EX-99.1 2 e19443_ex99-1.htm

(LOGO)

Carolina Financial Corporation Reports Results for the Third Quarter of 2019

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

For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700

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

Financial highlights at and for the three months ended September 30, 2019, include:

Net income for Q3 2019 increased 9.3% to $16.6 million, or $0.74 per diluted share, from $15.2 million, or $0.66 per diluted share for Q3 2018.

Operating earnings for Q3 2019, which exclude certain non-operating income and expenses, increased 20.8% to $18.6 million, or $0.83 per diluted share, from $15.4 million, or $0.67 per diluted share, for Q3 2018.

Operating earnings for Q3 2019 have been adjusted to eliminate the following significant items:

The fair value loss on interest rate swaps of $1.0 million due to the continued 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 balance sheet fair value of securities increased $3.5 million at the end of Q3 2019 compared to Q2 2019.

The gain on sale of securities of approximately $756,000.

Merger-related expenses of approximately $484,000.

The loss on early extinguishment of debt of approximately $70,000.

The temporary impairment of our mortgage servicing rights (MSR) of $1.8 million due to increased prepayment speed assumptions in the portfolio driven by the continued impact of falling interest rates.

Performance ratios for Q3 2019 compared to Q3 2018:

Return on average assets was 1.71% compared to 1.66%.

Operating return on average assets was 1.91% compared to 1.68%.

Return on average tangible equity was 14.08% compared to 14.68%.

Operating return on average tangible equity was 15.72% compared to 14.85%.

Loans receivable, gross grew $70.9 million from June 30, 2019, or at an annualized rate of 10.7%, and grew $197.8 million, or at an annualized rate of 10.5% since December 31, 2018.

Total deposits increased $37.1 million from June 30, 2019 and increased $125.0 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 third quarter of 2019, the Company repurchased approximately 47,000 shares at an average price of $34.23. Cumulatively since December 4, 2018, the Company repurchased approximately 381,000 shares at an average price of $31.94.

Financial Results

Carolina Financial Corporation

The Company reported net income for Q3 2019 of $16.6 million, or $0.74 per diluted share, as compared to $15.2 million, or $0.66 per diluted share, for Q3 2018.

	o	Included in net income for Q3 2019 was a recovery of interest income of approximately $1.2 million related to a payoff of a purchased credit impaired loan. Excluding the recovery, accretion income from acquired loans was $1.7 million for Q3 2019, as compared to $2.2 million for Q3 2018.
	o	In August 2019, some of our coastal markets were impacted by storm conditions from Hurricane Dorian. While our businesses experienced impacts due to business interruptions, we did not experience any significant damage from the storm and are not expecting material customer impacts.

Operating earnings for Q3 2019, which excludes certain non-operating income and expenses, increased 20.8% to $18.6 million, or $0.83 per diluted share, from $15.4 million, or $0.67 per diluted share, for Q3 2018.

Included in net income for Q3 2019 was a fair value loss on interest rate swaps of $1.0 million due to the continued impact of falling long-term interest rates 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 $3.5 million at the end of Q3 2019 compared to Q2 2019. Q3 2019 also reflects a $1.8 million temporary impairment of mortgage servicing rights, a gain on sale of securities of approximately $756,000, an approximate $70,000 loss on early extinguishment of debt and merger-related expenses of approximately $484,000.

Included in net income for Q3 2018 was a fair value gain on interest rate swaps of approximately $628,000, and a loss on sale of securities of approximately $849,000.

The Company reported net income for the nine months ended September 30, 2019 of $46.2 million or $2.07 per diluted share, as compared to $34.2 million, or $1.57 per diluted share, for the nine months ended September 30, 2018.

Accretion income from acquired loans was $5.9 million for the nine months ended September 30, 2019 compared to $7.0 million for the nine months ended September 30, 2018. Provision for loan losses during the nine months ended September 30, 2019 and 2018 was $2.0 million and $1.3 million, respectively.

Operating earnings for the nine months ended September 30, 2019, which exclude certain non-operating income and expenses, increased to $49.5 million, or $2.21 per diluted share compared to $45.9 million, or $2.10 per diluted share, for the same period of 2018.

	o	Included in net income for the nine months ended September 30, 2019 was a fair value loss on interest rate swaps of $4.5 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 $101,000 and merger-related expenses of approximately $484,000.
	o	Included in net income for the nine months ended September 30, 2018 was a fair value gain on interest rate swaps of $1.9 million, a loss on sale of securities of $2.3 million and merger-related expenses of $15.2 million.

The Company’s net interest margin-tax equivalent (NIM) decreased to 4.13% for Q3 2019 (including recovery of interest income of approximately $1.2 million, or 13 bps to NIM) compared to 4.15% for Q3 2018. In addition, Q3 2019 net interest income included accretion income from acquired loans of $1.7 million (20 bps to NIM) and early payoff fees of approximately $276,000 (3bps to NIM) compared to Q3 2018 accretion income from acquired loans of $2.2 million (27 bps to NIM) and early payoff fees of $620,000 (8 bps to NIM).

Excluding accretion income from acquired loans and early payoff fees, Q3 2019 net interest margin was 3.77% compared to 3.80% in Q3 2018.

The Company reported book value per common share of $28.08 and $25.83 as of September 30, 2019 and December 31, 2018, respectively. Tangible book value per common share was $21.68 and $19.36 as of September 30, 2019 and December 31, 2018, respectively.

At September 30, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $621.6 million as of September 30, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at September 30, 2019 was 12.50% compared to 11.83% at December 31, 2018.

During Q3 2019, the Company repurchased approximately 47,000 shares at an average price of $34.23.

Banking Segment

Banking segment net income increased 10.5% to $16.9 million for Q3 2019 compared to $15.3 million for Q3 2018. Included in net income for Q3 2019 was a recovery of interest income of approximately $1.2 million related to a payoff of a purchased credit impaired loan. Including the $1.2 million recovery, Q3 2019 net income included accretion income from acquired loans of $2.9 million for Q3 2019, as compared to $2.2 million for Q3 2018.

Banking segment net income increased 38.8% to $47.5 million for the nine months ended September 30, 2019 compared to $34.2 million for the nine months ended September 30, 2018. Accretion income from acquired loans was $5.9 million for the nine months ended September 30, 2019 compared to $7.0 million for the nine months ended September 30, 2018. Provision for loan losses during the nine months ended September 30, 2019 and 2018 was $2.1 million and $1.3 million, respectively.

Banking segment operating earnings increased 13.2% to $17.5 million for Q3 2019 compared to $15.4 million for Q3 2018.

Banking segment operating earnings increased 5.3% to $48.4 million for the nine months ended September 30, 2019 compared to $45.9 million for the nine months ended September 30, 2018.

Provision for loan losses during Q3 2019 was $720,000. Provision for loan losses during Q3 2018 was $750,000. The provision for loan losses was primarily driven by the organic loan growth.

Non-performing assets were 0.52% and 0.35% of total assets at September 30, 2019 and December 31, 2018, respectively. The increase in the NPA ratio was primarily due to one fully collateralized lending relationship.

Loans receivable, gross increased at an annualized rate of 10.5% to $2.7 billion at September 30, 2019 compared to $2.5 billion at December 31, 2018.

Total deposits increased $125.0 million since December 31, 2018.

Wholesale Mortgage Banking

Net income for the wholesale mortgage banking segment was $325,000 for Q3 2019 compared to net income of $555,000 for Q3 2018. Net income was $0.6 million for the nine months ended September 30, 2019 compared to $1.7 million for the nine months ended September 30, 2018.

Included in net income for the three and nine months ended September 30, 2019 was a temporary impairment of mortgage servicing rights of $1.8 million and $3.1 million, respectively. 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 $1.7 million for Q3 2019 and $3.0 million for the nine months ended September 30, 2019.

Included in net income for the three and nine months ended September 30, 2018 was a loss on sale of other real estate owned of approximately $92,000 and the cost to terminate an equipment lease in the amount of $206,000. Additionally, included in net income for the three and nine months ended September 30, 2018 was the impact of Hurricane Florence on origination activity and closings.

Net margin was 2.19% for the three months ended September 30, 2019 compared to 1.65% for the three months ended September 30, 2018. Originations for Q3 2019 and Q3 2018 were $232.9 million and $190.1 million, respectively.

Net margin was 2.05% for the nine months ended September 30, 2019 compared to 1.71% for the nine months ended September 30, 2018. Originations for the nine months ended September 30, 2019 and 2018 were $562.4 million and $576.2 million, respectively.

Dividend Declared

On October 23, 2019, the Company declared a $0.10 dividend per common share, payable on January 3, 2020 to stockholders of record on December 13, 2019.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on October 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 6565867. Listeners should dial in 10 minutes prior to the start of the call. The live webcast and presentation slides will be available on www.haveanicebank.com under Investor Relations.

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, News & Market Information and Presentations approximately three hours after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 6565867.

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ: CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company. As of September 30, 2019, Carolina Financial Corporation had approximately $4.0 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

	September 30, 2019			December 31, 2018
	(Unaudited)			(Audited)
	(In thousands)
ASSETS
Cash and due from banks	$	25,519			28,857
Interest-bearing cash		51,358			33,276
Cash and cash equivalents		76,877			62,133
Securities available-for-sale		796,097			842,801
Federal Home Loan Bank stock, at cost		21,707			21,696
Other investments		3,520			3,450
Derivative assets		2,303			4,032
Loans held for sale		36,882			16,972
Loans receivable		2,722,181			2,524,336
Allowance for loan losses		(16,125	)		(14,463	)
Loans receivable, net		2,706,056			2,509,873

Premises and equipment, net		59,841			60,866
Right of use operating lease asset		17,551			—
Accrued interest receivable		13,029			13,494
Real estate acquired through foreclosure, net		1,832			1,534
Deferred tax assets, net		1,174			5,786
Mortgage servicing rights		26,528			32,933
Cash value life insurance		59,699			58,728
Core deposit intangible		14,257			16,462
Goodwill		127,592			127,592
Other assets		14,943			12,396
Total assets	$	3,979,888			3,790,748

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Noninterest-bearing deposits	$	611,959			547,022
Interest-bearing deposits		2,231,255			2,171,171
Total deposits		2,843,214			2,718,193
Short-term borrowed funds		417,000			405,500
Long-term debt		42,570			59,436
Right of use operating lease liability		17,905			—
Derivative liabilities		4,952			1,232
Drafts outstanding		6,518			8,129
Advances from borrowers for insurance and taxes		6,923			4,100
Accrued interest payable		2,009			1,591
Reserve for mortgage repurchase losses		992			1,292
Dividends payable to stockholders		2,003			1,576
Accrued expenses and other liabilities		14,207			14,414
Total liabilities		3,358,293			3,215,463
Stockholders’ equity:
Preferred stock		—			—
Common stock		222			224
Additional paid-in capital		403,700			408,224
Retained earnings		207,535			167,173
Accumulated other comprehensive income (loss), net of tax		10,138			(336	)
Total stockholders’ equity		621,595			575,285
Total liabilities and stockholders’ equity	$	3,979,888			3,790,748

CAROLINA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2019			2018			2019			2018
	(In thousands, except share data)
Interest income
Loans	$	38,604			33,623			110,152			98,037
Investment securities		6,745			6,912			21,209			18,979
Dividends from Federal Home Loan Bank stock		331			313			923			751
Other interest income		134			137			446			371
Total interest income		45,814			40,985			132,730			118,138
Interest expense
Deposits		7,125			5,029			20,224			12,919
Short-term borrowed funds		1,931			1,529			6,676			4,488
Long-term debt		575			544			1,893			1,813
Total interest expense		9,631			7,102			28,793			19,220
Net interest income		36,183			33,883			103,937			98,918
Provision for loan losses		620			750			2,000			1,309
Net interest income after provision for loan losses		35,563			33,133			101,937			97,609
Noninterest income
Mortgage banking income		6,063			3,685			13,799			11,701
Deposit service charges		1,742			2,084			5,088			6,096
Net loss on extinguishment of debt		(70	)		—			(101	)		—
Net gain (loss) on sale of securities		756			(849	)		3,891			(2,292	)
Fair value adjustments on interest rate swaps		(996	)		628			(4,531	)		1,883
Net increase in cash value life insurance		400			378			1,196			1,153
Mortgage loan servicing income		2,490			2,313			7,694			6,428
Debit card income, net		1,148			1,086			3,339			3,562
Other		1,183			975			3,444			2,846
Total noninterest income		12,716			10,300			33,819			31,377
Noninterest expense
Salaries and employee benefits		13,634			13,451			40,264			40,660
Occupancy and equipment		4,286			4,113			12,523			11,860
Marketing and public relations		432			312			1,306			1,011
FDIC insurance		—			285			502			805
Recovery of mortgage loan repurchase losses		(100	)		(150	)		(300	)		(450	)
Legal expense		159			94			372			327
Other real estate expense (income), net		36			(13	)		330			(2	)
Mortgage subservicing expense		702			640			2,176			1,772
Amortization of mortgage servicing rights		1,572			1,099			4,151			2,967
Impairment of mortgage servicing rights		1,800			—			3,100			—
Amortization of core deposit intangible		720			778			2,204			2,375
Merger-related expenses		484			—			484			15,216
Other		3,182			3,393			9,421			9,431
Total noninterest expense		26,907			24,002			76,533			85,972
Income before income taxes		21,372			19,431			59,223			43,014
Income tax expense		4,744			4,227			12,976			8,788
Net income	$	16,628			15,204			46,247			34,226

Earnings per common share:
Basic	$	0.75			0.67			2.09			1.58
Diluted	$	0.74			0.66			2.07			1.57
Dividends declared per common share	$	0.09			0.07			0.26			0.18
Weighted average common shares outstanding:
Basic		22,149,567			22,678,681			22,177,483			21,616,485
Diluted		22,336,383			22,898,983			22,365,193			21,842,769

CAROLINA FINANCIAL CORPORATION
(Unaudited)

	At or for the Three Months Ended
Selected Financial Data:	September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
	(Dollars in thousands)
Selected Average Balances:
Total assets	$	3,891,019			3,878,269			3,826,116			3,700,795			3,663,915
Investment securities and FHLB stock		815,207			832,224			833,720			838,834			831,793
Loans receivable, net		2,639,921			2,610,394			2,535,192			2,428,603			2,402,075
Loans held for sale		29,733			21,905			13,754			20,120			23,692
Deposits		2,837,353			2,782,576			2,751,913			2,760,156			2,735,346
Stockholders’ equity		614,550			598,196			580,300			569,528			559,401

Performance Ratios (annualized):
Return on average stockholders’ equity		10.82	%		10.08	%		10.03	%		10.85	%		10.87	%
Return on average tangible equity (Non-GAAP)		14.08	%		13.24	%		13.32	%		14.53	%		14.68	%
Return on average assets		1.71	%		1.55	%		1.52	%		1.67	%		1.66	%
Operating return on average stockholders’ equity (Non-GAAP)		12.08	%		10.87	%		10.11	%		11.88	%		10.99	%
Operating return on average tangible equity (Non-GAAP)		15.72	%		14.28	%		13.44	%		15.92	%		14.85	%
Operating return on average assets (Non-GAAP)		1.91	%		1.68	%		1.53	%		1.83	%		1.68	%
Average earning assets to average total assets		90.13	%		89.83	%		89.72	%		89.64	%		89.59	%
Average loans receivable to average deposits		93.04	%		93.81	%		92.12	%		87.99	%		87.82	%
Average stockholders’ equity to average assets		15.79	%		15.42	%		15.17	%		15.39	%		15.27	%
Net interest margin-tax equivalent (1)		4.13	%		3.99	%		4.00	%		4.23	%		4.15	%
Net charge-offs (recoveries) to average loans receivable		0.05	%		(0.03	)%		0.02	%		(0.02	)%		0.02	%
Nonperforming assets to period end loans receivable		0.77	%		0.54	%		0.50	%		0.53	%		0.49	%
Nonperforming assets to total assets		0.52	%		0.37	%		0.34	%		0.35	%		0.32	%
Nonperforming loans to total loans		0.70	%		0.50	%		0.45	%		0.47	%		0.43	%
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)		0.59	%		0.60	%		0.58	%		0.57	%		0.55	%
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)		0.74	%		0.77	%		0.77	%		0.79	%		0.80	%
Allowance for loan losses as a percentage of nonperforming loans (2)		84.73	%		120.51	%		129.74	%		123.13	%		129.26	%

Nonperforming Assets, excluding purchased credit impaired:
Loans 90 days or more past due and still accruing	$	—			—			—			20			32
Nonaccrual loans		19,032			13,167			11,578			11,721			10,501
Total nonperforming loans		19,032			13,167			11,578			11,741			10,533
Real estate acquired through foreclosure, net		1,832			1,218			1,335			1,534			1,601
Total nonperforming assets	$	20,864			14,385			12,913			13,275			12,134

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

(2) Acquired loans represent 20.2%, 22.7%, 24.9%, 27.2%, and 30.5%, of gross loans receivable at September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018, respectively.

Carolina Financial Corporation
Segment Information
(Unaudited)
(Dollars in thousands)

	For the Three Months						For the Nine Months						Increase (Decrease)
	Ended September 30,						Ended September 30,						Three			Nine
	2019			2018			2019			2018			Months			Months
Segment net income:
Community banking	$	16,864			15,263			47,450			34,175			1,601			13,275
Wholesale mortgage banking		325			555			623			1,716			(230	)		(1,093	)
Other		(582	)		(606	)		(1,876	)		(1,672	)		24			(204	)
Eliminations		21			(8	)		50			7			29			43
Total net income	$	16,628			15,204			46,247			34,226			1,424			12,021


	For the Three Months Ended
	September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
Segment net income:
Community banking	$	16,864			15,804			14,781			15,449			15,263
Wholesale mortgage banking		325			(92	)		390			599			555
Other		(582	)		(657	)		(636	)		(594	)		(606	)
Eliminations		21			19			10			(10	)		(8	)
Total net income	$	16,628			15,074			14,545			15,444			15,204


	For the Three Months Ended September 30, 2019
	Community		Mortgage
	Banking		Banking			Other			Eliminations			Total
Interest income	$	45,478		438			14			(116	)		45,814
Interest expense		9,103		142			530			(144	)		9,631
Net interest income (expense)		36,375		296			(516	)		28			36,183
Provision for loan losses		720		(100	)		—			—			620
Noninterest income from external customers		5,306		7,389			21			—			12,716
Intersegment noninterest income		242		—			—			(242	)		—
Noninterest expense		19,487		7,107			313			—			26,907
Intersegment noninterest expense		—		240			2			(242	)		—
Income (loss) before income taxes		21,716		438			(810	)		28			21,372
Income tax expense (benefit)		4,852		113			(228	)		7			4,744
Net income (loss)	$	16,864		325			(582	)		21			16,628


	For the Three Months Ended September 30, 2018
	Community		Mortgage
	Banking		Banking		Other			Eliminations			Total
Interest income	$	40,588		472		14			(89	)		40,985
Interest expense		6,582		113		520			(113	)		7,102
Net interest income (expense)		34,006		359		(506	)		24			33,883
Provision for loan losses		750		—		—			—			750
Noninterest income from external customers		5,060		5,240		—			—			10,300
Intersegment noninterest income		242		36		—			(278	)		—
Noninterest expense		19,041		4,674		287			—			24,002
Intersegment noninterest expense		—		242		—			(242	)		—
Income (loss) before income taxes		19,517		719		(793	)		(12	)		19,431
Income tax expense (benefit)		4,254		164		(187	)		(4	)		4,227
Net income (loss)	$	15,263		555		(606	)		(8	)		15,204

Carolina Financial Corporation
Segment Information, Continued
(Unaudited)
(Dollars in thousands)

	For the Nine Months Ended September 30, 2019
	Community		Mortgage
	Banking		Banking			Other			Eliminations			Total
Interest income	$	131,735		1,296			45			(346	)		132,730
Interest expense		27,162		422			1,638			(429	)		28,793
Net interest income (expense)		104,573		874			(1,593	)		83			103,937
Provision for loan losses		2,120		(120	)		—			—			2,000
Noninterest income from external customers		15,162		18,606			51			—			33,819
Intersegment noninterest income		724		18			—			(742	)		—
Noninterest expense		57,498		18,079			956			—			76,533
Intersegment noninterest expense		—		720			4			(724	)		—
Income (loss) before income taxes		60,841		819			(2,502	)		65			59,223
Income tax expense (benefit)		13,391		196			(626	)		15			12,976
Net income (loss)	$	47,450		623			(1,876	)		50			46,247


	For the Nine Months Ended September 30, 2018
	Community		Mortgage
	Banking		Banking		Other			Eliminations			Total
Interest income	$	116,905		1,361		41			(169	)		118,138
Interest expense		17,732		244		1,488			(244	)		19,220
Net interest income (expense)		99,173		1,117		(1,447	)		75			98,918
Provision for loan losses		1,284		25		—			—			1,309
Noninterest income from external customers		15,690		15,599		88			—			31,377
Intersegment noninterest income		724		64		—			(788	)		—
Noninterest expense		71,318		13,809		845			—			85,972
Intersegment noninterest expense		—		725		—			(725	)		—
Income (loss) before income taxes		42,985		2,221		(2,204	)		12			43,014
Income tax expense (benefit)		8,810		505		(532	)		5			8,788
Net income (loss)	$	34,175		1,716		(1,672	)		7			34,226


	Loan Originations				Mortgage Banking Income				Margin
	For the Three Months Ended September 30,
	2019		2018		2019		2018		2019			2018
Additional segment information:
Community banking	$	33,233		27,563		968		541		2.91	%		1.96	%
Wholesale mortgage banking		232,874		190,142		5,095		3,144		2.19	%		1.65	%
Total	$	266,107		217,705		6,063		3,685		2.28	%		1.69	%


	Loan Originations				Mortgage Banking Income				Margin
	For the Nine Months Ended September 30,
	2019		2018		2019		2018		2019			2018
Additional segment information:
Community banking	$	82,979		91,786		2,292		1,843		2.76	%		2.01	%
Wholesale mortgage banking		562,371		576,205		11,507		9,858		2.05	%		1.71	%
Total	$	645,350		667,991		13,799		11,701		2.14	%		1.75	%

Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)

	At the Month Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2019			2019			2019			2018			2018
Core deposits:
Noninterest-bearing demand accounts	$	611,959			616,823			575,990			547,022			567,394
Interest-bearing demand accounts		587,963			561,094			581,424			566,527			579,522
Savings accounts		180,827			184,764			188,725			192,322			190,946
Money market accounts		428,867			437,716			458,575			431,246			453,957
Total core deposits (Non-GAAP)		1,809,616			1,800,397			1,804,714			1,737,117			1,791,819

Certificates of deposit:
Less than $250,000		948,218			921,309			923,709			875,749			863,290
$250,000 or more		85,380			84,403			88,647			105,327			104,514
Total certificates of deposit		1,033,598			1,005,712			1,012,356			981,076			967,804
Total deposits	$	2,843,214			2,806,109			2,817,070			2,718,193			2,759,623

Tangible book value per share:
Total stockholders’ equity	$	621,595			605,579			589,150			575,285			564,027
Less intangible assets		(141,849	)		(142,570	)		(143,305	)		(144,054	)		(144,817	)
Tangible common equity (Non-GAAP)	$	479,746			463,009			445,845			431,231			419,210

Issued and outstanding shares		22,249,424			22,284,981			22,296,372			22,387,009			22,570,445
Less nonvested restricted stock awards		(115,933	)		(109,728	)		(111,578	)		(117,966	)		(135,045	)
Period end dilutive shares		22,133,491			22,175,253			22,184,794			22,269,043			22,435,400

Total stockholders’ equity	$	621,595			605,579			589,150			575,285			564,027
Divided by period end dilutive shares		22,133,491			22,175,253			22,184,794			22,269,043			22,435,400
Common book value per share	$	28.08			27.31			26.56			25.83			25.14

Tangible common equity (Non-GAAP)	$	479,746			463,009			445,845			431,231			419,210
Divided by period end dilutive shares		22,133,491			22,175,253			22,184,794			22,269,043			22,435,400
Tangible common book value per share (Non-GAAP)	$	21.68			20.88			20.10			19.36			18.69


Carolina Financial Corporation
Reconciliation of Non-GAAP Financial Measures - Consolidated
(Unaudited)
(In thousands, except share data)

	At the Month Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2019			2019			2019			2018			2018
Acquired and non-acquired loans:
Acquired loans receivable	$	548,754			601,193			644,461			686,401			749,442
Non-acquired gross loans receivable		2,173,427			2,050,043			1,946,149			1,837,935			1,708,022
Total gross loans receivable	$	2,722,181			2,651,236			2,590,610			2,524,336			2,457,464
% Acquired		20.16	%		22.68	%		24.88	%		27.19	%		30.50	%

Non-acquired loans	$	2,173,427			2,050,043			1,946,149			1,837,935			1,708,022
Allowance for loan losses		16,125			15,867			15,021			14,463			13,615
Allowance for loan losses to non-acquired loans (Non-GAAP)		0.74	%		0.77	%		0.77	%		0.79	%		0.80	%

Total gross loans receivable	$	2,722,181			2,651,236			2,590,610			2,524,336			2,457,464
Allowance for loan losses		16,125			15,867			15,021			14,463			13,615
Allowance for loan losses to total gross loans receivable		0.59	%		0.60	%		0.58	%		0.57	%		0.55	%


	For the Three Months Ended															For the Nine Months Ended
	September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			September 30, 2019			September 30, 2018
Net interest margin - core:
Net interest margin-tax equivalent (1)	$	36,539			34,661			33,899			35,349			34,298			105,093			100,189
Purchased loan accretion and early payoff charges and deferred fees		(3,209	)		(1,521	)		(1,617	)		(3,283	)		(2,831	)		(6,347	)		(8,208	)
Net interest margin - core (2) (Non-GAAP)	$	33,330			33,140			32,282			32,066			31,467			98,746			91,981

Loans receivable interest income - core:
Loans receivable interest income	$	38,291			36,325			34,813			34,969			33,357			109,430			97,311
Purchased loan accretion and early payoff charges and deferred fees		(3,209	)		(1,521	)		(1,617	)		(3,283	)		(2,831	)		(6,347	)		(8,208	)
Loans receivable interest income - core (2) (Non-GAAP)	$	35,082			34,804			33,196			31,686			30,526			103,083			89,103

(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 Nine Months Ended
	September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			September 30, 2019			September 30, 2018
As Reported:
Income before income taxes	$	21,372			19,356			18,495			19,425			19,431			59,223			43,014
Tax expense		4,744			4,282			3,950			3,981			4,227			12,976			8,788
Net Income	$	16,628			15,074			14,545			15,444			15,204			46,247			34,226

Average equity	$	614,550			598,196			580,300			569,528			559,401			597,804			512,268
Average tangible equity (Non-GAAP)		472,349			455,270			436,630			425,105			414,205			454,877			366,284
Average assets		3,891,019			3,878,269			3,826,116			3,700,795			3,663,915			3,865,350			3,605,432
Average loans receivable		2,639,921			2,610,394			2,535,192			2,428,603			2,402,075			2,595,553			2,375,461
Average interest earning assets		3,507,155			3,483,713			3,432,818			3,322,894			3,282,426			3,474,864			3,229,234

Return on average assets		1.71	%		1.55	%		1.52	%		1.67	%		1.66	%		1.60	%		1.27	%
Return on average equity		10.82	%		10.08	%		10.03	%		10.85	%		10.87	%		10.31	%		8.91	%
Return on average tangible equity (Non-GAAP)		14.08	%		13.24	%		13.32	%		14.53	%		14.68	%		13.56	%		12.46	%
Tangible equity to tangible assets (Non-GAAP)		12.50	%		12.36	%		12.05	%		11.83	%		11.72	%		12.50	%		11.72	%
Net interest margin-tax equivalent (1)		4.13	%		3.99	%		4.00	%		4.23	%		4.15	%		4.04	%		4.15	%
Net interest margin-core (2) (Non-GAAP)		3.77	%		3.82	%		3.81	%		3.84	%		3.80	%		3.80	%		3.81	%
Yield on loans receivable-core (2) (Non-GAAP)		5.27	%		5.35	%		5.31	%		5.18	%		5.04	%		5.31	%		5.02	%

Weighted average common shares outstanding:
Basic		22,149,567			22,189,508			22,193,861			22,416,190			22,678,681			22,177,483			21,616,485
Diluted		22,336,383			22,372,273			22,381,809			22,587,466			22,898,983			22,365,193			21,842,769
Earnings per common share:
Basic	$	0.75			0.68			0.66			0.69			0.67			2.09			1.58
Diluted	$	0.74			0.67			0.65			0.68			0.66			2.07			1.57

Operating Earnings and Performance Ratios:
Income before income taxes	$	21,372			19,356			18,495			19,425			19,431			59,223			43,014
(Gain)/loss on sale of securities		(756	)		(1,941	)		(1,194	)		(346	)		849			(3,891	)		2,292
Fair value adjustments on interest rate swaps		996			2,164			1,371			2,222			(628	)		4,531			(1,883	)
Merger related expenses		484			—			—			—			—			484			15,216
Loss on extinguishment of debt		70			31			—			—			—			101			—
Impairment of mortgage servicing rights		1,800			1,300			—			—			—			3,100			—
Operating earnings before income taxes		23,966			20,910			18,672			21,301			19,652			63,548			58,639
Tax expense (3)		5,400			4,653			4,001			4,379			4,279			14,047			12,726
Operating earnings (Non-GAAP)	$	18,566			16,257			14,671			16,922			15,373			49,501			45,913

Average equity	$	614,550			598,196			580,300			569,528			559,401			597,804			512,268
Less average intangible assets		(142,201	)		(142,926	)		(143,670	)		(144,423	)		(145,196	)		(142,927	)		(145,984	)
Average tangible common equity (Non-GAAP)	$	472,349			455,270			436,630			425,105			414,205			454,877			366,284

Average assets	$	3,891,019			3,878,269			3,826,116			3,700,795			3,663,915			3,865,350			3,605,432
Less average intangible assets		(142,201	)		(142,926	)		(143,670	)		(144,423	)		(145,196	)		(142,927	)		(145,984	)
Average tangible assets (Non-GAAP)	$	3,748,818			3,735,343			3,682,446			3,556,372			3,518,719			3,722,423			3,459,448

Operating return on average assets (Non-GAAP)		1.91	%		1.68	%		1.53	%		1.83	%		1.68	%		1.71	%		1.70	%
Operating return on average stockholders’ equity (Non-GAAP)		12.08	%		10.87	%		10.11	%		11.88	%		10.99	%		11.04	%		11.95	%
Operating return on average tangible assets (Non-GAAP)		1.98	%		1.74	%		1.59	%		1.90	%		1.75	%		1.77	%		1.77	%
Operating return on average tangible equity (Non-GAAP)		15.72	%		14.28	%		13.44	%		15.92	%		14.85	%		14.51	%		16.71	%

Weighted average common shares outstanding:
Basic		22,149,567			22,189,508			22,193,861			22,416,190			22,678,681			22,177,483			21,616,485
Diluted		22,336,383			22,372,273			22,381,809			22,587,466			22,898,983			22,365,193			21,842,769
Operating earnings per common share:
Basic (Non-GAAP)	$	0.84			0.73			0.66			0.75			0.68			2.23			2.12
Diluted (Non-GAAP)	$	0.83			0.73			0.66			0.75			0.67			2.21			2.10

(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 Nine Months Ended
	September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			September 30, 2019			September 30, 2018
Segment net income:
Community banking	$	16,864			15,804			14,781			15,449			15,263			47,450			34,175
Wholesale mortgage banking		325			(92	)		390			599			555			623			1,716
Other		(582	)		(657	)		(636	)		(594	)		(606	)		(1,876	)		(1,672	)
Eliminations		21			19			10			(10	)		(8	)		50			7
Total net income	$	16,628			15,074			14,545			15,444			15,204			46,247			34,226

Community banking segment operating earnings:
Income before income taxes	$	21,716			20,299			18,827			19,424			19,517			60,841			42,985
Tax expense (1)		4,852			4,495			4,046			3,975			4,254			13,391			8,810
Bank segment net income	$	16,864			15,804			14,781			15,449			15,263			47,450			34,175

Weighted average common shares outstanding:
Basic		22,149,567			22,189,508			22,193,861			22,416,190			22,678,681			22,177,483			21,616,485
Diluted		22,336,383			22,372,273			22,381,809			22,587,466			22,898,983			22,365,193			21,842,769

Bank segment earnings per common share:
Basic	$	0.76			0.71			0.67			0.69			0.67			2.14			1.58
Diluted	$	0.76			0.71			0.66			0.68			0.67			2.12			1.56

Bank segment income before taxes	$	21,716			20,299			18,827			19,424			19,517			60,841			42,985
(Gain) loss on sale of securities		(756	)		(1,941	)		(1,194	)		(346	)		849			(3,891	)		2,287
Fair value adjustments on interest rate swaps		996			2,164			1,371			2,222			(628	)		4,531			(1,835	)
Loss on extinguishment of debt		70			31			—			—			—			101			—
Merger related expenses		484			—			—			—			—			484			15,216
Operating earnings before income taxes		22,510			20,553			19,004			21,300			19,738			62,066			58,653
Tax expense (1)		5,043			4,566			4,096			4,371			4,306			13,706			12,746
Operating bank segment earnings (Non-GAAP)	$	17,467			15,987			14,908			16,929			15,432			48,360			45,907

Operating bank segment earnings per common share:
Basic (Non-GAAP)	$	0.79			0.72			0.67			0.76			0.68			2.18			2.12
Diluted (Non-GAAP)	$	0.78			0.71			0.67			0.75			0.67			2.16			2.10

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