Carolina Financial Corporation Reports Results for the Fourth Quarter of 2019

CHARLESTON, S.C., Jan. 31, 2020 (GLOBE NEWSWIRE) -- Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the fourth quarter of 2019.

Financial highlights at and for the three months ended December 31, 2019, include:

• Net income for Q4 2019 increased 6.8% to $16.5 million, or $0.74 per diluted share, from $15.4 million, or $0.68 per diluted share for Q4 2018.
  
  
• Operating earnings for Q4 2019, which exclude certain non-operating income and expenses, increased 6.8% to $18.1 million, or $0.81 per diluted share, from $16.9 million, or $0.75 per diluted share, for Q4 2018.
  
  
• Operating earnings for Q4 2019 have been adjusted to eliminate the following items:
  
  
  • Merger-related expenses of $2.3 million.
  • The fair value gain on interest rate swaps of approximately $873,000.
  • The loss on early extinguishment of debt of approximately $77,000.
    
    
• Performance ratios for Q4 2019 compared to Q4 2018:
  
  
  • Return on average assets was 1.66% compared to 1.67%.
  • Operating return on average assets was 1.82% compared to 1.83%.
  • Return on average tangible equity was 13.55% compared to 14.53%.
  • Operating return on average tangible equity was 14.86% compared to 15.92%.
    
    
• On December 31, 2019, the Company closed its acquisition of Carolina Trust BancShares, Inc. (“Carolina Trust”). The acquisition added $481.0 million of loans receivable, gross and $540.2 million of deposits.
  
  
• Loans receivable, gross grew $703.6 million since December 31, 2018. Excluding the impact of loans acquired from Carolina Trust, loans receivable, gross grew $222.6 million, or 8.8% since December 31, 2018.
  
  
• Total deposits increased $690.2 million since December 31, 2018. Excluding the impact of deposits acquired from Carolina Trust, deposits increased $150.0 million since December 31, 2018.
  
  
• On December 3, 2018, the Company announced that the Board of Directors had approved a plan to repurchase up to $25 million 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 of 2019, the Company repurchased approximately 9,000 shares at an average price of $34.77. Cumulatively since December 4, 2018, the Company repurchased approximately 390,000 shares at an average price of $32.01.
  
  
• On November 17, 2019, the Company announced the execution of an agreement and plan of merger with United Bankshares, Inc. (“United”) (NASDAQ: UBSI), pursuant to which the Company will merge with and into United, with United as the surviving corporation of the merger. Pursuant to the merger agreement, each outstanding share of the Company’s common stock will be converted into the right to receive 1.13 shares of United common stock, par value $2.50 per share, resulting in an aggregate transaction value of approximately $1.1 billion, based on closing price of a share of United’s common stock as of that date. The transaction is subject to customary regulatory and shareholder approvals.

Financial Results

Carolina Financial Corporation

• The Company reported net income for Q4 2019 of $16.5 million, or $0.74 per diluted share, as compared to $15.4 million, or $0.68 per diluted share, for Q4 2018.
  
  
  • Accretion income from acquired loans was $1.6 million for Q4 2019. Included in net income for Q4 2018 was a recovery of interest income of $0.9 million related to a payoff of a purchased credit impaired loan. Excluding the recovery, accretion income from acquired loans was $1.9 million for Q4 2018.
    
    
• Operating earnings for Q4 2019, which exclude certain non-operating income and expenses, increased 6.8% to $18.1 million, or $0.81 per diluted share, from $16.9 million, or $0.75 per diluted share, for Q4 2018.
  
  
  • Included in net income for Q4 2019 were merger-related expenses of $2.3 million, a fair value gain on interest rate swaps of approximately $873,000 and a loss on early extinguishment of debt of approximately $77,000.
  • Included in net income for Q4 2018 was a fair value loss on interest rate swaps of $2.2 million and a gain on sale of securities of approximately $346,000.
    
    
• The Company reported net income for the year ended December 31, 2019 of $62.7 million or $2.80 per diluted share, as compared to $49.7 million, or $2.26 per diluted share, for the year ended December 31, 2018.
  
  
  • Accretion income from acquired loans was $7.6 million for the year ended December 31, 2019 compared to $9.8 million for the year ended December 31, 2018. Provision for loan losses during the year ended December 31, 2019 and 2018 was $2.6 million and $2.1 million, respectively.
    
    
• Operating earnings for the year ended December 31, 2019, which exclude certain non-operating income and expenses, increased to $67.6 million, or $3.02 per diluted share compared to $62.8 million, or $2.86 per diluted share, for the same period of 2018.
  
  
  • Included in net income for the year ended December 31, 2019 was a fair value loss on interest rate swaps of $3.7 million, a temporary impairment of mortgage servicing rights of $3.1 million, a gain on sale of securities of $3.9 million, a loss on early extinguishment of debt of approximately $178,000 and merger-related expenses of $2.8 million.
  • Included in net income for the year ended December 31, 2018 was a fair value loss on interest rate swaps of approximately $340,000, a loss on sale of securities of $1.9 million and merger-related expenses of $15.2 million.
    
    
• The Company’s net interest margin-tax equivalent (NIM) decreased to 3.94% for Q4 2019 compared to 4.23% for Q4 2018. Q4 2019 net interest income included accretion income from acquired loans of $1.6 million (18 bps to NIM) and early payoff fees of approximately $282,000 (3 bps to NIM). Q4 2018 accretion income included a recovery of interest income of approximately $0.9 million (11 bps to NIM), accretion income from acquired loans of $1.9 million (22 bps to NIM) and early payoff fees of approximately $414,000 (6 bps to NIM).
  
  
  • Excluding accretion income from acquired loans and early payoff fees, Q4 2019 net interest margin was 3.73% compared to 3.84% in Q4 2018.
    
    
• The Company reported book value per common share of $30.14 and $25.83 as of December 31, 2019 and 2018, respectively. Tangible book value per common share was $22.00 and $19.36 as of December 31, 2019 and 2018, respectively.
  
  
• At December 31, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $743.4 million as of December 31, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at December 31, 2019 was 12.04% compared to 11.83% at December 31, 2018.
  
  
• During Q4 2019, the Company repurchased approximately 9,000 shares at an average price of $34.77.

Banking Segment

• Banking segment net income increased 3.1% to $15.9 million for Q4 2019 compared to $15.4 million for Q4 2018. Accretion income from acquired loans was $1.6 million for Q4 2019. Included in net income for Q4 2018 was a recovery of interest income of $0.9 million related to a payoff of a purchased credit impaired loan. Excluding the recovery, accretion income from acquired loans was $1.9 million for Q4 2018.
  
  
• Banking segment net income increased 27.7% to $63.4 million for the year ended December 31, 2019 compared to $49.6 million for the year ended December 31, 2018. Accretion income from acquired loans was $7.6 million for the year ended December 31, 2019 compared to $9.8 million for the year ended December 31, 2018. Provision for loan losses during the year ended December 31, 2019 and 2018 was $2.6 million and $2.1 million, respectively.
  
  
• Banking segment operating earnings increased 3.5% to $17.5 million for Q4 2019 compared to $16.9 million for Q4 2018.
  
  
• Banking segment operating earnings increased 4.9% to $65.9 million for the year ended December 31, 2019 compared to $62.8 million for the year ended December 31, 2018.
  
  
• Provision for loan losses during Q4 2019 was $580,000. Provision for loan losses during Q4 2018 was $750,000. The provision for loan losses was primarily driven by the organic loan growth.
  
  
• Non-performing assets were 0.59% and 0.35% of total assets at December 31, 2019 and 2018, respectively. The increase in the NPA ratio was primarily due to two fully collateralized lending relationships.
  
  
• Loans receivable, gross grew $703.6 million since December 31, 2018. Excluding the impact of loans acquired from Carolina Trust, loans receivable, gross grew $222.6 million, or 8.8% since December 31, 2018.
  
  
• Total deposits increased $690.2 million since December 31, 2018. Excluding the impact of deposits acquired from Carolina Trust, deposits increased $150.0 million since December 31, 2018.

Wholesale Mortgage Banking

• Net income for the wholesale mortgage banking segment was approximately $949,000 for Q4 2019 compared to net income of approximately $599,000 for Q4 2018. Net income was $1.6 million for the year ended December 31, 2019 compared to $2.3 million for the year ended December 31, 2018.
  
  
  • Included in net income for the year ended December 31, 2019 was a temporary impairment of mortgage servicing rights (MSR) of $3.1 million. The Company does not hedge the mortgage servicing rights positions and the impact of falling long-term interest rates increased prepayment speed assumptions driving down the value of the MSR asset. Excluding the impact of the temporary impairment of mortgage servicing rights, operating earnings were $4.0 million for the year ended December 31, 2019.
    
    
• Net margin was 2.03% for the three months ended December 31, 2019 compared to 1.84% for the three months ended December 31, 2018. Originations for Q4 2019 and Q4 2018 were $237.6 million and $168.0 million, respectively.
  
  
• Net margin was 2.04% for the year ended December 31, 2019 compared to 1.74% for the year ended December 31, 2018. Originations for the year ended December 31, 2019 and 2018 were $800.0 million and $744.2 million, respectively.

Dividend Declared

On January 30, 2020, the Company declared a $0.10 dividend per common share, payable on April 6, 2020 to stockholders of record on March 16, 2020. 

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, 2019, Carolina Financial Corporation had approximately $4.7 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 occur or 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 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, 2019				December 31, 2018
		(Unaudited)				(Audited)
		(In thousands)
ASSETS
Cash and due from banks		$	41,411				28,857
Interest-bearing cash			91,792				33,276
Cash and cash equivalents			133,203				62,133
Securities available-for-sale			879,235				842,801
Federal Home Loan Bank stock, at cost			23,280				21,696
Other investments			3,521				3,450
Derivative assets			1,791				4,032
Loans held for sale			31,282				16,972
Loans receivable, gross			3,227,937				2,524,336
Allowance for loan losses			(16,521	)			(14,463	)
Loans receivable, net			3,211,416				2,509,873
Premises and equipment, net			70,702				60,866
Right of use operating lease asset			17,163				—
Accrued interest receivable			14,951				13,494
Real estate acquired through foreclosure, net			2,325				1,534
Deferred tax assets, net			2,463				5,786
Mortgage servicing rights			25,941				32,933
Cash value life insurance			71,267				58,728
Core deposit intangible			16,621				16,462
Goodwill			184,259				127,592
Other assets			19,453				12,396
Total assets		$	4,708,873				3,790,748
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Noninterest-bearing deposits		$	668,616				547,022
Interest-bearing deposits			2,739,745				2,171,171
Total deposits			3,408,361				2,718,193
Short-term borrowed funds			449,814				405,500
Long-term debt			42,761				59,436
Right of use operating lease liability			17,593				—
Derivative liabilities			3,427				1,232
Drafts outstanding			8,193				8,129
Advances from borrowers for insurance and taxes			3,288				4,100
Accrued interest payable			2,450				1,591
Reserve for mortgage repurchase losses			892				1,292
Dividends payable to stockholders			2,227				1,576
Accrued expenses and other liabilities			26,427				14,414
Total liabilities			3,965,433				3,215,463
Stockholders’ equity:
Preferred stock			—				—
Common stock			248				224
Additional paid-in capital			514,272				408,224
Retained earnings			221,103				167,173
Accumulated other comprehensive income (loss), net of tax			7,817				(336	)
Total stockholders’ equity			743,440				575,285
Total liabilities and stockholders’ equity		$	4,708,873				3,790,748

CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		For the Three Months								For the Year
		Ended December 31,								Ended December 31,
		2019				2018				2019				2018
		(In thousands, except share data)
Interest income
Loans		$	37,769				35,214				147,921				133,252
Investment securities			6,214				7,243				27,424				26,222
Dividends from Federal Home Loan Bank stock			280				253				1,203				1,004
Other interest income			123				209				568				580
Total interest income			44,386				42,919				177,116				161,058
Interest expense
Deposits			6,882				5,808				27,106				18,727
Short-term borrowed funds			1,652				1,576				8,328				6,064
Long-term debt			539				643				2,432				2,457
Total interest expense			9,073				8,027				37,866				27,248
Net interest income			35,313				34,892				139,250				133,810
Provision for loan losses			580				750				2,580				2,059
Net interest income after provision for loan losses			34,733				34,142				136,670				131,751
Noninterest income
Mortgage banking income			5,527				3,593				19,326				15,295
Deposit service charges			1,726				1,775				6,814				7,755
Net loss on extinguishment of debt			(77	)			—				(178	)			—
Net gain (loss) on sale of securities			—				346				3,891				(1,946	)
Fair value adjustments on interest rate swaps			873				(2,222	)			(3,659	)			(340	)
Net increase in cash value life insurance			395				377				1,591				1,530
Mortgage loan servicing income			2,413				2,624				10,107				9,052
Debit card income, net			1,500				1,246				4,839				4,809
Other			934				781				4,379				3,741
Total noninterest income			13,291				8,520				47,110				39,896
Noninterest expense
Salaries and employee benefits			13,559				12,857				53,822				53,517
Occupancy and equipment			4,379				4,101				16,902				15,961
Marketing and public relations			307				320				1,614				1,330
FDIC insurance			—				285				502				1,090
Recovery of mortgage loan repurchase losses			(100	)			(150	)			(400	)			(600	)
Legal expense			66				95				438				422
Other real estate expense (income), net			92				(10	)			422				(13	)
Mortgage subservicing expense			697				696				2,872				2,468
Amortization of mortgage servicing rights			1,570				1,239				5,721				4,206
Impairment of mortgage servicing rights			—				—				3,100				—
Amortization of core deposit intangible			706				763				2,910				3,139
Merger-related expenses			2,270				—				2,753				15,216
Other			3,013				3,041				12,436				12,472
Total noninterest expense			26,559				23,237				103,092				109,208
Income before income taxes			21,465				19,425				80,688				62,439
Income tax expense			4,972				3,981				17,948				12,769
Net income		$	16,493				15,444				62,740				49,670
Earnings per common share:
Basic		$	0.74				0.69				2.83				2.28
Diluted		$	0.74				0.68				2.80				2.26
Dividends declared per common share		$	0.10				0.07				0.36				0.25
Weighted average common shares outstanding:
Basic			22,140,187				22,416,190				22,168,082				21,756,595
Diluted			22,363,814				22,587,466				22,385,127				21,972,857

CAROLINA FINANCIAL CORPORATION
(Unaudited)
		At or for the Three Months Ended
Selected Financial Data:		December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019				December 31, 2018
		(Dollars in thousands)
Selected Average Balances:
Total assets		$	3,978,345				3,891,019				3,878,269				3,826,116				3,700,795
Investment securities and FHLB stock			822,430				815,207				832,224				833,720				838,834
Loans receivable, net			2,711,061				2,639,921				2,610,394				2,535,192				2,428,603
Loans held for sale			31,436				29,733				21,905				13,754				20,120
Deposits			2,900,713				2,837,353				2,782,576				2,751,913				2,760,156
Stockholders’ equity			628,850				614,550				598,196				580,300				569,528
Performance Ratios (annualized):
Return on average stockholders’ equity			10.49	%			10.82	%			10.08	%			10.03	%			10.85	%
Return on average tangible equity (Non-GAAP)			13.55	%			14.08	%			13.24	%			13.32	%			14.53	%
Return on average assets			1.66	%			1.71	%			1.55	%			1.52	%			1.67	%
Operating return on average stockholders’ equity (Non-GAAP)			11.50	%			12.08	%			10.87	%			10.11	%			11.88	%
Operating return on average tangible equity (Non-GAAP)			14.86	%			15.72	%			14.28	%			13.44	%			15.92	%
Operating return on average assets (Non-GAAP)			1.82	%			1.91	%			1.68	%			1.53	%			1.83	%
Average earning assets to average total assets			90.28	%			90.13	%			89.83	%			89.72	%			89.64	%
Average loans receivable to average deposits			93.46	%			93.04	%			93.81	%			92.12	%			87.99	%
Average stockholders’ equity to average assets			15.81	%			15.79	%			15.42	%			15.17	%			15.39	%
Net interest margin-tax equivalent (1)			3.94	%			4.13	%			3.99	%			4.00	%			4.23	%
Net charge-offs (recoveries) to average loans receivable			0.03	%			0.05	%			(0.03	)%			0.02	%			(0.02	)%
Nonperforming assets to period end loans receivable			0.85	%			0.77	%			0.54	%			0.50	%			0.53	%
Nonperforming assets to total assets			0.59	%			0.52	%			0.37	%			0.34	%			0.35	%
Nonperforming loans to total loans			0.78	%			0.70	%			0.50	%			0.45	%			0.47	%
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)			0.51	%			0.59	%			0.60	%			0.58	%			0.57	%
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)			0.74	%			0.74	%			0.77	%			0.77	%			0.79	%
Allowance for loan losses as a percentage of nonperforming loans (2)			65.44	%			84.73	%			120.51	%			129.74	%			123.13	%
Nonperforming Assets, excluding purchased credit impaired:
Loans 90 days or more past due and still accruing		$	81				—				—				—				20
Nonaccrual loans			25,166				19,032				13,167				11,578				11,721
Total nonperforming loans			25,247				19,032				13,167				11,578				11,741
Real estate acquired through foreclosure, net			2,325				1,832				1,218				1,335				1,534
Total nonperforming assets		$	27,572				20,864				14,385				12,913				13,275
(1)  Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2)  Acquired loans represent 30.7%, 20.2%, 22.7%, 24.9%, and 27.2%, of gross loans receivable at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, respectively.

Carolina Financial Corporation Segment Information (Unaudited) (Dollars in thousands)
		For the Three Months								For the Year								Increase (Decrease)
		Ended December 31,								Ended December 31,								Three
		2019				2018				2019				2018				Months				Year
Segment net income:
Community banking		$	15,933				15,449				63,382				49,624				484				13,758
Wholesale mortgage banking			949				599				1,572				2,315				350				(743	)
Other			(424	)			(594	)			(2,299	)			(2,266	)			170				(33	)
Eliminations			35				(10	)			85				(3	)			45				88
Total net income		$	16,493				15,444				62,740				49,670				1,049				13,070

		For the Three Months Ended
		December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019				December 31, 2018
Segment net income:
Community banking		$	15,933				16,864				15,804				14,781				15,449
Wholesale mortgage banking			949				325				(92	)			390				599
Other			(424	)			(582	)			(657	)			(636	)			(594	)
Eliminations			35				21				19				10				(10	)
Total net income		$	16,493				16,628				15,074				14,545				15,444

		For the Three Months Ended December 31, 2019
		Community				Mortgage
		Banking				Banking				Other				Eliminations				Total
Interest income		$	43,991				399				13				(17	)			44,386
Interest expense			8,574				61				501				(63	)			9,073
Net interest income (expense)			35,417				338				(488	)			46				35,313
Provision for loan losses			589				(9	)			—				—				580
Noninterest income from external customers			6,222				7,045				24				—				13,291
Intersegment noninterest income			242				—				—				(242	)			—
Noninterest expense from external customers			20,423				5,924				212				—				26,559
Intersegment noninterest expense			—				240				2				(242	)			—
Income (loss) before income taxes			20,869				1,228				(678	)			46				21,465
Income tax expense (benefit)			4,936				279				(254	)			11				4,972
Net income (loss)		$	15,933				949				(424	)			35				16,493

		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 from external customers			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

Carolina Financial Corporation Segment Information, Continued (Unaudited) (Dollars in thousands)
		For the Year Ended December 31, 2019
		Community				Mortgage
		Banking				Banking				Other				Eliminations				Total
Interest income		$	175,726				1,695				59				(364	)			177,116
Interest expense			35,736				483				2,138				(491	)			37,866
Net interest income (expense)			139,990				1,212				(2,079	)			127				139,250
Provision for loan losses			2,709				(129	)			—				—				2,580
Noninterest income from external customers			21,384				25,652				74				—				47,110
Intersegment noninterest income			966				17				—				(983	)			—
Noninterest expense from external customers			77,921				24,004				1,167				—				103,092
Intersegment noninterest expense			—				960				6				(966	)			—
Income (loss) before income taxes			81,710				2,046				(3,178	)			110				80,688
Income tax expense (benefit)			18,328				474				(879	)			25				17,948
Net income (loss)		$	63,382				1,572				(2,299	)			85				62,740

		For the Year 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 from external customers			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

		Loan Originations					Mortgage Banking Income				Margin
		For the Three Months Ended December 31,
		2019			2018		2019		2018		2019			2018
Additional segment information:
Community banking		$	24,473		16,935		706		509		2.88	%		3.01	%
Wholesale mortgage banking			237,604		168,002		4,821		3,084		2.03	%		1.84	%
Total		$	262,077		184,937		5,527		3,593		2.11	%		1.94	%

		Loan Originations					Mortgage Banking Income				Margin
		For the Year Ended December 31,
		2019			2018		2019		2018		2019			2018
Additional segment information:
Community banking		$	107,452		108,721		2,998		2,352		2.79	%		2.16	%
Wholesale mortgage banking			799,975		744,208		16,328		12,943		2.04	%		1.74	%
Total		$	907,427		852,929		19,326		15,295		2.13	%		1.79	%

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,
		2019				2019				2019				2019				2018
Core deposits:
Noninterest-bearing demand accounts		$	668,616				611,959				616,823				575,990				547,022
Interest-bearing demand accounts			651,577				587,963				561,094				581,424				566,527
Savings accounts			218,786				180,827				184,764				188,725				192,322
Money market accounts			590,916				428,867				437,716				458,575				431,246
Total core deposits (Non-GAAP)			2,129,895				1,809,616				1,800,397				1,804,714				1,737,117
Certificates of deposit:
Less than $250,000			1,159,978				948,218				921,309				923,709				875,749
$250,000 or more			118,488				85,380				84,403				88,647				105,327
Total certificates of deposit			1,278,466				1,033,598				1,005,712				1,012,356				981,076
Total deposits		$	3,408,361				2,843,214				2,806,109				2,817,070				2,718,193
Tangible book value per share:
Total stockholders’ equity		$	743,440				621,595				605,579				589,150				575,285
Less intangible assets			(200,880	)			(141,849	)			(142,570	)			(143,305	)			(144,054	)
Tangible common equity (Non-GAAP)		$	542,560				479,746				463,009				445,845				431,231
Issued and outstanding shares			24,777,608				22,249,424				22,284,981				22,296,372				22,387,009
Less nonvested restricted stock awards			(112,549	)			(115,933	)			(109,728	)			(111,578	)			(117,966	)
Period end dilutive shares			24,665,059				22,133,491				22,175,253				22,184,794				22,269,043
Total stockholders’ equity		$	743,440				621,595				605,579				589,150				575,285
Divided by period end dilutive shares			24,665,059				22,133,491				22,175,253				22,184,794				22,269,043
Common book value per share		$	30.14				28.08				27.31				26.56				25.83
Tangible common equity (Non-GAAP)		$	542,560				479,746				463,009				445,845				431,231
Divided by period end dilutive shares			24,665,059				22,133,491				22,175,253				22,184,794				22,269,043
Tangible common book value per share (Non-GAAP)		$	22.00				21.68				20.88				20.10				19.36
		At the Month Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2019				2019				2019				2019				2018
Acquired and non-acquired loans:
Acquired loans receivable		$	989,534				548,754				601,193				644,461				686,401
Non-acquired gross loans receivable			2,238,403				2,173,427				2,050,043				1,946,149				1,837,935
Total gross loans receivable		$	3,227,937				2,722,181				2,651,236				2,590,610				2,524,336
% Acquired			30.66	%			20.16	%			22.68	%			24.88	%			27.19	%
Non-acquired loans		$	2,238,403				2,173,427				2,050,043				1,946,149				1,837,935
Allowance for loan losses			16,521				16,125				15,867				15,021				14,463
Allowance for loan losses to non-acquired loans (Non-GAAP)			0.74	%			0.74	%			0.77	%			0.77	%			0.79	%
Total gross loans receivable		$	3,227,937				2,722,181				2,651,236				2,590,610				2,524,336
Allowance for loan losses			16,521				16,125				15,867				15,021				14,463
Allowance for loan losses to total gross loans receivable			0.51	%			0.59	%			0.60	%			0.58	%			0.57	%

		For the Three Months Ended																				For the Year Ended
		December 31, 2019				September 30, 2019				June 30, 2019				March 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
Net interest margin - core:
Net interest margin-tax equivalent (1)		$	35,672				36,539				34,661				33,899				35,349				140,773				135,122
Purchased loan accretion and early payoff
charges and deferred fees			(1,916	)			(3,209	)			(1,521	)			(1,617	)			(3,283	)			(8,264	)			(11,491	)
Net interest margin - core (2) (Non-GAAP)		$	33,756				33,330				33,140				32,282				32,066				132,509				123,631
Loans receivable interest income - core:
Loans receivable interest income		$	37,452				38,291				36,325				34,813				34,969				146,882				132,289
Purchased loan accretion and early payoff
charges and deferred fees			(1,916	)			(3,209	)			(1,521	)			(1,617	)			(3,283	)			(8,264	)			(11,491	)
Loans receivable interest income - core (2)
(Non-GAAP)		$	35,536				35,082				34,804				33,196				31,686				138,618				120,798
(1)  Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2)  Net interest margin-core and yield on loans - core excludes the impact of purchase accounting accretion, loan payoff charges and related deferred fees recognized related to early loan repayments.

Carolina Financial Corporation Reconciliation of Non-GAAP Financial Measures - Consolidated (Unaudited) (In thousands, except share data)
		For the Three Months Ended																For the Year Ended
		December 31, 2019				September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			December 31, 2019			December 31, 2018
As Reported:
Income before income taxes		$	21,465			21,372			19,356			18,495			19,425			80,688			62,439
Tax expense			4,972			4,744			4,282			3,950			3,981			17,948			12,769
Net Income		$	16,493			16,628			15,074			14,545			15,444			62,740			49,670
Average equity		$	628,850			614,550			598,196			580,300			569,528			605,629			526,701
Average tangible equity (Non-GAAP)			486,716			472,349			455,270			436,630			425,105			462,902			381,110
Average assets			3,978,345			3,891,019			3,878,269			3,826,116			3,700,795			3,893,831			3,629,490
Average loans receivable			2,711,061			2,639,921			2,610,394			2,535,192			2,428,603			2,624,667			2,388,856
Average interest earning assets			3,591,503			3,507,155			3,483,713			3,432,818			3,322,894			3,504,258			3,252,914
Return on average assets			1.66	%		1.71	%		1.55	%		1.52	%		1.67	%		1.61	%		1.37	%
Return on average equity			10.49	%		10.82	%		10.08	%		10.03	%		10.85	%		10.36	%		9.43	%
Return on average tangible equity (Non-GAAP)			13.55	%		14.08	%		13.24	%		13.32	%		14.53	%		13.55	%		13.03	%
Tangible equity to tangible assets (Non-GAAP)			12.04	%		12.50	%		12.36	%		12.05	%		11.83	%		12.04	%		11.83	%
Net interest margin-tax equivalent (1)			3.94	%		4.13	%		3.99	%		4.00	%		4.23	%		4.02	%		4.15	%
Net interest margin-core (2) (Non-GAAP)			3.73	%		3.77	%		3.82	%		3.81	%		3.84	%		3.78	%		3.80	%
Yield on loans receivable-core (2) (Non-GAAP)			5.20	%		5.27	%		5.35	%		5.31	%		5.18	%		5.28	%		5.06	%
Weighted average common shares outstanding:
Basic			22,140,187			22,149,567			22,189,508			22,193,861			22,416,190			22,168,082			21,756,595
Diluted			22,363,814			22,336,383			22,372,273			22,381,809			22,587,466			22,385,127			21,972,857
Earnings per common share:
Basic		$	0.74			0.75			0.68			0.66			0.69			2.83			2.28
Diluted		$	0.74			0.74			0.67			0.65			0.68			2.80			2.26
Operating Earnings and Performance Ratios:
Income before income taxes		$	21,465			21,372			19,356			18,495			19,425			80,688			62,439
(Gain)/loss on sale of securities			—			(756	)		(1,941	)		(1,194	)		(346	)		(3,891	)		1,946
Fair value adjustments on interest rate swaps			(873	)		996			2,164			1,371			2,222			3,659			340
Merger related expenses			2,270			484			—			—			—			2,753			15,216
Loss on extinguishment of debt			77			70			31			—			—			178			—
Impairment of mortgage servicing rights			—			1,800			1,300			—			—			3,100			—
Operating earnings before income taxes			22,939			23,966			20,910			18,672			21,301			86,487			79,941
Tax expense (3)			4,858			5,400			4,653			4,001			4,379			18,868			17,105
Operating earnings (Non-GAAP)		$	18,081			18,566			16,257			14,671			16,922			67,619			62,836
Average equity		$	628,850			614,550			598,196			580,300			569,528			605,629			526,701
Less average intangible assets			(142,134	)		(142,201	)		(142,926	)		(143,670	)		(144,423	)		(142,727	)		(145,591	)
Average tangible common equity (Non-GAAP)		$	486,716			472,349			455,270			436,630			425,105			462,902			381,110
Average assets		$	3,978,345			3,891,019			3,878,269			3,826,116			3,700,795			3,893,831			3,629,490
Less average intangible assets			(142,134	)		(142,201	)		(142,926	)		(143,670	)		(144,423	)		(142,727	)		(145,591	)
Average tangible assets (Non-GAAP)		$	3,836,211			3,748,818			3,735,343			3,682,446			3,556,372			3,751,104			3,483,899
Operating return on average assets (Non-GAAP)			1.82	%		1.91	%		1.68	%		1.53	%		1.83	%		1.74	%		1.73	%
Operating return on average stockholders’ equity (Non-GAAP)			11.50	%		12.08	%		10.87	%		10.11	%		11.88	%		11.17	%		11.93	%
Operating return on average tangible assets (Non-GAAP)			1.89	%		1.98	%		1.74	%		1.59	%		1.90	%		1.80	%		1.80	%
Operating return on average tangible equity (Non-GAAP)			14.86	%		15.72	%		14.28	%		13.44	%		15.92	%		14.61	%		16.49	%
Weighted average common shares outstanding:
Basic			22,140,187			22,149,567			22,189,508			22,193,861			22,416,190			22,168,082			21,756,595
Diluted			22,363,814			22,336,383			22,372,273			22,381,809			22,587,466			22,385,127			21,972,857
Operating earnings per common share:
Basic (Non-GAAP)		$	0.82			0.84			0.73			0.66			0.75			3.05			2.89
Diluted (Non-GAAP)		$	0.81			0.83			0.73			0.66			0.75			3.02			2.86
(1)  Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
(2)  Net interest margin-core and yield on loans - core excludes the impact of purchase accounting accretion, loan payoff charges and related deferred fees recognized related to early loan repayments.
(3)  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 Year Ended
		December 31, 2019				September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			December 31, 2019			December 31, 2018
Segment net income:
Community banking		$	15,933			16,864			15,804			14,781			15,449			63,382			49,624
Wholesale mortgage banking			949			325			(92	)		390			599			1,572			2,315
Other			(424	)		(582	)		(657	)		(636	)		(594	)		(2,299	)		(2,266	)
Eliminations			35			21			19			10			(10	)		85			(3	)
Total net income		$	16,493			16,628			15,074			14,545			15,444			62,740			49,670
Community banking segment operating earnings:
Income before income taxes		$	20,869			21,716			20,299			18,827			19,424			81,710			62,409
Tax expense (1)			4,936			4,852			4,495			4,046			3,975			18,328			12,785
Bank segment net income		$	15,933			16,864			15,804			14,781			15,449			63,382			49,624
Weighted average common shares outstanding:
Basic			22,140,187			22,149,567			22,189,508			22,193,861			22,416,190			22,168,082			21,756,595
Diluted			22,363,814			22,336,383			22,372,273			22,381,809			22,587,466			22,385,127			21,972,857
Bank segment earnings per common share:
Basic		$	0.72			0.76			0.71			0.67			0.69			2.86			2.28
Diluted		$	0.71			0.76			0.71			0.66			0.68			2.83			2.26
Bank segment income before taxes		$	20,869			21,716			20,299			18,827			19,424			81,710			62,409
(Gain)/loss on sale of securities			—			(756	)		(1,941	)		(1,194	)		(346	)		(3,891	)		1,941
Fair value adjustments on interest rate swaps			(873	)		996			2,164			1,371			2,222			3,659			388
Loss on extinguishment of debt			77			70			31			—			—			178			—
Merger related expenses			2,270			484			—			—			—			2,753			15,216
Operating earnings before income taxes			22,343			22,510			20,553			19,004			21,300			84,409			79,954
Tax expense (1)			4,821			5,043			4,566			4,096			4,371			18,513			17,117
Operating bank segment earnings (Non-GAAP)		$	17,522			17,467			15,987			14,908			16,929			65,896			62,837
Operating bank segment earnings per common share:
Basic (Non-GAAP)		$	0.79			0.79			0.72			0.67			0.76			2.97			2.89
Diluted (Non-GAAP)		$	0.78			0.78			0.71			0.67			0.75			2.94			2.86
(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