Carolina Financial Corporation Reports Results for 2014

CHARLESTON, SC – Carolina Financial Corporation (NASDAQ: CARO), today announced net income for the year ended December 31, 2014 of $8.3 million, or $1.05 per diluted share. The 2014 results include pretax merger related expenses associated with the completion of the branch acquisitions of $1.4 million, or $0.14 per diluted share.

“2014 was an exceptional year for Carolina Financial Corporation,” said Jerry Rexroad, Chief Executive Officer. During 2014, we became a publicly traded company and listed on the NASDAQ stock exchange, thereby providing liquidity to our stockholders.  The Company experienced strong organic loan growth as well as core deposit growth by successfully executing our strategic plans. We crossed over the $1 billion total assets milestone and now operate as the third largest bank headquartered in South Carolina with total assets of $1.2 billion as of December 31, 2014. Our asset quality continued to improve with nonperforming assets decreasing to 0.47 percent of total assets at December 31, 2014 as compared to 1.97 percent at December 31, 2013. In February 2014, we purchased a branch in St. George, SC with $24.5 million in deposits and in December 2014 we completed the acquisition of 13 branch offices in Southeastern NC and Northern SC, comprising  $218 million in deposits.  These two acquisitions in contiguous markets have more than doubled our branch network.  In addition, during the year we added a branch in the Charleston market and a branch in the Myrtle Beach market along with two loan production offices, on each in Greenville, S.C. and Wilmington, N.C.”

“One of our primary goals for 2014 was to continue to grow the earnings of CresCom Bank to the level of earnings exhibited by a superior community bank, without the help of its subsidiary, Crescent Mortgage Company. We are proud to report that we exceeded the Bank’s earnings goal, with net income of $7.3 million for the year ended December 31, 2014.”

“Overall, we are pleased to report these strong financial and operational results for 2014 and believe that with the consummation of our branch acquisitions and new loan production offices during 2014, we are well positioned for fiscal 2015.”

Financial Highlights

— The Company reported net income of $8.3 million, or $1.05 per diluted share, for the year ended December 31, 2014 as compared to net income of $16.8 million or $2.12 per diluted share for the year ended December 31, 2013.  Net income for the three months ended December 31, 2014 was $1.7 million, or $0.22 per diluted share compared to net income of $4.1 million, or $0.52 per diluted share, for the three months ended December 31, 2013.

— The Bank’s net income (excluding Crescent Mortgage Company) was $7.3 million and $1.8 million for the twelve and three months ended December 31, 2014, respectively, as compared to net income of $5.0 million and $1.0 million for the twelve and three months ended December 31, 2013.  Results for the twelve and three months ended December 31, 2014 and 2013 include the following key highlights:

• The increase in earnings of the Bank was reflective of the significant increases in the loan and securities portfolios.
• The Bank collected previously unrecognized interest, and previously incurred expenses totaling $1.3 million related to the resolution of a nonperforming asset that paid off during the quarter ended December 31, 2014.
• Acquisition related expenses for the twelve and three months ended December 31, 2014 totaled $1.4 million and $1.3 million, respectively
• Net OREO expense totaled $0.6 million and $0.3 million for the twelve and three months ended December 31, 2014, respectively. Net OREO expense totaled $0.5 million and $0.1 million for the twelve and three months ended December 31, 2013, respectively.
• As a result of continued improvement in asset quality and net recoveries, the Bank recognized negative provision for loan losses of $0.9 million for the year ended December 31, 2013.  The Bank did not have provision for loan losses in 2014 due to net recoveries of $0.9 million.
• During the fourth quarter of 2014, the Bank incurred $0.2 million of consulting expenses related to revenue enhancement projects.

— Net income for the Bank’s wholly-owned subsidiary, Crescent Mortgage Company, was $1.9 million and $0.2 million for the twelve and three months ended December 31, 2014, respectively, as compared to net income of $12.4 million and $3.3 million for the twelve and three months ended December 31, 2013, respectively.  Nationally, 2014 mortgage originations are reduced approximately 50% from 2013 levels resulting in significantly reduced origination revenues and operating margins.  Results for the twelve and three months ended December 31, 2014 and 2013 include the following key highlights:

• Gain on the bulk sale of servicing for the twelve and three months ended December 31, 2014 totaled $0.8 million and zero.  Gain on sale of servicing for the twelve and three months ended December 31, 2013 totaled $5.5 million.
• Provision for mortgage loan repurchase losses for the twelve and three months ended December 31, 2014 was a negative provision of $0.8 million and $0.3 million, respectively.   Provision for mortgage loan repurchase losses for the twelve and three months ended December 31, 2013 was $2.4 million and $0.5 million, respectively.

In 2014, as a result of a change in the regulatory framework of certain GSEs and actual historical loss experience, the Company reduced its reserve for mortgage loan repurchase losses.

— The Company reported book value per common share of $12.02 as of December 31, 2014 as compared to $10.69 as of December 31, 2013.  The Company reported tangible book value per common share of $11.60 as of December 31, 2014 as compared to $10.69 as of December 31, 2013.

— The Bank continues to experience significant growth in core deposits (checking, savings and money market) which increased approximately $30 million during 2014, excluding core deposits from acquired branches.

— The number of Bank checking accounts, excluding accounts from our acquired branches, increased 16.5 percent since December 31, 2013.  As of December 31, 2014, core deposits comprised approximately 63 percent of total deposits as compared to 59 percent of total deposits at December 31, 2013.

— Loans receivable (before allowance for loan losses) grew to $777.2 million at December 31, 2014 compared to $543.3 million at December 31, 2013. This loan growth includes approximately $80.5 million in loans acquired from branch acquisitions.  The Company experienced organic loan growth of $153.4 million, or 28 percent, since December 31, 2013.

— The Bank’s nonperforming assets were 0.47 percent of total assets at December 31, 2014, compared to 1.97 percent at December 31, 2013.  The decrease in nonperforming assets is a result of continued improvement in asset quality as well as the resolution of a large nonperforming relationship that paid off during the fourth quarter 2014.

— At December 31, 2014, the Company’s capital ratios exceeded “well capitalized”  levels under applicable law.  Stockholders’ equity totaled $93.7 million as of December 31, 2014, compared to $82.2 million at December 31, 2013.  As planned, in 2014 due to strong loan growth and branch acquisitions, the Company was better able to leverage its capital.  At December 31, 2014, the Bank’s Tier 1 capital ratio was 9.4 percent compared to 11.0 percent at December 31, 2013.  At December 31, 2014, the Bank’s total risk-based capital ratio was 13.0 percent compared to 16.7 percent at December 31, 2013.

Election of New Board Member

The Company is pleased to announce that Claudius E. Watts IV has joined the Carolina Financial Corporation board of directors and the CresCom Bank board of directors.  Mr. Watts is a Partner and Managing Director of The Carlyle Group where he specializes in control equity investments in larger companies focused on software, software enabled services, semiconductors, electronic systems, and related distribution businesses. Mr. Watts earned a B.S. in electrical engineering cum laude from The Citadel in Charleston, South Carolina, and an M.B.A. from the Harvard Graduate School of Business Administration.

Quarterly Cash Dividend

The Company’s Board of Directors declared a quarterly cash dividend of $0.03 per share payable on its common stock. The dividend will be payable on April 8, 2015 to shareholders of record as of March 18, 2015.

Stocks Splits

On January 15, 2014, the Board of Directors of the Company declared a two-for-one stock split to stockholders of record dated February 10, 2014, payable on February 28, 2014.

On October 15, 2014, the Board of Directors of the Company declared a two-for-one stock split to stockholders of record as of October 31, 2014, payable on November 14, 2014.

All share, earnings per share, and per share data have been retroactively adjusted in the financial highlights to reflect this stock split for all periods presented in accordance with generally accepted accounting principles.

About Carolina Financial Corporation

Carolina Financial Corporation (NASDAQ:CARO) is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  As of December 31, 2014, Carolina Financial Corporation had approximately $1.2 billion in total assets and Crescent Mortgage Company originated loans in 45 states, and partnered with approximately 2,000 community banks, credit unions and mortgage brokers. In 2014, Carolina Financial was added to the Nasdaq Community Bank Index (ABAQ) by the American Bankers Association. It also ranked #6 on American Banker’s 2014 list of “Top 200 Community Banks and Thrifts as Ranked by Three-Year Average ROE.” During 2014, CresCom Bank completed two acquisitions and grew from 11 to 26 branch locations, in addition to adding loan production offices in Greenville, S.C., and Wilmington, N.C. To learn more about CresCom Bank, visit www.haveanicebank.com or call 1-855-CRESCOM.