Carolina Financial Corporation (NASDAQ: CARO) today announced financial results for the second quarter of 2016. Highlights at and for the three months ended June 30, 2016, include:

Second Quarter 2016 financial highlights

• On June 11, 2016, the Company closed its previously announced acquisition of Congaree Bancshares, Inc. (Congaree) with the operational conversion completed in July 2016.
• Net income for the second quarter of $2.8 million, or $0.23 per diluted share, including pretax merger expense of $2.8 million.
• Operating earnings for the second quarter of 2016, which excludes certain non-operating income and expenses, increased 17.3% to $5.1 million, or $0.42 per diluted share, from $4.4 million, or $0.45 per diluted share, from the second quarter of 2015.
• Loans receivable-gross, excluding Congaree loans acquired, grew at an annualized rate of 15.3% or$70.7 million since December 31, 2015.
• Nonperforming assets to total assets of 0.45% as of June 30, 2016.
• Core Deposits, excluding Congaree deposits acquired, increased $104.7 million since December 31, 2015. Core Deposits are defined as checking, savings and money market accounts.

"We are very pleased with our operating earnings results of $5.1 million for the second quarter of 2016 as well as closing the acquisition of Congaree. We remain excited about the expansion of our Company into theMidlands market. In addition, we continue to realize excellent loan and core deposit growth during the first half of 2016 as a result of our continued business development efforts in our local markets," stated Jerry Rexroad, Chief Executive Officer.

Acquisition of Congaree Bancshares, Inc.

Effective June 11, 2016, Carolina Financial Corporation the ("Company") or ("Carolina Financial"), the holding company for CresCom Bank, completed its previously announced merger with Congaree Bancshares, Inc. ("Congaree"), the holding company for Congaree State Bank, pursuant to the Agreement and Plan of Merger, dated as of January 5, 2016.

Under the terms of the Agreement and Plan of Merger, Congaree shareholders had the right to receive either$8.10 in cash or 0.4806 shares of Carolina Financial common stock, or a combination thereof, for each Congaree share they owned immediately prior to the merger, subject to the limitation that 40% of the outstanding shares of Congaree common stock would be exchanged for cash and 60% of the outstanding shares of Congaree common stock will be exchanged for shares of Carolina Financial common stock.

The acquisition of Congaree was accounted for under the acquisition method of accounting. The assets and liabilities of Congaree have been recorded at their estimated fair values and added to those of Carolina Financial for periods following the merger date. Included in the June 30, 2016 consolidated balance sheet were approximately $73.7 million in acquired loans, net of related purchase accounting adjustments, and $87.8 million in deposits assumed. 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 net income for the three months ended June 30, 2016 of $2.8 million, or $0.23per diluted share, as compared to $3.9 million, or $0.41 per diluted share, for the three months endedJune 30, 2015. Net income for the six months ended June 30, 2016 totaled $6.5 million, or $0.54 per diluted share, compared to net income of $6.9 million, or $0.73 per diluted share. Included in net income for the three months and six months ended June 30, 2016 were pretax merger related expense of $2.8 million and $3.0 million, respectively.
• Operating earnings for the second quarter of 2016 increased 17.3% to $5.1 million, or $0.42 per diluted share, from $4.4 million, or $0.45 per diluted share, from the second quarter of 2015. Operating earnings are defined as income before income taxes, excluding loss on extinguishment of debt, net gain or loss on sale of securities, fair value adjustments on interest rate swaps, and merger related expenses, all net of income taxes at the tax effective rate for the period.
• In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions, including income tax consequences. In addition to other changes, the guidance changes the accounting for excess tax benefits and tax deficiencies from generally being recognized in additional paid-in capital to recognition as income tax expense or benefit in the period they occur. The Company early adopted the new guidance in the second quarter of 2016. As a result, the Company's income tax expense was reduced by approximately $399,000, or $0.03 per diluted share, in the second quarter of 2016.
• The Company's net interest margin-tax equivalent increased to 3.64% for the second quarter of 2016 compared to 3.53% for the first quarter of 2016 and is primarily due to improved yields in securities and loans. In the first quarter of 2016, the Company experienced unfavorable prepayment speeds related to its securities portfolio, but experienced favorable prepayment speeds in the second quarter of 2016. Management does not expect the favorable securities prepayment speeds to continue with a low interest rate environment. In addition, during the second quarter of 2016, the Company collected a $136,000early loan payoff fee and experienced some yield improvement related to higher yielding loans acquired from the Congaree merger.
• The Company reported book value per common share of $12.58 and $11.92 as of June 30, 2016 andDecember 31, 2015, respectively. Tangible book value per common share was $11.92 and $11.66 as ofJune 30, 2016 and December 31, 2015, respectively.
• Effective at the beginning of the second quarter of 2016, the Company tainted its securities held-to-maturity to provide opportunities to maximize its asset utilization. As a result, the securities were moved to available-for-sale at fair value, resulting in an increase to accumulated other comprehensive income of$655,000.
• At June 30, 2016, the Company's regulatory capital ratios exceeded the minimum levels currently required. Stockholders' equity totaled $155.0 million as of June 30, 2016 compared to $139.9 million atDecember 31, 2015.

CresCom Bank

• The Bank's net income (excluding Crescent Mortgage Company) was $2.2 million for the three months ended June 30, 2016 compared to $2.8 million for the three months ended June 30, 2015. Net income for the six months ended June 30, 2016 totaled $5.6 million compared to net income of $5.3 million for the six months ended June 30, 2015. Included in net income for the three months and six months endedJune 30, 2016 were pretax merger related expense of $2.7 million and $2.8 million, respectively.
• No provision for loan loss was recorded during the three and six month periods ended June 30, 2016 or 2015. This was primarily due to continued excellent asset quality as well as net recoveries of $156,000and $982,000 for the six months ended June 30, 2016 and 2015, respectively.
• The Bank's non-performing assets were 0.45% and 0.47% of total assets at June 30, 2016 andDecember 31, 2015, respectively. The Bank added $1.4 million in real estate acquired through foreclosure, net as a result of the Congaree merger.
• Loans receivable-gross grew to $1.1 billion at June 30, 2016 compared to $922.7 million at December 31, 2015. The increase in loans receivable primarily relates to the completed acquisition of Congaree as well as the Bank's focus on commercial lending and residential mortgage lending.
• The number of checking accounts increased at an annualized rate of 10.6%, excluding Congaree checking accounts acquired, since December 31, 2015. As of June 30, 2016 and December 31, 2015, core deposits, defined as checking, savings and money market, comprised approximately 59.9% and 56.7%, respectively, of total deposits. Total deposits, excluding Congaree deposits acquired, increased$143.8 million since December 31, 2015.
• The Bank's retail mortgage conforming loan originations increased to $24.6 million for the three months ended June 30, 2016 compared to $15.2 million for the three months ended June 30, 2015. For the six months ended June 30, 2016, retail mortgage conforming loan originations increased to $42.3 millioncompared to $32.8 million for the six months ended June 30, 2015. As a result of the increased originations, retail mortgage banking noninterest income increased to $509,000 and $929,000 for the three and six months ended June 30, 2016 compared to $358,000 and $801,000 for the three and six months ended June 30, 2015. Mortgage banking income consists primarily of gain on sale of loans and related fees as well as fair value changes in mortgage banking derivatives.

Crescent Mortgage Company

• Net income for Crescent Mortgage Company, a wholly-owned subsidiary of the Bank, was $919,000 for the three months ended June 30, 2016 compared to $1.3 million for the three months ended June 30, 2015. Net income for the six months ended June 30, 2016 was $1.3 million compared to $2.0 million for the six months ended June 30, 2015.
• The decrease in net income of Crescent Mortgage Company is primarily attributable to the decrease in originations from period to period. The new regulatory rules related to TILA-RESPA Integrated Disclosures ("TRID") have significantly impacted the mortgage banking industry. Originations for the three months ended June 30, 2016 and 2015 were $200.2 million and $282.3 million, respectively. Originations for the six months ended June 30, 2016 and 2015 were $387.0 and $507.7 million, respectively. The percentage of originations attributable to refinances were 33.6% for the second quarter of 2016 compared to 33.9% for the second quarter of 2015.

About Carolina Financial Corporation

Carolina Financial 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 June 30, 2016, Carolina Financial had approximately $1.6 billion in total assets and Crescent Mortgage Company originated loans in 45 states and partners with community banks, credit unions and mortgage brokers. In 2016, Carolina Financial was ranked #8 on American Banker's 2015 list of "Top 200 Community Banks and Thrifts as Ranked by Three-Year Average ROE", and was added to the Russell 2000 as part of the 2016 Russell indexes reconstitution. In June 2016, Carolina Financial Corporation completed its previously announced merger with Congaree.