Carolina Financial Corporation