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Carolina Trust BancShares, Inc. Reports Third Quarter 2016 Diluted Earnings per Share of $0.01

LINCOLNTON, N.C., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Carolina Trust BancShares, Inc. (NASDAQ:CART) announced today its financial results for the third quarter that ended September 30, 2016 (“3Q 2016”). Carolina Trust BancShares, Inc. (“the Company”), the bank holding company for its subsidiary, Carolina Trust Bank (“the Bank”), earned net income of $85,000 in 3Q 2016 as compared to $431,000 for the same period in 2015 (“3Q 2015”), representing an 80%, or $346,000, decrease in net income between the comparative quarters. The Company’s net income for 3Q 2016 was also an 81% decline from the $457,000 in net income previously reported for the quarter ended June 30, 2016 (“the linked quarter”). After deducting preferred stock dividends, net income available to common stockholders in 3Q 2016 was $27,000, a 93% decrease from the 3Q 2015 figure, $372,000, and a 93% decrease from the linked quarter figure, $399,000. Diluted earnings per share for 3Q 2016 were $0.01, as compared to $0.08 for the same period last year. Annualized return on average total assets was 0.09%, and annualized return on average common shareholder’s equity was 0.37% for 3Q 2016. The 3Q 2016 annualized return on average assets was lower than both 3Q 2015 and the linked quarter at 0.51% and 0.49%, respectively. Similarly, the 3Q 2016 annualized return on average common equity was lower than both 3Q 2015 at 5.27% and the linked quarter at 5.57%.

The 3Q 2016 and 3Q 2015 results included increases to income tax expense of $79,000 and $99,000, respectively, with offsetting decreases to the deferred tax assets. These tax adjustments were caused by consecutive annual changes to the North Carolina corporate income tax rates that decreased from 5% to 4% effective January 1, 2016 and subsequently to 3% effective January 1, 2017. Over time, the lower state income tax rate should have a positive impact on current and retained earnings.

The $346,000 earnings decline from 3Q 2015 to 3Q 2016 was driven primarily by increases to loan loss provision, foreclosed asset expenses, and professional fees.

  • Loan loss provision increased by $372,000 or $238,000, net of income taxes. The provision for 3Q 2016 was $202,000 as compared to a $170,000 recovery in 3Q 2015. The provision in 3Q 2016 was attributed to a specific reserve for one commercial loan that was downgraded during the quarter.
  • Professional fees increased by $106,000 or $68,000, net of income taxes. Legal fees related to the reorganization to a bank holding company on August 16, 2016, accounted for most of the increase, followed by increases in audit and consulting fees. Consulting fees were related to compliance, strategic planning, and asset-liability management.
  • Foreclosed asset expenses increased by $98,000, or $63,000 net of taxes. These expenses include losses on sales, write-downs of unsold properties, repair and maintenance expenses and property taxes.
  • Nonrecurring expenses related to the holding company reorganization totaled approximately $67,000.
  • Expenses related to upgrading our core banking system totaled $31,000, and additional expenses are expected to be incurred until April 2017, the projected implementation date.

Net interest income decreased by $18,000, comparing 3Q 2016 to 3Q 2015 and by $105,000 compared to the linked quarter. Comparing 3Q 2016 with 3Q 2015, interest expenses rose slightly more than interest income even though average loans grew by approximately $16 million or 6%. The decline compared to the linked quarter was attributed primarily to a decrease in loan interest income. The weighted average contractual rate on loans at September 30, 2016 was 4.84% as compared to 4.87% at June 30, 2016.

Noninterest expense grew by $324,000, or 11%, in 3Q 2016 as compared to 3Q 2015, and was due mostly to the professional fees and foreclosed asset expenses discussed above. This increase was partially offset by a favorable $65,000 increase in noninterest income that was attributed to (1) a gain on the sale of an investment security and to (2) the deposit account growth that resulted in additional interchange fee income. Compared to the linked quarter, noninterest expenses increased by 204,000.

Jerry L. Ocheltree, President and Chief Executive Officer stated, “We are pleased to have completed the formation of our bank holding company structure that provides us more flexibility in raising capital. In October, we closed on a $10 million subordinated debt issue. We intend to invest most of those proceeds in the Bank to bolster capital for projected growth. Conversion of our Mooresville loan production office to a full service branch has been approved by both the FDIC and North Carolina Commissioner of Banks. During the first quarter of 2017, we look forward to providing our full suite of deposit products and online banking services to customers in Mooresville and the communities along the eastern side of Lake Norman. In Hickory, we expect that construction of our permanent branch will be completed in the 4th quarter of 2016. As we relocate from a multi-tenant building to a freestanding and more convenient location, we look forward to developing more banking relationships in Hickory and the surrounding Unifour region.”

“In addition to these events, we are also upgrading our core bank processing system to provide a wider range of cash management products, to add functionality for processing loan and deposit transactions, and to improve our overall efficiency. We expect to complete this project in April 2017.”

“These activities are part of our strategic plan to position Carolina Trust Bank to compete effectively for growth throughout our service area. We are making investments in facilities and training in order to serve our customers well with each opportunity.”

Set forth below are certain selected financial items for the quarter ended September 30, 2016:

  • Pre-tax earnings of $249,000, a decrease of $649,000 or 72% compared to 3Q 2015.
  • Increase in loans of $8.3 million (“mm”) or 11.2%, annualized, during 3Q 2016.
  • Decrease in deposits of $0.4 mm or less than 1%, annualized, during 3Q 2016.
  • Total nonperforming assets (“NPAs”) increased to $4.5 million from $3.0 million at June 30, 2016. The NPAs as a percentage of total assets increased from 0.80% at June 30, 2016 to 1.20% at September 30, 2016. Although the balance of foreclosed real estate declined during the quarter, there were several commercial and industrial loans placed on nonaccrual status during the quarter for various reasons. Most of the increase was attributed to one loan.
  • The ratio of allowance for loan and lease losses (“ALLL”) to total loans increased 1 basis point from 1.21% at June 30, 2016 to 1.22% at September 30, 2016. This slight percentage increase reflects a $146,000 increase in the ALLL. The ALLL attributed to loans evaluated individually for impairment increased by $630,000, while the general allowance for loans evaluated collectively for impairment decreased. The general allowance decreased because the historical loss rate has trended lower over the past few years. The ALLL model includes historical losses as one of several factors in estimating the current credit losses for non-impaired loans. As earlier reporting periods age off of the historical loss analysis time frame, the ALLL decreases. Classified loans increased by $2.9 million during 3Q 2016, and non-performing loans increased by $1.8 million during the period.
  • The classified asset ratio for the Bank at September 30, 2016 was 29%.

Bank’s Classified asset ratio = [classified loans and other real estate]
[Bank tier 1 capital and allowance for loan losses]
Classified loans = loans that are risk-graded as substandard, doubtful or loss

CAPITAL LEVELS
Capital for the Bank exceeded "well-capitalized" thresholds for each of the four primary capital levels monitored by state and federal regulators. As of September 30, 2016, the common equity tier 1 capital ratio was 8.88%; the tier 1 capital ratio was 9.50%; the total capital ratio was 10.69%; and the tier 1 leverage ratio was 8.00%. Capital at the Company level was marginally higher than the Bank due to cash dividends received from the Bank, a portion of which was retained in cash.

NET INTEREST INCOME
Net interest income was $3,274,000 in 3Q 2016, down slightly from $3,292,000 in 3Q 2015 and down from $3,379,000 in the linked quarter. The Bank’s net interest margin (“NIM”) for 3Q 2016 was 3.67%, down 50 basis points (“bp”) from 4.17% reported for the same period last year. The margin compression was due primarily to the increase in lower yielding overnight funds, as part of a strategy to add liquidity in early 2016. Compared to the linked quarter, NIM decreased by 16 bp, which was due to a combination of a lower yield on loans (down 20 bp), a lower yield on securities (down 6 bp), and a higher percentage of earning assets being in invested in overnight funds. Securities that were called or sold during the last three quarters were replaced by lower yielding securities.

NONINTEREST INCOME
For 3Q 2016, noninterest income was $349,000, a $65,000 increase or 22.9% when compared to 3Q 2015. While most of the increase was due to a gain from a security sale, card interchange fees also contributed to the increase.

  • The ratio of noninterest income to average assets was 0.37%, annualized, as compared to 0.34% a year ago and 0.34% in the linked quarter.

NONINTEREST EXPENSE
Noninterest expense for 3Q 2016 totaled $3,172,000, up $324,000 or 11.4% as compared to the $2,848,000 recorded for 3Q 2015. The increase was attributed mostly to professional fees, foreclosed asset expenses, medical insurance premiums, and data processing expense.

  • Professional fees and foreclosed asset fees increased as discussed previously.
  • Compensation expenses increased $69,000 or 4% in comparison to 3Q 2015 due to increased employee group health insurance premiums.
  • Data processing expenses increased by $50,000 or 30%, which was mostly due to expenses related to the core processing conversion discussed above.
  • The ratio of noninterest expenses to average assets was 3.38%, unchanged from a year ago and up from 3.20% in the linked quarter.

About Carolina Trust BancShares, Inc.
Carolina Trust BancShares, Inc. is a bank holding company and the parent company of Carolina Trust Bank. Carolina Trust Bank is a full service, state-chartered bank headquartered in Lincolnton, N.C., operating nine full service branches in Lincoln, Catawba, Gaston and Rutherford Counties in western North Carolina and a loan production office in Mooresville, N.C.

Caution Regarding Forward-Looking Statements: This news release contains forward-looking statements. Words such as “anticipates,” “ believes,” “estimates,” “expects,” “intends,” “should,” “will,” variations of such words and similar expressions are intended to identify forward-looking statements. These statements reflect management’s current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Factors that could cause a difference include, among others; changes in the national and local economies or market conditions; changes in interest rates, deposit flows, loan demand and asset quality, including real estate and other collateral values; changes in banking regulations and accounting principles, policies or guidelines; and the impact of competition from traditional or new sources. These and other factors that may emerge could cause decisions and actual results to differ materially from current expectations. Carolina Trust BancShares, Inc. undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.

Carolina Trust BancShares, Inc.
Selected Financial Highlights
Dollars in thousands, except per share data
Unaudited Unaudited Unaudited (a) Unaudited
9/30/16 6/30/16 3/31/16 12/31/15 9/30/15
Balance Sheet Data:
Total Assets $372,169 $373,955 $372,746 $334,049 $332,359
Total Deposits 323,041 323,418 320,689 284,794 285,385
Total Loans 301,420 293,157 297,746 292,362 286,469
Reserve for Loan Loss 3,687 3,541 3,521 3,723 3,825
Total Stockholders’ Equity 31,711 31,768 31,043 30,464 30,548
(a) Note: Derived from audited financial statements
Carolina Trust BancShares, Inc.
Comparative Income Statements
For the Three Months Ended
Unaudited Unaudited Variance Variance
9/30/16 9/30/15 $ %
Income and Per Share Data:
Interest Income $3,966 $3,891 $75 1.9%
Interest Expense 692 599 93 15.5%
Net Interest Income 3,274 3,292 (18) (0.5%)
Provision for (recovery of) Loan Loss 202 (170) 372 NM
Net Interest Income After Provision 3,072 3,462 (390) (11.3%)
Non-interest income 349 284 65 22.9%
Non-interest expense 3,172 2,848 324 11.4%
Income Before Taxes 249 898 (649) (72.3%)
Income Tax Expense 164 467 (303) (64.9%)
Net Income 85 431 (346) (80.3%)
Preferred Stock Dividend 58 59 (1) -1.7%
Net Income Available to Common Shareholders $27 $372 ($345) (92.7%)
Net Income Per Common Share:
Basic $0.01 $0.08
Diluted $0.01 $0.08
Average Common Shares Outstanding:
Basic 4,650,221 4,645,975
Diluted 4,699,895 4,721,188


Carolina Trust BancShares, Inc.
Comparative Income Statements
For the nine months ended
Dollars in thousands, except per share data
Unaudited Unaudited Variance Variance
9/30/16 9/30/15 $ %
Income and Per Share Data:
Interest Income $12,076 $10,949 $1,127 10.3%
Interest Expense 2,034 1,710 324 18.9%
Net Interest Income 10,042 9,239 803 8.7%
Provision for (recovery of) Loan Loss 122 (170) 292 NM
Net Interest Income After Provision 9,920 9,409 511 5.4%
Non-interest income 947 807 140 17.3%
Non-interest expense 9,245 8,401 844 10.0%
Income Before Taxes 1,622 1,815 (193) (10.6%)
Income Tax Expense 663 848 (185) (21.8%)
Net Income 959 967 (8) (0.8%)
Preferred Stock Dividend 175 176 (1) (0.6%)
Net Income Available to Common Shareholders $784 $791 ($7) (0.9%)
Net Income Per Common Share:
Basic $0.17 $0.17
Diluted $0.17 $0.17
Average Common Shares Outstanding:
Basic 4,649,781 4,645,210
Diluted 4,696,894 4,738,224


Carolina Trust BancShares, Inc.
Quarterly Income Statement
Dollars in thousands, except per share data
For the three months ended:
Unaudited Unaudited Unaudited Unaudited Unaudited
Income and Per Share Data: 9/30/16 6/30/16 3/31/16 12/31/15 9/30/15
Interest Income $3,966 $4,083 $4,027 $3,956 $3,891
Interest Expense 692 704 638 601 599
Net Interest Income 3,274 3,379 3,389 3,355 3,292
Provision for (recovery of) Loan Loss 202 - (80) (100) (170)
Net Interest Income After Provision 3,072 3,379 3,469 3,455 3,462
Non-interest income 349 312 286 304 284
Non-interest expense 3,172 2,968 3,105 3,352 2,848
Income Before Taxes 249 723 650 407 898
Income Tax Expense 164 266 233 316 467
Net Income 85 457 417 91 431
Preferred Stock Dividend 58 58 59 58 59
Net Income Available to Common Shareholders $27 $399 $358 $33 $372
Net Income Per Common Share:
Basic $0.01 $0.09 $0.08 $0.01 $0.08
Diluted $0.01 $0.08 $0.08 $0.01 $0.08
Average Common Shares Outstanding:
Basic 4,650,221 4,649,558 4,649,558 4,645,997 4,645,975
Diluted 4,699,895 4,696,133 4,697,539 4,692,203 4,721,188


Carolina Trust BancShares, Inc.
Selected Financial Highlights
Dollars in thousands, except per share data
9/30/166/30/163/31/1612/31/159/30/15
Capital Ratios:
Common equity tier 1 capital ratio* 8.88% 9.19% 8.59% 8.67% 8.63%
Tier 1 capital ratio* 9.50% 9.83% 9.16% 9.10% 8.74%
Total capital ratio* 10.69% 11.01% 10.29% 10.30% 10.00%
Tier 1 leverage ratio* 8.00% 8.03% 8.27% 8.48% 8.09%
Tangible Common Equity (b)$29,001 $29,043 $28,304 $27,710 $27,778
Common Shares Outstanding 4,650,558 4,649,558 4,649,558 4,646,225 4,645,975
Book Value per Common Share$6.26 $6.28 $6.12 $6.00 $6.02
Tangible Book Value per Common Share (b)
$6.24 $6.25 $6.09 $5.96 $5.98
Performance Ratios (annualized):
Return on Average Assets 0.09% 0.49% 0.48% 0.11% 0.51%
Return on Average Common Equity 0.37% 5.57% 5.08% 0.50% 5.27%
Net Interest Margin 3.67% 3.83% 4.11% 4.24% 4.17%
Asset Quality:
Delinquent Loans (30-89 days)$1,439 $1,449 $588 $1,141 $2,667
Delinquent Loans (90 days or more and accruing)$175 $0 $0 $117 $115
Non-accrual Loans$3,403 $1,739 $2,100 $2,047 $1,964
OREO and repossessed property$881 $1,234 $1,800 $1,994 $2,168
Total Nonperforming Assets$4,459 $2,973 $3,900 $4,158 $4,247
Restructured Loans$4,670 $4,736 $4,807 $4,853 $4,788
Nonperforming Assets / Total Assets 1.20% 0.80% 1.05% 1.24% 1.28%
Nonperforming Assets / Equity Capital & ALLL 12.60% 8.42% 11.28% 12.16% 12.36%
Allowance for Loan Losses / Nonperforming Assets 82.68% 119.11% 90.28% 89.55% 90.06%
Allowance for Loan Losses / Total Loans 1.22% 1.21% 1.18% 1.27% 1.34%
Net Loan Charge-offs (recoveries)$58 ($20)$122 $1 ($108)
Net Loan Charge-offs (recoveries) / Average Loans (%) 0.06% (0.03%) 0.17% 0.00% (0.04%)
Note: Financial information is unaudited.
(*) Note: Capital Ratios are reported for Carolina Trust Bank reported to the Federal Financial Institutions Examination Council on Form FFIEC 041.


Reconciliation of non-GAAP to GAAP: 9/30/16 6/30/163/31/1612/31/159/30/15
Stockholders’ equity (GAAP) $31,711 $31,768 $31,043 $30,464 $30,548
Less: Preferred stock 2,580 2,580 2,580 2,580 2,580
Less: Core deposit intangible 130 145 159 174 189
Tangible Common Equity (non-GAAP) 29,001 29,043 28,304 27,710 27,779
Common shares outstanding 4,650,558 4,649,558 4,649,558 4,646,225 4,645,975
Tangible Book Value per Common Share (non-GAAP) $6.24 $6.25 $6.09 $5.96 $5.98

Contact: Jerry L. Ocheltree President and CEO Carolina Trust BancShares, Inc. (704) 735-1104

Source:Carolina Trust Bank