Carolina Financial Corporation Reports Results for the Second Quarter of 2019

NEWS RELEASE – For Release July 25, 2019, 4:00PM

For More Information, Contact:

William A. Gehman III, EVP and CFO, 843.723.7700

Charleston, S.C. July 25, 2019 - Carolina Financial Corporation (the “Company”) (NASDAQ: CARO) today announced financial results for the second quarter of 2019.

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

· Net income for Q2 2019 increased 0.7% to $15.1 million, or $0.67 per diluted share, from $15.0 million, or $0.70 per diluted share for Q2 2018.

o Accretion income from acquired loans for Q2 2019 was $1.5 million compared to $1.9 million for Q2 2018.

· Operating earnings for Q2 2019, which exclude certain non-operating income and expenses, increased 4.2% to $16.3 million, or $0.73 per diluted share, from $15.6 million, or $0.73 per diluted share, for Q2 2018.

· Operating earnings for Q2 2019 have been adjusted to eliminate the following significant items:

o The fair value loss on interest rate swaps of $2.2 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 $6.0 million at the end of Q2 2019 compared to Q1 2019.

o The gain on sale of securities of $1.9 million.

o The loss on early extinguishment of debt of approximately $31,000.

o The temporary impairment of our mortgage servicing rights (MSR) of $1.3 million due to increased prepayment speed assumptions in the portfolio driven by the continued impact of falling interest rates.

· Performance ratios for Q2 2019 compared to Q2 2018:

o Return on average assets was 1.55% compared to 1.65%.

o Operating return on average assets was 1.68% compared to 1.72%.

o Return on average tangible equity was 13.24% compared to 17.02%.

o Operating return on average tangible equity was 14.28% compared to 17.74%.

· Loans receivable, gross grew $60.6 million from March 31, 2019, or at an annualized rate of 9.4%, and grew $126.9 million, or at an annualized rate of 10.0% since December 31, 2018.

· Total deposits decreased $11.0 million from March 31, 2019 and increased $87.9 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 second quarter of 2019, the Company repurchased approximately 30,000 shares at an average price of $34.33. Cumulatively since December 4, 2018, the Company repurchased approximately 334,000 shares at an average price of $31.62.

Announcement of Agreement to Acquire Carolina Trust BancShares, Inc.

On July 15, 2019, the Company and Carolina Trust BancShares, Inc., the parent company of Carolina Trust Bank (together, “Carolina Trust”), jointly announced the signing of a definitive merger agreement. Carolina Trust currently operates 11 banking locations and a loan production office in and around the Charlotte-Concord-Gastonia, NC-SC metropolitan statistical area. The transaction deepens the Company’s market presence in North Carolina and complements the previously announced expansion into the Charlotte, North Carolina market. Upon completion of the acquisition, the combined company will have over $4.5 billion in assets, $3.1 billion in loans and $3.3 billion in deposits.

“We are very pleased to announce the signing of a merger agreement with Carolina Trust. We view this relationship as strategic to our stated objective to be acquisitive, while maximizing stockholder value. This transaction complements our previously announced expansion into the Charlotte, North Carolina market and provides a strong core deposit franchise. In addition, we continue to see the impact of solid organic growth and prior acquisitions on earnings. Overall, results for the second quarter of 2019 continued to improve,” stated Jerry Rexroad, the Company’s Chief Executive Officer.

Financial Results

Carolina Financial Corporation

· The Company reported net income for Q2 2019 of $15.1 million, or $0.67 per diluted share, as compared to $15.0 million, or $0.70 per diluted share, for Q2 2018.

o Included in net income for Q2 2019 and Q2 2018 was accretion income from acquired loans of $1.5 million and $1.9 million, respectively.

· Operating earnings for Q2 2019, which excludes certain non-operating income and expenses, increased 4.2% to $16.3 million, or $0.73 per diluted share, from $15.6 million, or $0.73 per diluted share, for Q2 2018.

o Included in net income for Q2 2019 was a fair value loss on interest rate swaps of $2.2 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 $6.0 million at the end of Q2 2019 compared to Q1 2019. Q2 2019 also reflects a temporary $1.3 million impairment of mortgage servicing rights, a $1.9 million gain on sale of securities and an approximate $31,000 loss on early extinguishment of debt.

o Included in net income for Q2 2018 was a fair value gain on interest rate swaps of $451,000, a loss on sale of securities of $746,000 and merger-related expenses of $506,000.

· The Company reported net income for the six months ended June 30, 2019 of $29.6 million or $1.32 per diluted share, as compared to $19.0 million, or $0.90 per diluted share, for the six months ended June 30, 2018.

o Included in net income for the six months ended June 30, 2019 and 2018 was accretion income from acquired loans of $3.0 million and $4.8 million, respectively. Provision for loan losses during the six months ended June 30, 2019 and 2018 was $1.4 million and $0.6 million, respectively.

· Operating earnings for the six months ended June 30, 2019, which exclude certain non-operating income and expenses, increased to $30.9 million, or $1.38 per diluted share compared to $30.8 million, or $1.46 per diluted share, for the same period of 2018.

o Included in net income for the six months ended June 30, 2019 was a fair value loss on interest rate swaps of $3.5 million, a temporary impairment of mortgage servicing rights of $1.3 million, a gain on sale of securities of $3.1 million and a loss on early extinguishment of debt of approximately $31,000. Included in operating earnings for the six months ended June 30, 2018 was a fair value gain on interest rate swaps of $1.3 million, a loss on sale of securities of $1.4 million and merger-related expenses of $15.2 million.

· The Company’s net interest margin-tax equivalent (NIM) decreased to 3.99% for Q2 2019 compared to 4.11% for Q2 2018. Q2 2019 net interest income included accretion income from acquired loans of $1.5 million (17 bps to NIM) and early payoff fees of $46,000 (1bps to NIM) compared to Q2 2018 accretion income from acquired loans of $1.9 million (24 bps to NIM) and early payoff fees of $300,000 (4 bps to NIM).

o Excluding accretion income from acquired loans and early payoff fees, Q2 2019 net interest margin was 3.82% compared to 3.83% in Q2 2018.

· The Company reported book value per common share of $27.31 and $25.83 as of June 30, 2019 and December 31, 2018, respectively. Tangible book value per common share was $20.88 and $19.36 as of June 30, 2019 and December 31, 2018, respectively.

· At June 30, 2019, the Company’s regulatory capital ratios exceeded the minimum levels currently required. Stockholders’ equity totaled $605.6 million as of June 30, 2019 compared to $575.3 million at December 31, 2018. Tangible equity to tangible assets at June 30, 2019 was 12.36% compared to 11.83% at December 31, 2018.

· During Q2 2019, the Company repurchased approximately 30,000 shares at an average price of $34.33.

Banking Segment

· Banking segment net income increased 5.9% to $15.8 million for Q2 2019 compared to $14.9 million for Q2 2018. Included in net income for Q2 2019 and Q2 2018 was accretion income from acquired loans of $1.5 million and $1.9 million, respectively.

· Banking segment net income increased 61.7% to $30.6 million for the six months ended June 30, 2019 compared to $18.9 million for the six months ended June 30, 2018. Included in net income for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was accretion income from acquired loans of $3.0 million and $4.8 million, respectively. Provision for loan losses during the six months ended June 30, 2019 and 2018 was $1.4 million and $0.6 million, respectively.

· Banking segment operating earnings increased 2.7% to $16.0 million for Q2 2019 compared to $15.6 million for Q2 2018.

· Banking segment operating earnings slightly increased to $30.9 million for the six months ended June 30, 2019 compared to $30.8 million for the six months ended June 30, 2018.

· Provision for loan losses during Q2 2019 was $700,000. Provision for loan losses during Q2 2018 was $534,000. Asset quality and historical loss experience continue to remain favorable. The provision for loan losses was primarily driven by the organic loan growth.

· Non-performing assets were 0.37% and 0.35% of total assets at June 30, 2019 and December 31, 2018, respectively.

· Loans receivable, gross increased at an annualized rate of 10.0% to $2.7 billion at June 30, 2019 compared to $2.5 billion at December 31, 2018.

· Total deposits increased $87.9 million since December 31, 2018.

Wholesale Mortgage Banking

· Net loss for the wholesale mortgage banking segment was $92,000 for Q2 2019 compared to net income of $598,000 for Q2 2018. Net income was $0.3 million for the six months ended June 30, 2019 compared to $1.2 million for the six months ended June 30, 2018.

o Included in net income for the three and six months ended June 30, 2019 was a temporary $1.3 million impairment of mortgage servicing rights. 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 $1.3 million temporary impairment of mortgage servicing rights, operating earnings were $0.9 million for Q2 2019 and $1.3 million for the six months ended June 30, 2019.

o Included in net income for the three and six months ended June 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.

· Originations for Q2 2019 and Q2 2018 were $189.2 million and $205.6 million, respectively.

· Net margin was 1.95% for the six months ended June 30, 2019 compared to 1.74% for the six months ended June 30, 2018. Originations for the six months ended June 30, 2019 and 2018 were $329.5 million and $386.1 million, respectively.

CresCom Bank Charlotte Branch Approval Received

The Company received approval to open a full service retail branch in Charlotte, NC. The Company previously announced its expansion into the Charlotte, NC market and the hiring of Robin Lyle as market leader in January 2019. The Company expects to commence full service retail operations at the branch in Q3 2019.

Dividend Declared

On July 24, 2019 the Company declared a $0.09 dividend per common share, payable on October 4, 2019, to stockholders of record on September 13, 2019.

Conference Call

A conference call will be held at 11:00 a.m., Eastern Time on July 26, 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 8789464. 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 8789464.

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, 2019, Carolina Financial Corporation had approximately $3.9 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

	June 30, 2019			December 31, 2018
	(Unaudited)			(Audited)
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	34,614			28,857
Interest-bearing cash		33,804			33,276
Cash and cash equivalents		68,418			62,133
Securities available-for-sale		791,151			842,801
Federal Home Loan Bank stock, at cost		19,900			21,696
Other investments		3,501			3,450
Derivative assets		2,399			4,032
Loans held for sale		28,521			16,972
Loans receivable, gross		2,651,236			2,524,336
Allowance for loan losses		(15,867	)		(14,463	)
Loans receivable, net		2,635,369			2,509,873
Premises and equipment, net		59,829			60,866
Right of use operating lease asset		17,516			—
Accrued interest receivable		12,920			13,494
Real estate acquired through foreclosure, net		1,218			1,534
Deferred tax assets, net		1,512			5,786
Mortgage servicing rights		29,640			32,933
Cash value life insurance		59,294			58,728
Core deposit intangible		14,978			16,462
Goodwill		127,592			127,592
Other assets		14,316			12,396
Total assets	$	3,888,074			3,790,748
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Noninterest-bearing deposits	$	616,823			547,022
Interest-bearing deposits		2,189,286			2,171,171
Total deposits		2,806,109			2,718,193
Short-term borrowed funds		370,500			405,500
Long-term debt		46,525			59,436
Right of use operating lease liability		17,807			—
Derivative liabilities		3,910			1,232
Drafts outstanding		13,908			8,129
Advances from borrowers for insurance and taxes		6,515			4,100
Accrued interest payable		2,450			1,591
Reserve for mortgage repurchase losses		1,092			1,292
Dividends payable to stockholders		2,007			1,576
Accrued expenses and other liabilities		11,672			14,414
Total liabilities		3,282,495			3,215,463
Stockholders’ equity:
Preferred stock		—			—
Common stock		223			224
Additional paid-in capital		404,578			408,224
Retained earnings		192,910			167,173
Accumulated other comprehensive income (loss), net of tax		7,868			(336	)
Total stockholders’ equity		605,579			575,285
Total liabilities and stockholders’ equity	$	3,888,074			3,790,748

CAROLINA FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2019			2018			2019			2018
	(In thousands, except share data)
Interest income
Loans	$	36,571			32,753			71,548			64,416
Investment securities		7,108			6,359			14,464			12,066
Dividends from Federal Home Loan Bank stock		331			263			593			438
Other interest income		125			102			311			234
Total interest income		44,135			39,477			86,916			77,154
Interest expense
Deposits		6,796			4,248			13,100			7,891
Short-term borrowed funds		2,429			1,705			4,745			2,958
Long-term debt		627			619			1,318			1,269
Total interest expense		9,852			6,572			19,163			12,118
Net interest income		34,283			32,905			67,753			65,036
Provision for loan losses		680			559			1,380			559
Net interest income after provision for loan losses		33,603			32,346			66,373			64,477
Noninterest income
Mortgage banking income		4,318			4,215			7,736			8,017
Deposit service charges		1,678			1,988			3,346			4,012
Net loss on extinguishment of debt		(31	)		—			(31	)		—
Net gain (loss) on sale of securities		1,941			(746	)		3,135			(1,443	)
Fair value adjustments on interest rate swaps		(2,164	)		451			(3,535	)		1,255
Net increase in cash value life insurance		398			385			796			775
Mortgage loan servicing income		2,566			2,090			5,204			4,114
Debit card income, net		1,215			1,267			2,191			2,194
Other		1,310			1,377			2,261			2,152
Total noninterest income		11,231			11,027			21,103			21,076
Noninterest expense
Salaries and employee benefits		13,159			13,541			26,630			27,210
Occupancy and equipment		4,116			4,094			8,237			7,747
Marketing and public relations		448			322			874			698
FDIC insurance		247			265			502			520
Recovery of mortgage loan repurchase losses		(100	)		(150	)		(200	)		(300	)
Legal expense		127			157			213			233
Other real estate expense, net		106			105			294			11
Mortgage subservicing expense		770			568			1,474			1,132
Amortization of mortgage servicing rights		1,342			889			2,578			1,868
Impairment of mortgage servicing rights		1,300			—			1,300			—
Amortization of core deposit intangible		735			849			1,484			1,598
Merger-related expenses		—			506			—			15,216
Other		3,228			3,225			6,239			6,037
Total noninterest expense		25,478			24,371			49,625			61,970
Income before income taxes		19,356			19,002			37,851			23,583
Income tax expense		4,282			4,036			8,232			4,561
Net income	$	15,074			14,966			29,619			19,022
Earnings per common share:
Basic	$	0.68			0.70			1.33			0.91
Diluted	$	0.67			0.70			1.32			0.90
Dividends declared per common share	$	0.09			0.06			0.17			0.11
Weighted average common shares outstanding:
Basic		22,189,508			21,243,094			22,191,673			20,961,182
Diluted		22,372,273			21,454,039			22,374,534			21,174,936

CAROLINA FINANCIAL CORPORATION

(Unaudited)

(Dollars in thousands)

	At or for the Three Months Ended
Selected Financial Data:	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
Selected Average Balances:
Total assets	$	3,878,269			3,826,116			3,700,795			3,663,915			3,627,402
Investment securities and FHLB stock		832,224			833,720			838,834			831,793			809,625
Loans receivable, net		2,610,394			2,535,192			2,428,603			2,402,075			2,401,075
Loans held for sale		21,905			13,754			20,120			23,692			23,137
Deposits		2,782,576			2,751,913			2,760,156			2,735,346			2,677,401
Stockholders’ equity		598,196			580,300			569,528			559,401			497,694
Performance Ratios (annualized):
Return on average stockholders’ equity		10.08	%		10.03	%		10.85	%		10.87	%		12.03	%
Return on average tangible equity (Non-GAAP)		13.24	%		13.32	%		14.53	%		14.68	%		17.02	%
Return on average assets		1.55	%		1.52	%		1.67	%		1.66	%		1.65	%
Operating return on average stockholders’ equity (Non-GAAP)		10.87	%		10.11	%		11.88	%		10.99	%		12.54	%
Operating return on average tangible equity (Non-GAAP)		14.28	%		13.44	%		15.92	%		14.85	%		17.74	%
Operating return on average assets (Non-GAAP)		1.68	%		1.53	%		1.83	%		1.68	%		1.72	%
Average earning assets to average total assets		89.83	%		89.72	%		89.64	%		89.59	%		89.82	%
Average loans receivable to average deposits		93.81	%		92.12	%		87.99	%		87.82	%		89.68	%
Average stockholders’ equity to average assets		15.42	%		15.17	%		15.39	%		15.27	%		13.72	%
Net interest margin-tax equivalent (1)		3.99	%		4.00	%		4.23	%		4.15	%		4.11	%
Net (recoveries) charge-offs to average loans receivable		(0.03	)%		0.02	%		(0.02	)%		0.02	%		0.04	%
Nonperforming assets to period end loans receivable		0.54	%		0.50	%		0.53	%		0.49	%		0.42	%
Nonperforming assets to total assets		0.37	%		0.34	%		0.35	%		0.32	%		0.28	%
Nonperforming loans to total loans		0.50	%		0.45	%		0.47	%		0.43	%		0.35	%
Allowance for loan losses as a percentage of gross loans receivable (end of period) (2)		0.60	%		0.58	%		0.57	%		0.55	%		0.54	%
Allowance for loan losses as a percentage of gross non-acquired loans receivable (Non-GAAP)		0.77	%		0.77	%		0.79	%		0.80	%		0.80	%
Allowance for loan losses as a percentage of nonperforming loans (2)		120.51	%		129.74	%		123.13	%		129.26	%		153.84	%
Nonperforming Assets, excluding purchased credit impaired:
Loans 90 days or more past due and still accruing	$	—			—			20			32			19
Nonaccrual loans		13,167			11,578			11,721			10,501			8,423
Total nonperforming loans		13,167			11,578			11,741			10,533			8,442
Real estate acquired through foreclosure, net		1,218			1,335			1,534			1,601			1,726
Total nonperforming assets	$	14,385			12,913			13,275			12,134			10,168

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

(2) Acquired loans represent 22.7%, 24.9%, 27.2%, 30.5%, and 33.5%, of gross loans receivable at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018, respectively.

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
	2019			2018			2019			2018			Months			Months
Segment net income:
Community banking	$	15,804			14,928			30,586			18,912			876			11,674
Wholesale mortgage banking		(92	)		598			298			1,160			(690	)		(862	)
Other		(657	)		(568	)		(1,294	)		(1,065	)		(89	)		(229	)
Eliminations		19			8			29			15			11			14
Total net income	$	15,074			14,966			29,619			19,022			108			10,597

	For the Three Months Ended
	June 30, 2019			March 31,   2019			December 31, 2018			September 30, 2018			June 30, 2018
Segment net income:
Community banking	$	15,804			14,781			15,449			15,263			14,928
Wholesale mortgage banking		(92	)		390			599			555			598
Other		(657	)		(636	)		(594	)		(606	)		(568	)
Eliminations		19			10			(10	)		(8	)		8
Total net income	$	15,074			14,545			15,444			15,204			14,966

	For the Three Months Ended June 30, 2019
	Community		Mortgage
	Banking		Banking			Other			Eliminations			Total
Interest income	$	43,781		469			15			(130	)		44,135
Interest expense		9,303		153			551			(155	)		9,852
Net interest income (expense)		34,478		316			(536	)		25			34,283
Provision for loan losses		700		(20	)		—			—			680
Noninterest income from external customers		5,299		5,921			11			—			11,231
Intersegment noninterest income		242		—			—			(242	)		—
Noninterest expense		19,020		6,126			332			—			25,478
Intersegment noninterest expense		—		240			2			(242	)		—
Income (loss) before income taxes		20,299		(109	)		(859	)		25			19,356
Income tax expense (benefit)		4,495		(17	)		(202	)		6			4,282
Net income (loss)	$	15,804		(92	)		(657	)		19			15,074

	For the Three Months Ended June 30, 2018
	Community		Mortgage
	Banking		Banking		Other			Eliminations			Total
Interest income	$	39,060		458		14			(55	)		39,477
Interest expense		6,066		77		506			(77	)		6,572
Net interest income (expense)		32,994		381		(492	)		22			32,905
Provision for loan losses		534		25		—			—			559
Noninterest income from external customers		5,570		5,434		23			—			11,027
Intersegment noninterest income		242		9		—			(251	)		—
Noninterest expense		19,348		4,748		275			—			24,371
Intersegment noninterest expense		—		240		2			(242	)		—
Income (loss) before income taxes		18,924		811		(746	)		13			19,002
Income tax expense (benefit)		3,996		213		(178	)		5			4,036
Net income (loss)	$	14,928		598		(568	)		8			14,966

Carolina Financial Corporation

Segment Information, Continued

(Unaudited)

(Dollars in thousands)

	For the Six Months Ended June 30, 2019
	Community		Mortgage
	Banking		Banking			Other			Eliminations			Total
Interest income	$	86,257		859			30			(230	)		86,916
Interest expense		18,060		281			1,106			(284	)		19,163
Net interest income (expense)		68,197		578			(1,076	)		54			67,753
Provision for loan losses		1,400		(20	)		—			—			1,380
Noninterest income from external customers		9,855		11,217			31			—			21,103
Intersegment noninterest income		484		18			—			(502	)		—
Noninterest expense		38,010		10,972			643			—			49,625
Intersegment noninterest expense		—		480			4			(484	)		—
Income (loss) before income taxes		39,126		381			(1,692	)		36			37,851
Income tax expense (benefit)		8,540		83			(398	)		7			8,232
Net income (loss)	$	30,586		298			(1,294	)		29			29,619

	For the Six Months Ended June 30, 2018
	Community		Mortgage
	Banking		Banking		Other			Eliminations			Total
Interest income	$	76,317		889		27			(79	)		77,154
Interest expense		11,150		130		968			(130	)		12,118
Net interest income (expense)		65,167		759		(941	)		51			65,036
Provision for loan losses		534		25		—			—			559
Noninterest income from external customers		10,630		10,358		88			—			21,076
Intersegment noninterest income		483		26		—			(509	)		—
Noninterest expense		52,278		9,137		554			1			61,970
Intersegment noninterest expense		—		480		3			(483	)		—
Income (loss) before income taxes		23,468		1,501		(1,410	)		24			23,583
Income tax expense (benefit)		4,556		341		(345	)		9			4,561
Net income (loss)	$	18,912		1,160		(1,065	)		15			19,022

	Loan Originations				Mortgage Banking Income				Margin
	For the Three Months Ended June 30,
	2019		2018		2019		2018		2019			2018
Additional segment information:
Community banking	$	29,308		32,796		765		648		2.61	%		1.98	%
Wholesale mortgage banking		189,245		205,569		3,553		3,567		1.88	%		1.74	%
Total	$	218,553		238,365		4,318		4,215		1.98	%		1.77	%

	Loan Originations				Mortgage Banking Income				Margin
	For the Six Months Ended June 30,
	2019		2018		2019		2018		2019			2018
Additional segment information:
Community banking	$	49,746		64,223		1,324		1,302		2.66	%		2.03	%
Wholesale mortgage banking		329,496		386,063		6,412		6,715		1.95	%		1.74	%
Total	$	379,242		450,286		7,736		8,017		2.04	%		1.78	%

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,
	2019		2019		2018		2018		2018
Core deposits:
Noninterest-bearing demand accounts	$	616,823		575,990		547,022		567,394		577,568
Interest-bearing demand accounts		561,094		581,424		566,527		579,522		584,719
Savings accounts		184,764		188,725		192,322		190,946		198,571
Money market accounts		437,716		458,575		431,246		453,957		458,558
Total core deposits (Non-GAAP)		1,800,397		1,804,714		1,737,117		1,791,819		1,819,416
Certificates of deposit:
Less than $250,000		921,309		923,709		875,749		863,290		788,693
$250,000 or more		84,403		88,647		105,327		104,514		100,689
Total certificates of deposit		1,005,712		1,012,356		981,076		967,804		889,382
Total deposits	$	2,806,109		2,817,070		2,718,193		2,759,623		2,708,798

	At the Month Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2019			2019			2018			2018			2018
Tangible book value per share:
Total stockholders’ equity	$	605,579			589,150			575,285			564,027			551,784
Less intangible assets		(142,570	)		(143,305	)		(144,054	)		(144,817	)		(145,595	)
Tangible common equity (Non-GAAP)	$	463,009			445,845			431,231			419,210			406,189
Issued and outstanding shares		22,284,981			22,296,372			22,387,009			22,570,445			22,570,182
Less nonvested restricted stock awards		(109,728	)		(111,578	)		(117,966	)		(135,045	)		(137,345	)
Period end dilutive shares		22,175,253			22,184,794			22,269,043			22,435,400			22,432,837
Total stockholders’ equity	$	605,579			589,150			575,285			564,027			551,784
Divided by period end dilutive shares		22,175,253			22,184,794			22,269,043			22,435,400			22,432,837
Common book value per share	$	27.31			26.56			25.83			25.14			24.60
Tangible common equity (Non-GAAP)	$	463,009			445,845			431,231			419,210			406,189
Divided by period end dilutive shares		22,175,253			22,184,794			22,269,043			22,435,400			22,432,837
Tangible common book value per share (Non-GAAP)	$	20.88			20.10			19.36			18.69			18.11

	At the Month Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2019			2019			2018			2018			2018
Acquired and non-acquired loans:
Acquired loans receivable	$	601,193			644,461			686,401			749,442			813,688
Non-acquired gross loans receivable		2,050,043			1,946,149			1,837,935			1,708,022			1,613,533
Total gross loans receivable	$	2,651,236			2,590,610			2,524,336			2,457,464			2,427,221
% Acquired		22.68	%		24.88	%		27.19	%		30.50	%		33.52	%
Non-acquired loans	$	2,050,043			1,946,149			1,837,935			1,708,022			1,613,533
Allowance for loan losses		15,867			15,021			14,463			13,615			12,987
Allowance for loan losses to non-acquired loans (Non-GAAP)		0.77	%		0.77	%		0.79	%		0.80	%		0.80	%
Total gross loans receivable	$	2,651,236			2,590,610			2,524,336			2,457,464			2,427,221
Allowance for loan losses		15,867			15,021			14,463			13,615			12,987
Allowance for loan losses to total gross loans receivable		0.60	%		0.58	%		0.57	%		0.55	%		0.54	%

	For the Three Months Ended															For the Six Months Ended
	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			June 30, 2019			June 30, 2018
Net interest margin - core:
Net interest margin-tax equivalent (2)	$	34,661			33,899			35,349			34,298			33,320			68,559			65,891
Purchased loan accretion and early payoff charges and deferred fees		(1,521	)		(1,617	)		(3,283	)		(2,831	)		(2,226	)		(3,137	)		(5,377	)
Net interest margin - core (3) (Non-GAAP)	$	33,140			32,282			32,066			31,467			31,094			65,422			60,514
Loans receivable interest income - core:
Loans receivable interest income	$	36,325			34,813			34,969			33,357			32,497			71,139			60,514
Purchased loan accretion and early payoff charges and deferred fees		(1,521	)		(1,617	)		(3,283	)		(2,831	)		(2,226	)		(3,137	)		(5,377	)
Loans receivable interest income - core (3) (Non-GAAP)	$	34,804			33,196			31,686			30,526			30,271			68,002			58,577

Carolina Financial Corporation

Reconciliation of Non-GAAP Financial Measures - Consolidated, Continued

(Unaudited)

(In thousands, except share data)

	For the Three Months Ended															For the Six Months Ended
	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			June 30, 2019			June 30, 2018
As Reported:
Income before income taxes	$	19,356			18,495			19,425			19,431			19,002			37,851			23,583
Tax expense		4,282			3,950			3,981			4,227			4,036			8,232			4,561
Net Income	$	15,074			14,545			15,444			15,204			14,966			29,619			19,022
Average equity	$	598,196			580,300			569,528			559,401			497,694			589,297			487,532
Average tangible equity (Non-GAAP)		455,270			436,630			425,105			414,205			351,703			446,001			341,148
Average assets		3,878,269			3,826,116			3,700,795			3,663,915			3,627,402			3,852,336			3,575,708
Average loans receivable		2,610,394			2,535,192			2,428,603			2,402,075			2,401,075			2,573,001			2,361,933
Average interest earning assets		3,483,713			3,432,818			3,322,894			3,282,426			3,253,708			3,458,017			3,199,448
Return on average assets		1.55	%		1.52	%		1.67	%		1.66	%		1.65	%		1.54	%		1.06	%
Return on average equity		10.08	%		10.03	%		10.85	%		10.87	%		12.03	%		10.05	%		7.80	%
Return on average tangible equity (Non-GAAP)		13.24	%		13.32	%		14.53	%		14.68	%		17.02	%		13.28	%		11.15	%
Tangible equity to tangible assets		12.36	%		12.05	%		11.83	%		11.72	%		11.45	%		12.36	%		11.45	%
Net interest margin-tax equivalent (2)		3.99	%		4.00	%		4.23	%		4.15	%		4.11	%		4.00	%		4.15	%
Net interest margin-core (3) (Non-GAAP)		3.82	%		3.81	%		3.84	%		3.80	%		3.83	%		3.82	%		3.81	%
Yield on loans receivable-core (3) (Non-GAAP)		5.35	%		5.31	%		5.18	%		5.04	%		5.06	%		5.33	%		5.00	%
Weighted average common shares outstanding:
Basic		22,189,508			22,193,861			22,416,190			22,678,681			21,243,094			22,191,673			20,961,182
Diluted		22,372,273			22,381,809			22,587,466			22,898,983			21,454,039			22,374,534			21,174,936
Earnings per common share:
Basic	$	0.68			0.66			0.69			0.67			0.70			1.33			0.91
Diluted	$	0.67			0.65			0.68			0.66			0.70			1.32			0.90
Operating Earnings and Performance Ratios:
Income before income taxes	$	19,356			18,495			19,425			19,431			19,002			37,851			23,583
(Gain)/loss on sale of securities		(1,941	)		(1,194	)		(346	)		849			746			(3,135	)		1,443
Fair value adjustments on interest rate swaps		2,164			1,371			2,222			(628	)		(451	)		3,535			(1,255	)
Merger related expenses		—			—			—			—			506			—			15,216
Loss on extinguishment of debt		31			—			—			—			—			31			—
Impairment of mortgage servicing rights		1,300			—			—			—			—			1,300			—
Operating earnings before income taxes		20,910			18,672			21,301			19,652			19,803			39,582			38,987
Tax expense (1)		4,653			4,001			4,379			4,279			4,205			8,647			8,168
Operating earnings (Non-GAAP)	$	16,257			14,671			16,922			15,373			15,598			30,935			30,819
Average equity	$	598,196			580,300			569,528			559,401			497,694			589,297			487,532
Less average intangible assets		(142,926	)		(143,670	)		(144,423	)		(145,196	)		(145,991	)		(143,296	)		(146,384	)
Average tangible common equity (Non-GAAP)	$	455,270			436,630			425,105			414,205			351,703			446,001			341,148
Average assets	$	3,878,269			3,826,116			3,700,795			3,663,915			3,627,402			3,852,336			3,575,708
Less average intangible assets		(142,926	)		(143,670	)		(144,423	)		(145,196	)		(145,991	)		(143,296	)		(146,384	)
Average tangible assets (Non-GAAP)	$	3,735,343			3,682,446			3,556,372			3,518,719			3,481,411			3,709,040			3,429,324
Operating return on average assets (Non-GAAP)		1.68	%		1.53	%		1.83	%		1.68	%		1.72	%		1.61	%		1.72	%
Operating return on average equity (Non-GAAP)		10.87	%		10.11	%		11.88	%		10.99	%		12.54	%		10.50	%		12.64	%
Operating return on average tangible assets (Non-GAAP)		1.74	%		1.59	%		1.90	%		1.75	%		1.79	%		1.67	%		1.80	%
Operating return on average tangible equity (Non-GAAP)		14.28	%		13.44	%		15.92	%		14.85	%		17.74	%		13.87	%		18.07	%
Weighted average common shares outstanding:
Basic		22,189,508			22,193,861			22,416,190			22,678,681			21,243,094			22,191,673			20,961,182
Diluted		22,372,273			22,381,809			22,587,466			22,898,983			21,454,039			22,374,534			21,174,936
Operating earnings per common share:
Basic (Non-GAAP)	$	0.73			0.66			0.75			0.68			0.73			1.39			1.47
Diluted (Non-GAAP)	$	0.73			0.66			0.75			0.67			0.73			1.38			1.46

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

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

(3) 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 - Community Banking Segment

(Unaudited)

(In thousands, except share data)

	For the Three Months Ended															For the Six Months Ended
	June 30, 2019			March 31,   2019			December 31, 2018			September 30, 2018			June 30, 2018			June 30, 2019			June 30, 2018
Segment net income:
Community banking	$	15,804			14,781			15,449			15,263			14,928			30,586			18,912
Wholesale mortgage banking		(92	)		390			599			555			598			298			1,160
Other		(657	)		(636	)		(594	)		(606	)		(568	)		(1,294	)		(1,065	)
Eliminations		19			10			(10	)		(8	)		8			29			15
Total net income	$	15,074			14,545			15,444			15,204			14,966			29,619			19,022
Community banking segment operating earnings:
Income before income taxes	$	20,299			18,827			19,424			19,517			18,924			39,126			23,468
Tax expense (1)		4,495			4,046			3,975			4,254			3,996			8,540			4,556
Bank segment net income	$	15,804			14,781			15,449			15,263			14,928			30,586			18,912
Weighted average common shares outstanding:
Basic		22,189,508			22,193,861			22,416,190			22,678,681			21,243,094			22,191,673			20,961,182
Diluted		22,372,273			22,381,809			22,587,466			22,898,983			21,454,039			22,374,534			21,174,936
Bank segment earnings per common share:
Basic	$	0.71			0.67			0.69			0.67			0.70			1.38			0.90
Diluted	$	0.71			0.66			0.68			0.67			0.70			1.37			0.89
Bank segment income before taxes	$	20,299			18,827			19,424			19,517			18,924			39,126			23,468
(Gain)/loss on sale of securities		(1,941	)		(1,194	)		(346	)		849			746			(3,135	)		1,438
Fair value adjustments on interest rate swaps		2,164			1,371			2,222			(628	)		(451	)		3,535			(1,207	)
Loss on extinguishment of debt		31			—			—			—			—			31			—
Merger related expenses		—			—			—			—			506			—			15,216
Operating earnings before income taxes		20,553			19,004			21,300			19,738			19,725			39,557			38,915
Tax expense (1)		4,566			4,096			4,371			4,306			4,152			8,662			8,159
Operating bank segment earnings (Non-GAAP)	$	15,987			14,908			16,929			15,432			15,573			30,895			30,756
Operating bank segment earnings per common share:
Basic (Non-GAAP)	$	0.72			0.67			0.76			0.68			0.73			1.39			1.47
Diluted (Non-GAAP)	$	0.71			0.67			0.75			0.67			0.73			1.38			1.45

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