CHARLESTON, S.C., Jan. 24, 2019 (GLOBE NEWSWIRE) — 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:
  • 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.
  • The gain on sale of securities of $346,000.
•  Performance ratios Q4 2018 compared to Q4 2017:
  • Return on average assets was 1.67% compared to 0.83%.
  • Operating return on average assets was 1.83% compared to 1.46%.
  • Return on average tangible equity was 14.53% compared to 8.78%.
  • 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.

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