Carolina Trust BancShares, Inc. Reports 2nd Quarter 2019 Results

• $0.19 Net Income Per Diluted Share for the second quarter of 2019 as compared to $0.08 for the second quarter of 2018
• Adjusted Net Income Per Diluted Share excluding merger expenses, accretion of loan and deposit fair market value adjustments, and amortization of core deposit intangibles, was $0.20 for the second quarter of 2019 as compared to $0.12 for the second quarter of 2018 (a non-GAAP measure)

LINCOLNTON, N.C., July 30, 2019 (GLOBE NEWSWIRE) -- Carolina Trust BancShares, Inc. (the "Company") (NASDAQ - CART) reports its financial results today for the most recently completed  quarter.  In the quarter that ended June 30, 2019 ("2Q19"), the Company's net income was $1,818,000 or $0.19 per diluted share as compared to $510,000 or $0.08 per diluted share in the quarter ended June 30, 2018 ("2Q18"), an increase of $1,308,000 or $0.11 per diluted share.  The diluted average common shares outstanding increased to 9.4 million shares in 2Q19 from 6.7 million shares in 2Q18, following the acquisition of Clover Community Bankshares, Inc., ("Clover") and its subsidiary bank, Clover Community Bank on January 1, 2019 that was described in more detail in the Company's first quarter 2019 earnings release.

The Company recognized expenses and income in each period that were related to its acquisition.  These items, net of tax, reduced income by $43,000 in 2Q19 and by $287,000 in 2Q18 when the Company began incurring investment banking, legal, and due diligence fees for the Clover acquisition.  Adjusted net income, which excludes these merger-related items and is a non-GAAP (Generally Accepted Accounting Principles) measure, was $1,861,000 in 2Q19 and $797,000 in 2Q18.  On a diluted per share basis, adjusted net income was $0.20 in 2Q19 and $0.12 in 2Q18.  See the non-GAAP reconciliation table that accompanies this release.

For the linked quarter ended March 31, 2019, net income was $337,000 or $0.04 per diluted share and adjusted net income was $1,710,000 or $0.18, per diluted share.

Jerry Ocheltree, President and CEO, stated, "We are pleased with the results of the second quarter including higher net income and improved ROA, ROE, and efficiency ratios following a successful integration of the Clover franchise during the first quarter.  We have a stronger team that serves a larger portion of the Charlotte MSA and have generated profits for capital support of our planned asset growth.  In the second half of 2019 we will work each day to serve our customers well and to be responsive to their financial needs, while at the same time working toward the planned merger and successful integration into Carolina Financial Corporation and its subsidiary, CresCom Bank.  As part of this larger community bank, we are excited about continuing the highest level of service with an anticipated wider array of products as part of the Carolina Financial team led by Jerry Rexroad and his experienced and dedicated executives." 

The table below summarizes the key components of net income for 2Q19 and 2Q18.

As shown in the table, expenses related to acquisitions in 2Q19 included $125,000 in amortization of core deposit intangibles ("CDI"), $49,000 in merger-related expenses, and $10,000 in expense from accretion of discounts on acquired deposits.  These expenses were partially offset by $132,000 in income from accretion of discounts recorded on acquired loans.  The tax benefit was $9,000 for an overall $43,000 decrease to 2Q19 net income related to acquisitions.  In 2Q18, the CDI amortization, merger related expenses, income from accretion on loans and tax benefit were $9,000, $323,000, $2,000 and $43,000 respectively, which resulted in an overall decrease to net income of $287,000.

Comparing 2Q19 with 2Q18, the $1,634,000 (+233%) increase in pre-tax income was due to the $1,812,000 (+45%) increase in net interest income, as interest income grew by $2,205,000 (+42%) while interest expenses grew by only $393,000 (+34%).  Noninterest income grew by $298,000 (+81%) as compared to a $488,000 (+13%) increase in noninterest expenses.  Income taxes increased by $326,000 (+171%), which was less than the growth of pre-tax income due to more tax-exempt income in 2Q19 and to non-deductible merger expenses incurred in 2Q18.

Tangible book value per share at June 30, 2019 was $6.63, a $0.10 decrease from $6.73 at June 30, 2018.  The decrease was due to dilution from merger consideration paid to Clover shareholders for the net assets acquired.  Tangible book value per share increased by $0.29 from $6.34 at March 31, 2019 with the increase attributed to earnings and higher accumulated other comprehensive income, an equity component that reflects a higher valuation of the securities portfolio.

Net interest income increased from $4,043,000 in 2Q18 to $5,855,000 in 2Q19, primarily due to the loan and deposit growth from the acquisition of Clover and, secondarily, to organic loan growth from existing operations of Carolina Trust Bank (the "Bank").  Average loans increased by $110 million, or 30%, from 2Q18 to 2Q19 and included $64 million acquired from Clover.  The remaining $46 million in year-over-year average loan growth was concentrated in the Mooresville and Hickory offices and the Salisbury loan production office, which combined for $34 million of the growth, followed by the Denver and Gastonia offices with average loan growth totaling $14 million.  The offices with the highest average loans in 2Q19 were Gastonia ($87 million), Mooresville ($86 million), Hickory ($75 million), and Lincolnton Main ($69 million).

The net interest margin increased by 34 basis points from 3.76% in 2Q18 to 4.10% in 2Q19.  The yield on earning assets increased by 35 basis points from 4.84% in 2Q18 to 5.19% in 2Q19.  Comparatively, the cost of funds, including deposits, borrowings and holding company debt, increased by only 2 basis points from 1.12% in 2Q18 to 1.14% in 2Q19.  The improvement in the yield on earning assets and the net interest margin was softened slightly by the shift in the earning asset mix, as the ratio of average loans to average earning assets declined from 86% in 2Q18 to 84% in 2Q19.  The additional liquidity maintained in interest earning cash and securities resulted in those categories increasing from 14% to 16% as a percentage of earning assets for the same periods.

The margin and asset yield increases were attributed primarily to the 42 basis points increase in loan yield from 5.24% in 2Q18 to 5.66% in 2Q19.  Loan yields were positively impacted by prime rate increases of 25 basis points each in June 2018, September 2018, and December 2018.  The loan yields also benefited from accretion of the discounts on purchased loans and were partially offset by accretion of the discounts on acquired time deposits. The net impact of loan and deposit accretion added 8 basis points to the net interest margin.

In a linked quarter comparison, the net interest margin improved by 1 basis point from 4.09% in 1Q19 to 4.10% in 2Q19.  The earning asset yield grew by 7 basis points and was slightly better than the 6 basis points increase in cost of funds.  As compared to the linked quarter, average loans grew by $16 million at an annualized growth rate of 14%, and average deposits grew by $9 million at an annualized growth rate of 7%.

Noninterest income increased by $298,000 from $366,000 in 2Q18 to $664,000 in 2Q19.  The increase was due mostly to mortgage fee income increasing by $97,000 or 359%, to unrealized gains in equity securities increasing by $78,000 or 156%, and to an increase in interchange fees of $64,000 or 123%.  The growth in mortgage fee income result was partially attributed to experienced mortgage specialists who were previously with Clover and to a renewed emphasis to meeting the demand for mortgages in the Bank's markets.  The unrealized gains in equity securities was driven by an increase in the market value of the Bank's investment security holdings that trade in public markets. The interchange fees increased as a result of an increase in the Bank's checking account customer base for which the average total balance grew by 64% from 2Q18 to 2Q19, primarily due to the acquisition of Clover, and as a result of an overall increase in debit card usage.

Noninterest expense increased by $488,000 (+13%), from $3,620,000 in 2Q18 to $4,108,000 in 2Q19.  Salaries and benefits grew by $467,000 or 25% and data processing expenses grew by $90,000 or 48% due to the additional employees and customer accounts following the acquisition of Clover on January 1, 2019.  Amortization of core deposit intangibles increased by $116,000 due to the core deposit intangible recognized on January 1, 2019 from the valuation of Clover's non-maturing deposits.  Stockholder expenses increased by $54,000 due to the additional legal, transfer agent, printing and SEC filing expenses in 2019 with a larger shareholder base.

Lessening the impact of increases in other noninterest expenses that were mostly attributed to the growth from Clover acquisition were decreases in merger related expenses of $274,000, or 85%, and in foreclosed asset expenses of $221,000 or 74% in 2Q19 as compared to 2Q18.  Merger expenses, higher in 2Q18, were attributed to due diligence and negotiating the merger agreement with Clover in 2018.  The Bank's foreclosed asset expenses have declined, as foreclosed assets have decreased over the past 12 months by $621,000 or 31%.

Comparison of Financial Condition at June 30, 2019 with March 31, 2019 

Loans grew by $11.2 million (+2.4%) while deposits declined by $7.2 million (+1.4%), from March 31, 2019 to June 30, 2019, even though average deposits increased from 1Q19 to 2Q19 as discussed above in the net interest income section.  The additional funding for loan growth was drawn from interest-earning deposits with other banks.  Loan growth was mostly in commercial real estate loans, both owner-occupied, up $3.4 million, and non-owner occupied, up $2.8 million.  Commercial-other loans which includes municipal loans increased by $3.0 million, and residential mortgage loans grew by $2.3 million.  The decrease in deposits was mostly in the categories of business noninterest checking, down $4.7 million, and consumer interest checking, down $1.7 million.  Shareholders' equity grew by $2.5 million (+3.7%), primarily from $1.8 million in earnings during the quarter.  Equity also increased by $700,000 due to accumulated other comprehensive income from the appreciation of the Bank's debt securities as markets began anticipating a decrease in the short-term interest rates in the last half of 2019.

Over the past twelve months, loans grew by $111 million including $64 million acquired from Clover on January 1, 2019 and $47 million from the Bank's existing customer relationships.  Deposits grew by $123 million, including $112 million acquired from Clover, and $16 million from existing customer relationships that were partially offset by a $5 million decrease in wholesale deposits.

Asset quality measurements remained strong during the second quarter of 2019.  The ratio of non-performing assets to total assets was 0.43% on June 30, 2019 as compared to 0.52% on March 31, 2019 and as compared to 0.65% on June 30, 2018.  Nonperforming loans to total loans increased by 2 basis points during the second quarter to 0.24% at June 30, 2019 but decreased by 6 basis points from a year ago.

Net charge offs (recoveries) to average loans on an annualized basis were 0.00%, (0.01%), and 0.03%, respectively, for the quarters ended June 30, 2019, March 31, 2019, and June 30, 2018.

Regulatory capital ratios for the Company's wholly owned subsidiary, Carolina Trust Bank, increased from March 31, 2019 to June 30, 2019.  The growth in risk-based capital from second quarter earnings exceeded the second quarter growth in risk-weighted assets.  The Bank's total risk-based capital ratio at June 30, 2019 was 13.47%, a 22 basis point increase from 13.25% at March 31, 2019.  Additional detail regarding the Bank's regulatory capital ratios are included in the financial tables that accompany this release.

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.  The bank operates in eleven full-service offices and one loan production office in the Piedmont and Mountain Regions of the Carolinas to the north and west of Charlotte, NC.

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 in actual results and outcomes include, among others: the impact of changes in tax law and regulations, including the Tax Cuts and Jobs Act of 2017; 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; the impact of competition from traditional or new sources; and the impact of our merger activity, including the risks that (1) the business related to such merger activity may not be integrated successfully or such integration may take longer to accomplish than expected (or may not occur at all); (2) the expected cost savings and any revenue synergies from our merger activity may not be fully realized within expected timeframes or at all; and (3) disruption from merger activity may make it more difficult to maintain relationships with clients, associates, or suppliers. These and other factors that may emerge could cause decisions and actual results to differ materially from current expectations. The Company undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.

Note Regarding Use of Non-GAAP Financial Measures:  This news release presents certain non-GAAP financial measures including, without limitation, adjusted net income, adjusted net income per share, and tangible book value per share.  Non-GAAP financial measures include numerical measures of a company's historical financial performance, financial position, or cash flows that exclude (or include) amounts, or that are subject to adjustments that have the effect of excluding (or including) amounts, that are included (or, as applicable, excluded) in the most directly comparable measures calculated and presented in accordance with GAAP.  The Company has presented the adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures where applicable.  The Company considers these adjustments to the GAAP financial measures to be relevant to ongoing operating results.  The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for the period-to-period comparisons, which will assist investors and analysts in analyzing the operating results or financial position of the Company.  The non-GAAP financial measures are used by management to assess the performance of the Company's business, including for presentations of Company performance to investors.  The Company further believes that presenting the non-GAAP financial measures will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management.  Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.  Although non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.  Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the tables that accompany this release.

Non-GAAP Measure
Adjusted Net Income (excludes accretion of purchased loan discounts and purchased time deposit discounts, amortization of core deposit intangibles, and merger expenses, adjusted for the effect of income taxes):

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