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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

  

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Date of Report (Date of earliest event reported): July 25, 2019

 

 

CAROLINA FINANCIAL CORPORATION

(Exact Name of Registrant As Specified in Its Charter)

 

Delaware

(State or Other Jurisdiction of Incorporation)

 

001-10897   57-1039673
(Commission File Number)   (I.R.S. Employer Identification No.)
     
288 Meeting Street, Charleston, South Carolina 29401
(Address of Principal Executive Offices) (Zip Code)

 

(843) 723-7700

(Registrant's Telephone Number, Including Area Code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common   CARO   NASDAQ

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

     

 

Item 2.02. Results of Operations and Financial Condition

 

On July 25, 2019, Carolina Financial Corporation (the “Company”) issued a news release announcing its results of operations for the three and six month periods ended June 30, 2019. A copy of the news release is attached hereto as Exhibit 99.1. The information included herein, as well as in Exhibit 99.1 referenced herein, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in filings under the Securities Act of 1933, as amended (the “Securities Act”).

 

Item 7.01. Regulation FD Disclosure.

 

The Company will hold an investor conference call July 26, 2019 at 11:00 am Eastern Time to disclose its financial results for the three and six month periods ended June 30, 2019. The conference call can be accessed by dialing (866) 464-9448 or (213) 660-0874 and requesting the Carolina Financial Corporation second quarter 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.

 

A copy of the investor presentation prepared for use by executive management during the investor conference call is furnished as Exhibit 99.2. All of the information in the presentation is presented as of July 25, 2019, and the Company does not assume any obligation to update such information in the future.

 

The information included in the preceding paragraph, as well as in Exhibit 99.2 referenced herein, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act nor shall it be deemed incorporated by reference in filings under the Securities Act.

 

Item 8.01. Other Events.

 

Dividend Announcement

 

The Company’s Board of Directors declared a quarterly cash dividend of $0.09 per share payable on its common stock. The cash dividend will be payable on October 4, 2019 to stockholders of record as of September 13, 2019.

 

Item 9.01. Financial Statements and Exhibits.

 

(d)       Exhibits

 

Exhibit

Number

 

Description

99.1

 

News Release dated July 25, 2019.

 

99.2 Investor Presentation dated July 25, 2019

 

     

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

  CAROLINA FINANCIAL CORPORATION,
  Registrant
     
  By: /s/ William A. Gehman, III
  Name:   William A. Gehman, III
  Title: Chief Financial Officer

 

Dated: July 25, 2019

 

 

 

     

 

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.

 

 

Second Quarter 2019 Earnings Release Investor Presentation NASDAQ: CARO July 25, 2019

 
 

2 Disclaimer Certain statements in this presentation 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 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 Carolina Financial Corporation (“Carolina Financial” or the “Company”) or any person that such future events, plans, or expectations 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 is 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 . This presentation and the accompanying news release contain financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”) . Such statements should be read along with the tables in the accompanying news release, which provide a reconciliation of non - GAAP measures to GAAP measures . This presentation and the accompanying news release discuss financial measures, such as core deposits, tangible book value, operating earnings, net interest margin - core and yield on loans receivable - core, 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 .

 
 

3 Second Quarter Highlights • 2019 Q 2 net income increased 0 . 7 % to $ 15 . 1 million, or $ 0 . 67 per diluted share compared to $ 15 . 0 million, or $ 0 . 70 per diluted share for 2018 Q 2 . ( 1 ) • 2019 Q 2 operating earnings (Non - GAAP) increased 4 . 2 % to $ 16 . 3 million, or $ 0 . 73 per diluted share, from $ 15 . 6 million, or $ 0 . 73 per diluted share, for 2018 Q 2 . ( 2 ) • 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 . • Provision for loan losses in 2019 Q 2 of $ 680 , 000 compared to provision for loan losses in 2018 Q 2 of $ 559 , 000 . Provision for loan losses was primarily driven by organic loan growth . • Total deposits decreased $ 11 . 0 million from March 31 , 2019 and increased $ 87 . 9 million from December 31 , 2018 . • Tangible common book value per share (Non - GAAP) of $ 20 . 88 at June 30 , 2019 compared to $ 19 . 36 at December 31 , 2018 . • On December 3 , 2018 , the Company announced that the Board of Directors approved a plan to repurchase up to $ 25 , 000 , 000 in shares of the Company’s common stock through open market and privately negotiated transactions over the next three years . During the second quarter, the Company repurchased approximately 30 , 000 shares at an average price of $ 34 . 33 . (1) All information at and for the period ended June 30, 2019 is preliminary and based on Company data available at the time of t he presentation. (2) Operating earnings exclude loss on extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on int erest rate swaps, temporary MSR impairment and merger related expenses, all net of income taxes at the applicable period effective rate.

 
 

4 Announced Merger of Carolina Trust BancShares into Carolina Financial • On July 15, 2019, the Company announced the execution of an agreement to acquire Carolina Trust BancShares , Inc. • Carolina Trust BancShares , Inc. (CART) had assets of $621 million, loans receivable of $474 million and deposits of $523 million as of March 31, 2019. • Meaningfully increases CARO’s presence in the Carolinas’ largest market • Combined company over $4.5 billion in total assets with a market capitalization of approximately $850 million • Positions CARO to continue to be one of the most profitable banks in the Southeast • A premier core deposit and commercial franchise • Complementary operating philosophies • Financially attractive combination • Potential to create significant value to stockholders of both companies through economies of scale.

 
 

5 Overview of Pro Forma Franchise CARO (61) CART (11) LPO (2) Total Assets Net Loans Total Deposits Loans / Deposits ~$4.5B Pro Forma Highlights Tangible Equity Market Cap ~$850M ~93% ~$3.3B ~$3.1B Source: S&P Global Market Intelligence ~$500M

 
 

6 9.66 8.46 8.13 8.11 8.02 7.86 7.55 7.53 7.51 7.29 7.09 6.92 6.79 6.78 6.72 6.72 6.62 6.60 6.52 6.44 6.18 6.15 6.07 6.06 5.93 Projected Population Growth (%) Top 25 Southeast Markets Projected Population Growth (2019 – 2024) | Top 25 Southeast MSAs (1) (1) Includes Southeast MSAs with a minimum population of 250,000. Carolina Financial Markets are in red. Carolina Trust BancShares , Inc. market is in blue. Source: S&P Global Market Intelligence.

 
 

7 Community Banking Segment

 
 

8 Community Banking Segment Results Bank Segment Earnings (1) • 2019Q2 community banking segment net income of $15.8 million, or $0.71 per diluted share, versus $14.9 million for 2018Q2, or $0.70 per diluted share. • 2019Q2 operating earnings (Non - GAAP) of $16.0 million, or $0.71 per diluted share, versus $15.6 million for 2018Q2, or $0.73 per diluted share. (2) • Segment Return on Average Assets was 1.63% for 2019Q2 compared to 1.65% for 2018Q2. • Segment Operating Return on Average Assets (Non - GAAP) decreased to 1.65% for 2019Q2 from 1.72% for 2018Q2. (2) 2011Y 2012Y ($18.7) (1) Community banking segment earnings as reported in public filings (includes intersegment revenues and expenses and excludes ho ldi ng company expenses). The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation. (2) Operating earnings exclude loss on extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on int erest rate swaps, temporary MSR impairment and merger related expenses, all net of effective income tax rate for the applicable business segment. Operating bank segment EP S equals operating bank segment earnings divided by weighted average diluted shares.

 
 

9 Net Interest Margin (1) (1) The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation. (2) Net interest margin – tax - equivalent. (3) Net interest margin - core and yield on loans receivable - core excludes the impact of purchase accounting accretion, loan payoff charges and related deferred fees recognized related to early loan repayments. See Exhibit for reconciliation of yield on loans, core and NIM, core Yield on loans and securities Net interest margin Cost of funds Yield on loans increased 1bps and NIM on a tax equivalent basis decreased 1bps, from 2019Q1. Significant items included in yield on loans/NIM: • Acquired loan accretion income of $1.5 million in 2019Q2 increasing loan yield 23bps and NIM 17bps compared to $1.5 million for 2019Q1 increasing loan yield 24bps and NIM 18bps. • Early loan payoff fees included in interest income of $46 thousand in 2019Q2 increasing loan yield 1bps and NIM 1 bps compared to $99 thousand in 2019Q1 increasing loan yield 2bps and NIM 1bps. • Excluding accretion income from acquired loans and early payoff fees, Q2 2019 net interest margin was 3.82% compared to 3.81% in Q1 2019. • TEY on securities decreased to 3.69% in 2019Q2 compared to 3.74% in 2019Q1. Increase in the cost of funds of 5bps between 2019Q1 to 2019Q2.

 
 

10 Bank Segment Operating Efficiencies • Bank Segment noninterest expenses as a percentage of average consolidated assets of 1.96% in 2019Q2 compared to 2.13% in 2018Q2. • Operating Bank Segment noninterest expenses (Non - GAAP) as a percentage of average consolidated assets of 1.96% in 2019Q2 compared to 2.08% in 2018Q2. • Operating Bank Segment efficiency ratio (Non - GAAP) of 47.2% in 2019Q2 compared to 48.2% in 2018Q2. Operating Bank Segment Noninterest Expenses/Avg. Assets (%) (1)(2)(3) (1) Bank segment operating figures include intersegment revenues and expense and exclude holding company expenses. (2) The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation. (3) Operating bank segment ratios exclude loss on extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on interest rate swaps, temporary MSR impairment and merger related expenses. Operating Bank Segment Efficiency Ratio (1)(2)(3)

 
 

11 Strong Balance Sheet Growth • Loans receivable, gross grew at an annualized rate of 10.0% since 12 - 2018. • Total deposits increased $87.9 million since 12 - 2018. Total Deposits ($MM) (1)(2) Total Loans ($MM) (1)(2) Total Assets($MM) (1)(2) (1) Includes assets acquired and liabilities assumed in acquisitions, net of fair value adjustments. (2) The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation.

 
 

12 Diversified Loan Mix and Solid Asset Quality NPAs/ Assets (%) (1)(2) • We have a diversified loan mix, with a focus on lower risk assets. • Our asset quality remains favorable, with NPA’s / assets of 0.37% at June 30, 2019. • Provision for loan loss of $680,000 in 2019Q2 primarily driven by organic loan growth. (1) Excludes performing troubled debt restructurings (TDRs) and purchased credit impaired loans. (2) June 30, 2019 information is preliminary and based on Company data available at the time of the presentation. NCOs / Average Loans (%) (2) Loan Composition (6/30/2019) (2) 2019Q2 Yield on Loans: 5.58%

 
 

13 Improving Deposit Mix Deposit Composition (6/30/2019) (1) • We grew Total Deposits $87.9 million since December 31, 2018. 2019Q2 Cost of Deposits: 0.98% (1) The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation. (1)

 
 

14 Wholesale Mortgage Segment

 
 

15 Wholesale Mortgage Segment Wholesale Mortgage Platform (2) • Wholesale Mortgage segment LHFS originations decreased in 2019Q2 compared to 2018Q2; however, the margin increased 14 bps in 2019Q2 from 2018Q2. • Wholesale Mortgage 2019Q2 segment net loss of $92,000 had no impact to earnings per diluted share for 2019Q2. Wholesale Mortgage segment net income for 2018Q2 was $598,000 or $0.03 per diluted share. (1) 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. 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. Mortgage Banking Earnings Contribution (1)(2) (1) Wholesale Mortgage segment earnings include intersegment revenues and expenses and exclude holding company expenses. Wholesale mortgage EPS equals segment earnings divided by weighted average diluted shares. (2) The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation.

 
 

16 Focus on Stockholder Results • ROAA and ROATCE of 1.55% and 13.24%, respectively, for 2019Q2. • Operating ROAA and ROATCE (Non - GAAP) of 1.68% and 14.28%, respectively, for 2019Q2. • Diluted Earnings Per Share of $0.67 2019Q2 compared to $0.70 for 2018Q2. • Diluted Operating Earnings Per Share (Non - GAAP) of $0.73 for 2019Q2 and 2018Q2. • Tangible Common Book Value per share of $20.88 for 2019Q2 compared to $18.11 for 2018Q2. Consolidated Operating ROAA & Operating ROATCE (1)(2) Tangible Book Value per Share & Operating Earnings per Share (1)(2) (1) The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation. (2) Operating earnings exclude extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on interest rate swaps, temporary MSR impairment and merger related expenses, all net of income taxes at the applicable period rate.

 
 

17 Overall Summary of the 2019 Second Quarter • Announcement of agreement to acquire Carolina Trust BancShares , Inc . • Very good organic loan growth of $ 60 . 6 million resulting in provision for loan losses of $ 680 , 000 with NPAs remaining flat . • Net interest margin - core (Non - GAAP) ( 2 ) increased 1 basis point from Q 1 2019 . • Improved mortgage operations during the quarter : – Mortgage locks improved with current pipelines similar to year ago periods . – Temporary impairment of mortgage servicing rights due to the impact of falling interest rates . – Good expense control in mortgage . • Overall strong expense control with operating Bank noninterest expense / average assets remaining under 2 % . • Tangible book value increase to $ 20 . 88 , an increase of 15 . 3 % from June 30 , 2018 . • Operating return on average tangible assets (Non - GAAP) of 1 . 74 % for the quarter ended June 30 , 2019 . (1) All information at and for the period ended June 30, 2019 is preliminary and based on Company data available at the time of t he presentation. (2) Net interest margin - core excludes the impact of purchase accounting accretion, loan payoff charges and related deferral fees rec ognized related to early loan repayments.

 
 

18 Exhibit (1) (1) The June 30, 2019 information is preliminary and based on Company data available at the time of the presentation. (2) Net interest margin – tax - equivalent. (3) Net interest margin – core and yield on loans receivable – core excludes the impact of purchase accounting accretion, loan payof f charges and related deferred fees recognized related to early loan repayments. Reconciliation of Non-GAAP Financial Measures - Consolidated (Unaudited) (In thousands) June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018 Net interest margin-tax equivalent (2) 34,661$ 33,899 35,349 34,298 33,320 Purchased loan accretion and early payoff charges and deferred fees (1,521) (1,617) (3,283) (2,831) (2,226) Net interest margin - core (3) (Non-GAAP) 33,140$ 32,282 32,066 31,467 31,094 Loans receivable interest income 36,325$ 34,813 34,969 33,357 32,497 Purchased loan accretion and early payoff charges and deferred fees (1,521) (1,617) (3,283) (2,831) (2,226) Loans receivable interest income - core (3) (Non-GAAP) 34,804$ 33,196 31,686 30,526 30,271 Average loans receivable 2,610,394 2,535,192 2,428,603 2,402,075 2,401,075 Average interest earning assets 3,483,713 3,432,818 3,322,894 3,282,426 3,253,708 Net interest margin-tax equivalent (2) 3.99% 4.00% 4.23% 4.15% 4.11% Net interest margin-core (3) (Non-GAAP) 3.82% 3.81% 3.84% 3.80% 3.83% Yield on loans receivable-core (3) (Non-GAAP) 5.35% 5.31% 5.18% 5.04% 5.06% For the Three Months Ended