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Carolina Financial Corporation Reports Results for Second Quarter of 2017

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

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

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

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

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

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

Financial Results

Carolina Financial Corporation

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

Community Banking

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

Wholesale Mortgage Banking

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

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on July 21, 2017. The conference call can be accessed by dialing (866) 464-9448 or (213) 660-0874 and requesting the Carolina Financial Corporation earnings call. The conference ID number is 52128528. Listeners should dial in 10 minutes prior to the start of the call.  The live webcast and presentation slides will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations.”

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations” approximately three hours after the call and can be accessed by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 52128528.

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ:CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of June 30, 2017, Carolina Financial Corporation had approximately $2.2 billion in total assets and Crescent Mortgage Company was licensed to originate loans in 48 states partnering with community banks, credit unions and mortgage brokers.  On June 11, 2016, Carolina Financial completed its acquisition of Congaree Bancshares Inc.  On January 5, 2017, the Company closed a public offering of approximately 1.8 million shares of its common stock with net proceeds of approximately $47.7 million, net of related expenses. On March 18, 2017, Carolina Financial completed its acquisition of Greer Bancshares Incorporated.   On June 9, 2017, Carolina Financial Corporation announced the execution of an Agreement and Plan of Merger and Reorganization by and between the Company and First South Bancorp, Inc. (“First South”), pursuant to which, subject to the terms and conditions set forth therein, First South will merge with and into the Company, with the Company as the surviving corporation.

Addendum to News Release – Use of Certain Non-GAAP Financial Measures and Forward-Looking Statements

This news release contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”).  Such statements should be read along with the accompanying tables, which provide a reconciliation of non-GAAP measures to GAAP measures.  This news release and the accompanying tables discuss financial measures, including but not limited to, core deposits, tangible book value, operating earnings and net income related to segments of the Company, which are non-GAAP measures.  We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner.  Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP.  Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company.  Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.

Please refer to the Non-GAAP reconciliation tables later in this release for additional information.

/EIN News/ -- Forward-Looking Statements

Certain statements in this news release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective.  Such forward-looking statements include but are not limited to statements with respect to our plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” as well as similar expressions.  Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.  Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate.  Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized.  The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that the future events, plans, or expectations contemplated by the Company will be achieved.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (2) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on the Company’s loan portfolio and allowance for loan losses; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (4) the risk that the preliminary financial information reported herein and our current preliminary analysis will be different when our review is finalized; (5) changes in the U.S. legal and regulatory framework including, but not limited to, the Dodd-Frank Act and regulations adopted thereunder; (6) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the Company; (7) the business related to acquisitions may not be integrated successfully or such integration may take longer to accomplish than expected; (8) the expected cost savings and any revenue synergies from acquisitions may not be fully realized within expected timeframes; and (9) disruption from acquisitions may make it more difficult to maintain relationships with clients, associates, or suppliers.  Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).  All subsequent written and oral forward-looking statements concerning the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.  We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.


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

 

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

 

CAROLINA FINANCIAL CORPORATION
(Unaudited)
(Dollars in thousands)
                       
      At or for the Three Months Ended
Selected Financial Data:   June 30, 
2017
  March 31,
2017
  December 31,
2016
  September 30,
2016
  June 30,
2016
                       
Selected Average Balances:                    
Total assets   $    2,166,803       1,768,323       1,651,653       1,626,717       1,482,963  
Investment securities and FHLB stock       510,706       373,551       326,485       345,385       335,105  
Loans receivable, net       1,412,940       1,214,777       1,138,120       1,093,669       978,337  
Loans held for sale       22,412       17,827       32,951       32,196       24,467  
Deposits       1,633,285       1,330,805       1,288,665       1,291,567       1,170,860  
Stockholders' equity       277,708       210,071       160,991       157,311       145,656  
                       
Performance Ratios (annualized):                    
Return on average equity      13.45 %   9.34 %   12.80 %   15.11 %   7.79 %
Return on average tangible equity (Non-GAAP)     16.02 %   9.98 %   13.46 %   15.93 %   7.96 %
Return on average assets      1.72 %   1.11 %   1.25 %   1.46 %   0.76 %
Operating return on average equity (Non-GAAP)     13.15 %   10.95 %   14.32 %   14.95 %   14.02 %
Operating return on average tangible equity (Non-GAAP)           15.65 %   11.70 %   15.06 %   15.76 %   14.32 %
Operating return on average assets (Non-GAAP)     1.69 %   1.30 %   1.40 %   1.45 %   1.38 %
Average earning assets to average total assets     90.68 %   91.99 %   93.21 %   92.94 %   93.44 %
Average loans receivable to average deposits     86.51 %   91.28 %   88.32 %   84.68 %   83.56 %
Average stockholders' equity to average assets     12.82 %   11.88 %   9.75 %   9.67 %   9.82 %
Net interest margin-tax equivalent (1)     4.03 %   3.93 %   3.87 %   3.75 %   3.64 %
Net charge-offs  (recovery) to average loans receivable     (0.01 )%   (0.01 )%   (0.12 )%   (0.02 )%   (0.03 )%
Nonperforming assets to period end loans receivable     0.48 %   0.52 %   0.58 %   0.62 %   0.67 %
Nonperforming assets to total assets     0.31 %   0.34 %   0.40 %   0.42 %   0.45 %
Nonperforming loans to total loans     0.38 %   0.42 %   0.48 %   0.37 %   0.37 %
Allowance for loan losses as a percentage of loans receivable (end of period)     0.75 %   0.76 %   0.91 %   0.91 %   0.96 %
Allowance for loan losses as a percentage of non-acquired loans receivable (Non-GAAP)     0.93 %   0.96 %   1.01 %   1.03 %   1.10 %
Allowance for loan losses as a percentage of nonperforming loans     196.85 %   180.66 %   190.01 %   247.72 %   262.68 %
                       
Nonperforming Assets:                    
Loans 90 days or more past due and still accruing   $    -        -        -        -        -   
Nonaccrual loans       5,461       5,931       5,625       4,174       3,920  
  Total nonperforming loans       5,461       5,931       5,625       4,174       3,920  
Real estate acquired through foreclosure, net       1,417       1,479       1,179       2,843       3,272  
  Total nonperforming assets   $    6,878       7,410       6,804       7,017       7,192  
                       
(1) Net interest margin-tax equivalent reflects tax-exempt income on a tax-equivalent basis.
                       

 

Carolina Financial Corporation                          
Segment Information                          
(Unaudited)                          
(Dollars in thousands)          
                             
      For the Three Months   For the Six Months   Increase (Decrease)  
      Ended June 30,   Ended June 30,   Three   Six  
        2017     2016    2017    2016    Months   Months  
Segment net income:                          
Community banking   $    8,443       2,162       12,951       5,575       6,281       7,376    
Wholesale mortgage banking       1,238       919       1,884       1,320       319       564    
Other        (346 )     (253 )     (591 )     (441 )     (93 )     (150 )  
Eliminations       5       8       (1 )     25       (3 )     (26 )  
Total net income   $    9,340       2,836       14,243       6,479       6,504       7,764    
                             
      For the Three Months Ended      
      June 30,
2017
  March 31,
2017
  December 31, 
2016
  September 30, 
2016
  June 30, 
2016
     
Segment net income:                          
Community banking    $    8,443       4,509       4,565       4,734       2,162        
Wholesale mortgage banking       1,238       645       806       1,402       919        
Other        (346 )     (244 )     (232 )     (228 )     (253 )      
Eliminations       5       (6 )     11       33       8        
Total net income   $    9,340       4,904       5,150       5,941       2,836        
                             
      For the Three Months Ended June 30, 2017      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Interest income   $   21,691       427       8       (3 )     22,123        
Interest expense       2,747       42       278       (42 )     3,025        
Net interest income (expense)       18,944       385       (270 )     39       19,098        
Provision for loan losses       -        -        -        -        -         
Noninterest income from external customers       3,494       5,311       -        -        8,805        
Intersegment noninterest income       242       31       -        (273 )     -         
Noninterest expense       11,448       4,164       278       -        15,890        
Intersegment noninterest expense       -        240       2       (242 )     -         
Income (loss) before income taxes       11,232       1,323       (550 )     8       12,013        
Income tax expense (benefit)       2,789       85       (204 )     3       2,673        
Net income (loss)   $   8,443       1,238       (346 )     5       9,340        
                             
      For the Three Months Ended June 30, 2016      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Interest income   $   14,136       329       4       24       14,493        
Interest expense       2,025       4       148       (4 )     2,173        
Net interest income (expense)       12,111       325       (144 )     28       12,320        
Provision for loan losses       -        -        -        -        -         
Noninterest income from external customers       2,078       5,111       -        -        7,189        
Intersegment noninterest income       242       15       -        (257 )     -         
Noninterest expense       11,646       3,891       272       -        15,809        
Intersegment noninterest expense       -        240       2       (242 )     -         
Income (loss) before income taxes       2,785       1,320       (418 )     13       3,700        
Income tax expense (benefit)       623       401       (165 )     5       864        
Net income (loss)   $   2,162       919       (253 )     8       2,836        
                             
                             
Carolina Financial Corporation                          
Segment Information, Continued                          
(Unaudited)                          
(Dollars in thousands)          
                             
      For the Six Months Ended June 30, 2017      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Interest income   $   38,949       822       13       8       39,792        
Interest expense       4,965       54       459       (54 )     5,424        
Net interest income (expense)       33,984       768       (446 )     62       34,368        
Provision for loan losses       -        -        -        -        -         
Noninterest income from external customers       5,912       10,123       -        -        16,035        
Intersegment noninterest income       483       64       -        (547 )     -         
Noninterest expense       22,772       8,216       488       -        31,476        
Intersegment noninterest expense       -        480       3       (483 )     -         
Income (loss) before income taxes       17,607       2,259       (937 )     (2 )     18,927        
Income tax expense (benefit)       4,656       375       (346 )     (1 )     4,684        
Net income (loss)   $   12,951       1,884       (591 )     (1 )     14,243        
                             
      For the Six Months Ended June 30, 2016      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Interest income   $   27,080       698       9       66       27,853        
Interest expense       3,964       9       296       (9 )     4,260        
Net interest income (expense)       23,116       689       (287 )     75       23,593        
Provision for loan losses       -        -        -        -        -         
Noninterest income from external customers       4,211       9,254       -        -        13,465        
Intersegment noninterest income       485       34       -        (519 )     -         
Noninterest expense       20,075       7,571       431       -        28,077        
Intersegment noninterest expense       -        481       4       (485 )     -         
Income (loss) before income taxes       7,737       1,925       (722 )     41       8,981        
Income tax expense (benefit)       2,162       605       (281 )     16       2,502        
Net income (loss)   $   5,575       1,320       (441 )     25       6,479        
                             
      For the Three Months Ended June 30,  
      Loan Originations   Mortgage Banking Income   Margin  
        2017     2016     2017    2016    2017     2016   
Additional segment information:                          
Community banking   $    24,416       24,629       582       509     2.38 %   2.07 %  
Wholesale mortgage banking       219,793       200,161       3,707       3,678     1.69 %   1.84 %  
Total mortgage banking income   $    244,209       224,790       4,289       4,187     1.76 %   1.86 %  
                             
      For the Six Months Ended June 30,  
      Loan Originations   Mortgage Banking Income   Margin  
        2017     2016    2017    2016    2017    2016   
Additional segment information:                          
Community banking   $    39,169       42,308       941       929     2.40 %   2.20 %  
Wholesale mortgage banking       400,623       386,960       6,956       6,433     1.74 %   1.66 %  
Total mortgage banking income   $    439,792       429,268       7,897       7,362     1.80 %   1.72 %  
                             
                             
Carolina Financial Corporation                          
Segment Information, Continued                          
(Unaudited)                          
(Dollars in thousands, except per share information)          
                             
      For the Three Months Ended June 30, 2017      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Additional segment information (Non-GAAP):                        
Income tax benefit from excess stock-based compensation   $   801       396       -        -        1,197        
                             
Income tax benefit of excess stock-based compensation on diluted earnings per share   $   0.05       0.02       -        -        0.07        
                             
      For the Three Months Ended June 30, 2016      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Additional segment information (Non-GAAP):                        
Income tax benefit from excess stock-based compensation   $   343       56       -        -        399        
                             
Income tax benefit of excess stock-based compensation on diluted earnings per share   $   0.02       0.00       -        -        0.03        
                             
                             
      For the Six Months Ended June 30, 2017      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Additional segment information (Non-GAAP):                        
Income tax benefit from excess stock-based compensation   $   1,018       427       -        -        1,445        
                             
Income tax benefit of excess stock-based compensation on diluted earnings per share   $   0.06       0.03       -        -        0.09        
                             
      For the Six Months Ended June 30, 2016      
       Community     Mortgage                   
       Banking     Banking     Other     Eliminations    Total      
Additional segment information (Non-GAAP):                        
Income tax benefit from excess stock-based compensation   $   343       56       -        -        399        
                             
Income tax benefit of excess stock-based compensation on diluted earnings per share   $   0.02       0.00       -        -        0.03        
                             

 

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

 

Carolina Financial Corporation                    
Reconciliation of Non-GAAP Financial Measures - Community Banking Segment            
(Unaudited)                    
(In thousands, except share data)    
                       
      For the Three Months Ended
      June 30, 
2017
  March 31, 
2017
  December 31, 
2016
  September 30, 
2016
  June 30, 
2016
Segment net income:                    
Community banking   $    8,443     $   4,509         4,565         4,734         2,162  
Wholesale mortgage banking       1,238         645         806         1,402         919  
Other       (346 )       (244 )       (232 )       (228 )       (253 )
Eliminations       5         (6 )       11         33         8  
Total net income   $    9,340     $   4,904         5,150         5,941         2,836  
                       
Community banking segment operating earnings:                    
Income before income taxes   $    11,232     $   6,375         6,545         6,975         2,785  
Tax expense (1)       2,789         1,866         1,980         2,241         623  
Bank segment net income   $    8,443     $   4,509         4,565         4,734         2,162  
                       
Weighted average common shares outstanding:                    
  Basic       16,029,332         13,919,711         12,336,420         12,327,921         11,908,282  
  Diluted       16,180,171         14,139,241         12,585,518         12,535,551         12,076,878  
                       
Earnings per common share:                    
  Basic   $    0.53     $   0.32     $   0.37     $   0.38     $   0.18  
  Diluted   $    0.52     $   0.32     $   0.36     $   0.38     $   0.18  
                       
Bank segment income before taxes   $    11,232     $   6,375         6,545         6,975         2,785  
Gain on sale of securities       (621 )       (185 )       (65 )       (111 )       (113 )
Net loss on extinguishment of debt       -          -          1,693         118         47  
Fair value adjustments on interest rate swaps       69         58         (998 )       (99 )       226  
Merger related expenses (2)       279         1,311         254         -          2,697  
Operating earnings before income taxes       10,959         7,559         7,429         6,883         5,642  
Tax expense (1)       2,721         2,213         2,247         2,211         1,262  
Operating bank segment earnings (Non-GAAP)   $    8,238     $   5,346         5,182         4,672         4,380  
                       
Operating bank segment earnings per common share:                    
  Basic (Non-GAAP)   $    0.51     $   0.38     $   0.42     $   0.38     $   0.37  
  Diluted (Non-GAAP)   $    0.51     $   0.38     $   0.41     $   0.37     $   0.36  
                       
(1)  Tax expense is determined using the effective tax rate computed for the applicable business segment.
(2)  Remaining merger related costs were incurred within the category "Other" segment earnings. 
For More Information, Contact: 
                    William A. Gehman III, EVP and CFO, 843.723.7700

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