Carolina Financial Corporation reports results for first quarter of 2017

Carolina Financial Corporation today announced financial results for the first quarter of 2017.

Operational highlights for the three months ended March 31, 2017 include:

• On January 25, 2017, the Company closed a public offering of 1.8 million shares of its common stock with net proceeds of approximately $47.7 million.
• On March 18, 2017, the Company closed its previously announced acquisition of Greer Bancshares Incorporated, the holding company for Greer State Bank, (“Greer”) with the operational conversion completed in April 2017. Excluding purchase accounting adjustments, total assets of Greer were $382.7 million, total loans receivable were $205.2 million and total deposits were $311.4 million as of the closing date.

Financial highlights at and for the three months ended March 31, 2017, include:

• Net income for the first quarter 2017 increased 34.6% to $4.9 million, or $0.35 per diluted share, from $3.6 million, or $0.30 per diluted share for the first quarter of 2016.
• Operating earnings for the first quarter of 2017, which excludes certain non-operating income and expenses, increased 56.1% to $5.7 million, or $0.41 per diluted share, from $3.7 million, or $0.31 per diluted share, from the first quarter of 2016.
• Performance ratios Q1 2017 compared to Q1 2016:
  – Return on average assets improved to 1.11% compared to 1.03%.
  – Operating return on average assets improved to 1.30% compared to 1.04%.
  – Return on tangible equity was 9.98% compared to 10.53% for the first quarter.
  – Operating return on tangible equity improved to 11.70% compared to 10.65%.
• Loans receivable, excluding Greer loans acquired, grew at an annualized rate of 15.7%, or $46.4, million since December 31, 2016.
• Nonperforming assets to total assets were 0.34% at March 31, 2017 compared to 0.40% at December 31, 2016.
• Total deposits, excluding Greer deposits acquired, increased $35.6 million since December 31, 2016. Core deposits, excluding Greer core deposits acquired, increased $26.6 million since December 31, 2016.

“We are very excited to add the Greer State Bank customers and employees to the CresCom Bank family.  We were pleased with a smooth system conversion of Greer which was completed on April 10^th.  Overall operating results for the first quarter of 2017 exceeded our expectations with the increase in operating earnings of 56.1% from the first quarter of 2016,” stated Jerry Rexroad, Chief Executive Officer.

Acquisition of Greer Bancshares Incorporated

Effective March 18, 2017, the Company completed its previously announced acquisition of Greer. At closing, the holding companies were merged with Carolina Financial as the surviving corporation, and Greer State Bank also merged with and into CresCom Bank, with CresCom Bank surviving the merger and continuing its corporate existence.

Under the terms of the merger, Greer shareholders had the right to receive either $18.00 in cash or 0.782 shares of Carolina Financial common stock, or a combination thereof, for each share of Greer common stock they owned immediately prior to the merger, subject to the limitation that 10% of the outstanding shares of Greer common stock will be exchanged for cash and 90% of the outstanding shares of Greer common stock will be exchanged for shares of Carolina Financial common stock. The mailing of materials regarding the election and exchange of Greer stock certificates commenced on March 27, 2017 and the election period expires on May 17, 2017.

The acquisition of Greer was accounted for under the acquisition method of accounting. The assets and liabilities of Greer have been recorded at their estimated fair values and added to those of Carolina Financial for periods following the merger date. Included in the March 31, 2017 consolidated balance sheet were approximately $192.4 million in acquired loans, net of related purchase accounting adjustments and $313.9 million in deposits. The Company may continue to refine its valuations of acquired assets and liabilities for up to one year following the merger date.

Financial Results

Carolina Financial Corporation

• The Company reported an increase in net income for the three months ended March 31, 2017 of $4.9 million, or $0.35 per diluted share, as compared to $3.6 million, or $0.30 per diluted share, for the three months ended March 31, 2016. Included in net income for the three months ended March 31, 2017 and 2016 were pretax merger related expenses of $1.3 million and $186,000, respectively.
• Operating earnings for the first quarter of 2017, which excludes certain non-operating income and expenses, increased 56.1% to $5.7 million, or $0.41 per diluted share, from $3.7 million, or $0.31 per diluted share, from the first quarter of 2016.
• The Company’s net interest margin-tax equivalent increased to 3.93% for the first quarter of 2017 compared to 3.53% for the first quarter of 2016.
• The Company reported book value per common share of $17.01 and $13.23 as of March 31, 2017 and December 31, 2016, respectively.  Tangible book value per common share was $14.17 and $12.59 as of March 31, 2017 and December 31, 2016, respectively.
• At March 31, 2017, the Company’s regulatory capital ratios exceeded the minimum levels currently required.  Stockholders’ equity totaled $271.5 million as of March 31, 2017 compared to $163.2 million at December 31, 2016. Tangible equity to tangible assets at March 31, 2017 was 10.6% compared to 9.3% at December 31, 2016.

Community Banking

• The community banking segment net income increased 32.1% to $4.5 million for the three months ended March 31, 2017 compared to $3.4 million for the three months ended March 31, 2016. Included in net income for the three months ended March 31, 2017 and 2016 were pretax merger related expenses of $1.3 million and $186,000, respectively.
• No provision for loan loss was recorded during the three months ended March 31, 2017 or 2016.   This was primarily due to continued excellent asset quality as well as net recoveries to average loans receivable of (0.01%) and (0.04%) for the three months ended March 31, 2017 and 2016, respectively.
• Non-performing assets were 0.34% and 0.40% of total assets at March 31, 2017 and December 31, 2016, respectively.
• Loans receivable increased to $1.4 billion at March 31, 2017 compared to $1.2 billion at December 31, 2016. Loans receivable, excluding Greer loans acquired, increased $46.4 million since year end.  The increase in loans receivable primarily relates to the completed acquisition of Greer as well as the Bank’s continuing focus on commercial lending and residential mortgage lending.
• The number of checking accounts increased at an annualized rate of 11.7%, excluding Greer checking accounts acquired, since December 31, 2016.  Total deposits, excluding acquired deposits from the Greer acquisition, increased $35.6 million since December 31, 2016. As of March 31, 2017 and December 31, 2016, core deposits, defined as checking, savings and money market, comprised approximately 64.6% and 60.6%, respectively, of total deposits.

Wholesale Mortgage Banking

• Net income for the wholesale mortgage banking segment was $645,000 for the three months ended March 31, 2017 compared to $401,000 for the three months ended March 31, 2016.
• The increase in net income of the wholesale mortgage banking segment during first quarter of 2017 is primarily attributable to an increase in margin during the period.  Net margin was 1.80% for the three months ended March 31, 2017 compared to 1.47% for the three months ended March 31, 2016. Originations for the three months ended March 31, 2017 and 2016 were $180.8 million and $186.8 million, respectively.

Conference Call

A conference call will be held at 2:00 p.m., Eastern Time on April 25, 2017. The conference call can be accessed by dialing (855) 218-6998 or (615) 247-5963 and requesting the Carolina Financial Corporation earnings call. The conference ID number is 95417349. Listeners should dial in 10 minutes prior to the start of the call.  The live webcast and presentation slides will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations.”

A replay of the webcast will be available on www.haveanicebank.com under Investor Relations, “Investor Presentations” shortly following the call. A replay of the conference call can be accessed approximately three hours after the call by dialing (855) 859-2056 or (404) 537-3406 and requesting conference number 95417349.

About Carolina Financial Corporation

Carolina Financial Corporation is the holding company of CresCom Bank, which also owns and operates Atlanta-based Crescent Mortgage Company.  Carolina Financial trades on NASDAQ under the symbol CARO. As of March 31, 2017, Carolina Financial had approximately $2.2 billion in total assets and Crescent Mortgage Company originated loans in 48 states partnering with community banks, credit unions and mortgage brokers. In June 2016, Carolina Financial completed its acquisition of Congaree Bancshares, Inc. and its wholly-owned subsidiary, Congaree State Bank. In March 2017, Carolina Financial completed its acquisition of Greer Bancshares Incorporated.

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, such as 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.