*Derived from Carolina Trust BancShares, Inc.’s audited financial statements included in its 2018 Annual Report on Form 10-K
The consolidated financial statements include the accounts of Carolina Trust BancShares, Inc. (the “Company”), its subsidiary, Carolina Trust Bank (the “Bank”), and the Bank’s wholly owned
subsidiary, Western Carolina Holdings, LLC, which owns certain Bank assets. All significant intercompany balances and transactions have been eliminated in consolidation. On August 16, 2016, the Company announced that it had consummated a statutory
share exchange pursuant to which it became the parent company of the Bank. Shares of the Bank’s common stock were exchanged for shares of the Company’s common stock at a one-for-one exchange rate. The Company is a North Carolina business
corporation that operates as a registered bank holding company under the Bank Holding Company Act of 1956. The Bank is the only subsidiary of the Company.
In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for fair presentation of the financial
information as of June 30, 2019, in conformity with accounting principles generally accepted in the United States of America. Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2019.
Information regarding the organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial
statements filed as part of the Company’s 2018 Annual Report on Form 10-K. This quarterly report should be read in conjunction with the Annual Report.
The operating leases of the Company relate to office space and bank branches. As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use (“ROU”) asset of $457,000 and an
operating lease liability of $443,000 on January 1, 2019, with no impact on net income or stockholders’ equity. The ROU asset and operating lease liability are recorded in bank premises, equipment and software and other liabilities, respectively,
in the consolidated balance sheet as of June 30, 2019. See Note 12 - Leases for additional information.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations
or cash flows.
The transaction was accounted for using the purchase method of accounting for business combinations. Under the purchase method of accounting, the assets and liabilities of Clover were recorded
based on estimates of fair values as of January 1, 2019. In the second quarter of 2019, there were some additional adjustments to the fair value of assets acquired. An increase in the amount of $76,000 was made to the fair value adjustments of
loans acquired due to a correction on the valuation of interest only loans. A decrease of $330,000 to Core deposit intangible was recorded due to correction of the FHLB offering rates used in the valuation calculation. An offsetting entry was made
to the deferred tax asset, which is included in other assets, for $96,000. The remaining $310,000 was recorded as an increase to goodwill.
The following table summarizes the allocation of the purchase price to the assets acquired and the liabilities assumed based on their estimated fair value:
Goodwill recorded for Clover represents future revenues to be derived, including efficiencies that are expected to result from combining operations, and other non-identifiable intangible assets.
None of the goodwill is expected to be deductible for tax purposes.
The following pro forma financial information presents the combined results of the Company and Clover as if the acquisition had occurred as of January 1, 2018. The pro forma results are adjusted
for acquisition-related expense and are not necessarily indicative of the results of operations that would have occurred had the acquisition actually taken place on January 1, 2018, nor of future results of operations.
Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving
retroactive effect to stock splits and dividends.
The computation of diluted earnings per common share is similar to the computation of basic earnings per common share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if dilutive potential common shares had been issued. These additional common shares would include employee equity share options, nonvested shares and similar equity instruments granted to employees, as
well as the shares associated with the common stock warrants issued to the U.S. Treasury Department as
part of the preferred stock transaction completed in February 2009. Diluted earnings
per common share are based upon the actual number of options or shares granted and not yet forfeited unless doing so would be antidilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of
those potential common shares.
The following table summarizes earnings per share and the shares utilized in the computations for the three and six months ended June 30, 2019 and 2018, respectively:
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Dollars in thousands, except per share data
|
|
Net Income
|
|
|
Weighted
Average
Common
Shares
|
|
|
Per Share
Amount
|
|
Six months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
2,155
|
|
|
|
9,293,994
|
|
|
$
|
0.23
|
|
Effect of dilutive stock securities
|
|
|
-
|
|
|
|
70,235
|
|
|
|
-
|
|
Effect of dilutive stock warrants
|
|
|
-
|
|
|
|
2,550
|
|
|
|
-
|
|
Diluted earnings per common share
|
|
$
|
2,155
|
|
|
|
9,366,779
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1,091
|
|
|
|
5,667,619
|
|
|
$
|
0.19
|
|
Effect of dilutive stock securities
|
|
|
-
|
|
|
|
77,027
|
|
|
|
-
|
|
Effect of dilutive stock warrants
|
|
|
-
|
|
|
|
19,178
|
|
|
|
-
|
|
Diluted earnings per common share
|
|
$
|
1,091
|
|
|
|
5,763,824
|
|
|
$
|
0.19
|
|
For the three and six months ended June 30, 2019 and June 30, 2018, there were no anti-dilutive shares.
(5)
|
Fair Value Measurements
|
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value.
These fair value estimates are made at each reporting date, based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price a
liability could be settled for. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature,
involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The methodologies for financial assets and financial liabilities
are discussed below:
Cash and Due from Banks and Interest-Earning Deposits with Banks
The carrying amounts for cash and due from banks and interest-earning deposits with banks approximate fair value because of the short maturities of those instruments.
Certificates of Deposit with Banks
The fair value of certificates of deposit with banks is estimated by discounting expected cash flows using the rates currently offered for instruments of similar remaining maturities.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Investment and Equity Securities
Fair value for investment and equity securities equals the quoted market price if such information is available. If a quoted market price is not available in active markets for identical securities
(Level 1), fair value may be estimated using observable inputs such as quoted prices for similar securities, interest rates and yield curves, implied volatilities and credit spreads (Level 2). Otherwise, unobservable inputs such as independent
pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating on similar securities, prepayment assumptions and other factors such as credit loss assumptions (Level
3). The fair value would be based on an exit price between market participants that may include adjustments for liquidity and credit.
Loans
The fair value of loans is estimated based on exit price. These cash flows include assumptions for prepayment estimates over each loan’s remaining life, considerations for the current interest rate
environment compared to the weighted average rate of each portfolio and a credit risk component based on the historical and expected performance of each portfolio. The calculation also includes market liquidity and credit adjustments.
Accrued Interest Receivable and Payable
The carrying amount is a reasonable estimate of fair value.
Deposits
The fair value of demand deposits, savings, money market and negotiable order of withdrawal (NOW) accounts is the amount payable on demand at the reporting date. The fair value of time deposits is
estimated by discounting expected cash flows using the rates currently offered for instruments of similar remaining maturities.
Finance Lease Obligation, Federal Home Loan Bank Advances and Long Term Subordinated Debt
The fair value of borrowings is based upon discounted expected cash flows using current rates at which borrowings of similar maturity could be obtained.
Financial Instruments with Off-Balance Sheet Risk
With regard to commitments to extend credit discussed in Note 10, the fair value amounts are not material.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The carrying amounts and estimated fair values of the Company’s financial instruments, none of which are held for trading purposes, are as follows at June 30, 2019 and December 31, 2018:
|
|
|
|
|
Fair Value Measurements at June 30, 2019 using
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
Dollars in thousands
|
|
Carrying
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair
Value
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
13,547
|
|
|
$
|
13,547
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,547
|
|
Interest-earning deposits with banks
|
|
|
17,014
|
|
|
|
17,014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,014
|
|
Certificates of deposit with banks
|
|
|
2,344
|
|
|
|
-
|
|
|
|
2,363
|
|
|
|
-
|
|
|
|
2,363
|
|
Federal Home Loan Bank stock
|
|
|
1,272
|
|
|
|
-
|
|
|
|
1,272
|
|
|
|
-
|
|
|
|
1,272
|
|
Investment securities available for sale
|
|
|
67,414
|
|
|
|
-
|
|
|
|
66,436
|
|
|
|
978
|
|
|
|
67,414
|
|
Equity securities
|
|
|
879
|
|
|
|
879
|
|
|
|
-
|
|
|
|
-
|
|
|
|
879
|
|
Net loans
|
|
|
481,289
|
|
|
|
-
|
|
|
|
-
|
|
|
|
468,078
|
|
|
|
468,078
|
|
Accrued interest receivable
|
|
|
1,870
|
|
|
|
-
|
|
|
|
1,870
|
|
|
|
-
|
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
516,153
|
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
515,661
|
|
Finance lease obligation
|
|
|
106
|
|
|
|
-
|
|
|
|
106
|
|
|
|
-
|
|
|
|
106
|
|
Federal Home Loan Bank Advances
|
|
|
17,200
|
|
|
|
-
|
|
|
|
17,302
|
|
|
|
-
|
|
|
|
17,302
|
|
Long term subordinated debt
|
|
|
9,793
|
|
|
|
-
|
|
|
|
9,785
|
|
|
|
-
|
|
|
|
9,785
|
|
Accrued interest payable
|
|
|
571
|
|
|
|
-
|
|
|
|
571
|
|
|
|
-
|
|
|
|
571
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 using
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
Dollars in thousands
|
|
Carrying
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair
Value
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
10,918
|
|
|
$
|
10,918
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,918
|
|
Interest-earning deposits with banks
|
|
|
21,022
|
|
|
|
21,022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,022
|
|
Certificates of deposit with banks
|
|
|
1,498
|
|
|
|
-
|
|
|
|
1,484
|
|
|
|
-
|
|
|
|
1,484
|
|
Federal Home Loan Bank stock
|
|
|
1,050
|
|
|
|
-
|
|
|
|
1,050
|
|
|
|
-
|
|
|
|
1,050
|
|
Investment securities available for sale
|
|
|
31,960
|
|
|
|
-
|
|
|
|
31,960
|
|
|
|
-
|
|
|
|
31,960
|
|
Equity securities
|
|
|
617
|
|
|
|
617
|
|
|
|
-
|
|
|
|
-
|
|
|
|
617
|
|
Net loans
|
|
|
389,304
|
|
|
|
-
|
|
|
|
-
|
|
|
|
378,675
|
|
|
|
378,675
|
|
Accrued interest receivable
|
|
|
1,259
|
|
|
|
-
|
|
|
|
1,259
|
|
|
|
-
|
|
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
395,149
|
|
|
$
|
-
|
|
|
$
|
389,493
|
|
|
$
|
-
|
|
|
$
|
389,493
|
|
Capital lease obligation
|
|
|
141
|
|
|
|
-
|
|
|
|
141
|
|
|
|
-
|
|
|
|
141
|
|
Federal Home Loan Bank Advances
|
|
|
16,100
|
|
|
|
-
|
|
|
|
16,053
|
|
|
|
-
|
|
|
|
16,053
|
|
Long term subordinated debt
|
|
|
9,753
|
|
|
|
-
|
|
|
|
9,946
|
|
|
|
-
|
|
|
|
9,946
|
|
Accrued interest payable
|
|
|
421
|
|
|
|
-
|
|
|
|
421
|
|
|
|
-
|
|
|
|
421
|
|
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities
available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically
involve application of lower of cost or market accounting or write-downs of individual assets.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Fair Value Hierarchy
The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value.
|
Level 1
|
Valuation based upon quoted prices for identical instruments traded in active markets.
|
|
Level 2
|
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for
which all significant assumptions are observable in the market.
|
|
Level 3
|
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market
participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
|
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the recorded amount of assets and liabilities measured on a recurring basis.
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
19,276
|
|
|
$
|
-
|
|
|
$
|
19,276
|
|
|
$
|
-
|
|
Mortgage-backed securities*
|
|
|
29,048
|
|
|
|
-
|
|
|
|
29,048
|
|
|
|
-
|
|
Municipal securities
|
|
|
18,112
|
|
|
|
-
|
|
|
|
18,112
|
|
|
|
-
|
|
Corporate debt securities
|
|
|
978
|
|
|
|
-
|
|
|
|
-
|
|
|
|
978
|
|
Total available-for-sale securities
|
|
|
67,414
|
|
|
|
-
|
|
|
|
66,436
|
|
|
|
978
|
|
Equity securities
|
|
|
879
|
|
|
|
879
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
68,293
|
|
|
$
|
879
|
|
|
$
|
66,436
|
|
|
$
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
10,789
|
|
|
$
|
-
|
|
|
$
|
10,789
|
|
|
$
|
-
|
|
Mortgage-backed securities*
|
|
|
20,541
|
|
|
|
-
|
|
|
|
20,541
|
|
|
|
-
|
|
Municipal securities
|
|
|
630
|
|
|
|
-
|
|
|
|
630
|
|
|
|
-
|
|
Total available-for-sale securities
|
|
|
31,960
|
|
|
|
-
|
|
|
|
31,960
|
|
|
|
-
|
|
Equity securities
|
|
|
617
|
|
|
|
617
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
32,577
|
|
|
$
|
617
|
|
|
$
|
31,960
|
|
|
$
|
-
|
|
*All of the Company’s mortgage-backed securities are issued either by the U.S. Government, which includes GNMA pools, or by government-sponsored enterprises such as FNMA and FHLMC.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The Company did not have any transfers of assets between Levels 1, 2 or 3 during the periods ended June 30, 2019 and December 31, 2018.
The tables below present the changes during the three and six months ended June 30, 2019 in the amount of Level 3 assets measured on a recurring basis.
|
|
Three months ended
June 30, 2019
|
|
Dollars in thousands
|
|
|
|
Balance, beginning of period
|
|
$
|
965
|
|
Additions
|
|
|
-
|
|
Change in valuation recognized in OCI
|
|
|
13
|
|
Balance, end of period
|
|
$
|
978
|
|
|
|
Six months ended
June 30, 2019
|
|
Dollars in thousands
|
|
|
|
Balance, beginning of period
|
|
$
|
-
|
|
Additions
|
|
|
956
|
|
Change in valuation recognized in OCI
|
|
|
22
|
|
Balance, end of period
|
|
$
|
978
|
|
The Company did not have any Level 3 assets measured on a recurring basis as of June 30, 2018.
Impaired Loans
The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it
is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures it for impairment.
The fair value of impaired loans is estimated using one of several methods, including collateral value, a loan’s observable market price and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair
value exceeds the recorded investments in such loans. At June 30, 2019, the discounted cash flows method was used in determining the fair value of eight loans totaling $1.2 million and the fair value of the collateral method was used in the other
twenty-six loans totaling $2.4 million. At December 31, 2018, the discounted cash flows method was used in determining the fair value of nine loans totaling $1.7 million and the fair value of the collateral method was used in the other twenty-two
loans totaling $2.4 million. Impaired loans where an allowance is established based on the fair value of collateral and also when written down with the discounted cash flow method require classification in the fair value hierarchy. The fair value
of the collateral for an impaired loan is classified as Level 3. Although appraisals of these properties are frequently based on comparable properties, they are not identical. Significant unobservable inputs will need to be used in assessing the
value. When the discounted cash flows method is used, the Company records the impaired loan as nonrecurring Level 3. There have been no changes in valuation techniques for the period ended June 30, 2019. Valuation techniques are consistent with
techniques used in prior periods.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The following table presents impaired loans that were re-measured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses
based upon the fair value of the underlying collateral or discounted cash flows during the six months ended June 30, 2019 and 2018.
|
|
June 30
|
|
Dollars in thousands
|
|
2019
|
|
|
2018
|
|
Carrying value of impaired loans before allocations
|
|
$
|
1,266
|
|
|
$
|
1,685
|
|
Specific valuation allowance allocations
|
|
|
(208
|
)
|
|
|
(249
|
)
|
Carrying value of impaired loans after allocations
|
|
$
|
1,058
|
|
|
$
|
1,436
|
|
Foreclosed Assets
Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair
value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The fair value of foreclosed assets is classified as Level 3. Although appraisals of these
properties are frequently based on comparable properties, they are not identical. Significant unobservable inputs will need to be used in assessing the value.
The carrying value of foreclosed assets is periodically reviewed and written down to fair value. Any loss is included in earnings. For the three months ended June 30, 2019 and
2018, there were no assets that were written down prior to foreclosure. For the six months ended June 30, 2019 there were no assets that were written down prior to foreclosure and for the six months ended June 30, 2018, foreclosed assets in the
amount of $1,158,000 were written down by $180,000 to $978,000 prior to foreclosure. For the three and six months ended June 30, 2019, foreclosed assets with a carrying value of $231,000 were written down by $37,000 to $194,000 subsequent to
foreclosure. For the three and six months ended June 30, 2018, foreclosed assets with a carrying value of $978,000 were written down by $248,000 to $730,000 subsequent to foreclosure.
Assets measured at fair value on a nonrecurring basis are included in the table below.
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets
|
|
$
|
194
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
194
|
|
Impaired loans
|
|
|
1,058
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,058
|
|
Total
|
|
$
|
1,252
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets
|
|
$
|
942
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
942
|
|
Impaired loans
|
|
|
1,487
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,487
|
|
Total
|
|
$
|
2,429
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,429
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Quantitative information about level 3 fair value measurements:
|
|
Fair
Value
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
|
|
|
Weighted
Average
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,058
|
|
Discounted cash flows
|
|
Discount rate
|
|
|
4.75% - 8.50
|
%
|
|
|
6.46
|
%
|
Foreclosed assets
|
|
|
194
|
|
Discounted appraisals
|
|
Appraisal adjustments
|
|
|
21.88 – 71.11
|
%
|
|
|
26.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
122
|
|
Discounted appraisals
|
|
Appraisal adjustments
|
|
|
15.00
|
%
|
|
|
15.00
|
%
|
|
|
|
1,365
|
|
Discounted cash flows
|
|
Discount rate
|
|
|
4.75 – 8.50
|
%
|
|
|
7.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets
|
|
|
942
|
|
Discounted appraisals
|
|
Appraisal adjustments
|
|
|
8.00% - 15.00
|
%
|
|
|
9.68
|
%
|
(6)
|
Investment Securities
|
The amortized cost and fair value of investment securities, with gross unrealized gains and losses, is as follows:
In thousands
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
18,972
|
|
|
$
|
328
|
|
|
$
|
(24
|
)
|
|
$
|
19,276
|
|
Mortgage-backed securities *
|
|
|
28,789
|
|
|
|
407
|
|
|
|
(148
|
)
|
|
|
29,048
|
|
Municipal securities
|
|
|
17,603
|
|
|
|
509
|
|
|
|
-
|
|
|
|
18,112
|
|
Corporate debt securities
|
|
|
956
|
|
|
|
22
|
|
|
|
-
|
|
|
|
978
|
|
Total available-for-sale securities
|
|
|
66,320
|
|
|
|
1,266
|
|
|
|
(172
|
)
|
|
|
67,414
|
|
Equity securities
|
|
|
1,271
|
|
|
|
-
|
|
|
|
(392
|
)
|
|
|
879
|
|
Total
|
|
$
|
67,591
|
|
|
$
|
1,266
|
|
|
$
|
(564
|
)
|
|
$
|
68,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
11,036
|
|
|
$
|
6
|
|
|
$
|
(253
|
)
|
|
$
|
10,789
|
|
Mortgage-backed securities *
|
|
|
21,010
|
|
|
|
36
|
|
|
|
(505
|
)
|
|
|
20,541
|
|
Municipal securities
|
|
|
631
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
630
|
|
Total available-for-sale securities
|
|
|
32,677
|
|
|
|
43
|
|
|
|
(760
|
)
|
|
|
31,960
|
|
Equity securities
|
|
|
1,204
|
|
|
|
-
|
|
|
|
(587
|
)
|
|
|
617
|
|
Total
|
|
$
|
33,881
|
|
|
$
|
43
|
|
|
$
|
(1,347
|
)
|
|
$
|
32,577
|
|
* All mortgage-backed securities are issued either by the U.S. Government through GNMA or by government sponsored enterprises FNMA or FHLMC.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The amortized cost and fair values of securities available for sale at June 30, 2019 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
Dollars in thousands
|
|
|
|
|
|
|
Due within one year
|
|
$
|
935
|
|
|
$
|
938
|
|
Due after one but within five years
|
|
|
12,186
|
|
|
|
12,318
|
|
Due after five but within ten years
|
|
|
18,083
|
|
|
|
18,436
|
|
Due after ten years
|
|
|
35,116
|
|
|
|
35,722
|
|
|
|
$
|
66,320
|
|
|
$
|
67,414
|
|
The following table details unrealized losses and related fair values in the Company’s available for sale investment security portfolio. This information is aggregated by the length of time that
individual securities have been in a continuous unrealized loss position as of June 30, 2019 and December 31, 2018, respectively.
|
|
Temporarily Impaired Securities in Available-for-Sale Portfolio
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
Greater than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
1,517
|
|
|
$
|
(2
|
)
|
|
$
|
2,807
|
|
|
$
|
(22
|
)
|
|
$
|
4,324
|
|
|
$
|
(24
|
)
|
Mortgage-backed securities *
|
|
|
575
|
|
|
|
(2
|
)
|
|
|
12,528
|
|
|
|
(146
|
)
|
|
|
13,103
|
|
|
|
(148
|
)
|
Municipal Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total temporarily impaired securities
|
|
$
|
2,092
|
|
|
$
|
(4
|
)
|
|
$
|
15,335
|
|
|
$
|
(168
|
)
|
|
$
|
17,427
|
|
|
$
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,657
|
|
|
$
|
(253
|
)
|
|
$
|
10,657
|
|
|
$
|
(253
|
)
|
Mortgage-backed securities *
|
|
|
2,885
|
|
|
|
(10
|
)
|
|
|
13,644
|
|
|
|
(495
|
)
|
|
|
16,529
|
|
|
|
(505
|
)
|
Municipal Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
290
|
|
|
|
(2
|
)
|
|
|
290
|
|
|
|
(2
|
)
|
Total temporarily impaired securities
|
|
$
|
2,885
|
|
|
$
|
(10
|
)
|
|
$
|
24,591
|
|
|
$
|
(750
|
)
|
|
$
|
27,476
|
|
|
$
|
(760
|
)
|
* All mortgage-backed securities are issued either by the U.S. Government through GNMA or by government sponsored enterprises FNMA or FHLMC.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Management considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration of the decline in market value in determining if impairment
is other than temporary. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank
to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. As of June 30, 2019, management believes that it is more likely than not that the Bank will not have to sell any such
securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds
approach their maturity date or repricing date or if market yields for such investments decline.
Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality. Accordingly, as of June 30, 2019, management believes the impairments detailed in
the table above are temporary and no impairment loss has been realized in the Company’s net income. Securities with a fair value of $7.0 million were pledged to secure public funds at June 30, 2019. The Company had no sales of securities during
the three or six month periods ended June 30, 2019 and June 30, 2018.
Loans are summarized in the following table which includes $3.3 million at June 30, 2019 of PCI loans resulting from the acquisition of Clover on January 1, 2019; loans purchased with evidence of credit deterioration
since origination and for which it is probable that all contractually required payments will not be collected are considered PCI loans.
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Dollars in thousands
|
|
Loans -
excluding
PCI
|
|
|
PCI
Loans
|
|
|
Total
Loans
|
|
|
Loans -
excluding
PCI
|
|
|
PCI
Loans
|
|
|
Total
Loans
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
8,095
|
|
|
$
|
-
|
|
|
$
|
8,095
|
|
|
$
|
4,650
|
|
|
$
|
-
|
|
|
$
|
4,650
|
|
Commercial ADC
|
|
|
31,633
|
|
|
|
11
|
|
|
|
31,644
|
|
|
|
20,790
|
|
|
|
-
|
|
|
|
20,790
|
|
Farmland
|
|
|
6,365
|
|
|
|
-
|
|
|
|
6,365
|
|
|
|
4,833
|
|
|
|
-
|
|
|
|
4,833
|
|
Multifamily
|
|
|
19,491
|
|
|
|
-
|
|
|
|
19,491
|
|
|
|
18,537
|
|
|
|
-
|
|
|
|
18,537
|
|
Owner occupied
|
|
|
127,672
|
|
|
|
1,587
|
|
|
|
129,259
|
|
|
|
103,983
|
|
|
|
-
|
|
|
|
103,983
|
|
Non-owner occupied
|
|
|
110,618
|
|
|
|
-
|
|
|
|
110,618
|
|
|
|
97,034
|
|
|
|
-
|
|
|
|
97,034
|
|
Total commercial real estate
|
|
|
303,874
|
|
|
|
1,598
|
|
|
|
305,472
|
|
|
|
249,827
|
|
|
|
-
|
|
|
|
249,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
57,108
|
|
|
|
315
|
|
|
|
57,423
|
|
|
|
49,499
|
|
|
|
-
|
|
|
|
49,499
|
|
Agriculture
|
|
|
200
|
|
|
|
-
|
|
|
|
200
|
|
|
|
262
|
|
|
|
-
|
|
|
|
262
|
|
Other
|
|
|
6,918
|
|
|
|
-
|
|
|
|
6,918
|
|
|
|
1,573
|
|
|
|
-
|
|
|
|
1,573
|
|
Total commercial
|
|
|
64,226
|
|
|
|
315
|
|
|
|
64,541
|
|
|
|
51,334
|
|
|
|
-
|
|
|
|
51,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
67,829
|
|
|
|
1,259
|
|
|
|
69,088
|
|
|
|
53,395
|
|
|
|
-
|
|
|
|
53,395
|
|
Junior lien, closed-end
|
|
|
1,110
|
|
|
|
2
|
|
|
|
1,112
|
|
|
|
812
|
|
|
|
-
|
|
|
|
812
|
|
Total residential mortgage
|
|
|
68,939
|
|
|
|
1,261
|
|
|
|
70,200
|
|
|
|
54,207
|
|
|
|
-
|
|
|
|
54,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
39,244
|
|
|
|
-
|
|
|
|
39,244
|
|
|
|
33,968
|
|
|
|
-
|
|
|
|
33,968
|
|
Consumer – other
|
|
|
5,897
|
|
|
|
81
|
|
|
|
5,978
|
|
|
|
3,946
|
|
|
|
-
|
|
|
|
3,946
|
|
Total loans
|
|
$
|
482,180
|
|
|
$
|
3,255
|
|
|
$
|
485,435
|
|
|
$
|
393,282
|
|
|
$
|
|
|
|
$
|
393,282
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Loans are primarily originated for customers residing in Lincoln, Gaston, Rutherford, Catawba, Iredell, and Rowan Counties in North Carolina and York County, South Carolina. Real estate loans can be affected by the
condition of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions.
Non-Accrual and Past Due Loans
Non-accrual loans, segregated by category, were as follows:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Dollars in thousands
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
3
|
|
|
$
|
42
|
|
Owner occupied
|
|
|
846
|
|
|
|
932
|
|
Non-owner occupied
|
|
|
4
|
|
|
|
4
|
|
Total commercial real estate
|
|
|
853
|
|
|
|
978
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
180
|
|
|
|
-
|
|
Total commercial
|
|
|
180
|
|
|
|
-
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
126
|
|
|
|
57
|
|
Junior lien, closed end
|
|
|
3
|
|
|
|
4
|
|
Total residential mortgage
|
|
|
129
|
|
|
|
61
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
Consumer – other
|
|
|
4
|
|
|
|
7
|
|
Total non-accrual loans
|
|
$
|
1,166
|
|
|
$
|
1,046
|
|
Interest foregone on non-accrual loans was approximately $21,000 and $45,000 for the three and six months ended June 30, 2019 and $22,000 and $37,000 for the three and six months ended June 30, 2018.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
An analysis of past due loans, segregated by class, was as follows:
In thousands
|
|
Loans
30-89
Days
Past Due
|
|
|
Loans
90 or More
Days
Past Due
|
|
|
Total Past
Due Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
Accruing
Loans 90
or More
Days
Past Due
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,095
|
|
|
$
|
8,095
|
|
|
$
|
-
|
|
Commercial ADC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,644
|
|
|
|
31,644
|
|
|
|
-
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,365
|
|
|
|
6,365
|
|
|
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,491
|
|
|
|
19,491
|
|
|
|
-
|
|
Owner occupied
|
|
|
444
|
|
|
|
126
|
|
|
|
570
|
|
|
|
128,689
|
|
|
|
129,259
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
-
|
|
|
|
124
|
|
|
|
124
|
|
|
|
110,494
|
|
|
|
110,618
|
|
|
|
120
|
|
Total commercial real estate
|
|
|
444
|
|
|
|
250
|
|
|
|
694
|
|
|
|
304,778
|
|
|
|
305,472
|
|
|
|
120
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
278
|
|
|
|
42
|
|
|
|
320
|
|
|
|
57,103
|
|
|
|
57,423
|
|
|
|
-
|
|
Agriculture
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200
|
|
|
|
200
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,918
|
|
|
|
6,918
|
|
|
|
-
|
|
Total commercial
|
|
|
278
|
|
|
|
42
|
|
|
|
320
|
|
|
|
64,221
|
|
|
|
64,541
|
|
|
|
-
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
-
|
|
|
|
106
|
|
|
|
106
|
|
|
|
68,982
|
|
|
|
69,088
|
|
|
|
-
|
|
Junior lien, closed-end
|
|
|
56
|
|
|
|
-
|
|
|
|
56
|
|
|
|
1,056
|
|
|
|
1,112
|
|
|
|
-
|
|
Total residential mortgage
|
|
|
56
|
|
|
|
106
|
|
|
|
162
|
|
|
|
70,038
|
|
|
|
70,200
|
|
|
|
-
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,244
|
|
|
|
39,244
|
|
|
|
-
|
|
Consumer – other
|
|
|
100
|
|
|
|
2
|
|
|
|
102
|
|
|
|
5,876
|
|
|
|
5,978
|
|
|
|
-
|
|
Total loans
|
|
$
|
878
|
|
|
$
|
400
|
|
|
$
|
1,278
|
|
|
$
|
484,157
|
|
|
$
|
485,435
|
|
|
$
|
120
|
|
In thousands
|
|
Loans
30-89
Days
Past Due
|
|
|
Loans
90 or More
Days
Past Due
|
|
|
Total Past
Due Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
Accruing
Loans 90
or More
Days
Past Due
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,650
|
|
|
$
|
4,650
|
|
|
$
|
-
|
|
Commercial ADC
|
|
|
39
|
|
|
|
-
|
|
|
|
39
|
|
|
|
20,751
|
|
|
|
20,790
|
|
|
|
-
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,833
|
|
|
|
4,833
|
|
|
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,537
|
|
|
|
18,537
|
|
|
|
-
|
|
Owner occupied
|
|
|
-
|
|
|
|
927
|
|
|
|
927
|
|
|
|
103,056
|
|
|
|
103,983
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
|
|
97,030
|
|
|
|
97,034
|
|
|
|
-
|
|
Total commercial real estate
|
|
|
39
|
|
|
|
931
|
|
|
|
970
|
|
|
|
248,857
|
|
|
|
249,827
|
|
|
|
-
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
126
|
|
|
|
-
|
|
|
|
126
|
|
|
|
49,373
|
|
|
|
49,499
|
|
|
|
-
|
|
Agriculture
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
262
|
|
|
|
262
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,573
|
|
|
|
1,573
|
|
|
|
-
|
|
Total commercial
|
|
|
126
|
|
|
|
-
|
|
|
|
126
|
|
|
|
51,208
|
|
|
|
51,334
|
|
|
|
-
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
247
|
|
|
|
33
|
|
|
|
280
|
|
|
|
53,115
|
|
|
|
53,395
|
|
|
|
-
|
|
Junior lien, closed-end
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
812
|
|
|
|
812
|
|
|
|
-
|
|
Total residential mortgage
|
|
|
247
|
|
|
|
33
|
|
|
|
280
|
|
|
|
53,927
|
|
|
|
54,207
|
|
|
|
|
|
Home equity lines
|
|
|
85
|
|
|
|
-
|
|
|
|
85
|
|
|
|
33,883
|
|
|
|
33,968
|
|
|
|
-
|
|
Consumer – other
|
|
|
-
|
|
|
|
13
|
|
|
|
13
|
|
|
|
3,933
|
|
|
|
3,946
|
|
|
|
5
|
|
Total loans
|
|
$
|
497
|
|
|
$
|
977
|
|
|
$
|
1,474
|
|
|
$
|
391,808
|
|
|
$
|
393,282
|
|
|
$
|
5
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
At June 30, 2019 there was one loan in the amount of $120,000 past due 90 days or more, which was still accruing interest. There was one loan in the amount of $5,000 past due 90 days or more and still accruing
interest at December 31, 2018.
Impaired loans
Impaired loans are set forth in the following tables.
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Unpaid
Contractual
Principal
Balance
|
|
|
Recorded
Investment
With No
Allowance
|
|
|
Recorded
Investment
With
Allowance
|
|
|
Related
Allowance
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Owner occupied
|
|
|
2,146
|
|
|
|
2,146
|
|
|
|
-
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
4
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Total commercial real estate
|
|
|
2,153
|
|
|
|
2,153
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
730
|
|
|
|
188
|
|
|
|
542
|
|
|
|
104
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
705
|
|
|
|
126
|
|
|
|
520
|
|
|
|
103
|
|
Junior lien, closed- end
|
|
|
264
|
|
|
|
60
|
|
|
|
204
|
|
|
|
1
|
|
Total residential mortgage
|
|
|
969
|
|
|
|
186
|
|
|
|
724
|
|
|
|
104
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer – other
|
|
|
4
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
3,856
|
|
|
$
|
2,531
|
|
|
$
|
1,266
|
|
|
$
|
208
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Unpaid
Contractual
Principal
Balance
|
|
|
Recorded
Investment
With No
Allowance
|
|
|
Recorded
Investment
With
Allowance
|
|
|
Related
Allowance
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
42
|
|
|
$
|
42
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Owner occupied
|
|
|
2,409
|
|
|
|
2,269
|
|
|
|
140
|
|
|
|
17
|
|
Non-owner occupied
|
|
|
5
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
Total commercial real estate
|
|
|
2,456
|
|
|
|
2,316
|
|
|
|
140
|
|
|
|
17
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
624
|
|
|
|
-
|
|
|
|
624
|
|
|
|
111
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
876
|
|
|
|
56
|
|
|
|
760
|
|
|
|
42
|
|
Junior lien, closed- end
|
|
|
478
|
|
|
|
270
|
|
|
|
208
|
|
|
|
75
|
|
Total residential mortgage
|
|
|
1,354
|
|
|
|
326
|
|
|
|
968
|
|
|
|
117
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer – other
|
|
|
7
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
4,441
|
|
|
$
|
2,649
|
|
|
$
|
1,732
|
|
|
$
|
245
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
|
|
Three months ended
June 30, 2019
|
|
|
Three months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
19
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
Owner occupied
|
|
|
1,630
|
|
|
|
17
|
|
|
|
2,503
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
3
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
Total commercial real estate
|
|
|
1,652
|
|
|
|
17
|
|
|
|
2,514
|
|
|
|
21
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
557
|
|
|
|
11
|
|
|
|
712
|
|
|
|
11
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
420
|
|
|
|
8
|
|
|
|
870
|
|
|
|
11
|
|
Junior lien, closed- end
|
|
|
352
|
|
|
|
4
|
|
|
|
429
|
|
|
|
5
|
|
Total residential mortgage
|
|
|
772
|
|
|
|
12
|
|
|
|
1,299
|
|
|
|
16
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
|
1
|
|
Consumer – other
|
|
|
7
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
$
|
2,988
|
|
|
$
|
40
|
|
|
$
|
4,625
|
|
|
$
|
49
|
|
|
|
Six months ended
June 30, 2019
|
|
|
Six months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
32
|
|
|
$
|
-
|
|
|
$
|
8
|
|
|
$
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
-
|
|
Owner occupied
|
|
|
2,271
|
|
|
|
33
|
|
|
|
2,745
|
|
|
|
7
|
|
Non-owner occupied
|
|
|
4
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
Total commercial real estate
|
|
|
2,307
|
|
|
|
33
|
|
|
|
2,851
|
|
|
|
7
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
677
|
|
|
|
26
|
|
|
|
732
|
|
|
|
13
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
683
|
|
|
|
15
|
|
|
|
912
|
|
|
|
68
|
|
Junior lien, closed- end
|
|
|
473
|
|
|
|
8
|
|
|
|
560
|
|
|
|
5
|
|
Total residential mortgage
|
|
|
1,156
|
|
|
|
23
|
|
|
|
1,472
|
|
|
|
73
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
99
|
|
|
|
2
|
|
Consumer – other
|
|
|
8
|
|
|
|
-
|
|
|
|
4
|
|
|
|
11
|
|
Total loans
|
|
$
|
4,148
|
|
|
$
|
82
|
|
|
$
|
5,158
|
|
|
$
|
106
|
|
Troubled Debt Restructurings
As of June 30, 2019, nine loans totaling $3,229,000 were identified as troubled debt restructurings and considered impaired, none of which had unfunded commitments. Ten loans totaling $3,856,000 were identified as
troubled debt restructurings and considered impaired at December 31, 2018, none of which had unfunded commitments. Of the nine loans identified as troubled debt restructurings at June 30, 2019, eight loans totaling $2,574,000 were accruing
interest. Of the ten loans identified as troubled debt restructurings at December 31, 2018, nine loans totaling $3,140,000 were accruing interest.
For the three- and six-month periods ended June 30, 2019, there were no concessions made on newly restructured loans.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
For the three months ended June 30, 2018, there were no concessions made on newly restructured loans. For the six months ended June 30, 2018, the following table presents a breakdown of the types of concessions made by loan class.
|
|
Six months ended June 30, 2018
|
|
Dollars in thousands
|
|
Number of
loans
|
|
|
Unpaid
Principal
Pre-Modification
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
|
|
|
|
|
|
|
Consumer - other
|
|
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Total
|
|
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Grand Total
|
|
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Qualitative factors are calculated for each segment of the loan portfolio. Factors include economic, concentrations, trends in terms of volume and mix, interest rate movement, and delinquency. If a restructured
loan is delinquent, it is addressed in the delinquency factor for that segment. Because the number and dollar amounts of restructured loans represent a relatively small percentage (1%) of the total loan balances, there is no specific qualitative
factor tied to restructured loans.
There were no loans that were modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the three and six months ended June 30, 2019 and June 30, 2018.
If a restructured loan defaults after being restructured, the loan is liquidated or charged off. Defaults of restructured loans are addressed in the qualitative factor of the delinquency component.
There were no loans that were modified as troubled debt restructurings within the previous 12 months as of June 30, 2019. The following table presents the successes and failures of the types of modifications within
the previous 12 months as of June 30, 2018.
|
|
Paid in full
|
|
|
Paying as restructured
|
|
|
Converted to non-accrual
|
|
|
Foreclosure/Default
|
|
|
|
|
|
|
|
|
|
Number of
loans
|
|
|
Recorded
Investment
|
|
|
Number of
loans
|
|
|
Recorded
Investment
|
|
|
Number of
loans
|
|
|
Recorded
Investment
|
|
June 30, 2018
|
|
(Dollars in thousands)
|
|
Extended payment terms
|
|
|
-
|
|
|
|
|
|
|
|
1
|
|
|
$
|
2
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Total
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
2
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Credit Quality Indicators
As part of the ongoing monitoring of credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the local, state and national economic outlook,
(ii) concentrations of credit, (iii) interest rate movements, (iv) volume, mix and size of loans, and (v) delinquencies. The Company also has an internal Loan Review Officer who monitors risk grades on an ongoing basis.
The Company utilizes a risk-grading matrix to assign a risk grade to each of its commercial and consumer loans. Loans are graded on a scale of 1-9. Risk grades 1-5 represent pass rated loans. The general
characteristics of the 9 risk grades are broken down into commercial and consumer and described below:
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Loan Portfolio Risk Grades
Pass credits are grades 1-5 and represent credits with above average risk characteristics that are in accordance with loan policy guidelines regarding repayment ability, loan
to value, and credit history. These types of credits have very few exceptions to policy.
Grade 6 – Watch List or Special Mention
. The loans in this category include the following characteristics:
|
•
|
Loans with one or more major exceptions with no mitigating factors.
|
|
•
|
Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Company’s position at some future date. Potential weaknesses are the
result of deviations from prudent lending practice.
|
|
•
|
Loans where adverse economic conditions that develop subsequent to the loan origination that do not jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.
|
Grade 7
–
Substandard.
A substandard loan is inadequately protected by the current sound net worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility
that the institution will sustain some
loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are
characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to (i) high debt to worth ratios, (ii) declining or negative earnings trends,
(iii) declining or inadequate liquidity, (iv) improper loan structure, (v) questionable repayment sources, (vi) lack of well-defined secondary repayment source and (vii) unfavorable competitive comparisons.
Grade 8 – Doubtful
. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the
weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would
salvage the debt. Among these events are injection of capital, alternative financing and liquidation of assets or the pledging of additional collateral. The ability of the borrower to service the debt is extremely weak, overdue status is constant,
the debt has been placed on non-accrual status, and no definite repayment schedule exists. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the
amount is charged off.
Grade 9 – Loss
. Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This
classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recoveries may be realized in the future. Probable loss
portions of doubtful assets should be charged against the allowance for loan losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier of thirty (30) days or calendar quarter-end.
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The following table presents the credit risk profile by internally assigned risk grades.
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
8,095
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial ADC
|
|
|
31,630
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
Farmland
|
|
|
6,365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multifamily
|
|
|
19,491
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Owner occupied
|
|
|
125,535
|
|
|
|
1,291
|
|
|
|
846
|
|
|
|
-
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
110,494
|
|
|
|
-
|
|
|
|
124
|
|
|
|
-
|
|
|
|
-
|
|
Total commercial real estate
|
|
|
301,610
|
|
|
|
1,291
|
|
|
|
973
|
|
|
|
-
|
|
|
|
-
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
55,673
|
|
|
|
805
|
|
|
|
630
|
|
|
|
-
|
|
|
|
-
|
|
Agriculture
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
6,918
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total commercial
|
|
|
62,791
|
|
|
|
805
|
|
|
|
630
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
66,829
|
|
|
|
874
|
|
|
|
126
|
|
|
|
-
|
|
|
|
-
|
|
Junior lien, closed-end
|
|
|
641
|
|
|
|
409
|
|
|
|
60
|
|
|
|
-
|
|
|
|
-
|
|
Total residential mortgage
|
|
|
67,470
|
|
|
|
1,283
|
|
|
|
186
|
|
|
|
-
|
|
|
|
-
|
|
Home equity lines
|
|
|
38,613
|
|
|
|
631
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer – other
|
|
|
5,734
|
|
|
|
159
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Purchased credit impaired loans
|
|
|
1,202
|
|
|
|
556
|
|
|
|
1,497
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
477,420
|
|
|
$
|
4,725
|
|
|
$
|
3,290
|
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
4,650
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial ADC
|
|
|
20,509
|
|
|
|
239
|
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
Farmland
|
|
|
4,833
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multifamily
|
|
|
18,537
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Owner occupied
|
|
|
101,706
|
|
|
|
1,207
|
|
|
|
1,070
|
|
|
|
-
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
96,907
|
|
|
|
-
|
|
|
|
127
|
|
|
|
-
|
|
|
|
-
|
|
Total commercial real estate
|
|
|
247,142
|
|
|
|
1,446
|
|
|
|
1,239
|
|
|
|
-
|
|
|
|
-
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
48,157
|
|
|
|
981
|
|
|
|
361
|
|
|
|
-
|
|
|
|
-
|
|
Agriculture
|
|
|
262
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
1,573
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total commercial
|
|
|
49,992
|
|
|
|
981
|
|
|
|
361
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
52,622
|
|
|
|
647
|
|
|
|
126
|
|
|
|
-
|
|
|
|
-
|
|
Junior lien, closed-end
|
|
|
334
|
|
|
|
416
|
|
|
|
62
|
|
|
|
-
|
|
|
|
-
|
|
Total residential mortgage
|
|
|
52,956
|
|
|
|
1,063
|
|
|
|
188
|
|
|
|
-
|
|
|
|
-
|
|
Home equity lines
|
|
|
33,198
|
|
|
|
770
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer – other
|
|
|
3,778
|
|
|
|
161
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
387,066
|
|
|
$
|
4,421
|
|
|
$
|
1,795
|
|
|
$
|
-
|
|
|
$
|
-
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Allowance for Loan Losses
The allowance for loan losses represents management’s estimate of an amount adequate to provide for probable losses inherent in the loan portfolio. Management determines the allowance for loan losses based on a
number of factors, including a review and evaluation of the Company’s loan portfolio and current and projected economic conditions locally and nationally. The allowance is monitored and analyzed in conjunction with the Company’s loan analysis and
grading program. The look-back period is a weighted twenty-quarter period.
Based on this methodology, provisions for loan losses are made to maintain an adequate allowance for loan losses. The allowance for loan losses is created by direct charges to operations. Losses on loans are charged
against the allowance for loan losses in the accounting period in which they are determined by management to be uncollectible. Recoveries during the period are credited to the allowance. The provision for loan losses is the amount necessary to
adjust the allowance for loan losses to the amount that management has determined to be adequate to provide for probable losses inherent in the loan portfolio. The Company recorded provisions for loan losses of $76,000 and $153,000 for the three
and six months ended June 30, 2019. The Company recorded provisions for loan losses for the three and six months ended June 30, 2018 that totaled $88,000 and $340,000, respectively. Management realizes that general economic trends greatly affect
loan losses, and no assurances can be made that future charges to the allowance for loan losses may not be significant in relation to the amount provided during a particular period, or that future evaluations of the loan portfolio based on
conditions then prevailing will not require sizable additions to the allowance, thus necessitating similarly sizable charges to income.
Based on its best judgment, evaluation, and analysis of the loan portfolio, management considers the allowance for loan losses to be appropriate in light of the risk inherent in the Company’s loan portfolio for the
reporting periods.
The following table details activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2019 and 2018.
|
|
Beginning
Balance
|
|
|
Provision
for
(Recovery
of) Loan
Losses
|
|
|
Charge-
offs
|
|
|
Recoveries
|
|
|
Ending
Balance
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,783
|
|
|
$
|
91
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
2,879
|
|
Commercial and industrial
|
|
|
636
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
4
|
|
|
|
613
|
|
Residential mortgage
|
|
|
477
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
487
|
|
Consumer
|
|
|
172
|
|
|
|
2
|
|
|
|
(14
|
)
|
|
|
7
|
|
|
|
167
|
|
Total
|
|
$
|
4,068
|
|
|
$
|
76
|
|
|
$
|
(14
|
)
|
|
$
|
16
|
|
|
$
|
4,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,459
|
|
|
$
|
18
|
|
|
$
|
-
|
|
|
$
|
27
|
|
|
$
|
2,504
|
|
Commercial and industrial
|
|
|
597
|
|
|
|
9
|
|
|
|
-
|
|
|
|
2
|
|
|
|
608
|
|
Residential mortgage
|
|
|
527
|
|
|
|
55
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
532
|
|
Consumer
|
|
|
197
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
3
|
|
|
|
200
|
|
Total
|
|
$
|
3,780
|
|
|
$
|
88
|
|
|
$
|
(56
|
)
|
|
$
|
32
|
|
|
$
|
3,844
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The following table details activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2019 and 2018.
|
|
Beginning
Balance
|
|
|
Provision
for
(Recovery
of) Loan
Losses
|
|
|
Charge-
offs
|
|
|
Recoveries
|
|
|
Ending
Balance
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,683
|
|
|
$
|
179
|
|
|
$
|
-
|
|
|
$
|
17
|
|
|
$
|
2,879
|
|
Commercial and industrial
|
|
|
596
|
|
|
|
12
|
|
|
|
-
|
|
|
|
5
|
|
|
|
613
|
|
Residential mortgage
|
|
|
520
|
|
|
|
(33
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
487
|
|
Consumer
|
|
|
179
|
|
|
|
(5
|
)
|
|
|
(22
|
)
|
|
|
15
|
|
|
|
167
|
|
Total
|
|
$
|
3,978
|
|
|
$
|
153
|
|
|
$
|
(22
|
)
|
|
$
|
37
|
|
|
$
|
4,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,260
|
|
|
$
|
264
|
|
|
$
|
(50
|
)
|
|
$
|
30
|
|
|
$
|
2,504
|
|
Commercial and industrial
|
|
|
634
|
|
|
|
(5
|
)
|
|
|
(25
|
)
|
|
|
4
|
|
|
|
608
|
|
Residential mortgage
|
|
|
505
|
|
|
|
77
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
532
|
|
Consumer
|
|
|
200
|
|
|
|
4
|
|
|
|
(10
|
)
|
|
|
6
|
|
|
|
200
|
|
Total
|
|
$
|
3,599
|
|
|
$
|
340
|
|
|
$
|
(135
|
)
|
|
$
|
40
|
|
|
$
|
3,844
|
|
The allocation of the allowance for loan losses for June 30, 2019 and December 31, 2018 is presented in the table below.
|
|
Loans
Individually
Evaluated for
Impairment
|
|
|
Loans
Collectively
Evaluated for
Impairment
|
|
|
Total
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
-
|
|
|
$
|
2,879
|
|
|
$
|
2,879
|
|
Commercial and industrial
|
|
|
104
|
|
|
|
509
|
|
|
|
613
|
|
Residential mortgage
|
|
|
104
|
|
|
|
383
|
|
|
|
487
|
|
Consumer
|
|
|
-
|
|
|
|
167
|
|
|
|
167
|
|
Total
|
|
$
|
208
|
|
|
$
|
3,938
|
|
|
$
|
4,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
17
|
|
|
$
|
2,666
|
|
|
$
|
2,683
|
|
Commercial and industrial
|
|
|
111
|
|
|
|
485
|
|
|
|
596
|
|
Residential mortgage
|
|
|
117
|
|
|
|
403
|
|
|
|
520
|
|
Consumer
|
|
|
-
|
|
|
|
179
|
|
|
|
179
|
|
Total
|
|
$
|
245
|
|
|
$
|
3,733
|
|
|
$
|
3,978
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The Company’s recorded investment in loans as of June 30, 2019 and December 31, 2018 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the Company’s impairment
methodology was as follows:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
Loans
Individually
Evaluated for
Impairment
|
|
|
Loans
Collectively
Evaluated for
Impairment
|
|
|
PCI
|
|
|
Loans
Individually
Evaluated for
Impairment
|
|
|
Loans
Collectively
Evaluated for
Impairment
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,153
|
|
|
$
|
301,721
|
|
|
$
|
1,598
|
|
|
$
|
2,456
|
|
|
$
|
247,371
|
|
Commercial and industrial
|
|
|
730
|
|
|
|
63,496
|
|
|
|
315
|
|
|
|
624
|
|
|
|
50,710
|
|
Residential mortgage
|
|
|
910
|
|
|
|
68,029
|
|
|
|
1,261
|
|
|
|
1,294
|
|
|
|
52,912
|
|
Consumer and home equity lines
|
|
|
4
|
|
|
|
45,137
|
|
|
|
81
|
|
|
|
7
|
|
|
|
37,907
|
|
Total
|
|
$
|
3,797
|
|
|
$
|
478,383
|
|
|
$
|
3,255
|
|
|
$
|
4,381
|
|
|
$
|
388,900
|
|
In conjunction with the acquisition of Clover on January 1, 2019, the acquired loan portfolio was accounted for at fair value as follows:
January 1, 2019
|
|
PCI loans
|
|
|
Non-PCI
loans
|
|
Dollars in thousands
|
|
|
|
|
|
|
Contractual principal and interest at acquisition
|
|
$
|
6,121
|
|
|
$
|
61,097
|
|
Nonaccretable difference
|
|
|
(1,670
|
)
|
|
|
-
|
|
Expected cash flows at acquisition
|
|
|
4,451
|
|
|
|
61,097
|
|
Accretable yield
|
|
|
(523
|
)
|
|
|
(976
|
)
|
Basis in loans at acquisition – estimated fair value
|
|
$
|
3,928
|
|
|
$
|
60,121
|
|
A summary of changes in the recorded investment of acquired loans for the three and six months ended June 30, 2019 was as follows:
Three months ended June 30, 2019
|
|
PCI loans
|
|
|
Non-PCI loans
|
|
Dollars in thousands
|
|
|
|
|
|
|
Recorded investment, beginning of period
|
|
$
|
3,319
|
|
|
$
|
54,923
|
|
Fair value of loans acquired during the period
|
|
|
-
|
|
|
|
-
|
|
Accretion
|
|
|
(51
|
)
|
|
|
(139
|
)
|
Reduction for payments, sales and foreclosures
|
|
|
(13
|
)
|
|
|
(4,888
|
)
|
Recorded investment, end of period
|
|
$
|
3,255
|
|
|
$
|
49,896
|
|
Outstanding principal balance, end of period
|
|
$
|
3,920
|
|
|
$
|
50,650
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Six months ended June 30, 2019
|
|
PCI loans
|
|
|
Non-PCI loans
|
|
Dollars in thousands
|
|
|
|
|
|
|
Recorded investment, beginning of period
|
|
$
|
-
|
|
|
$
|
-
|
|
Fair value of loans acquired during the period
|
|
|
3,928
|
|
|
|
60,121
|
|
Accretion
|
|
|
(108
|
)
|
|
|
(198
|
)
|
Reduction for payments, sales and foreclosures
|
|
|
(565
|
)
|
|
|
(10,027
|
)
|
Recorded investment, end of period
|
|
$
|
3,255
|
|
|
$
|
49,896
|
|
Outstanding principal balance, end of period
|
|
$
|
3,920
|
|
|
$
|
50,650
|
|
The Company did not have any investment in PCI loans for the three or six months ended June 30, 2018.
A summary of changes in the accretable yield for PCI loans for the three and six months ended June 30, 2019 was as follows:
|
|
Three months ended
June 30, 2019
|
|
|
Six months ended
June 30, 2019
|
|
Dollars in thousands
|
|
|
|
|
|
|
Accretable yield, beginning of period
|
|
$
|
466
|
|
|
$
|
-
|
|
Addition from acquisition
|
|
|
-
|
|
|
|
523
|
|
Accretion
|
|
|
(51
|
)
|
|
|
(108
|
)
|
Reclassification from nonaccretable difference
|
|
|
-
|
|
|
|
-
|
|
Other changes, net
|
|
|
-
|
|
|
|
-
|
|
Accretable yield, end of period
|
|
$
|
415
|
|
|
$
|
415
|
|
At June 30, 2019, the Company had pre-approved but unused lines of credit totaling $91.6 million. In management’s opinion, these unused lines of credit represent no more than normal lending risk to the Company and
will be funded from normal sources of liquidity.
The Company has entered into loan transactions with certain of its directors and executive officers. Such loans were made in the ordinary course of business and on substantially the same terms and collateral as those
for comparable transactions prevailing at the time and did not involve more than the normal risk of collectability or present other unfavorable features.
A summary of related party loan activity as of June 30, 2019 and 2018 is as follows:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Dollars in thousands
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
393
|
|
|
$
|
1,740
|
|
Loan disbursements
|
|
|
608
|
|
|
|
215
|
|
Loan repayments
|
|
|
(1,145
|
)
|
|
|
(1,206
|
)
|
Changes in related parties
|
|
|
572
|
|
|
|
-
|
|
Balance, end of quarter
|
|
$
|
428
|
|
|
$
|
749
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
At June 30, 2019 and 2018, the Company had pre-approved but unused lines of credit totaling $866,000 and $362,000, respectively, to executive officers, directors and their related interests. Related party deposits
totaled $3,671,000 and $2,109,000 at June 30, 2019 and 2018, respectively.
The following table summarizes the activity in foreclosed assets for the six-month periods ended June 30, 2019 and 2018:
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Dollars in thousands
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,157
|
|
|
$
|
789
|
|
Acquired from Clover
|
|
|
960
|
|
|
|
-
|
|
Additions
|
|
|
73
|
|
|
|
1,618
|
|
Proceeds from sale
|
|
|
(784
|
)
|
|
|
(210
|
)
|
Valuation adjustments
|
|
|
(37
|
)
|
|
|
(248
|
)
|
Gains/(losses) on sales
|
|
|
(18
|
)
|
|
|
22
|
|
Balance, end of quarter
|
|
$
|
1,351
|
|
|
$
|
1,971
|
|
The Company has three foreclosed residential real estate properties totaling $788,000 as of June 30, 2019.
The Company has one consumer mortgage loan secured by residential real estate property in the amount of $80,000 for which formal foreclosure proceedings are in process as of June 30, 2019.
The Company has six share-based compensation plans in effect at June 30, 2019 and June 30, 2018. Information regarding these plans is contained in the notes to the consolidated financial statements filed as part of
the Company’s 2018 Annual Report on Form 10-K. There was no compensation cost charged against income for those plans for the three and six months ended June 30, 2019 and the three months ended June 30, 2018. The compensation cost charged against
income for those plans was approximately $1,000 for the six months ended June 30, 2018.
A summary of option activity under the stock option plans as of June 30, 2019 and changes during the six-month period ended June 30, 2019 is presented below:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2018
|
|
|
135,566
|
|
|
$
|
3.83
|
|
4.71 years
|
|
|
|
Exercised
|
|
|
(6,855
|
)
|
|
|
3.39
|
|
|
|
|
|
Expired
|
|
|
(9,166
|
)
|
|
|
4.18
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding, June 30, 2019
|
|
|
119,545
|
|
|
$
|
3.83
|
|
4.26 years
|
|
$
|
481,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2019
|
|
|
119,545
|
|
|
$
|
3.83
|
|
|
|
$
|
481,357
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
There were no options vested or granted during the three or six months ended June 30, 2019. As of June 30, 2019 there was no unvested grants and no remaining unrecognized compensation expense under all of the
Company’s equity compensation plans.
There was no restricted stock granted or vested during the three or six months ended June 30, 2019.
Upon exercise of the options, the Company issues shares from authorized but unissued shares. The Company does not typically purchase shares on the open market to fulfill obligations of the equity compensation plans.
(10)
|
Off-Balance Sheet Risk and Commitments
|
The Company is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments
reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral obtained varies but may include real
estate, stocks, bonds, and certificates of deposit.
A summary of the contract amount of the Company’s exposure to off-balance sheet credit risk as of June 30, 2019 is as follows:
Financial instruments whose contract represents credit risk
|
|
|
|
June 30, 2019
|
|
Dollars in thousands
|
|
|
|
Undisbursed lines of credit
|
|
$
|
91,555
|
|
Letters of credit
|
|
|
1,543
|
|
|
|
$
|
93,098
|
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
Our articles of incorporation authorize us to issue up to 1,000,000 shares of one or more series of preferred stock. Our board of directors, in its sole discretion, has the authority to determine the preferences,
limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series, the designation of such series, and the dividend rate for each series, without any further vote or action by our shareholders. Our
preferred stock may be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. There were no shares of preferred stock outstanding as of June 30, 2019.
Operating leases in which the Company is the lessee are recorded as operating lease right-of-use (“ROU”) assets and operating lease liabilities, included in bank premises, equipment and software and other
liabilities, respectively, on our consolidated balance sheet as of June 30, 2019. The Bank leases its main office facility under a lease with an initial term of twenty years. The portion of the lease applicable to the building is being accounted
for as a finance lease.
Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and
operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental collateralized borrowing rate at the lease commencement date. ROU
assets are further adjusted for lease incentives. Operating lease expense, which includes amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term,
and is recorded in net occupancy expense in the consolidated statements of operations for the three and six months ended June 30, 2019.
Our leases relate to office space and bank branches with remaining lease terms of 1 to 5 years. Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then-fair market
rental rates. These extension options are not included in the lease term as they are not generally considered reasonably certain of exercise. As of June 30, 2019, operating lease ROU assets and liabilities were $375,000 and $363,000, respectively.
Operating lease costs for the three and six months ended June 30, 2019 were $43,000 and $87,000, respectively.
The table below summarizes other information related to our operating leases:
|
|
Six months ended
June 30, 2019
|
|
In thousands except for percent and period data
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash outflows for operating leases
|
|
$
|
85
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
|
-
|
|
Weighted-average remaining lease term – operating leases, in years
|
|
|
2.6
|
|
Weighted-average discount rate – operating leases
|
|
|
2.8
|
%
|
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements
|
The table below summarizes the maturity of remaining lease liabilities as of June 30, 2019:
|
|
Operating
Leases
|
|
|
Finance
Lease
|
|
Dollars in thousands
|
|
|
|
|
|
|
2019
|
|
$
|
88
|
|
|
$
|
39
|
|
2020
|
|
|
171
|
|
|
|
72
|
|
2021
|
|
|
102
|
|
|
|
-
|
|
2022
|
|
|
13
|
|
|
|
-
|
|
Total lease payments
|
|
|
374
|
|
|
|
111
|
|
Less: interest
|
|
|
(11
|
)
|
|
|
(5
|
)
|
Present value of lease liabilities
|
|
$
|
363
|
|
|
$
|
106
|
|
Proposed Merger with Carolina Financial
As previously reported, on July 15, 2019, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Carolina Financial Corporation (“CARO”), the holding company for
CresCom Bank, Charleston, South Carolina. Under the Merger Agreement, it is proposed that the Company will merge with and into CARO (the “Merger”), and the Bank will merge with and into CresCom Bank. Subject to the terms and conditions of the
Merger Agreement, the Company’s shareholders would receive 0.3000 shares of CARO common stock or $10.57 in cash for each share of the Company’s common stock, subject to election and proration such that the aggregate consideration will consist of
90% CARO common stock and 10% cash. The closing of the proposed Merger is subject to the required approval of the Company’s shareholders, requisite regulatory approvals, and other customary closing conditions.