As filed with the Securities and Exchange Commission on October 24 , 2018

Registration No. 333- 227302

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1
to
FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

901 East Main Street
Lincolnton, North Carolina 28092
(704) 735-1104
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant’s Principal Executive Offices)

Jerry L. Ocheltree
President and Chief Executive Officer
Carolina Trust BancShares, Inc.
901 East Main Street
Lincolnton, North Carolina 28092
(704) 735-1104
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and the completion of the merger described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.   o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.   o

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)   o

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)   o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

CAROLINA TRUST BANCSHARES, INC.
901 East Main Street
Lincolnton, North Carolina 28092
Telephone: (704) 735-1104
   
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12 , 2018 AT 9:30 AM

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Carolina Trust BancShares, Inc., a North Carolina corporation (“Carolina Trust”), will be held on December 12, 2018, at 9:30 a.m., local time, at The Lincoln Cultural Center located at 403 East Main Street, Lincolnton, North Carolina, 28092 for the purpose of considering and voting upon the following:

Carolina Trust will transact no other business at the special meeting, except for business that may properly come before the special meeting or any adjournment thereof in accordance with applicable law. Only Carolina Trust shareholders of record at the close of business on October 18, 2018 will be entitled to notice of and to vote at the meeting or any adjournment thereof. Shareholders of Carolina Trust common stock are not entitled to appraisal rights with respect to the proposed merger under Article 13 of Chapter 55 of the North Carolina Business Corporation Act.

Carolina Trust’s board of directors has determined that the merger is advisable and in the best interests of Carolina Trust shareholders based upon its analysis, investigation, and deliberation and unanimously recommends that holders of Carolina Trust common stock vote “ FOR ” approval of the merger agreement and “ FOR ” the proposal to authorize management to adjourn the special meeting to a later date or dates, if necessary or appropriate.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special meeting, we urge you to promptly (1) complete, sign, and date the enclosed proxy card and return it in the postage-paid envelope provided for that purpose or (2) follow the instructions provided on the enclosed proxy card for voting by internet. You may revoke your proxy at any time prior to or at the meeting by written notice to Carolina Trust, by executing a proxy card bearing a later date, or by attending the meeting and voting in person. If your shares are held in the name of a broker, bank or other fiduciary, please follow the instructions on the voting instruction card provided by such person. If you wish to attend the special meeting and vote in person and your shares are held in the name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.

	By Order of the Board of Directors,
	Jerry L. Ocheltree
	President and Chief Executive Officer

Lincolnton, North Carolina
October 26, 2018

CLOVER COMMUNITY BANKSHARES, INC.
124 North Main Street
Clover, South Carolina 29710
   
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12 , 2018 AT 6:30 PM

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Clover Community Bankshares, Inc., a South Carolina corporation (“Clover”), will be held on December 12, 2018 at 6:30 p.m., local time, at the Clover Main Office located at 124 N. Main Street, Clover, South Carolina 29710, for the purpose of considering and voting upon the following:

Clover will transact no other business at the special meeting, except for business that may properly come before the special meeting or any adjournment thereof in accordance with applicable law. Only Clover shareholders of record at the close of business on October 25, 2018 will be entitled to notice of and to vote at the meeting or any adjournment thereof. After careful consideration, Clover’s board of directors has determined that the merger is advisable and in the best interests of Clover’s shareholders and unanimously recommends that Clover shareholders vote “ FOR ” approval of the merger agreement and “ FOR ” the proposal to authorize management to adjourn the special meeting to a later date or dates, if necessary or appropriate.

Clover shareholders are entitled to assert dissenters’ rights with respect to the proposal to approve the merger agreement. Your dissenters’ rights are conditioned on your strict compliance with the requirements of Chapter 13 of Title 33 of the South Carolina Business Corporation Act. The full text of Chapter 13 is attached as Appendix B to this joint proxy statement/prospectus.

Regardless of whether you plan to attend the special meeting, we urge you to return the enclosed proxy card in order to indicate your vote as soon as possible. Clover shareholders may also vote by telephone or electronically by internet by following the instructions for voting provided on the enclosed proxy card. The giving of an appointment of proxy will not affect your right to revoke it or to attend the meeting and vote in person. If your shares are held in the name of a broker, bank or other fiduciary, please follow the instructions on the voting instruction card provided by such person. If you wish to attend the special meeting and vote in person and your shares are held in the name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.

	By Order of the Board of Directors,
	Gwen Thompson
	Chief Executive Officer

Clover, South Carolina
October 26, 2018

IMPORTANT NOTICE

Carolina Trust has filed a registration statement on Form S-4 under the Securities Act of 1933, or the Securities Act, to register with the Securities and Exchange Commission, or the SEC, the distribution to Clover shareholders of the shares of Carolina Trust common stock to be issued in connection with the merger. This joint proxy statement/prospectus constitutes part of that registration statement. The registration statement, including the attached exhibits, contains additional relevant information about Carolina Trust and Carolina Trust common stock. For further information about Carolina Trust, you should review the registration statement.

This joint proxy statement/prospectus constitutes a proxy statement of Clover with respect to the solicitation of proxies for the Clover special meeting, a proxy statement of Carolina Trust with respect to the solicitation of proxies for the Carolina Trust special meeting, and a prospectus of Carolina Trust for the shares of common stock that Carolina Trust will issue to Clover shareholders in the merger. Carolina Trust has supplied all information contained in this joint proxy statement/prospectus relating to Carolina Trust, and Clover has supplied all information contained in this joint proxy statement/prospectus relating to Clover.

The web addresses of the SEC, Carolina Trust and Clover are included as inactive textual references only. Information contained on those websites is not incorporated by reference into this joint proxy statement/prospectus, and you should not consider information contained on those websites to be part of this joint proxy statement/prospectus or any supplement thereto.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities, nor does it constitute the solicitation of a proxy, in any jurisdiction in which or to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation.

Neither Carolina Trust nor Clover has authorized anyone to give any information or make any representation about the merger of our companies that is different from, or in addition to, that contained or incorporated by reference in this joint proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this joint proxy statement/prospectus or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this joint proxy statement/prospectus does not extend to you. The information contained in this joint proxy statement/prospectus speaks only as of the date of this joint proxy statement/prospectus unless the information specifically indicates that another date applies.

If you hold shares of Carolina Trust common stock in the name of a bank, broker or other nominee, please follow the voting instructions provided by your bank, broker or other nominee to ensure that your shares are represented and voted at the Carolina Trust special meeting.

Clover . If you are a shareholder of record of Clover as of the record date, you may vote in person by attending the Clover special meeting or by signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. Holders of Clover common stock and preferred stock may also vote by internet or telephone by following the instructions contained on the enclosed proxy card.

If you hold shares of Clover common stock or preferred stock in the name of a bank, broker or other nominee, please follow the voting instructions provided by your bank, broker or other nominee to ensure that your shares are represented and voted at the Clover special meeting.

The proposal to authorize management to adjourn the special meeting for the purpose of soliciting additional proxies requires that the number of votes cast in favor of the proposal exceeds the number of votes cast against the proposal, whether or not a quorum is present.

As of the record date, directors and executive officers of Carolina Trust and their affiliates are entitled to vote approximately 4.22% of the shares of the Carolina Trust common stock outstanding and entitled to vote at the Carolina Trust special meeting.

Clover . The proposal at the Clover special meeting to approve the merger agreement (and the plan of merger contained therein) must be approved by three separate voting groups:

The Clover adjournment proposal will be approved if the votes cast at the Clover special meeting, in person or by proxy, in favor of the proposal exceed the votes cast against the proposal.

As of the record date, directors and executive officers of Clover and their affiliates are entitled to vote approximately 5.13% of the shares of the Clover common stock and 1.52% of the shares of the Clover preferred stock outstanding as of such date. On a combined basis, the directors and executive officers of Clover and their affiliates are entitled to vote approximately 4.71% of the aggregate shares of the Clover common stock and preferred stock outstanding as of such date.

Certain directors and executive officers of Clover and Clover Community Bank have agreed, in writing, to vote their shares in support of the merger and the merger agreement. As of the record date, such directors and executive officers are entitled to vote approximately 4.71% of the aggregate shares of Clover common stock and preferred stock outstanding and entitled to vote at the Clover special meeting.

Each of the shareholder meetings may be adjourned to a later date or dates, if necessary or appropriate, including to solicit additional proxies to approve the merger agreement. The affirmative vote of the holders of a majority of the shares of Carolina Trust common stock cast on the matter at the Carolina Trust special meeting is required to adjourn the Carolina Trust shareholder meeting. The affirmative vote of the holders of a majority of the shares of Clover common stock and preferred stock cast on the matter at the Clover special meeting is required to adjourn the Clover shareholder meeting.

Clover . The Clover board of directors recommends that you vote “ FOR ” approval of the Agreement and Plan of Merger and Reorganization and “ FOR ” the adjournment proposal.

Clover . You are entitled to one vote for each share of Clover common stock that you owned as of the record date and one vote for each share of Clover preferred stock that you owned as of the record date.

If you are a Clover shareholder and sign and return your proxy card without indicating how to vote on any particular proposal, the Clover common stock and/or Clover preferred stock represented by your appointment of proxy will be voted “FOR” approval of the merger agreement and “FOR” approval of the adjournment proposal.

If you choose either of the first two methods, you must submit your notice of revocation or your new proxy card to the Corporate Secretary of Carolina Trust or of Clover, as appropriate, no later than the beginning of the applicable shareholder meeting. If your Carolina Trust or Clover shares are held in street name by your bank, broker or other nominee, you should follow the directions you receive from your bank, broker or other nominee to change your voting instructions, or contact your broker, bank or other nominee if no such instructions are provided.

If you are a Carolina Trust shareholder, you are not entitled to appraisal rights in connection with the merger.

Neither the Clover board of directors nor Clover’s financial advisor makes any recommendation as to whether you should choose cash, Carolina Trust common stock or a combination of both for your shares of Clover common stock. You should consult with your own financial and tax advisor on that decision.

It is a condition to the respective obligations of Carolina Trust and Clover to complete the merger that each party receives a written opinion from its respective legal counsel that, for U.S. federal income tax purposes, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to herein as the “Code”), and that each of Carolina Trust and Clover will be a “party” to that reorganization within the meaning of Section 368(b) of the Code.

Clover shareholders are urged to consult their own tax advisors for a full understanding of the tax consequences of the merger to them because tax matters are very complicated and there could be different tax consequences depending on a shareholder’s individual tax circumstances. See “Material U.S. Federal Income Tax Consequences of the Merger” beginning at page 143 .

Each share of common stock of Carolina Trust outstanding will continue to remain outstanding as a share of Carolina Trust common stock after the merger. As a result, if you are a Carolina Trust shareholder, you are not required to take any action with respect to your Carolina Trust common stock certificates.

equirements of the Exchange Act. Therefore, Clover does not file and is not required to file reports, proxy statements and other informational statements pursuant to the Exchange Act with the SEC or the FDIC. Clover Bank does file unaudited, periodic reports of income and condition, or Call Reports, with the FDIC. See “Where You Can Find More Information” on page 164 for a description of where you can find this information.

The Shareholder Meetings

Date, Time and Place of Carolina Trust Shareholder Meeting (see page 34 )

Carolina Trust will hold its special meeting of shareholders on December 12, 2018 at 9:30 a.m., local time, at The Lincoln Cultural Center located at 403 East Main Street, Lincolnton, North Carolina 28092. The Carolina Trust board of directors has set the close of business on October 18, 2018 as the record date for determining shareholders entitled to notice of, and to vote at, the special meeting.

Date, Time and Place of Clover Shareholder Meeting (see page 36 )

Clover will hold its special meeting of shareholders on December 12, 2018 at 6:30 p.m., local time, at the Clover Main Office located at 124 N. Main Street, Clover, South Carolina 29710. The Clover board of directors has set the close of business on October 25, 2018 as the record date for determining shareholders entitled to notice of, and to vote at, the special meeting.

Purposes of the Shareholder Meetings (see pages 34 and 37 )

At the Carolina Trust special meeting, Carolina Trust shareholders will be asked to vote on:

In accordance with applicable law, no other matters will be considered at the special meeting, except for any other business that properly arises during the special meeting and that is within the purposes described in Carolina Trust’s notice of meeting.

At the Clover special meeting, Clover shareholders will be asked to vote on:

In accordance with applicable law, no other matters will be considered at the special meeting, except for any other business that properly arises during the special meeting and that is within the purposes described in Clover’s notice of meeting.

Under the terms of the merger agreement, Clover will merge with and into Carolina Trust, with Carolina Trust as the surviving corporation. Clover will cease to exist as a separate entity as a result of the merger. Pursuant to the merger agreement, Carolina Trust Bank and Clover Bank have also entered into an Agreement and Plan of Reorganization and Bank Merger, also dated June 14, 2018, which we refer to as the “bank merger agreement”, that provides for the merger of Clover Bank with and into Carolina Trust Bank, with Carolina Trust Bank being the surviving bank. The merger between Clover Bank and Carolina Trust Bank is referred to as the “bank merger” in this joint proxy statement/prospectus and will be consummated immediately following the proposed merger of Carolina Trust and Clover. The merger and the bank merger are currently anticipated to be completed in the fourth quarter of 2018 or first quarter of 2019, subject to receipt of all required regulatory and shareholder approvals.

A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A and incorporated herein by reference. A copy of the bank merger agreement is attached as Exhibit A to the merger agreement.

Each of the Carolina Trust and Clover Boards of Directors Recommend Shareholder Approval of the Agreement and Plan of Merger and Reorganization (see page 34 for Carolina Trust and page 37 for Clover)

Each of the Carolina Trust and Clover boards of directors believes that the merger is in the best interests of its respective shareholders and recommends that you vote “ FOR ” approval of the merger agreement. For the factors considered by Carolina Trust’s board of directors in reaching its decision to approve the merger agreement, see “The Merger—Carolina Trust’s Reasons for the Merger and Recommendation of the Carolina Trust Board of Directors.” For the factors considered by Clover’s board of directors in reaching its decision to approve the merger agreement, see “The Merger—Clover’s Reasons for the Merger and Recommendation of the Clover Board of Directors.”

Merger Consideration Payable to Clover Shareholders (see page 130 )

For each share of Clover common stock held immediately before the merger, Clover shareholders will receive either (i) 2.7181 shares of Carolina Trust common stock or (ii) $22.00 in cash. Clover shareholders will have the opportunity to elect the type of consideration they prefer to receive in the merger, subject to the required proration as provided in the merger agreement. In total, the merger consideration and shareholder elections will be prorated such that 20% of shares of Clover common stock outstanding immediately prior to the closing of the merger will be exchanged for the cash consideration and 80% of shares of Clover common stock outstanding immediately prior to the closing of the merger will be exchanged for the stock consideration. Pursuant to Clover’s articles of incorporation and as provided in the merger agreement, each share of Clover preferred stock will automatically convert immediately prior to closing of the merger into one share of Clover common stock. Holders of such newly converted shares of Clover common stock will be entitled to the same election options related to the merger consideration as other Clover shareholders, and such elections will be prorated along with the other Clover shareholders’ elections, if necessary, to achieve the desired merger consideration mix provided for in the merger agreement.

Based on an aggregate of 976,901 shares of Clover common stock and preferred stock issued and outstanding on October 18, 2018, Carolina Trust expects to issue 2,124,252 shares of common stock in connection with the merger as stock consideration. Carolina Trust will not issue fractional shares in the merger. Instead, each Clover shareholder that would otherwise have been entitled to receive a fraction of a share of Carolina Trust common stock will receive cash (without interest) in an amount equal to such fractional part of a share of Carolina Trust common stock multiplied by the average closing price of a share of Carolina Trust common stock on NASDAQ for the twenty (20) consecutive trading days ending at the trading day immediately prior to the closing date of the merger.

Opinion of Clover’s Financial Advisor (see page 105 )

FIG Partners, LLC, or FIG Partners, delivered a written opinion to the Clover board of directors that, as of June 14, 2018, and based on the assumptions set forth in its written opinion, that the merger consideration is fair, from a financial point of view, to Clover shareholders. The opinion is attached to this joint proxy statement/prospectus as Appendix C. You should read the entire opinion carefully in connection with your consideration of the proposed merger. The opinion is directed to Clover’s board of directors and does not constitute a recommendation to any Clover or Carolina Trust shareholder as to how any shareholder should vote on any of the proposals to be considered at the special meetings.

Opinion of Carolina Trust’s Financial Advisor (see page 113 )

At the June 13, 2018 meeting of the Carolina Trust board of directors, representatives of Raymond James & Associates, Inc., or Raymond James, rendered Raymond James’s oral opinion, which was subsequently confirmed by delivery of a written opinion to the Carolina Trust board of directors dated and as of June 13, 2018, as to whether the merger consideration to be paid by Carolina Trust in the merger pursuant to the merger agreement is fair, from a financial point of view, to Carolina Trust. The full text of the written opinion of Raymond James, dated June 13, 2018, which sets forth, among other things, the various qualifications, assumptions and limitations on the scope of the review undertaken, is attached as Appendix D to this joint proxy statement/prospectus. Raymond James provided its opinion for the information of the Carolina Trust board of directors (solely in each director’s capacity as a director) in connection with, and for purposes of, its consideration of the merger, and Raymond James’s opinion only addresses whether the merger consideration to be paid by Carolina Trust in the

merger pursuant to the merger agreement was fair, from a financial point of view, to Carolina Trust as of June 13, 2018. The opinion of Raymond James did not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Raymond James opinion does not constitute a recommendation to the Carolina Trust board of directors, the Carolina Trust shareholders, the Clover board of directors, the Clover shareholders or any other person or entity as to how such director, board of directors, shareholder or other person should vote or otherwise act with respect to the merger or any other matter.

Clover Shareholders Must Approve the Merger Agreement at the Clover Special Meeting for the Merger to Be Consummated (see page 37 )

In order for the merger to be consummated, (i) the holders of two-thirds of all shares of Clover common stock entitled to vote at the special meeting must vote affirmatively to approve the merger agreement, (ii) the holders of two-thirds of all shares of Clover preferred stock entitled to vote at the special meeting must vote affirmatively to approve the merger agreement, and (iii) the holders of two-thirds of all shares of Clover common stock and preferred stock entitled to vote at the special meeting, with such holders voting as a single voting group, must vote affirmatively to approve the merger agreement. Each holder of shares of Clover common stock and preferred stock outstanding on the record date will be entitled to one vote for each share held. Abstentions, failures to vote and broker non-votes will have the same effect as votes against approval of the merger agreement.

Approval of a Majority of All Shares of Carolina Trust Common Stock Entitled to Vote at the Special Meeting is Required for the Merger to Be Consummated (see page 34 )

Approval of holders of a majority of all shares of Carolina Trust common stock entitled to vote at the special meeting is required to approve the merger agreement. Each holder of shares of Carolina Trust common stock outstanding on the record date will be entitled to one vote for each share held. The vote required for approval of the merger agreement is a percentage of all outstanding shares of Carolina Trust common stock. Therefore, abstentions, failures to vote and broker non-votes will have the same effect as votes against approval of the merger agreement.

Clover’s Directors and Executive Officers Have Entered into Shareholder Support Agreements (see page 121 )

In consideration of Carolina Trust agreeing to enter into the merger agreement, the directors and executive officers of Clover and Clover Bank have agreed to vote the shares of Clover common stock and preferred stock beneficially owned by them in favor of the merger and not to support any other merger or acquisition proposal by a third party. The Clover and Clover Bank directors and executive officers collectively beneficially own approximately 5.13% of the outstanding shares of Clover common stock, approximately 1.52% of the outstanding shares of Clover preferred stock, and approximately 4.71% of the aggregate outstanding shares of Clover common stock and preferred stock as of October 18, 2018.

Carolina Trust Directors Have Approved the Merger Agreement and Are Expected to Vote in Favor of the Merger Agreement (see page 34 )

Directors of Carolina Trust have sole or shared voting power over 302,149 shares of Carolina Trust common stock, or approximately 4.22% of the shares of Carolina Trust common stock outstanding as of October 18, 2018, which is the record date for the Carolina Trust special meeting. The Carolina Trust directors have approved the merger agreement and are expected to vote for approval of the merger agreement and the merger.

Clover Directors and Executive Officers May Have Interests in the Merger that Differ from Interests of Clover Shareholders (see page 122 )

Clover’s directors and executive officers have economic interests in the merger that are different from, or in addition to, their interests as Clover shareholders. The Clover board of directors considered these interests in its decision to adopt and approve the merger agreement and to recommend its approval to Clover shareholders. Some of the interests of the directors and executive officers of Clover include:

Clover’s board of directors was aware of these interests, considered them in approving and recommending the merger, and determined them to be reasonable.

Conditions Must Be Satisfied Before the Merger Will Be Completed (see page 139 )

Currently, we expect to complete the merger in the fourth quarter of 2018 or first quarter of 2019. As more fully described in this joint proxy statement/prospectus and in the merger agreement, the completion of the merger depends on the approval of the merger agreement by Clover shareholders at the Clover special meeting and by Carolina Trust shareholders at the Carolina Trust special meeting and receipt of the required regulatory approvals, in addition to satisfaction of, or where legally permissible, waiver of, covenants by each of Carolina Trust and Clover and other customary conditions. We cannot be certain when, or if, the conditions to the merger will be satisfied or, where permissible, waived, or that the merger will be completed.

Regulatory Approval or No Objection Must Be Obtained Before the Merger Will Be Completed (see page 124 )

Carolina Trust and Clover have agreed to use their best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement. These approvals include approvals or non-objections from the Federal Reserve, the North Carolina Commissioner of Banks, or the NCCOB, and the South Carolina State Board of Financial Institutions, or SCBFI, with respect to the merger and, with respect to the bank merger, approval of the FDIC, the NCCOB, and the SCBFI. On October 4, 2018, Carolina Trust and Clover filed applications and notifications to obtain the required regulatory approvals and non-objections. In connection with obtaining the required regulatory approvals, Carolina Trust is not required to agree to any restriction or condition that, in Carolina Trust’s reasonable judgment, would so materially adversely affect the economic or business benefits of the merger that, had Carolina Trust known about such condition or restriction, it would not have entered into the merger agreement. Although we do not know of any reason why we cannot obtain these regulatory approvals in a timely manner, we cannot be certain when or if we will obtain them. Approval or non-objection by our regulators does not constitute an endorsement of the merger or a determination that the terms of the merger are fair to Clover or Carolina Trust shareholders.

Termination of the Merger Agreement (see page 141 )

The merger agreement may be terminated by mutual consent, or by either Carolina Trust or Clover if the merger has not occurred by March 31, 2019, and under other limited circumstances described in the merger agreement and which are described in further detail later in this joint proxy statement/prospectus.

Clover will be required to pay Carolina Trust a termination fee in the amount of $900,000 under certain circumstances described in the merger agreement, including if:

The parties’ rights of termination, and the termination fees and expense reimbursement obligations of the parties, are described in greater detail later in this joint proxy statement/prospectus—see “Merger Agreement—Termination of the Merger Agreement.”

Rights of Carolina Trust Shareholders Differ from Those of Clover Shareholders (see page 157 )

When the merger is completed, Clover shareholders will receive cash or Carolina Trust common stock in exchange for their shares of Clover common stock. Clover shareholders who receive Carolina Trust common stock as consideration in the merger will become Carolina Trust shareholders. The rights of Carolina Trust shareholders differ from the rights of Clover shareholders in certain important ways. Most of these have to do with provisions in Carolina Trust’s articles of incorporation and bylaws that differ from those of Clover.

Clover Shareholders Have Dissenters’ Rights in Connection with the Merger (see page 125 and Appendix B)

Under South Carolina law, Clover shareholders will be entitled to dissent from the merger and obtain payment in cash of the fair value of such holders’ shares of Clover common stock or preferred stock, as applicable. If you wish to assert dissenters’ rights, (i) you must deliver to Clover before the vote is taken on the merger written notice of your intent to demand payment for your shares if the merger is effectuated, and (ii) you must not vote your shares in favor of the merger agreement. If you do not satisfy these requirements and the other detailed requirements of the South Carolina dissenters’ rights statutes, you will not be entitled to payment for your shares under those statutes. The text of the South Carolina dissenters’ rights statutes is attached to this joint proxy statement/prospectus as Appendix B, and this summary is qualified in its entirety by the text of the South Carolina statutes. As long as you do not vote in favor of the merger, your failure to vote against the merger will not constitute a waiver of your dissenters’ rights. A vote against the merger will not satisfy the notice requirement under the South Carolina dissenters’ rights statutes.

Because of the complexity of the procedures for exercising dissenters’ rights, if you are considering exercising dissenters’ rights, you are encouraged to seek the advice of legal counsel. Failure strictly to comply with the applicable South Carolina law provisions will result in the loss of your right to dissent.

Clover Has Agreed Not to Solicit Acquisition Proposals (see page 136 )

In the merger agreement, Clover has agreed not to solicit, initiate, encourage, facilitate (including by way of furnishing information) or take any other action designed to facilitate any inquiries or proposals for an acquisition transaction involving Clover by any party other than Carolina Trust. This restriction may deter other potential acquirers of control of Clover. However, Clover may take certain of these actions if its board of directors determines that it must do so in order to properly discharge its fiduciary duties following consultation with its legal counsel and financial advisors.

Material Federal Income Tax Consequences of the Merger (see page 143 )

The merger is intended to qualify as a reorganization for U.S. federal income tax purposes. Accordingly, the merger generally will be tax-free to Clover shareholders with respect to the shares of Carolina Trust common stock they receive in the merger, and no loss will be allowed to any Clover shareholder on any Clover shares for which any Carolina Trust common stock was received. Clover shareholders will be taxed, however, on cash received (i) in exchange for their shares of Clover common stock; (ii) in lieu of fractional shares of Carolina Trust common stock, and (iii) upon their exercise of dissenters’ rights. It is a condition to Clover’s and Carolina Trust’s obligations to complete the merger that each party receive a legal opinion from its counsel substantially to the effect that, on the basis of facts, representations and assumptions set forth in such opinion that are consistent with the state of facts existing at the effective time of the merger, the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code and each of Carolina Trust and Clover will be a “party” to that reorganization within the meaning of Section 368(b) of the Code.

Tax matters are complicated, and the federal income tax consequences described above may not apply to all holders of Clover common stock. Their tax consequences could depend on their individual situations. Accordingly, we strongly urge all Clover shareholders to consult with their own tax advisors for a full understanding of the particular tax consequences of the merger to them.

Also, Carolina Trust may not pay dividends on its common stock if it is in default under the terms of its outstanding subordinated notes, including for failing to pay any installment of interest on such notes when it becomes due. The declaration and payment of future dividends to holders of Carolina Trust common stock, if any, will depend upon Carolina Trust’s earnings, financial condition, business projections, general business conditions, the capital requirements of Carolina Trust Bank, regulatory conditions and other factors as its board of directors may deem relevant, including the ability of Carolina Trust Bank to declare and pay dividends.

Carolina Trust has not declared or paid a cash dividend since inception and does not intend to declare or pay cash dividends on its common stock for the foreseeable future.

Clover has declared and paid a cash dividend on its common stock and preferred stock in the fourth quarter of each of the last two completed fiscal years in the following amounts:

of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect Carolina Trust’s ability to maintain relationships with clients, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Clover and Carolina Trust during that transition period.

Carolina Trust and Clover will incur significant transaction and merger-related integration costs in connection with the merger.

Carolina Trust and Clover expect to incur significant costs associated with completing the merger and integrating the operations of the two companies. Carolina Trust and Clover are continuing to assess the impact of these costs. Although Carolina Trust and Clover believe that the elimination of duplicate costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

Carolina Trust has not previously operated in many of Clover’s market areas.

Clover’s primary market area is the upstate South Carolina market, with full service offices in Clover and Lake Wylie, South Carolina. The banking business in these markets is extremely competitive, and the level of competition may increase further. Carolina Trust has not previously achieved substantial penetration into these market areas and there may be unexpected challenges and difficulties that could adversely affect Carolina Trust following the completion of the merger.

The opinions obtained by Clover and Carolina Trust from their respective financial advisors will not reflect changes in circumstances between signing the merger agreement and closing of the merger.

Clover has not obtained an updated fairness opinion as of the date of this joint proxy statement/prospectus from FIG Partners, and Carolina Trust has not obtained an updated fairness opinion as of the date of this joint proxy statement/prospectus from Raymond James. Changes in the operations and prospects of Carolina Trust or Clover, general market and economic conditions and other factors that may be beyond the control of Carolina Trust and Clover, and on which the respective fairness opinions were based, may significantly alter the value of Carolina Trust or Clover or the prices of shares of Carolina Trust common stock or Clover common stock by the time the merger is completed. These opinions do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. Because Clover and Carolina Trust do not currently anticipate that they will request updated fairness opinions, the respective fairness opinions will not address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed. For a description of the opinion that Clover received from FIG Partners, see “The Merger — Opinion of Clover’s Financial Advisor.” For a description of the other factors considered by Clover’s board of directors in determining to approve the merger, see “The Merger — Clover’s Reasons for the Merger and Recommendation of the Clover Board of Directors.” For a description of the opinion that Carolina Trust received from Raymond James, see “The Merger — Opinion of Carolina Trust’s Financial Advisor.” For a description of the other factors considered by Carolina Trust’s board of directors in determining to approve the merger, see “The Merger — Carolina Trust’s Reasons for the Merger and Recommendation of the Carolina Trust Board of Directors.”

The merger agreement limits Clover’s ability to pursue alternatives to the merger.

The merger agreement contains provisions that limit Clover’s ability to discuss competing third-party proposals to acquire all or a significant part of Clover or Clover Bank. In addition, Clover has agreed to pay Carolina Trust a termination fee of $900,000 if the transaction is terminated because Clover decides to enter into or consummate another acquisition transaction. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Clover from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share price than that proposed in the merger with Carolina Trust, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Clover than it might otherwise have proposed to pay.

The merger is subject to the receipt of consents and approvals from government entities that may impose conditions that could have an adverse effect on Carolina Trust.

Before the merger and the bank merger may be completed, various approvals, non-objections or consents must be obtained from various state and federal bank regulatory agencies and other authorities. These governmental entities, including the Federal Reserve, the FDIC, the NCCOB and the SCBFI, may impose

conditions on the completion of the merger or require changes to the terms of the merger (or the bank merger). Although Carolina Trust and Clover do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of Carolina Trust following the merger, any of which might have a material adverse effect on Carolina Trust following the merger. Carolina Trust is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger include any restriction or condition that, in Carolina Trust’s reasonable judgment, would so materially adversely affect the economic or business benefits of the merger that, had Carolina Trust known about such condition or restriction, it would not have entered into the merger agreement.

Clover directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of Clover shareholders.

Executive officers of Clover negotiated the terms of the merger agreement with their counterparts at Carolina Trust, and Clover’s board of directors adopted and approved the merger agreement and recommended that Clover shareholders vote to approve the merger agreement on substantially the terms set forth in the merger agreement. In considering these facts and the other information contained in this joint proxy statement/prospectus, you should be aware that certain of Clover’s directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of Clover shareholders. The additional interests of Clover directors and executive officers may cause some of these persons to view the proposed merger differently than you may view it, as a shareholder. Clover’s board of directors was aware of these interests at the time it approved the merger and found them to be reasonable. See “The Merger—Clover’s Directors and Officers Have Financial Interests in the Merger” for information about these financial interests.

The tax consequences of the merger to a Clover shareholder will depend upon the merger consideration received.

The tax consequences of the merger to a Clover shareholder will depend upon the merger consideration the shareholder receives. A Clover shareholder generally will not recognize any gain or loss on the conversion of shares of Clover common stock solely into shares of Carolina Trust common stock. However, a Clover shareholder generally will be taxed if the shareholder receives cash in exchange for shares of Clover common stock or for any fractional shares of Carolina Trust common stock. For a more detailed discussion of the tax consequences of the merger to Clover shareholders generally, see “Material U.S. Federal Income Tax Consequences of the Merger” on page 143 . Each Clover shareholder should consult his, her or its own tax advisors as to the effect of the merger as applicable to the Clover shareholder’s particular circumstances.

Termination of the merger agreement could negatively impact Clover or Carolina Trust.

If the merger agreement is terminated, there may be various consequences. For example, Clover’s or Carolina Trust’s businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Also, Clover will have incurred substantial expenses in connection with the proposed merger without realizing the benefits of the merger. If the merger agreement is terminated under certain circumstances, Clover may be required to pay to Carolina Trust a termination fee of $900,000.

The merger will not be completed unless important conditions are satisfied.

Specified conditions set forth in the merger agreement must be satisfied or waived to complete the merger. If the conditions are not satisfied or waived, to the extent permitted by law or NASDAQ rules, the merger will not occur or will be delayed and each of Carolina Trust and Clover may lose some or all of the intended benefits of the merger. The following conditions, in addition to other customary closing conditions (which are described in greater detail beginning on page 139 ), must be satisfied or, with respect to conditions other than shareholder and regulatory approval, waived, if permissible, before Carolina Trust and Clover are obligated to complete the merger:

The merger may distract management of Clover and Carolina Trust from their other responsibilities.

The merger could cause the respective management groups of Clover and Carolina Trust to focus their time and energies on matters related to the merger that otherwise would be directed to their business and operations. Any such distraction on the part of either company’s management, if significant, could affect its ability to fully realize the expected financial benefits from this transaction if the merger agreement is approved and the merger takes place.

The unaudited pro forma financial information included in this joint proxy statement/prospectus is preliminary, and the combined company’s actual financial position and results of operations after the merger may differ materially from the unaudited pro forma financial information included in this joint proxy statement/prospectus.

The unaudited pro forma financial information in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the merger been completed on the dates indicated.

Sales of substantial amounts of Carolina Trust common stock in the open market by former Clover shareholders could depress Carolina Trust’s stock price.

Shares of Carolina Trust common stock that are issued to shareholders of Clover will be freely tradable without restrictions or further registration under the Securities Act, except for shares issued to any shareholder who may be deemed to be an affiliate of Carolina Trust. As of October 18, 2018, Carolina Trust had approximately 7,156,987 shares of common stock outstanding. Carolina Trust would issue approximately 2,124,252 shares of Carolina Trust common stock in connection with the merger, based on Clover’s current shares outstanding. If the merger is completed and if Clover’s shareholders sell substantial amounts of Carolina Trust common stock in the public market following completion of the merger, the market price of Carolina Trust common stock may decrease. These sales might also make it more difficult for Carolina Trust to sell equity or equity-related securities at a time and price that it otherwise would deem appropriate.

Risks Related to Carolina Trust’s Business

The following sections discuss risks relating to Carolina Trust’s business, industry, and the regulatory environment in which it operates and includes risks Carolina Trust will continue to face after the merger. References in this subsection to “we” and “our” refer to Carolina Trust and its subsidiaries.

We may experience increased delinquencies and credit losses, which could have a material adverse effect on our capital, financial condition, and results of operations.

Like other lenders, we face the risk that our customers will not repay their loans. A customer’s failure to repay us is usually preceded by missed monthly payments. In some instances, however, a customer may declare bankruptcy prior to missing payments, and, following a borrower filing bankruptcy, a lender’s recovery of the credit extended is often limited. Since many of our loans are secured by collateral, we may attempt to seize the collateral if and when a customer defaults on a loan. However, the value of the collateral may not equal the amount of the unpaid loan, and we may be unsuccessful in recovering the remaining balance from our customer. The resolution of nonperforming assets, including the initiation of foreclosure proceedings, requires significant commitments of time from management, which can be detrimental to the performance of their other responsibilities, and exposes us to additional legal costs. Elevated levels of loan delinquencies and bankruptcies in our market area generally and among our customers specifically, can be precursors of future charge-offs and may require us to increase our allowance for loan and lease losses. Higher charge-off rates, delays in the foreclosure process or in obtaining judgments against defaulting borrowers or an increase in our allowance for loan losses may hurt our overall financial performance if we are unable to increase revenue to compensate for these losses, may increase our cost of funds, and could materially adversely affect our business, results of operations and financial condition.

Our allowance for loan and lease losses may prove to be insufficient to cover actual loan losses, which could have a material adverse effect on our financial condition and results of operations.

Our future success depends to a significant extent upon the quality of our assets, particularly loans. In originating loans, there is a substantial likelihood that we will experience credit losses. The risk of loss will vary with, among other things, general economic conditions, including the current economic environment and real estate market, the type of loan, the creditworthiness of the borrower over the term of the loan, and, in the case of a collateralized loan, the quality of the collateral for the loan.

Our loan customers may not repay their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment. As a result, we may experience significant loan losses, which could have a material adverse effect on our operating results. Our management makes various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. We maintain an allowance for loan and lease losses in an attempt to cover any loan losses that may occur. In determining the size of the allowance, we rely on an analysis of our loan portfolio based on historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information.

If our assumptions are wrong, our current allowance may not be sufficient to cover future loan losses, and we may need to make adjustments to allow for different economic conditions or adverse developments in our loan portfolio. Material additions to our allowance in the form of provisions for loan losses would materially decrease our net income. We expect our allowance to continue to fluctuate; however, given current and future market conditions, our allowance may not be adequate to cover future loan losses.

In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance for loan losses or loan charge-offs as required by these regulators could have a negative effect on our operating results and could materially adversely affect our business, results of operations and financial condition.

We maintain a number of large borrowing relationships, any of which could have a material adverse effect on our results of operations if they were not to perform according to their terms.

We maintain a number of large borrowing relationships. Our ten largest borrowing relationships (which could include multiple loans and unfunded lines of credit) at June 30, 2018 range from $3.5 million to $5.8 million and averaged $4.2 million. The deterioration of one or more of these relationships could result in a significant increase in our non-performing loans and our provision for loan losses, which would negatively impact our results of operations and the value of our common stock. Our ten largest borrowing relationships represent approximately 9.35% of our total credit exposure.

We are subject to liquidity risk in our operations.

Liquidity risk is the possibility of being unable, at a reasonable cost and within acceptable risk tolerances, to pay obligations as they come due, to capitalize on growth opportunities as they arise, or to declare and pay dividends because of an inability to liquidate assets or obtain adequate funding on a timely basis. Liquidity is required to fund various obligations, including credit obligations to borrowers, loan originations, withdrawals by depositors, repayment of debt, dividends to shareholders, operating expenses, and capital expenditures. Our liquidity is derived primarily from customer deposits, principal and interest payments on loans and investment securities, net cash provided from operations, and access to other funding sources. Our largest customer deposit relationships represent a large portion of our deposit base and the loss of any one of these relationships could adversely affect Carolina Trust Bank’s liquidity position. Our access to funding sources in amounts adequate to finance our activities or at a reasonable cost could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could adversely affect our access to liquidity sources include a decrease in the level of our business activity due to a market downturn, the loss of one or more of our larger deposit relationships and adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption in the financial markets or negative views and

expectations about the prospects for the financial services industry as a whole. Our access to borrowed funds could become limited in the future, and we may be required to pay above market rates for additional borrowed funds, if we are able to obtain them at all, which may adversely affect our business, results of operations and financial condition.

Our loan portfolio mix, which includes income-producing commercial real estate loans, could result in increased credit risk in a challenging economy.

Approximately 50.27% of our loan portfolio consists of income-producing commercial real estate and owner-occupied commercial business loans. These types of loans generally are viewed as carrying more risk of default than residential real estate loans or certain other types of loans or investments. In fact, the FDIC has issued pronouncements alerting banks of its concern about heavy loan concentrations in certain types of commercial real estate loans, including acquisition, construction and development loans, and heavy loan concentrations in certain geographic segments. Because a portion of our loan portfolio is composed of these types of higher-risk loans, we face an increased risk of nonperforming loans that could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, any of which could have a material adverse impact on our business, results of operations and financial condition.

Any deterioration or downturn in the economies or real estate values in the markets we serve could have a material adverse effect on both borrowers’ ability to repay their loans and the value of the real property securing those loans. Our ability to recover on defaulted loans would then be diminished, and we would be more likely to suffer losses on defaulted loans. Any of these developments could materially adversely affect our business, financial condition, results of operations and prospects.

Changes in the interest rate environment could reduce our net interest income, which could reduce our profitability.

As a financial institution, our earnings depend on our net interest income, which is the difference between the interest income that we earn on interest-earning assets, such as investment securities and loans, and the interest expense that we pay on interest-bearing liabilities, such as deposits and borrowings. Additionally, changes in interest rates affect our ability to fund our operations with customer deposits, and the fair value of securities in our investment portfolio. Therefore, any change in general market interest rates affects us more than non-financial companies and can have a significant effect on our net interest income and results of operations. Further, because we have little noninterest income, any change in general market interest rates may affect our net income and results of operation more significantly than other financial institutions with higher amounts of noninterest income. Market interest rates are sensitive to factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory agencies, including the Federal Reserve’s policies that are implemented through open market operations and regulation of the discount rate and reserve requirements.

Our assets and liabilities may react differently to changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristics of the assets and liabilities. In a rising interest rate environment, potential borrowers could seek to defer loans as they wait for interest rates to settle, borrowers of variable rate loans may be subject to increased interest rates, which could result in a greater rate of default, and we may have to pay higher interest on deposits before interest earned on our assets increases. Rising interest rates may also present additional challenges to our business that we have not anticipated. As a result, an increase or decrease in market interest rates could have material adverse effects on our net interest margin, noninterest income, and results of operations. Further, since 2008 we have operated in a period of historically low market interest rates, but prevailing interest rates have begun to increase and certain financial market measures are indicating the potential for further increases.

We depend primarily on net interest income for our earnings rather than noninterest income.

Net interest income is the most significant component of our operating income. For the year ended December 31, 2017, our net interest income totaled $14.0 million in comparison to our total noninterest income of $1.4 million earned during the same period. We do not rely on nontraditional sources of fee income utilized by some community banks, such as fees from sales of insurance, securities or investment advisory products or services. The amount of our net interest income is influenced by the overall interest rate environment,

competition, and the amount of interest-earning assets relative to the amount of interest-bearing liabilities. In the event that one or more of these factors were to result in a decrease in our net interest income, we have limited sources of noninterest income to offset any decrease in our net interest income.

The fair value of our investment securities can fluctuate due to factors outside of our control.

As of June 30, 2018 and December 31, 2017, the fair value of our investment securities portfolio was approximately $29.2 million and $31.1 million, respectively. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates and instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realized or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects, as well as the value of our common stock. The process for determining whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Our inability to accurately predict the future performance of an issuer or to efficiently respond to changing market conditions could result in a decline in the value of our investment securities portfolio, which could have a material and adverse effect on our business, results of operations and financial condition.

We rely heavily on our management team and the unexpected loss of any of those personnel could adversely affect our operations.

We are a customer-focused and relationship-driven organization. We expect our future growth to be driven in a large part by the relationships maintained with our customers by our president and chief executive officer and other senior officers. The unexpected loss of any of our key employees could have an adverse effect on our business, results of operations and financial condition.

If we are not successful in addressing management succession issues and attracting and retaining qualified personnel, our business and operating results could be materially and adversely affected.

Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group. We must successfully manage transition and replacement issues that may result from the departure or retirement of members of our executive management. Changes of management personnel in the future could cause disruption to our operations or customer relationships or a decline in our operating results.

We are also dependent on our ability to retain and motivate our existing highly qualified personnel, including Jerry L. Ocheltree, our president and chief executive officer. These personnel may terminate employment with us at any time with little or no advance notice. The replacement of Mr. Ocheltree likely would involve significant time and costs, and the loss of his services could significantly delay or prevent the achievement of our business objectives.

Competition for highly skilled personnel in our market areas is frequently intense. We may not be successful in attracting qualified personnel to fulfill our current or future needs. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring such personnel, particularly senior management, could materially and adversely affect our business and operating results.

Cyber-attacks or other security breaches could have a material adverse effect on our business.

As a financial institution, our operations rely heavily on the secure data processing, storage and transmission of confidential and other information on our computer systems and networks. Any failure, interruption or breach in security or operational integrity of these systems could result in failures or disruptions in our online banking system, customer relationship management, general ledger, deposit and loan servicing and other systems. The security and integrity of our systems and the technology we use could be threatened by a variety of interruptions or information security breaches, including those caused by computer hacking, cyber-attacks, electronic

fraudulent activity or attempted theft of financial assets. We may fail to promptly identify or adequately address any such failures, interruptions or security breaches if they do occur. While we have certain protective policies and procedures in place, the nature and sophistication of the threats continue to evolve. We may be required to expend significant additional resources in the future to modify and enhance our protective measures.

The nature of our business may make it an attractive target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. The technology-based platform we use processes sensitive data from our borrowers and investors. While we have taken steps to protect confidential information to which we have access, our security measures and the security measures employed by the owners of the technology in the platform that we use could be breached. Any accidental or willful security breaches or other unauthorized access to our systems could cause confidential customer, borrower and investor information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation, and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in the technology-based platform that we use are exposed and exploited, our relationships with borrowers, depositors and investors could be severely damaged, and we could incur significant liability.

Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we and our third-party providers may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, federal regulators and many federal and state laws and regulations require companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause customers, borrowers and investors to lose confidence in the effectiveness of our data security measures. Our disclosure controls and procedures address cyber-security and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches. We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cyber-security breach. However, a breakdown in existing controls and procedures around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and could have a material adverse effect on our financial position and value of our common stock. Any security breach, whether actual or perceived, would harm our reputation and could cause us to lose customers, borrowers, investors and partners and adversely affect our business and operations.

Our business relies heavily on information technology and telecommunications systems; the failure of these systems could have a material adverse effect on our business.

Our business is dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party providers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could materially adversely affect our business, financial condition, results of operations and prospects, as well as the value of our common stock.

Our business concentration in North Carolina, specifically in the south central Piedmont region, imposes risks and may magnify the consequences of any regional or local economic downturn affecting North Carolina.

We conduct our operations almost exclusively in the Piedmont and Mountain regions of North Carolina. As of December 31, 2017, the substantial majority of the loans in our loan portfolio were made to borrowers who live and/or conduct business in North Carolina, and specifically, in this region, and the substantial majority of our secured loans were secured by collateral located in this region. Accordingly, we are exposed to risks associated with a lack of geographic diversification. The economic conditions in North Carolina, and specifically in the south central Piedmont region, are dependent on the manufacturing, information technology, and financial services sectors, among others. Any downturn or adverse development in these sectors could have a material

adverse impact on our business, financial condition and results of operations, and future prospects. Adverse economic developments, among other things, could negatively affect the volume of loan originations, increase the level of non-performing assets, increase the rate of foreclosure losses on loans and reduce the value of our loans. Any regional or local economic downturn that affects North Carolina, our existing or prospective borrowers or property values in our market area may affect us and our profitability more significantly and more adversely than those of our competitors, who may have larger operations that are less geographically focused on our market area.

The amount of other real estate owned, or OREO, may increase significantly, resulting in additional losses, and costs and expenses that will negatively affect our operations.

In connection with our banking business, we take title to real estate collateral from time to time through foreclosure or otherwise in connection with efforts to collect debts previously contracted. Such real estate is referred to as other real estate owned, or OREO. As the amount of OREO increases, our losses, and the costs and expenses to maintain the real estate, likewise increase. The amount of OREO we hold may increase due to various economic conditions or other factors. Any additional increase in losses and maintenance costs and expenses due to OREO may have material adverse effects on our business, financial condition, and results of operations. Such effects may be particularly pronounced in a market of reduced real estate values and excess inventory, which may make the disposition of OREO properties more difficult, increase maintenance costs and expenses, and reduce our ultimate realization from any OREO sales. In addition, at the time of acquisition of the OREO we are required to reflect its fair market value in our financial statements. If the OREO declines in value subsequent to its acquisition but prior to its disposition, we are required to recognize a loss. As a result, declines in the value of our OREO will have a negative effect on our business, results of operations and financial condition.

Our utilization of time deposits, including out-of-market and brokered certificates of deposit, as a source of funds for loans and our other liquidity needs could have an adverse effect on our operating results.

We rely primarily on deposits for funds to make loans and provide for our other liquidity needs, including time deposits and brokered certificates of deposit. As of June 30, 2018, brokered deposits, excluding certain internet and Certificate of Deposit Account Registry Service deposits, or CDARS, represented approximately 8.20% of our total deposits. Such deposits may not be as stable as other types of deposits and, in the future, depositors may not renew those time deposits when they mature, or we may have to pay a higher rate of interest to attract or keep them or to replace them with other deposits or with funds from other sources. Not being able to attract those deposits or to keep or replace them as they mature would adversely affect our liquidity.

Additionally, we are regulated by the FDIC, which requires us to maintain certain capital levels to be considered “well capitalized.” If we fail to maintain these capital levels, we could lose our ability to obtain funding through brokered deposits. In addition, we may also be restricted from paying higher deposit rates to attract, keep or replace those deposits, which could have a negative effect on our operating results and the value of our common stock.

We may not be able to maintain and manage our growth, which may adversely affect our results of operations and financial condition.

Our strategy has been to increase the size of our company by pursuing business development opportunities. We can provide no assurance that we will continue to be successful in increasing the volume of loans and deposits at acceptable risk levels and upon acceptable terms while managing the costs and implementation risks associated with our growth strategy. Our inability to increase our volume of loans and deposits at acceptable risk levels, if at all, could have a material adverse effect on the value of our common stock. Furthermore, we may be required to curtail our future growth in order to comply with regulatory restrictions imposed by banking regulators. Our inability to sustain our historical rate of growth could have a material adverse effect on our results of operations and on the value of our common stock.

We are subject to environmental liability risk associated with our lending activities.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we

may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, results of operations and financial condition.

Our use of appraisals in deciding whether to make a loan secured by real property or how to value the loan in the future may not accurately describe the net value of the collateral that we can realize.

In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may experience changes in value in relatively short periods of time, especially given heightened economic uncertainty, this estimate might not accurately describe the net value of the real property collateral after the loan has been closed. If the appraisal does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the indebtedness secured by the property. In addition, we rely on appraisals and other valuation techniques to establish the value of our OREO and to determine certain loan impairments. If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of OREO, and our ALL may not reflect accurate loan impairments. The valuation of the properties securing the loans in our portfolio may negatively impact the continuing value of those loans and could materially adversely affect our business, results of operations and financial condition.

We could be subject to losses, regulatory action or reputational harm due to fraudulent and negligent acts on the part of loan applicants, our borrowers, our employees and vendors.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished by or on behalf of clients and counterparties, including financial statements, property appraisals, title information, employment and income documentation, account information and other financial information. We may also rely on representations of clients and counterparties as to the accuracy and completeness of such information and, with respect to financial statements, on reports of independent auditors. Any such misrepresentation or incorrect or incomplete information may not be detected prior to funding a loan or during our ongoing monitoring of outstanding loans. In addition, one or more of our employees or vendors could cause a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our loan documentation, operations or systems. Any of these developments could have a material adverse effect on our business, results of operations and financial condition.

We face strong competition from larger competitors.

The banking business in North Carolina in general, and in our market areas in particular, is highly competitive. Many of our competitors are larger and have greater resources than we do. We compete with these institutions both in attracting deposits and originating loans. We may not be able to attract customers away from our competition. We compete for loans and deposits with the following types of institutions:

Competitors that are not depository institutions are generally not regulated as extensively as we are and, therefore, may have greater flexibility in competing for business. Other competitors are subject to similar regulation but have the advantages of larger established customer bases, higher lending limits, extensive branch networks, greater advertising-marketing budgets or other factors.

We compete with these institutions both in attracting deposits and in making loans, primarily on the basis of the interest rates we pay and yield on these products. Many of our competitors are well-established, much larger financial institutions that already serve many of our targeted customers. While we believe we can and do

successfully compete with these other financial institutions, we may face a competitive disadvantage as a result of our smaller size. In addition, many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures. We expect competition to continue to intensify due to financial institution consolidation, legislative, regulatory and technological changes, and the emergence of alternative banking sources.

Our ability to compete successfully will depend on a number of factors, including, among other things:

Increased competition could require us to increase the rates we pay on deposits or lower the rates we offer on loans, which could reduce our profitability. Our failure to compete effectively in our primary markets could cause us to lose market share and could have a material adverse effect our business, results of operations and financial condition.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, consumers can now maintain funds that historically would have been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Additionally, our customer base of consumers and small businesses has increasing non-bank options for credit. With the advent of credit delivery through the internet, competition for small balance loans is expected to increase. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

We are limited in the amount we can lend to one borrower.

Our legal lending limit is determined by law and is 15% of our permitted capital accounts with an additional 10% available for certain loans meeting heightened collateral requirements. This means that the size of loans that we can offer our customers is smaller than the size of loans that our larger competitors are able to offer. Furthermore, we generally impose an internal limit that is more conservative than the legal maximum. This limit may affect, to some degree, our success in establishing relationships with the larger businesses in our market. We satisfy loan requests in excess of our lending limit through the sale of participations in such loans to other banks. However, we cannot assure you that we will be able to attract or maintain customers seeking larger loans or that we will be able to sell participations in such loans on terms we consider favorable. Our inability to attract and maintain these customers or our inability to sell loan participations on favorable terms could adversely impact our business, financial condition, results of operation, and the value of our common stock.

Our loan portfolio may be affected by deterioration in real estate markets, including declines in the performance of loans.

Deterioration in real estate markets could result in declining prices and excess inventories. As a result, developers may experience financial deterioration and banking institutions may experience declines in the performance of construction, development and commercial loans. We make credit and reserve decisions based on the current conditions of borrowers or projects combined with our expectations for the future. If conditions are worse than forecast, we could experience higher charge-offs and delinquencies than is provided in the allowance for loan losses, which could materially adversely affect our business, results of operations and financial condition.

Deterioration in the fiscal position of the U.S. federal government and downgrades in U.S. Treasury and federal agency securities could adversely affect us and our subsidiary’s banking operations.

The long-term outlook for the fiscal position of the U.S. federal government is uncertain. In addition to causing economic and financial market disruptions, any future downgrade, failure to raise the U.S. statutory debt limit, or deterioration in the fiscal outlook of the U.S. federal government, could, among other things, materially adversely affect the market value of the U.S. government and federal agency securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms. In particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed income markets, adversely affecting the cost and availability of funding, which could negatively affect our profitability. Also, the adverse consequences could extend to those to whom we extend credit and could adversely affect their ability to repay their loans. Any of these developments could materially adversely affect our business, results of operations and financial condition.

Deterioration in the commercial soundness of our counterparties could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships, and we routinely execute transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could create another market-wide liquidity crisis similar to that experienced in late 2008 and early 2009 and could lead to losses or defaults by us or by other institutions. The deterioration or failure of our counterparties would have a material adverse effect on our business, results of operations and financial condition.

We have different lending risks than larger, more diversified banks.

Our ability to diversify our economic risks is limited and we may, therefore, be exposed to greater lending risks than those of banks lending to larger, better-capitalized businesses with longer operating histories. Our middle market and small business customers generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and may have limited operating histories. We attempt to manage our credit exposure through careful monitoring of loan applicants and through loan approval and review procedures. We have established an evaluation process designed to determine the adequacy of our allowance for loan losses. While this evaluation process uses historical and other objective information, the classification of loans and the establishment of loan losses is an estimate based on experience, judgment and expectations regarding our borrowers, and the economies in which we and our borrowers operate, as well as the judgment of our regulators. This is an inherently uncertain process, and our loan loss reserves may not be sufficient to absorb future loan losses or prevent a material adverse effect on our business, results of operations and financial condition.

We have a continuing need for technological change, and we may not have the resources to effectively implement new technology, or we may experience operational challenges when implementing new technology.

The financial services industry is changing rapidly, and to remain competitive, we must continue to enhance and improve the functionality and features of our products, services and technologies. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, at least in part, upon our ability to respond to future technological changes and the ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our products and service offerings. We may experience operational challenges as we implement these new technology enhancements or products, which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.

These changes may be more difficult or expensive than we anticipate. Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that we will be able to provide, which would put us at a competitive disadvantage. Accordingly, we may not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.

We are dependent upon the use of intellectual property owned by third parties, and any change in our ability to use, or the terms upon which we may use, this intellectual property could have a material adverse effect on our business.

We rely extensively on technology licensed from third-party vendors. We can offer no assurance that we will be able to renew or maintain such licenses on terms that are acceptable or at all. Termination of licenses or the reduction or elimination of our licensed rights may result in our having to negotiate new licenses with less favorable terms, or the inability to obtain access to such licensed technology at all. If we were to lose access to technology we require to operate our business, or were only able to access the technology on less favorable terms, we would not be able to offer our customers the services they seek from us and our business would be materially and adversely affected.

Our risk management framework may not be effective in mitigating risks and/or losses.

We have implemented a risk management framework to manage our risk exposure. This framework comprises various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial and other modeling methodologies which involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances and it may fail to adequately mitigate risk or loss. If our framework is not effective, we could suffer unexpected losses and be subject to potentially adverse regulatory consequences, and our business, results of operations and financial condition could be materially and adversely affected.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, current and potential shareholders could lose confidence in our financial reporting which would harm our business and the trading price of our securities.

If we identify material weaknesses in our internal control over financial reporting or are otherwise required to restate our financial statements, we could be required to implement expensive and time-consuming remedial measures and could lose investor confidence in the accuracy and completeness of our financial reports. We may also face regulatory enforcement or other actions, including the potential delisting of our securities from NASDAQ. This could have an adverse effect on our business, financial condition and results of operations, and could subject us to litigation.

Changes in accounting standards and management’s selection of accounting methods, including assumptions and estimates, could materially impact our financial statements.

From time to time the SEC and the Financial Accounting Standards Board, or FASB, change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings. In addition, management is required to use certain assumptions and estimates in preparing our financial statements, including determining the fair value of certain assets and liabilities, among other items. If the assumptions or estimates are incorrect, we may experience unexpected material adverse consequences that could negatively affect our business, results of operations and financial condition.

Risks Related to Carolina Trust’s Regulatory Environment

Our business, financial condition, results of operations and future prospects could be adversely affected by the highly-regulated environment and the laws and regulations that govern our operations, or changes in any of them.

We operate in a highly-regulated industry and are subject to examination, supervision, and comprehensive regulation by various federal and state regulatory agencies. Our compliance with these regulations is costly and restricts certain of our activities, including the declaration and payment of cash dividends to shareholders, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require

us to maintain adequate capital to support our growth and operations. Should we fail to comply with these regulatory requirements, federal and state regulators could impose additional restrictions on the activities of Carolina Trust and the Carolina Trust Bank, which could adversely affect our business, results of operations and financial condition.

The laws and regulations applicable to the banking industry may change, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our business, results of operations and financial condition.

Our financial condition and results of operations are also affected by credit policies of monetary authorities, particularly the Federal Reserve. Actions by monetary and fiscal authorities, including the Federal Reserve, could have an adverse effect on our deposit levels, loan demand, or business and earnings, as well as the value of the common stock.

We may be required to raise additional capital in the future, including to comply with minimum capital thresholds established by our regulators, but that capital may not be available when it is needed and could be dilutive to our existing shareholders.

In July 2013, the Federal Reserve, FDIC and Office of the Comptroller of the Currency approved final rules that establish an integrated regulatory capital framework that addresses shortcomings in certain capital requirements. The rules implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act. For a description of these changes and the general regulatory capital requirements applicable to us, see “Information about Carolina Trust — Supervision and Regulation.”

In order to support the operations at Carolina Trust Bank and meet regulatory capital requirements, we may need to raise capital in the future. Our ability to raise capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside our control. Accordingly, we may be unable to raise capital, if needed, on terms acceptable to us if at all. If we cannot raise capital when needed, our ability to operate or further expand our operations could be materially impaired. In addition, if we decide to raise equity capital under such conditions, the interests of our shareholders could be diluted.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The Bank Secrecy Act, the Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and IRS. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and limitations on our ability to engage in acquisition activities, such as the proposed merger. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have an adverse effect on our business, financial condition and results of operations.

The FDIC Deposit Insurance assessments that we are required to pay may increase in the future, which would have an adverse effect on our earnings.

As a member institution of the FDIC, we are assessed a quarterly deposit insurance premium. Our bank subsidiary’s regular deposit insurance assessments are based on its average consolidated total assets minus average tangible equity as well as by risk classification, which includes regulatory capital levels and the level of supervisory concern. Failed banks nationwide, particularly between 2008 and 2010, significantly depleted the DIF and reduced the ratio of reserves to insured deposits. In order to maintain a strong funding position and restore the reserve ratios of the DIF, the FDIC has, in the past, increased deposit insurance assessment rates and charged

a special assessment to all FDIC-insured financial institutions. Further increased FDIC assessment premiums, due to our risk classification, emergency assessments, or implementation of a modified DIF reserve ratio, could have a material adverse effect on our business, results of operations and financial condition.

The Federal Reserve may require us to commit capital resources to support Carolina Trust Bank.

A bank holding company is required to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks. The Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. Under these requirements, in the future, we could be required to provide financial assistance to the Carolina Trust Bank if it experiences financial distress.

A capital injection may be required at times when our resources are limited and we may be required to borrow the funds to make the required capital injection. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of any note obligations. Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more difficult and expensive and will adversely impact the holding company’s business, financial condition and results of operations.

Risks Related to Ownership of Carolina Trust Common Stock

This section discusses risks relating to an investment in Carolina Trust common stock.

The price of our common stock may fluctuate significantly, which may make it difficult for investors to resell shares of common stock at a time or price that they find attractive.

Our stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond our control. In addition to those described under “Cautionary Statement Regarding Forward-Looking Statements,” these factors include:

Also, in recent years, the stock market has generally experienced significant price and volume fluctuations and the volatility has had a material impact on the market price of securities issued by many companies. These wide fluctuations may have an adverse impact on our stock price irrespective of our operating results. We expect that the market price of our common stock will continue to fluctuate and there can be no assurances about the levels of the market prices for our common stock.

Trading in our common stock has been moderate which could cause shareholders to not be able to quickly and easily sell their common stock particularly in large quantities.

While our common stock is traded on the NASDAQ Capital Market and various brokers offer to make a market in our common stock, historical trading volume to date has been characterized by relatively low trading volume, and there can be no assurance that a more active and liquid market for our common stock will develop or can be maintained. As a result, shareholders may find it difficult to sell a significant number of shares of our common stock at the prevailing market price.

We do not plan to declare or pay cash dividends for the foreseeable future.

We do not expect to declare or pay cash dividends on our common stock in the foreseeable future, as we intend to retain any earnings to provide the capital necessary to fund our growth strategy. Our ability to declare and pay cash dividends will be dependent upon, among other things, restrictions imposed by the reserve and capital requirements of North Carolina and federal banking regulations, our income and financial condition, tax considerations, Carolina Trust Bank’s ability to declare and pay dividends and general business conditions. Investors should not purchase shares with a view for a current return on their investment in the form of cash dividends.

Holders should not expect us to redeem or repurchase outstanding shares of our common stock.

Our common stock is a perpetual equity security. This means that it has no maturity or mandatory redemption date and will not be redeemable at the option of the holders. Any decision we may make at any time to propose the repurchase or redemption of shares of our common stock will depend upon, among other things, our evaluation of our capital position, the composition of our shareholders’ equity, general market conditions at that time and other factors we deem relevant. Our ability to redeem shares of our common stock is subject to regulatory restrictions and limitations, including those of the Federal Reserve.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect the rights of the holders of our common stock, which could depress the price of our common stock.

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. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.

Anti-takeover provisions could adversely affect our shareholders.

In some cases, shareholders would receive a premium for their shares if we were acquired by another company. However, state and federal law and our articles of incorporation and bylaws make it difficult for anyone to acquire us without approval of our board of directors. Consequently, a takeover attempt may prove difficult, and shareholders may not realize the highest possible price for their securities.

Our common stock is equity and is therefore subordinate to our outstanding indebtedness.

Shares of our common stock are equity interests in Carolina Trust and do not constitute indebtedness. As such, shares of our common stock rank junior to our outstanding subordinated notes and other indebtedness.

Offerings of debt, which would rank senior to our common stock upon liquidation, may adversely affect the market price of our common stock.

We may attempt to increase our capital resources or, if our or Carolina Trust Bank’s regulatory capital ratios fall below the required minimums, we or the Carolina Trust Bank could be forced to raise additional capital by making additional offerings of debt or equity securities, senior or subordinated notes, preferred stock and common stock. Upon liquidation, holders of our debt securities and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.

Our shares of common stock are not an insured deposit and, as such, are subject to loss of entire investment.

The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

THE CAROLINA TRUST SPECIAL MEETING

Date, Time and Place

Carolina Trust will hold a special meeting of its shareholders at The Lincoln Cultural Center located at 403 East Main Street, Lincolnton, North Carolina 28092, at 9:30 a.m. local time on December 12, 2018.

Purpose of the Special Meeting

At the special meeting, Carolina Trust shareholders will be asked to consider and vote upon proposals to:

In accordance with applicable law, no other business may come before the special meeting, except for business that properly comes within the purposes described in the notice of meeting, which purposes are described above.

Recommendation of the Board of Directors of Carolina Trust

The Carolina Trust board of directors has determined that the merger is advisable and in the best interests of Carolina Trust and its shareholders and recommends that Carolina Trust shareholders vote “ FOR ” approval of the merger agreement, including the issuance of shares of Carolina Trust common stock pursuant to the terms thereof, and “ FOR ” the adjournment proposal.

Record Date; Shareholders Entitled to Vote

Shareholders of record at the close of business on October 18, 2018, which the Carolina Trust board of directors has set as the record date, are entitled to notice of and to vote at the special meeting. As of the close of business on that date, there were outstanding and entitled to vote 7,156,987 shares of common stock, $2.50 par value per share, each of which is entitled to one vote.

Quorum

A majority of the outstanding shares of Carolina Trust common stock entitled to vote at the special meeting, present in person or represented by proxy, will be necessary to constitute a quorum for the transaction of business at the special meeting. Abstentions are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the special meeting.

In general, with respect to shares held in street name, the holders of record have the authority to vote shares for which their customers do not provide voting instructions only on certain routine items. In the case of non-routine items, the institution holding street name shares cannot vote the shares if it has not received voting instructions. These are considered to be “broker non-votes.” Since there are no routine items to be voted on at the special meeting, nominee record holders of Carolina Trust common stock that do not receive voting instructions from the beneficial owners of such shares will not be able to return a proxy card with respect to such shares; as a result, these shares will not be considered present at the special meeting and will not count towards the satisfaction of a quorum.

Vote Required

Approval of the merger agreement requires the affirmative vote of a majority of all shares of Carolina Trust common stock entitled to vote at the special meeting. The adjournment proposal will be approved if the votes cast at the special meeting, in person or by proxy, in favor of the proposal exceed the votes cast against the proposal.

Directors and executive officers of Carolina Trust and their affiliates, who beneficially own approximately 4.22% of Carolina Trust common stock as of the record date (exclusive of shares underlying outstanding stock options), are expected to vote for approval of the merger agreement and for the adjournment proposal.

Abstentions and Failure to Vote

Abstentions and the failure to vote will have the same effect as a vote against the proposal to approve the merger agreement and the issuance of shares pursuant thereto. Abstentions and the failure to vote will have no effect on the outcome of the vote on the adjournment proposal.

Voting of Proxies

The enclosed appointment of proxy with respect to the Carolina Trust special meeting is solicited by the board of directors of Carolina Trust. The board of directors has selected Sue S. Stamey and William M. Wadsworth or either of them, to act as proxies with full power of substitution.

Whether or not you plan to attend the special meeting, you may submit a proxy to vote your shares via mail by marking your vote, signing your name exactly as it appears on your proxy card, dating your proxy card and returning it in the envelope provided. You may also vote by internet by following the instructions contained on the enclosed proxy card.

All proxies will be voted as directed by the shareholder on the proxy form. If you return an appointment of proxy but do not include instructions on how to vote your shares, your shares will be voted for you as follows:

At the date hereof, management has no knowledge of any business that will be presented for consideration at the special meeting and that would be required to be set forth in this joint proxy statement/prospectus or in the related Carolina Trust proxy card, other than the matters set forth in the Notice of Special Meeting of Shareholders of Carolina Trust. In accordance with North Carolina law, business transacted at the Carolina Trust special meeting will be limited to those matters set forth in the notice. Nonetheless, if any other matter is properly presented at the Carolina Trust special meeting for consideration, proxies will be voted in the discretion of the proxies on such matter.

Your vote is important. Accordingly, please sign and return the enclosed proxy card (or follow the instructions to vote your shares electronically), whether or not you intend to attend the Carolina Trust special meeting.

Shares Held in Street Name

If you hold your shares in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares if you wish them to be counted. Please follow the voting instructions provided by your bank, broker or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Carolina Trust or by voting in person at the meeting unless you provide a “legal proxy,” which you must obtain from your bank, broker or other nominee. Further, brokers who hold shares of Carolina Trust common stock on behalf of their customers may not give a proxy to Carolina Trust to vote those shares without specific instructions from their customers.

If you are a Carolina Trust shareholder and you do not instruct your broker on how to vote your shares, your broker will not vote your shares at the special meeting and, accordingly, your failure to vote will effectively be a vote against the merger.

Your vote is important. Accordingly, please sign and return your broker’s instructions whether or not you plan to attend the Carolina Trust special meeting in person.

Revocability of Proxies

A proxy is revocable at any time prior to or at the special meeting by written notice to Carolina Trust, by executing a proxy bearing a later date, or by attending the special meeting and voting in person. A written notice

of revocation of a proxy should be sent to the Secretary, Carolina Trust BancShares, Inc., 901 East Main Street, Lincolnton, North Carolina 28092, and will be effective if received by the secretary prior to the special meeting. The presence of a shareholder at the special meeting alone will not automatically revoke such shareholder’s proxy.

If your shares are held in street name and you want to change the voting instructions you have given to your broker or other nominee, you must follow your broker’s or nominee’s directions.

Solicitation of Proxies

Carolina Trust will pay the costs of soliciting proxies from Carolina Trust shareholders. These costs may include reasonable out-of-pocket expenses in forwarding proxy materials to beneficial owners. Carolina Trust will reimburse brokers and other persons for their reasonable expenses in forwarding proxy materials to customers who are beneficial owners of the common stock of Carolina Trust registered in the name of nominees.

In addition to solicitation by mail, officers and directors of Carolina Trust may solicit proxies personally or by telephone or other means of electronic communication. Carolina Trust will not specifically compensate these persons for soliciting such proxies, but may reimburse them for reasonable out-of-pocket expenses, if any.

Carolina Trust and Clover have also engaged Regan & Associates, Inc., a proxy solicitation firm, to assist in the solicitation of proxies and to provide related advice and information support in connection with the special meetings. The aggregate fee paid to the proxy solicitor for such services is not expected to exceed $14,000.

THE CAROLINA TRUST PROPOSALS

Proposal No. 1 – Approval of the Merger

At the Carolina Trust special meeting, Carolina Trust shareholders will be asked to approve the Agreement and Plan of Merger and Reorganization between Carolina Trust and Clover, including the issuance of shares of Carolina Trust common stock pursuant to the terms thereof, and the merger of Clover with and into Carolina Trust. Carolina Trust shareholders should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

After careful consideration, the board of directors of Carolina Trust, by a unanimous vote of all directors, approved the merger agreement and the merger, and determined that the merger was advisable and in the best interests of Carolina Trust and its shareholders. See “The Merger – Carolina Trust’s Reasons for the Merger and Recommendation of the Carolina Trust Board of Directors” for a more detailed discussion of the recommendation of the Carolina Trust Board.

The Carolina Trust board of directors unanimously recommends that Carolina Trust shareholders vote “ FOR ” approval of the Agreement and Plan of Merger and Reorganization, including the issuance of shares of Carolina Trust common stock pursuant to the terms thereof.

Proposal No. 2 – Adjournment of the Special Meeting

If Carolina Trust does not receive a sufficient number of votes to constitute a quorum or approve the merger agreement, it may propose to adjourn the special meeting for the purpose of soliciting additional proxies to establish a quorum or approve the merger agreement. Carolina Trust’s management does not currently intend to propose adjournment at the special meeting if there are sufficient votes to approve the merger agreement. Approval of the adjournment proposal requires that the number of votes cast at the special meeting, in person or by proxy and entitled to vote thereon, in favor of the proposal exceeds the votes cast against the proposal, whether or not a quorum is present.

The board of directors of Carolina Trust unanimously recommends that Carolina Trust shareholders vote “ FOR ” the proposal to authorize management to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies to approve the merger agreement.

THE CLOVER SPECIAL MEETING

Date, Time and Place

Clover will hold a special meeting of its shareholders at the Clover Main Office located at 124 N. Main Street, Clover, South Carolina 29710, at 6:30 p.m. local time, on December 12, 2018.

Purpose of the Special Meeting

At the special meeting, Clover’s shareholders will be asked to consider and vote upon proposals to:

In accordance with applicable law, no other business may come before the special meeting, except for business that properly comes within the purposes described in the notice of meeting, which purposes are described above.

Recommendation of the Board of Directors of Clover

The Clover board of directors has determined that the merger is advisable and in the best interests of Clover and its shareholders and recommends that Clover’s shareholders vote “ FOR ” approval of the Agreement and Plan of Merger and Reorganization and “ FOR ” the adjournment proposal.

Record Date; Shareholders Entitled to Vote

Shareholders of record at the close of business on October 25, 2018, which the Clover board of directors has set as the record date, are entitled to notice of and to vote at the Clover special meeting. As of the close of business on that date, there were outstanding and entitled to vote 863,776 shares of common stock, $0.01 par value per share, and 113,125 shares of preferred Stock, no par value per share, of Clover, each of which is entitled to one vote.

Quorum and Voting Procedures

A quorum must be present for business to be conducted at the special meeting. For all matters to be voted on at the meeting, a quorum will consist of a majority of the outstanding shares of Clover’s common stock and Clover preferred stock, taken together. Shares represented in person or by proxy at the meeting will be counted for the purpose of determining whether a quorum exists. Once a share is represented for any purpose at the meeting, it will be treated as present for quorum purposes for the remainder of the meeting and for any adjournments. If you return a valid proxy card or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain or instruct the proxies to abstain from voting on one or more matters. Broker “non-votes” also will be counted in determining whether there is a quorum. Broker “non-votes” will occur if your shares are held by a broker and are voted on one or more matters at the meeting but they are not voted by the broker on a “non-routine” matter because you have not given the broker voting instructions on that matter. If your shares are represented at the meeting with respect to any matter voted on, they will be treated as present with respect to all matters voted on, even if they are not voted on all matters.

Vote Required

Approval of the merger agreement requires the affirmative vote of two-thirds of all shares held by three separate voting groups of Clover shareholders entitled to vote at the Clover special meeting. The three separate voting groups are (i) holders of Clover common stock, (ii) holders of Clover preferred stock, and (iii) holders of Clover common stock and preferred stock, voting together as a single voting group. The adjournment proposal will be approved if the votes cast at the special meeting, in person or by proxy, in favor of the proposal exceed the votes cast against the proposal.

Certain directors and executive officers of Clover and their affiliates, who beneficially own approximately 5.13% of Clover common stock and 1.52% of Clover preferred stock as of the record date, are expected to vote for approval of the merger agreement.

Shareholder Support Agreements

As an inducement to and a condition of Carolina Trust’s willingness to enter into the merger agreement, each of the directors and executive officers of Clover and Clover Bank entered into a shareholder support agreement with Carolina Trust. Pursuant to the support agreements, these individuals agreed, among other things,

to vote (or cause to be voted), all the shares owned beneficially by each of them, (i) in favor of the approval of the Agreement and Plan of Merger and Reorganization at the special meeting of the Clover shareholders and (ii) against any competing Acquisition Proposal (as defined in the merger agreement and as further described under “The Merger Agreement—Restrictions on Solicitation”). As of the record date, the directors and executive officers of Clover and Clover Bank who have executed support agreements beneficially owned approximately 44,318 shares of Clover common stock, or approximately 5.13% of the outstanding shares of Clover common stock, and 1,724 shares of Clover preferred stock, or approximately 1.52% of the outstanding shares of Clover preferred stock. A copy of the form of the shareholder support agreement is attached as Exhibit B to the merger agreement and is incorporated herein by reference. Clover shareholders are urged to read the support agreements in their entirety.

Voting of Proxies

The enclosed proxy with respect to the Clover special meeting is solicited by the board of directors of Clover. The board of directors has selected Lori M. Hudson and Kim A. Killian, or any of them, to act as proxies with full power of substitution.

Clover requests that you sign the accompanying proxy and return it promptly in the enclosed, postage-paid envelope. Please mark your vote, sign your name exactly as it appears on your proxy card, date your proxy card and return it in the envelope provided. You may also vote by telephone or internet by following the instructions contained on the enclosed proxy card.

All proxies will be voted as directed by the shareholder on the proxy form. A proxy, if executed and not revoked, will be voted in the following manner (unless it contains instructions to the contrary, in which event it will be voted in accordance with such instructions):

At the date hereof, management has no knowledge of any business that will be presented for consideration at the special meeting and that would be required to be set forth in this joint proxy statement/prospectus or in the related Clover proxy card, other than the matters set forth in the Notice of Special Meeting of Shareholders of Clover. If any other matter is properly presented at the Clover special meeting for consideration, proxies will be voted in the discretion of the proxy holder on such matter.

Your vote is important. Accordingly, please sign and return the enclosed proxy card as soon as possible regardless of whether you plan to attend the Clover special meeting.

Shares Held in Street Name

If you hold your shares in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares if you wish them to be counted. Please follow the voting instructions provided by your bank, broker or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Clover or by voting in person at the meeting unless you provide a “legal proxy,” which you must obtain from your bank, broker or other nominee. Further, brokers who hold shares of Clover common stock on behalf of their customers may not give a proxy to Clover to vote those shares without specific instructions from their customers.

If you are a Clover shareholder and you do not instruct your broker on how to vote your shares, your broker may not vote your shares at the special meeting.

Your vote is important. Accordingly, please sign and return your broker’s voting instruction form regardless of whether you plan to attend the Clover special meeting in person.

Revocability of Proxies

An appointment of proxy may be revoked by the shareholder giving it at any time before it is exercised by filing with Gerald L. Bolin, corporate secretary of Clover, at Clover’s office at 124 North Main Street, Clover, South Carolina 29710, a written instrument revoking it or a duly executed appointment of proxy bearing a later date, or by attending the special meeting and announcing the shareholder’s intention to vote in person.

Solicitation of Proxies

Clover will pay the cost of preparing, assembling and mailing this joint proxy statement/prospectus to its shareholders and other proxy solicitation expenses. In addition to the use of the mails, appointments of proxy may be solicited in person or by telephone by Clover’s officers, directors, and employees without additional compensation. Clover will reimburse banks, brokers and other custodians, nominees, and fiduciaries for their costs in sending the proxy materials to the beneficial owners of Clover common stock and Clover preferred stock.

Carolina Trust and Clover have also engaged Regan & Associates, Inc., a proxy solicitation firm, to assist in the solicitation of proxies and to provide related advice and information support in connection with the special meetings. The aggregate fee paid to the proxy solicitor for such services is not expected to exceed $14,000.

Proposal to Adjourn the Special Meeting

If Clover does not receive a sufficient number of votes to constitute a quorum or approve the merger agreement, it may propose to adjourn the special meeting for the purpose of soliciting additional proxies to establish a quorum or approve the merger agreement. Clover does not currently intend to propose adjournment of the special meeting if there are sufficient votes to approve the merger agreement. If approval of the proposal to authorize management to adjourn the special meeting for the purpose of soliciting additional proxies is submitted to the Clover shareholders for approval, the approval requires that the number of votes cast at the special meeting, in person or by proxy and entitled to vote thereon, in favor of the proposal exceeds the votes cast against the proposal, whether or not a quorum is present.

The board of directors of Clover recommends that Clover shareholders vote “ FOR ” the proposal to authorize management to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies to approve the merger agreement.

THE CLOVER PROPOSALS

Proposal No. 1 – Approval of the Merger

At the Clover special meeting, Clover shareholders will be asked to approve the Agreement and Plan of Merger and Reorganization between Carolina Trust and Clover and the merger of Clover with and into Carolina Trust. Clover shareholders should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

After careful consideration, the board of directors of Clover, by a unanimous vote of all directors, approved the merger agreement and the merger, and determined that the merger was advisable and in the best interests of Clover and its shareholders. See “The Merger – Clover’s Reasons for the Merger and Recommendation of the Clover Board of Directors.” for a more detailed discussion of the recommendation of the Clover Board.

The Clover board of directors unanimously recommends that Clover shareholders vote “ FOR ” approval of the Agreement and Plan of Merger and Reorganization.

Proposal No. 2 – Adjournment of the Special Meeting

If Clover does not receive a sufficient number of votes to constitute a quorum or approve the merger agreement, it may propose to adjourn the special meeting for the purpose of soliciting additional proxies to establish a quorum or approve the merger agreement. Clover’s management does not currently intend to propose adjournment at the special meeting if there are sufficient votes to approve the merger agreement. If approval of the proposal to authorize management to adjourn the special meeting for the purpose of soliciting additional proxies is submitted to the Clover shareholders for approval, approval of the proposal requires that the number of votes cast at the special meeting, in person or by proxy and entitled to vote thereon, in favor of the proposal exceeds the votes cast against the proposal, whether or not a quorum is present.

The board of directors of Clover unanimously recommends that Clover shareholders vote “ FOR ” the proposal to authorize management to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies to approve the merger agreement.

INFORMATION ABOUT CAROLINA TRUST

General

History and General Information.    Carolina Trust was incorporated under the laws of the State of North Carolina on February 29, 2016, at the direction of the board of directors of Carolina Trust Bank. Carolina Trust was formed for the purpose of serving as the bank holding company of Carolina Trust Bank. Effective August 16, 2016, shareholders of Carolina Trust Bank exchanged all of Carolina Trust Bank’s outstanding shares of common stock for shares of Carolina Trust’s common stock on a one-for-one basis, thereby making Carolina Trust the sole holder of Carolina Trust Bank’s common stock and its bank holding company. Carolina Trust is registered under the BHCA and is subject to the supervision and regulation of the Federal Reserve. Carolina Trust currently has no operations and conducts no business on its own other than owning Carolina Trust Bank.

Carolina Trust Bank is a North Carolina-chartered commercial bank with its deposits insured by the FDIC up to applicable limits. Carolina Trust Bank is not a member of the Federal Reserve System. Carolina Trust Bank was incorporated on December 5, 2000, and began operations on December 8, 2000. On October 15, 2009, Carolina Trust Bank acquired Carolina Commerce Bank, Gastonia, North Carolina, with Carolina Commerce Bank being merged into Carolina Trust Bank.

At June 30, 2018, Carolina Trust had consolidated total assets of approximately $470.9 million, total deposits of approximately $393.3 million, and shareholders’ equity of approximately $48.2 million.

The principal executive offices of Carolina Trust are located at 901 East Main Street, Lincolnton, North Carolina 28092. Carolina Trust’s telephone number is (704) 735-1104 and our website address is http://www.carolinatrust.com. The information on our website is not part of this prospectus and the reference to our website address does not constitute incorporation by reference of any information on our website into this prospectus.

Business of Carolina Trust Bank.    The primary purpose of Carolina Trust Bank is to serve the banking needs of individuals and businesses in Lincoln, Catawba, Gaston, Iredell, and Rutherford Counties and surrounding areas, with all decisions and product offerings to be in the best interest of its customers while providing an acceptable return for the shareholders of Carolina Trust. Carolina Trust Bank offers a wide range of banking services including checking and savings accounts; commercial, installment, mortgage, and personal loans; safe deposit boxes; and other associated services. Carolina Trust Bank serves its customers through a network of automated teller machines and nine full-service offices located in the following North Carolina cities: Lincolnton (2), Denver, Forest City, Gastonia, Hickory, Lake Lure, Mooresville, and Vale. In addition, Carolina Trust Bank operates a loan production office in Salisbury, Rowan County, North Carolina.

Market Area and Competition.     Carolina Trust Bank’s market area is primarily located in the Piedmont region and extends into the Mountain region of North Carolina, with its branch footprint located to the west and north of Charlotte, North Carolina. While Lincoln and Rutherford Counties are largely rural, all or some portion of each of Lincoln, Gaston, Iredell, and Rowan Counties are located in the Charlotte-Concord-Gastonia, NC-SC metropolitan statistical area, which has seen significant growth and expansion over the last decade. Carolina Trust Bank’s market areas are served by or in close proximity to U.S. Interstate Highways 40, 85 and 77, and the Charlotte Douglas International Airport is accessible by its population base.

Commercial banking in North Carolina is extremely competitive due to the early adoption of state laws allowing statewide branching. Set forth in the table below is certain information regarding the North Carolina Counties in which Carolina Trust Bank has full-service offices and accept deposits, including information regarding the number of banks and other FDIC-insured institutions operating in each County, the number of branches, deposits in the County, and Carolina Trust Bank’s market share. All data is given as of June 30, 2018, which is the most recent date that deposit information is available from the FDIC:

As reflected in the foregoing table, Carolina Trust Bank faces significant competition in its market areas for deposits and loans from other depository institutions. Many of its competitors have substantially greater resources, broader geographic markets, and higher lending limits than Carolina Trust Bank and offer some services the bank does not provide. Carolina Trust Bank competes not only with financial institutions based in North Carolina, but also with out-of-state banks and financial institutions that have an established market presence in both the state as a whole and in the Counties in which we operate. Many of the financial institutions operating in North Carolina are engaged in local, regional, national, and international operations, and they have more assets and personnel than Carolina Trust Bank. Carolina Trust Bank competes with the major super-regional banks, which, because of their greater resources, are able to perform certain functions for their customers, including trust and investment banking services, that our bank is not equipped to offer directly. Carolina Trust Bank does, however, offer some of those services through its correspondent banks. The bank also competes with credit unions, insurance companies, money market mutual funds, and other financial institutions, some of which are not subject to the same degree of regulation and restrictions as Carolina Trust Bank, in attracting deposits and making loans.

Other Information .   On June 14, 2018, Carolina Trust entered into the merger agreement with Clover. Carolina Trust’s management currently anticipates that the merger will close in the fourth quarter of 2018 or first quarter of 2019, subject to customary closing conditions, including regulatory and shareholder approval. This proposed combination with Clover would increase Carolina Trust’s presence in complementary market areas, including into the South Carolina market area that forms part of the Charlotte-Concord-Gastonia, NC-SC metropolitan statistical area.

Carolina Trust’s common stock is listed and traded on the NASDAQ Capital Market under the symbol “CART.”

Additional information about Carolina Trust is included in documents that Carolina Trust files with the SEC. See “Where You Can Find More Information” on page 164 for a description of where you can find this information.

Supervision and Regulation

Bank holding companies and state commercial banks are extensively regulated under both federal and state law. The following is a brief summary of certain statutes and rules and regulations that affect or will affect Carolina Trust and Carolina Trust Bank. This summary contains what management believes to be the material information related to the supervision and regulation of Carolina Trust but is not intended to be an exhaustive description of the statutes or regulations applicable to their respective businesses. Supervision, regulation, and examination of Carolina Trust and its subsidiary bank by the regulatory agencies are intended primarily for the protection of depositors rather than shareholders Carolina Trust. Carolina Trust cannot predict whether or in what form any proposed statute or regulation will be adopted or the extent to which the business of Carolina Trust may be affected by a statute or regulation. The discussion is qualified in its entirety by reference to applicable laws and regulations.

Federal Bank Holding Company Regulation .   As a registered bank holding company, Carolina Trust is subject to regulation under the BHCA and to the supervision, examination, and reporting requirements of the Federal Reserve System. Carolina Trust Bank is a North Carolina-chartered commercial bank and is subject to regulation, supervision, and examination by the FDIC and the North Carolina Commissioner of Banks (“NCCOB”).

The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before:

The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or that would substantially lessen competition in the banking business, unless the public interest in meeting the needs of the communities to be served outweighs the anti-competitive effects. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved and the convenience and needs of the communities to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues focuses, in part, on the performance under the Community Reinvestment Act of 1977 (“CRA”), both of which are discussed elsewhere in more detail.

Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of a bank holding company. Control is also presumed to exist, although rebuttable, if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

The BHCA generally prohibits a bank holding company from engaging in activities other than banking, managing, or controlling banks or other permissible subsidiaries, and acquiring or retaining direct or indirect control of any company engaged in any activities other than activities closely related to banking or managing or controlling banks. In determining whether a particular activity is permissible, the Federal Reserve considers whether performing the activity can be expected to produce benefits to the public that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve has the power to order a bank holding company or its subsidiaries to terminate any activity or control of any subsidiary when the continuation of the activity or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company.

Under Federal Reserve policy codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, Carolina Trust is expected to act as a source of financial strength for Carolina Trust Bank and to commit resources to support the bank. This support may be required at times when Carolina Trust might not be inclined to provide it. In addition, any capital loans made by Carolina Trust to Carolina Trust Bank will be repaid only after its deposits and various other obligations are repaid in full.

Carolina Trust Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities, and operations and is supervised and examined by state and federal bank regulatory agencies. The FDIC and the NCCOB regularly examine the operations of Carolina Trust Bank and are given the authority to approve or disapprove mergers, consolidations, the establishment of branches, and similar corporate actions. These agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Bank Merger Act.    Section 18(c) of the Federal Deposit Insurance Act, popularly known as the “Bank Merger Act,” requires the prior written approval of the federal banking regulators before any bank may (i) merge or consolidate with, (ii) purchase or otherwise acquire the assets of, or (iii) assume the deposit liabilities of, another bank.

The Bank Merger Act prohibits approval of any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States. Similarly, the Bank Merger Act prohibits the approval of a proposed merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade. An exception may be made in the case of a merger transaction whose effect would be to substantially lessen competition, tend to create a monopoly, or otherwise restrain trade, if federal regulators find that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

In every proposed merger transaction, federal banking regulators must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, and the effectiveness of each insured depository institution involved in the proposed merger transaction in combating money-laundering activities, including in overseas branches.

State Law .   Carolina Trust Bank is subject to extensive supervision and regulation by the NCCOB. The NCCOB oversees state laws that set specific requirements for bank capital and that regulate deposits in, and loans and investments by, banks, including the amounts, types, and in some cases, rates. The NCCOB supervises and performs periodic examinations of North Carolina-chartered banks to assure compliance with state banking statutes and regulations, and banks are required to make regular reports to the NCCOB describing in detail their resources, assets, liabilities, and financial condition. Among other things, the NCCOB regulates mergers and consolidations of state-chartered banks, capital requirements for banks, loans to officers and directors, record keeping, types and amounts of loans and investments, and the establishment of branches.

The NCCOB has extensive enforcement authority over North Carolina banks. Such authority includes the ability to issue cease and desist orders and to seek civil money penalties. The NCCOB may also take possession of a North Carolina bank in various circumstances, including for a violation of a bank’s charter or of applicable laws, operating in an unsafe and unsound manner, or as a result of an impairment of a bank’s capital, and may appoint a receiver.

On October 1, 2012, the North Carolina Banking Law Modernization Act became effective and many of the state banking laws to which Carolina Trust Bank is subject were amended. Under the revised banking laws, the NCCOB continues to enforce specific requirements for bank capital, the payment of dividends, loans to officers and directors, record keeping, and types and amounts of loans and investments made by commercial banks.

Carolina Trust Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations and is supervised and examined by state and federal bank regulatory agencies. The FDIC and the NCCOB regularly examine the operations of Carolina Trust Bank and are given the authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions.

Payment of Dividends and Other Restrictions .   Carolina Trust is a legal entity separate and distinct from the bank it owns. While there are various legal and regulatory limitations under federal and state law on the extent to which banks can pay dividends or otherwise supply funds to holding companies, the principal source of cash revenues for Carolina Trust is dividends from its bank subsidiary, Carolina Trust Bank. The relevant federal and state regulatory agencies have authority to prohibit a state bank or bank holding company, which would include Carolina Trust and Carolina Trust Bank, from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of a bank, be deemed to constitute an unsafe or unsound practice in conducting its business.

North Carolina commercial banks, such as Carolina Trust Bank, are subject to legal limitations on the amounts of dividends they are permitted to pay. Specifically, Carolina Trust Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is defined in the applicable law and regulations).

The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset

quality and overall financial condition. The Federal Reserve has also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve, the Federal Reserve may prohibit a bank holding company from paying any dividends if any of the holding company’s bank subsidiaries are classified as undercapitalized.

A bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.

Capital Adequacy .   Carolina Trust Bank is required to comply with the capital adequacy standards established by the FDIC, which are substantially identical to those issued by the Federal Reserve. The Federal Reserve has promulgated two basic measures of capital adequacy for bank holding companies: a risk-based measure and a leverage measure. Bank holding companies with at least $1 billion in assets must satisfy all applicable capital standards to be considered in compliance. Bank holding companies with consolidated assets of less than $1 billion and that meet certain other criteria qualify for the Federal Reserve Bank’s Small Bank Holding Company Policy are exempt under such policy statement from the risk-based capital and leverage rules. Carolina Trust qualifies for this exemption. Under the recently passed Economic Growth, Regulatory Relief, and Consumer Protection Act (May 2018), the Federal Reserve is required to raise the consolidated asset threshold from $1 billion to $3 billion, which will exempt a greater portion of small bank holding companies from the Federal Reserve’s consolidated capital requirements for bank holding companies.

The risk-based capital standards applicable to banking organizations are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, account for off-balance-sheet exposure, and minimize disincentives for holding liquid assets. Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items. The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. At least half of total capital must be comprised of Tier 1 Capital, which is common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and noncumulative perpetual preferred stock, less goodwill and certain other intangible assets. The remainder may consist of Tier 2 Capital, which is subordinated debt, other preferred stock and a limited amount of loan loss reserves.

Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on taking brokered deposits and certain other restrictions on its business. As described below, federal banking regulators can impose substantial additional restrictions upon FDIC-insured depository institutions that fail to meet applicable capital requirements.

The Federal Deposit Insurance Act, or FDI Act, requires the federal regulatory agencies to take “prompt corrective action,” or PCA, if a depository institution does not meet minimum capital requirements. The FDI Act establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.

The federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels applicable to FDIC-insured banks. The relevant capital measures are the total risk-based capital ratio, tier 1 risk-based capital ratio, common equity tier 1 ratio, and the leverage ratio. Under the regulations, a FDIC-insured bank will be:

An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.

The FDI Act generally prohibits an FDIC-insured bank from making a capital distribution (including payment of a dividend) or paying any management fee to its holding company if the bank would thereafter be “undercapitalized.” “Undercapitalized” banks are subject to growth limitations and are required to submit a capital restoration plan. The federal regulators may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank’s capital. In addition, for a capital restoration plan to be acceptable, the bank’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of: (i) an amount equal to 5% of the bank’s total assets at the time it became “undercapitalized”; and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

“Significantly undercapitalized” insured banks may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets and the cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator. A bank that is not “well capitalized” is also subject to certain limitations relating to brokered deposits.

The regulatory capital framework under which Carolina Trust and Carolina Trust Bank operate changed in significant respects as a result of the Dodd-Frank Act, which was enacted in July 2010, and other regulations, including the separate regulatory capital requirements put forth by the Basel Committee on Banking Supervision, commonly known “Basel III.”

On July 2, 2013, the Federal Reserve approved a final rule that established an integrated regulatory capital framework to address perceived shortcomings in certain capital requirements. The rule implemented in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. This rule began to apply to Carolina Trust and Carolina Trust Bank effective January 1, 2015 with certain requirements phased in over the subsequent four-year period. Among other things, the rule implemented the new common equity tier 1 capital ratio and incorporated it into the existing PCA framework.

Under the 2013 capital rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. This buffer is intended to help ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer is measured relative to RWA. Phase-in of the capital conservation buffer requirements began on January 1, 2016 and will be fully phased in beginning in 2019. A banking organization with a buffer greater than 2.5% would not be subject to limits on capital distributions or discretionary bonus payments; however, a banking organization with a buffer of less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. The rule also prohibits

a banking organization from making distributions or discretionary bonus payments during any quarter if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. When the rule is fully phased in, the minimum capital requirements plus the capital conservation buffer will exceed the PCA well-capitalized thresholds.

Carolina Trust Bank was required to comply with the new rule beginning on January 1, 2015. Compliance by Carolina Trust Bank with these capital requirements affects its operations by increasing the amount of capital required to conduct operations.

Acquisitions .   Carolina Trust must comply with numerous laws related to any potential acquisition activity. Under the BHCA, and as described above, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve. The acquisition of non-banking companies is also regulated by the Federal Reserve. Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states has opted out of such interstate merger authority prior to such date, and subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years, and to certain deposit market-share limitations. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law. Additionally, since passage of the Dodd-Frank Act, a bank is now permitted to open a de novo branch in any state if that state would permit a bank organized in that state to open a branch.

FDIC Insurance Assessments .   All FDIC-insured institutions are required to pay assessments to the FDIC to fund the Deposit Insurance Fund, or DIF, which was established to help protect the depositors of insured banks and to resolve failed banks. A bank’s assessment is calculated by multiplying its assessment rate by its assessment base. A bank’s assessment base and assessment rate are determined each quarter. Carolina Trust Bank’s insurance assessments during 2017 and 2016 were $237,000 and $267,000, respectively.

By statute, assessment rates must be risk-based. From the beginning of the FDIC until 2010, a bank’s assessment base was about equal to its total domestic deposits. As required by the Dodd-Frank Act, however, the FDIC amended its regulations effective April 2011 to define a bank’s assessment base as its average consolidated total assets minus its average tangible equity. The method for determining a bank’s risked-based assessment rate differs for small banks and large banks. Small banks (generally, those with less than $10 billion in assets), which includes Carolina Trust Bank, are assigned an individual rate based on a formula using financial data and CAMELS ratings. A bank’s CAMELS ratings are assigned by its state and federal banking regulators based on such regulators’ periodic evaluation and rating of six essential components of an institution’s financial condition and operations. These component factors address the adequacy of capital (C), the quality of assets (A), the capability of management (M), the quality and level of earnings (E), the adequacy of liquidity (L), and sensitivity to market risk (S). For established small banks (those insured for five or more years, like Carolina Trust Bank), initial base assessment rates range from 3 to 30 basis points, with the initial assessment rates subject to adjustments that could increase or decrease the total base assessment rates. Possible adjustment to the initial assessment rates include: (1) a decrease of up to five basis points (or 50% of the initial base assessment rate) for long-term unsecured debt, including senior unsecured debt and subordinated debt; and (2) an increase for holding long-term unsecured or subordinated debt issued by other insured depository institutions known as the Depository Institution Debt Adjustment, or the DIDA.

The FDIC may terminate insurance of deposits upon a finding that an institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

The FDIC also collects a deposit-based assessment from insured financial institutions on behalf of the Financing Corporation (the “FICO”). The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the Federal Savings & Loan Insurance Corporation.

Community Reinvestment Act .   The CRA requires federal bank regulatory agencies to encourage financial institutions to meet the credit needs of low- and moderate-income borrowers in their local communities. An institution’s size and business strategy determines the type of examination that it will receive. Large,

retail-oriented institutions are examined using a performance-based lending, investment and service test. Small institutions are examined using a streamlined approach. All institutions may opt to be evaluated under a strategic plan formulated with community input and pre-approved by the bank regulatory agency.

The CRA regulations provide for certain disclosure obligations. Each institution must post a notice advising the public of its right to comment to the institution and its regulator on the institution’s CRA performance and to review the institution’s CRA public file. Each lending institution must maintain for public inspection a file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities and any written comments from the public on its performance in meeting community credit needs. The CRA requires public disclosure of a financial institution’s written CRA evaluations. This promotes enforcement of CRA requirements by providing the public with the status of a particular institution’s community reinvestment record.

The Gramm-Leach-Bliley Act made various changes to the CRA. Among other changes, CRA agreements with private parties must be disclosed and annual CRA reports must be made available to a bank’s primary federal regulator. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the Gramm-Leach-Bliley Act may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory CRA rating in its latest CRA examination. Carolina Trust Bank received a “Satisfactory” rating in its last CRA examination, which was conducted as of May 16, 2016.

Consumer Protection Laws .   Carolina Trust Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include, among others, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Act and state law counterparts.

Federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

Additional Legislative and Regulatory Matters .   The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), portions of which amended the Bank Secrecy Act, requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls with respect to its private banking accounts involving foreign individuals and certain foreign banks; and (iii) to avoid establishing, maintaining, administering or managing correspondent accounts in the United States for, or on behalf of, foreign banks that do not have a physical presence in any country. The USA PATRIOT Act also requires the Secretary of the Treasury to prescribe by regulation minimum standards that financial institutions must follow to verify the identity of customers, both foreign and domestic, when a customer opens an account. In addition, the USA PATRIOT Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) mandates for public companies, such as Carolina Trust, a variety of reforms intended to address corporate and accounting fraud and provides for the establishment of the Public Company Accounting Oversight Board (“PCAOB”), which enforces auditing, quality control and independence standards for firms that audit SEC-reporting companies. Sarbanes-Oxley imposes higher standards for auditor independence and restricts the provision of consulting services by auditing firms to companies they audit and requires that certain audit partners be rotated periodically. It also requires chief executive officers and chief financial officers, or their equivalents, to certify the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement, and increases the oversight and authority of audit committees of publicly traded companies.

Fiscal and Monetary Policy .   Banking is a business that depends on interest rate differentials for success. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the significant portion of a bank’s earnings. Thus, a bank’s earnings and growth will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve and the reserve requirements on deposits. The nature and timing of any changes in such policies and their effect on our business and results of operations cannot be predicted.

On February 3, 2017, President Trump signed Executive Order 13772 entitled “Presidential Executive Order on Core Principles for Regulating the United States Financial System.” The executive order requires the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council (including the Federal Reserve) and report to the president within 120 days of the date of the executive order on the extent to which existing laws, regulations, and other policies promote the core principles outlined in the order. In response to the executive order, on June 12, 2017, October 6, 2017, October 26, 2017 and July 31, 2018, respectively, the U.S. Department of the Treasury issued four reports recommending a number of comprehensive changes in the current regulatory system for U.S. depository institutions, the U.S. capital markets, the U.S. asset management and insurance industries, and nonbank financial institutions. The extent to which this executive order may ultimately result in changes to financial services laws, regulations, and policies applicable to us is not currently known.

Current and future legislation and the policies established by federal and state regulatory authorities will affect our future operations. Banking legislation and regulations may limit our growth and the return to investors by restricting certain of our activities. Carolina Trust cannot predict with certainty what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on our business and results of operations.

Federal Home Loan Bank System .   The FHLB System consists of 12 district Federal Home Loan Banks (“FHLBs”) subject to supervision and regulation by the Federal Housing Finance Agency (“FHFA”). The FHLBs provide a central credit facility primarily for member institutions. As a member of the FHLB of Atlanta, Carolina Trust Bank is required to acquire and hold shares of capital stock in the FHLB of Atlanta. Carolina Trust Bank was in compliance with this requirement with investment in FHLB of Atlanta stock of $337,500 at December 31, 2017. In addition to holding membership stock, Carolina Trust Bank is required to purchase stock based on the amount of its outstanding advances. This activity-based stock totaled $1,003,000 at the most recent year end. The FHLB of Atlanta serves as a reserve or central bank for its member institutions within its assigned district. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It offers advances to members in accordance with policies and procedures established by the FHFA and the Board of Directors of the FHLB of Atlanta. Long-term advances may only be made for the purpose of providing funds for residential housing finance, small businesses, small farms and small agribusinesses.

Real Estate Lending Evaluations .   The federal regulators have adopted uniform standards for evaluations of loans secured by real estate or made to finance improvements to real estate. Banks are required to establish and maintain written internal real estate lending policies consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its operations. The regulations establish loan to value ratio limitations on real estate loans. Carolina Trust Bank’s loan policies establish limits on loan to value ratios that are equal to or less than those established in such regulations.

Commercial Real Estate Concentrations .   Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank’s concentration of commercial real estate loans. On December 6, 2006, the federal banking regulators issued final guidance to remind financial institutions of the risk posed by commercial real estate, or CRE, lending concentrations. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for its examiners to help identify institutions that are potentially exposed to significant CRE risk and may warrant greater supervisory scrutiny:

As of June 30, 2018, Carolina Trust Bank’s C&D concentration as a percentage of risk-based capital totaled 59.5% and Carolina Trust Bank’s CRE concentration, net of owner-occupied loans, as a percentage of risk-based capital totaled 263.3%.

Evolving Legislation and Regulatory Action .   In 2009, many emergency government programs enacted in 2008 in response to the financial crisis and the recession slowed or wound down, and global regulatory and legislative focus generally moved to a second phase of broader regulatory reform and a restructuring of the entire financial regulatory system. The Dodd-Frank Act was signed into law in 2010 and implemented many new changes in the way financial and banking operations are regulated in the United States, including through the creation of a new resolution authority, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and numerous other provisions intended to strengthen the financial services sector. The Dodd-Frank Act provided for the creation of the Financial Stability Oversight Council, which is charged with overseeing and coordinating the efforts of the primary U.S. financial regulatory agencies (including the Federal Reserve, the FDIC and the SEC) in establishing regulations to address systemic financial stability concerns. The Dodd-Frank Act also provided for the creation of the Consumer Financial Protection Bureau, or CFPB, a new consumer financial services regulator. The CFPB is authorized to prevent unfair, deceptive and abusive practices and ensure that consumers have access to markets for consumer financial products and services and those markets are fair, transparent and competitive. New laws or regulations or changes to existing laws and regulations, including changes in interpretation or enforcement, could materially adversely affect our financial condition or results of operations.

More recently, legislation surrounding the banking industry has sought to repeal or pacify some of the regulation passed in response to the 2008 financial crisis, with specific focus on regulatory relief for institutions with less than $10 billion in assets. In 2017, both the House of Representatives and the Senate introduced legislation that would repeal or modify provisions of the Dodd-Frank Act and significantly impact financial services regulation. Although the bills varied in content, certain key aspects include revisions to rules related to mortgage loans, delayed implementation of rules related to the Home Mortgage Disclosure Act, and reform and simplifications of certain Volcker Rule requirements. On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act became law. Among other things, this law changes certain of the regulatory requirements of the Dodd-Frank Act and includes provisions intended to relieve the regulatory burden on community banks.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The Tax Act includes a number of provisions that impact Carolina Trust, including the following:

Director Qualifications and Independence.    In evaluating a director candidate, the Carolina Trust Nominating Committee considers a variety of factors, including the knowledge, experience, integrity and judgment of each candidate; the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which the Nominating Committee desires to have represented on the Board; each candidate’s ability to devote sufficient time and effort to his or her duties as a director; and any core competencies or technical expertise necessary to provide oversight to the company’s operations. In addition to fulfilling the above criteria, all of the current directors of Carolina Trust satisfy the independence requirements stated in the rules of NASDAQ, other than Mr. Ocheltree, who is an employee of Carolina Trust and its subsidiary bank. The Carolina Trust Nominating Committee believes that all of the current directors are independent of the influence of any particular shareholder or group of shareholders whose interests may diverge from the interests of Carolina Trust shareholders as a whole. Additionally, each member of Carolina Trust’s audit, compensation, and nominating committee meet the required independence standards under applicable NASDAQ rules.

Each current director also brings a strong and unique background and set of skills to the Carolina Trust board, giving the board as a whole competence and experience in a wide variety of areas, including corporate governance and board service, executive management, finance, construction, manufacturing, and marketing. Additionally, many of Carolina Trust’s directors have significant experience serving in leadership roles in community banks, whether on the board of directors or in management roles. The following discussion of each director’s specific experience, qualifications, attributions or skills led to the conclusion that he or she should serve as a director of the company.

Bryan Elliott Beal has extensive knowledge in corporate accounting having spent the majority of the last twenty-six years in various chief financial officer positions, which included experience in mergers and acquisitions, all of which qualify him to serve as Carolina Trust’s audit committee financial expert. He also holds positions with local civic and non-profit organizations.

Scott C. Davis has expertise in marketing, budgeting and management, which he brings to the Carolina Trust board of directors through his more than 31 years of experience in the manufacturing of textile electronic equipment.

Jerry L. Ocheltree has served in the banking industry for over 31 years, including leadership roles as president and chief executive officer for three banks. Prior to joining Carolina Trust Bank, he served as the president and chief executive officer of First Bancorp, the parent company of First Bank, Southern Pines, North Carolina with more than $3 billion in assets. Prior to that, he held chief executive positions with Premier South Bank and First Virginia Bank, both of Wytheville, Virginia. Mr. Ocheltree currently serves on the board of directors of the Charlotte branch of the Federal Reserve Bank of Richmond. He also previously served as Chair of the North Carolina Bankers Association for 2012-2013.

Johnathan L. Rhyne, Jr. is an attorney in Lincolnton. From 2009 to 2011, he was a member of the North Carolina General Assembly where he served as chairman of the House Banking Committee. He had previously served four terms in the General Assembly, from 1985 through 1992, which included service as the minority leader. Mr. Rhyne’s background as an attorney and a legislator gives him the leadership and consensus building skills to lead the board, which he has done since the incorporation of Carolina Trust Bank. He also has previous experience as a director for another bank in Lincoln County, which gives him a deep knowledge of the markets in which the company operates. Mr. Rhyne also serves on the board of directors of a public foundation and on the board of directors of one local non-profit organization. Mr. Rhyne also previously served (2015-2017) on the North Carolina State Banking Commission.

Frederick P. Spach, Jr. brings to the Carolina Trust board of directors a deep experience in managing change. As president and CEO of a family-owned business that was heavily reliant on the textile industry, he has reduced textile-related sales of the business to only 10% of revenue while nearly tripling total revenue under his leadership. In addition to the leadership role he plays at his family-owned business, Mr. Spach serves on the boards of directors of several civic and non-profit organizations in the Gaston County market as well as serving on the board of directors for an industry trade group in which his business operates.

Ralph N. Strayhorn III is the managing member of Cape Point Advisory Partners, LLC, a bank consulting firm based in Charlotte, North Carolina. Mr. Strayhorn has spent the last 36 years in the banking and related financial businesses since receiving his JD degree and his BA from the University of North Carolina at Chapel Hill. During 14 of the last 22 years, he has served as an executive officer and a board member of five community banks, including serving as president and CEO of four of these banks.

Jim R. Watson brings years of management experience to the Carolina Trust board of directors after managing 1,600 full and part-time employees and a budget of $100 million as the former Superintendent of Lincoln County Schools. Mr. Watson also currently serves in leadership positions for a number of local civic and non-profit organizations and has served in the past on many other boards, which has provided him greater leadership skills and local knowledge of the markets in which Carolina Trust operates.

Director Relationships.    No director or executive officer of Carolina Trust is related to another Carolina Trust director or executive officer.

Other Directorships.    Until May 2013, Mr. Ocheltree served as a director of First Bancorp, a bank holding company now headquartered in Southern Pines, North Carolina. Other than Mr. Ocheltree, no director is, or has served during the preceding 5 years as, a director of any company with a class of securities registered pursuant to Section 12 of the Exchange Act.

structure, with the directors receiving $600 for each bank board meeting attended ($850 for the chair), $250 for each committee meeting attended ($400 for the chair), and an annual retainer fee of $3,000.

The following table sets forth certain information regarding the compensation earned by Carolina Trust directors during the fiscal year ended December 31, 2017 for services as director. The payments below include fees earned as both a director of Carolina Trust and of Carolina Trust Bank.

Management Incentive Plan.    During 2017, each of Carolina Trust’s named executive officers participated in Carolina Trust Bank’s management incentive plan. Under the plan, each officer was eligible, subject to attainment of the applicable performance goals, for a cash incentive payout opportunity. Each participating officer had a target award (expressed as a percentage of last year’s base salary) and range that defined the incentive opportunity. Set forth below is each officer’s targeted award as a percentage of his 2017 base salary:

Under the plan, actual awards vary based on performance and range from 0% of target award (not achieving the threshold measure) to 150% of target award for exceptional performance (i.e., attainment of “stretch goal” described below).

In determining the cash payout under the incentive plan, Carolina Trust’s Compensation Committee evaluated the performance of the bank against six predetermined criteria, with each criteria being assigned an initial weight and a target goal. Those criteria, relative weights and target goals are set forth below:

In addition to the target goal, both a threshold and stretch goal were established for each performance measure. For financial performance measures (such as net income, loan growth and deposit growth), the threshold goal equates to 80% of the target goal, and the stretch goal equates to 120% of the target goal. Failure to reach any one threshold goal for a particular performance measure did not disqualify the officers from the opportunity to achieve the overall award. Rather, if Carolina Trust Bank’s performance in any category is less than the “threshold goal” (i.e., 80% of the target goal in the case of financial measures), the result is a zero weighting for that particular performance measure. Actual payouts for each performance measure are based upon final performance between threshold and stretch levels. Actual payouts for each performance measure are pro-rated for any level of performance between threshold and stretch using interpolation to reward incremental results. The following table summarizes the various corporate performance targets at different thresholds, as well as the actual results under the plan for 2017:

Prior to calculating payouts under the plan, and as referenced above, the weight of each performance measure is multiplied by a percentage depending on whether the threshold goal, target goal or stretch goal was achieved for each particular performance measure. The percentage multipliers for each goal level achieved are as follows: threshold goal (50%), target goal (100%), and stretch goal (150%). Set forth below are the payout results under the incentive plan for 2017 for Carolina Trust’s named executive officers after applying the applicable weight:

The non-equity incentive awards are included in the summary compensation table that appears above.

Outstanding Equity Awards at Fiscal Year-End.    The following tables contain information with respect to outstanding equity awards of Carolina Trust held by the named executive officers at and as of December 31, 2017.

Employment Agreements with Named Executive Officers during 2017 Fiscal Year.    During Carolina Trust’s most recently completed fiscal year, Carolina Trust Bank was party to an employment agreement with each of the named executive officers. Set forth below is a summary of the material terms of each officer’s employment agreement in effect during 2017, which is designed to provide additional context to the Summary Compensation Table set forth above.

On May 31, 2018, Carolina Trust entered into amended and restated employment agreements with each of Mr. Laws and Mr. Rager, which superseded and replaced the agreements in effect during the 2017 fiscal year and described below. See “– Amended and Restated Employment Agreements” in the section that follows for a description of the amended and restated agreements now if effect.

Ocheltree Employment Agreement .   During 2017, Carolina Trust Bank was party to an employment agreement with Mr. Ocheltree that governed the terms and conditions of his employment with the bank. Mr. Ocheltree earned an annual cash salary of $278,409 during the most recently completed fiscal year. His employment agreement has a contractual term that resets to two years on January 1 of each calendar year, unless written notice from Carolina Trust Bank or the officer is given to the other party at least 90 days prior to the annual anniversary date advising the other that the agreement shall not be further extended.

Mr. Ocheltree’s employment agreement also entitles him to:

While employed by Carolina Trust Bank and for one year following termination of employment, his employment agreement prohibits him from competing with the bank. Similarly, while employed by the bank and for two years following termination of employment, Mr. Ocheltree is contractually prohibited from soliciting customers or employees of the bank to switch their respective banking or employment relationship, as applicable.

Potential Payments to Ocheltree upon Termination . Under the agreement, in the event Mr. Ocheltree’s employment is terminated by the bank without cause, the bank is obligated to pay him $20,000 for each full month remaining in the then current term of his employment agreement (“Severance Term”), a pro rata portion of any applicable bonus, and reimbursement of the premiums for the continuation of his group health insurance under applicable law for the Severance Term. Termination for cause includes: termination because of the officer's material neglect of the material duties of his position; the officer's conviction for any crime or offense involving property of the bank (other than a de minimis offense) or moral turpitude; the officer's conviction constituting a felony or which has a material adverse impact on the bank’s reputation or financial condition; the officer's breach of any material provision of the agreement; the officer's dishonesty in connection with the bank or appropriating assets or opportunities of the bank for his own benefit; or the officer's violation of a generally recognized lawful material policy of the bank.

Mr. Ocheltree may terminate his employment upon 90 days prior written notice to the bank. In the event of such a termination by Mr. Ocheltree, Carolina Trust Bank is not contractually obligated under the employment agreement to make any payment to him, except for base salary and expense reimbursement that may remain unpaid as of the effective date of his termination of his employment.

Potential Payments to Ocheltree following a Change in Control . Mr. Ocheltree’s employment agreement has what is commonly referred to as a “double trigger” change in control provision. Under the terms of the agreement, Mr. Ocheltree has the right to terminate his employment if he determines that, in connection with or within 24 months after a “change in control,” he has not been assigned duties, responsibilities, and status commensurate with his duties prior to such change in control, his salary has been reduced below the amount he would have received under his employment agreement or was otherwise receiving at the time of the transaction, his benefits have been reduced or eliminated, or he has been transferred to a location which is an unreasonable distance from his then current principal work location. A “change in control” is defined to mean any of the following events:

Upon such a termination of employment following a change in control, Mr. Ocheltree would be entitled to be paid an amount equal to 2.99 times his “base amount” as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). This compensation is payable in a lump sum. Additionally, his employment agreement calls for the acceleration of the vesting of his benefits under his supplemental executive retirement plan with the bank upon the change in control. Carolina Trust Bank has the right under the employment agreement to reduce any such accelerated benefits as necessary under the Internal Revenue Code to avoid the imposition of excise taxes on Mr. Ocheltree or the disallowance of a tax deduction to Carolina Trust Bank.

Laws Employment Agreement .   Carolina Trust Bank is party to an employment agreement with Edwin E. Laws, who serves as Carolina Trust Bank’s Executive Vice President and Chief Financial Officer. Under the agreement in effect during 2017, Mr. Laws’s annual salary is reviewed not less often than annually by the bank’s board of directors. Additionally, if a change in control (as defined in the employment agreement) of Carolina Trust Bank should occur, the officer’s base salary will be increased not less than five percent annually during the remaining term of the agreement. The employment agreement has an initial two-year term that commenced on May 25, 2016 and is automatically extended for an additional year upon each anniversary of the agreement’s effective date, unless the bank notifies the officer of non-extension at least 90 days prior to the applicable anniversary date. Under the agreement, Mr. Laws is entitled to participate in the bank’s benefit plans available to similarly situated executive employees, and he has the opportunity to earn discretionary bonuses determined by the bank’s board of directors. Mr. Laws has also agreed to certain non-competition and confidentiality covenants under the employment agreement.

Potential Payments to Laws upon Termination .   If Carolina Trust Bank elects to terminate the agreement without cause (as defined in the agreement), Mr. Laws would be entitled to receive his base salary for the remaining term of the agreement. Mr. Laws is also entitled to terminate his own employment upon 60 days’ prior written notice to the bank; in the event of such a termination by him, he would be entitled to receive compensation through the effective date of his termination but would not otherwise be contractually entitled to severance pay under the agreement.

Potential Payments to Laws following a Change in Control . Mr. Laws’s employment agreement contains what is commonly referred to as a “double trigger” change in control provision. Under his employment agreement in effect during 2017, Mr. Laws would be entitled to a lump sum payment equal to 2.99 times his base salary in effect at the time of a change in control (as defined in his employment agreement) if within 24 months following the change in control:

For purposes of Mr. Laws’s employment agreement, a “termination event” means the occurrence of any of the following events without his consent:

Mr. Laws’s employment agreement further provides that any payments to be made to or for his benefit that are deemed to be “parachute payments,” as that term is defined in Section 280G of the Code, shall be modified or reduced to the extent deemed to be necessary to avoid the imposition of excise taxes on Mr. Laws under Section 4999 of the Code or the disallowance of a deduction to the bank under Section 280(a) of the Code.

Rager Employment Agreement .   Carolina Trust Bank has entered into an employment agreement with Richard M. Rager, Executive Vice President and Chief Credit Officer of the bank. Under the agreement in effect during 2017, Mr. Rager receives an annual cash salary, with annual adjustments and discretionary bonuses as determined by the Carolina Trust Compensation Committee. In addition, Mr. Rager is also entitled to all fringe benefits that are generally provided by the bank for its employees. The agreement has a two-year term and on each anniversary of the effective date, the term of the agreement is automatically extended for an additional one-year period beyond the then effective expiration date. The term of the agreement, however, will not be automatically extended if written notice from the bank or Mr. Rager is received 90 days prior to the anniversary date advising the other that the employment agreement will not be further extended. While employed by Carolina Trust Bank and for one year following termination of employment, the agreement prohibits Mr. Rager from competing with the bank. The foregoing one-year noncompete is not applicable, however, following a “for cause” termination of his employment by the bank or following certain terminations of employment by Mr. Rager following a change in control of the bank.

Potential Payments to Rager upon Termination . Under Mr. Rager’s employment agreement, in the event his employment is terminated by the bank without cause, the bank is obligated to pay Mr. Rager the compensation and benefits provided for in his agreement for the then remaining term of the agreement. Carolina Trust Bank is not obligated to pay such benefits, however, if the bank terminates his employment for cause. Under the

agreement, termination for cause includes termination because of the officer's personal dishonesty or moral turpitude, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the employment agreement.

Mr. Rager has the option to terminate his employment upon sixty days’ written notice to the bank, in which case, except for certain terminations following a change in control, he would only be contractually entitled to compensation through the effective date of such termination.

Potential Payments to Rager following a Change in Control . Under the terms of Mr. Rager’s employment agreement, he has the right to terminate his employment if he determines that within 24 months after a “change in control,” he has not been assigned duties, responsibilities and status commensurate with his duties and/or responsibilities prior to such change in control, his salary has been reduced below the amount in effect as of the change in control, his benefits have been reduced or eliminated (unless such reduction or elimination applies to all salaried employees), or he has been transferred to a location that is an unreasonable distance from his then current principal work location (each of the foregoing constituting a “termination event”). A “change in control” under the agreement is defined to mean any of the following events:

If (A) Carolina Trust Bank does terminate Mr. Rager’s employment for a reason other than cause or, within 12 months of a termination event, Mr. Rager terminates his own employment and (B) in either case, such termination is within 24 months following a change in control, then the bank has agreed to pay the officer an amount equal to 2.99 times his “base amount” as defined in Section 280G(b)(3) of the Code. This compensation would be payable in a lump sum within 60 days of the qualifying termination. Carolina Trust Bank has the right under Mr. Rager’s employment agreement to reduce any such payments as necessary under the Code to avoid the imposition of excise taxes on the officer or the disallowance of a deduction to the bank.

Amended and Restated Employment Agreements.    Effective May 31, 2018, Carolina Trust Bank entered into amended and restated employment agreements with each of Mr. Laws and Mr. Rager. The agreements amend and supersede the bank’s previous employment agreements with these two officers (which were described above) and currently govern their contractual terms of employment with Carolina Trust Bank.

Laws Amended and Restated Employment Agreement .   Under his amended and restated agreement, Mr. Laws’s base salary is $170,000 per annum, which salary will be reviewed not less often than annually by the board of directors, and can be increased, but not decreased, during the term of the agreement. If a change in control (as defined in the amended and restated agreement) event should occur, Mr. Laws’s base salary will be increased not less than five percent annually during the remaining term of the agreement. Mr. Laws is entitled to participate in the bank’s benefit plans available to similarly situated executive employees, and he has the opportunity to earn discretionary bonuses determined by the bank’s board. The employment agreement has an initial two-year term and is automatically extended for an additional year upon each anniversary of the agreement’s effective date, unless Carolina Trust Bank notifies Mr. Laws of non-extension at least 90 days prior to the applicable anniversary date.

If Carolina Trust Bank elects to terminate the agreement without cause (as defined in the agreement), Mr. Laws would be entitled to receive his base salary for the remaining term of the agreement, subject to his execution of a general release of claims against the bank and with such separation pay payable in installments in accordance with the bank’s customary payroll procedures. However, if Carolina Trust Bank were to terminate his

employment without cause at the time of or within 24 months following a change in control, then, instead of the foregoing separation pay, Mr. Laws would be entitled to receive a lump-sum payment of 2.50 times his “base amount” as defined in Section 280G(b)(3) of the Code. Mr. Laws would also be entitled to receive the same lump-sum payment if at the time of or within 24 months following a change in control, Mr. Laws terminates his own employment following a “termination event” (as defined in the agreement). A termination event generally will occur if, without his consent and following a change in control, Mr. Laws experiences a material reduction in his duties, responsibilities, or title, his annual base salary, or his benefits, or if he is transferred an unreasonable distance from his current work location. In order to be entitled to the lump sum payment, Mr. Laws would be required to notify the bank within 90 days of the occurrence of a termination event, and the bank would have 30 days to cure such event. If the bank fails to cure such event, then Mr. Laws could terminate employment and would be entitled to the change in control payment benefit. This change in control payment benefit is also conditioned on Mr. Laws’s execution and delivery of a release of claims in a form acceptable to Carolina Trust Bank.

If Carolina Trust Bank terminates Mr. Laws’s employment agreement with cause, Mr. Laws would be entitled to receive compensation through the effective date of such termination but not thereafter.

Under the agreement as amended and restated, Mr. Laws has also agreed to certain covenants pertaining to non-competition, non-solicitation of customers and employees, and confidentiality. Mr. Laws’s covenants pertaining to his agreement not to compete with Carolina Trust Bank and his agreement not to solicit certain customers and employees apply during the term of his employment and for a period of 12 months following any termination of his employment, except that the non-competition provisions will not apply following a termination if within 24 months following a change of control, Mr. Laws’s employment is terminated by the bank other than for cause, or Mr. Laws terminates his employment with the bank due to the occurrence of a termination event.

Rager Amended and Restated Employment Agreement .   Under his amended and restated employment agreement, Mr. Rager’s base salary is $174,452 per annum, which salary will be reviewed not less often than annually by the board of directors, and can be increased, but not decreased, during the term of the agreement. If a change in control (as defined in the employment agreement) event should occur, Mr. Rager’s base salary will be increased not less than five percent annually during the remaining term of the agreement. Mr. Rager is entitled to participate in the bank’s benefit plans available to similarly situated executive employees, and he has the opportunity to earn discretionary bonuses determined by Carolina Trust Bank’s board of directors. The employment agreement has an initial two-year term and is automatically extended for an additional year upon each anniversary of the agreement’s effective date, unless the bank notifies Mr. Rager of non-extension at least 90 days prior to the applicable anniversary date.

If Carolina Trust Bank elects to terminate the agreement without cause (as defined in the agreement), Mr. Rager would be entitled to receive his base salary for the remaining term of the agreement, subject to his execution of a general release of claims against the bank and with such separation pay payable in installments in accordance with the bank’s customary payroll procedures. However, if the bank were to terminate his employment without cause at the time of or within 24 months following a change in control, then, instead of the foregoing separation pay, Mr. Rager would be entitled to receive a lump-sum payment of 2.50 times his “base amount” as defined in Section 280G(b)(3) of the Code. Mr. Rager would also be entitled to receive the same lump-sum payment if at the time of or within 24 months following a change in control, Mr. Rager terminates his own employment following a “termination event” (as defined in the agreement). A termination event generally will occur if, without his consent and following a change in control, Mr. Rager experiences a material reduction in his duties, responsibilities, or title, his annual base salary, or his benefits, or if he is transferred an unreasonable distance from his current work location. In order to be entitled to the lump sum payment, Mr. Rager would be required to notify the bank within 90 days of the occurrence of a termination event, and the bank would have 30 days to cure such event. If the bank fails to cure such event, then Mr. Rager could terminate employment and would be entitled to the change in control payment benefit. This change in control payment benefit is also conditioned on Mr. Rager’s execution and delivery of a release of claims in a form acceptable to the bank.

If Carolina Trust Bank terminates Mr. Rager’s employment agreement with cause, Mr. Rager would be entitled to receive compensation through the effective date of such termination but not thereafter.

Under the agreement as amended and restated, Mr. Rager has also agreed to certain covenants pertaining to non-competition, non-solicitation of customers and employees, and confidentiality. Mr. Rager’s covenants pertaining to his agreement not to compete with the bank and his agreement not to solicit certain customers and employees apply during the term of his employment and for a period of 12 months following any termination of his employment, except that the non-competition provisions will not apply following a termination if within 24 months following a change of control, Mr. Rager’s employment is terminated by the bank other than for cause, or Mr. Rager terminates his employment with the bank due to the occurrence of a termination event.

Retirement Benefits.    During the most recently completed fiscal year, Carolina Trust Bank was party to agreements with each of Mr. Ocheltree and Mr. Rager that entitled the officer to certain supplemental retirement benefits. Set forth below is a description of each of the supplemental retirement agreements in effect between the bank and the applicable officer during 2017.

2014 Ocheltree Retirement Plan .   During 2014, the bank executed a Supplemental Executive Retirement Plan Agreement with Mr. Ocheltree (which is referred to herein as the “2014 Ocheltree SERP”). Because of federal tax code limitations on the amount of compensation that may be deferred by a highly compensated employee under Carolina Trust Bank’s 401(k) Plan, such a retirement agreement supplements the amount that the executive officer can defer until retirement. Similar plans are a common component of the compensation packages of the peer banks with which Carolina Trust Bank competes and of the financial institution industry generally. These retirement benefits are unfunded and are not intended to be a tax-qualified retirement plan under Section 401(a) of the Code.

Under the 2014 Ocheltree SERP in effect during 2017, the bank annually accrues a liability retirement account benefit on Mr. Ocheltree’s behalf equal to not less than twenty percent (20%) of his base salary. The accrued balance in the retirement account will be paid to Mr. Ocheltree following his retirement in five equal annual installments. In accordance with Section 409A of the Code, the first payment may be delayed by six months under certain conditions. Mr. Ocheltree becomes vested in the accrued liability retirement account on January 1, 2019. In the event Mr. Ocheltree should die while actively employed by the bank at any time after the vesting but prior to him attaining the age of sixty-five (65) years (or such later date as may be agreed upon), the bank will pay the accrued balance in one (1) lump sum to the person designated by Mr. Ocheltree. Accruals to the retirement account will be suspended during any period that Mr. Ocheltree has a qualified period of disability.

If after January 1, 2019 and prior to age 65, Mr. Ocheltree’s employment is terminated voluntarily by him or by the bank without cause, the accrued balance under the 2014 Ocheltree SERP shall be paid to Mr. Ocheltree in a lump sum thirty (30) days following his attainment of the age of sixty-five. In the event of a change in control of the bank (as defined in the 2014 Ocheltree SERP), and should Mr. Ocheltree’s employment be terminated without cause either 30 days prior to, or within 12 months after, the change in control, Mr. Ocheltree would be paid the accrued balance under the 2014 Ocheltree SERP in a lump sum thirty (30) days following the latter of the change in control or his termination of employment. The accrued liability balance in Mr. Ocheltree’s retirement account at December 31, 2017, was $210,741, which was a $55,152 increase from the balance at December 31, 2016.

Effective August 31, 2018, Carolina Trust Bank and Mr. Ocheltree entered into a first amendment to the 2014 Ocheltree SERP. The primary purpose of the amendment was to cease annual accruals and to freeze any future accruals under the 2014 agreement on behalf of Mr. Ocheltree into the 2014 agreement’s designated liability retirement account. The balance in the liability retirement account as of September 1, 2018, will be annually credited with earnings at a rate approved by Carolina Trust Bank’s compensation committee by the end of the preceding calendar year.

Rager 2007 Retirement Plan .   During 2017, Mr. Rager was a participant in a supplemental executive retirement plan that the bank established in 2007 for eligible participants chosen by the bank. The retirement benefits provided under the plan are unfunded and are not intended to be a tax-qualified retirement plan under Section 401(a) of the Code. To offset the cost of future funding of the retirement benefits payable to participants under the 2007 retirement plan, the bank owns life insurance policies on the lives of certain current and former executive officers.

As a participant in the 2007 supplemental retirement plan, Mr. Rager would be provided an annual retirement benefit equal to fifteen percent (15%) of his average annual base salary during his final five years of

employment. Absent an acceleration event, his benefit would be paid over the ten (10) years following his retirement. Mr. Rager became fully-vested in the benefits provided under the supplemental retirement plan in 2016 upon his ten-year anniversary as an employee of the bank. If Mr. Rager should die while employed by the bank, Carolina Trust Bank will pay the present value of the vested benefit to the officer’s beneficiary in a lump sum. If the officer dies while receiving the retirement benefit, the bank shall pay any remaining benefit to the officer’s beneficiary in the same amounts and manner that would have been paid to the officer had the officer survived.

Upon a termination of the employment of Mr. Rager following a “change in control” (the definition of “change in control” being substantially similar to the same term under his employment agreement), the full retirement benefit under the plan (calculated as of the termination of employment) is payable in a lump sum to the officer. As of December 31, 2017, the estimated payment that would be due under the retirement plan in such an event is $180,323, which reflects an $8,374 increase from the amount that would have been payable at December 31, 2016. In the event payment of the benefit to the officer would cause the imposition of excise taxes under Section 280G and Section 4999 of the Code, then the payments would be reduced (but not below zero) to the extent necessary to ensure that no portion of the payment will be subject to any excise tax.

If the employment of Mr. Rager with Carolina Trust Bank is terminated without cause prior to his normal retirement date, the vested retirement benefit under the retirement plan is payable in a lump sum. No benefit will be payable to Mr. Rager, however, if he is terminated for cause. Termination for cause includes termination of the officer’s employment because of (i) fraud, embezzlement, theft, or comparable dishonest activity committed by the officer; (ii) the officer’s conviction of or entering a plea of guilty or nolo contendere to any crime constituting a felony or any misdemeanor involving fraud, dishonesty, or moral turpitude, (iii) the officer’s breach, neglect, refusal, or failure to materially discharge the officer’s duties or the officer’s failure to comply with the lawful directions of a senior managing officer of the bank (which failure is not timely cured), (iv) any willful misconduct by the officer which may cause substantial economic or reputation injury to the bank, including, but not limited to, sexual harassment, or (v) the willful destruction by the officer of bank property having a material value to the bank.

2018 Supplemental Executive Retirement Plan Agreements with Named Executive Officers .   On August 31, 2018, Carolina Trust Bank entered into a supplemental executive retirement plan agreement with each of Messrs. Laws, Ocheltree, and Rager (which we refer to, collectively, as the “2018 SERPs”). Subject to its terms and conditions, each agreement is intended to provide the officer with certain supplemental retirement benefits upon a separation of service due to a termination of employment (other than a termination with cause, as defined in the respective agreements). The amount and timing of payment of the supplement retirement benefits vary based on a number of factors, including, among others, the age of the officer, the reason for any separation from service, and whether the officer has met the vesting requirements set forth in the agreement at the time of any payment triggering event.

Account Balance Accruals . In connection with commencement of the 2018 SERPs for Mr. Laws and Mr. Rager, Carolina Trust Bank will accrue a one-time, initial contribution for each officer in an unfunded bookkeeping account, which contribution represents the initial account balance for the officer’s respective supplemental retirement plan. The initial contribution for Mr. Laws is $70,298 and for Mr. Rager is $71,020. This contribution, plus the annual earnings on the account at the rate approved (from time to time) by the bank’s compensation committee, is referred to in the aggregate as the “account balance.” Carolina Trust Bank retains authority under the agreements to make additional contributions in the future to the officers’ respective account balances provided such additional contributions are determined by the bank no later than the last day of the taxable year immediately preceding the year in which such additional contributions are accrued on the bank’s books. With respect to Mr. Ocheltree’s 2018 SERP, Carolina Trust Bank will annually accrue in an unfunded bookkeeping account an amount equal to not less than 32% of his base salary (as defined in the agreement) plus any additional amount the bank may determine in its sole discretion provided such additional amounts are determined by the bank no later than the last day of the taxable year immediately preceding the year in which such additional amounts are accrued on the bank’s books. Such annual accruals, together with the annual earnings credited to the account at a rate approved (from time to time) by Carolina Trust Bank’s compensation committee, is referred to in the aggregate as the “account balance” under Mr. Ocheltree’s plan.

Normal Retirement Benefit . Assuming the respective officer remains employed through his normal retirement age of 65 as set forth in the 2018 SERPs and that there is no intervening change in control, then the

officer would be entitled to receive a benefit amount calculated as the amount that fully amortizes (over a period not to exceed 15 years, as determined by initial election of the officer on the agreement execution date) his vested account balance existing at the end of the month before the month in which he separates from service from Carolina Trust Bank (and taking into account interest between when he separates from service and the date full payment is made under the terms of the agreement). The benefit amount would be paid out either as a lump sum or as an up to 15-year annuity, based on the officer’s election at the time the agreement was executed. Such lump sum would be paid, or if annual payments are elected, would commence beginning on the first day of the year following the year in which the officer experiences a separation from service (as defined in section 409A of the Code), unless the officer is a “specified employee” (as defined in section 409A of the Code), in which case the benefit would be paid or commence on the latter of: (i) the first day of the year following the year in which the officer experiences a separation from service or (ii) the seventh month after the month in which the officer experiences a separation from service.

Vesting . Assuming the officers’ continued employment, Mr. Laws and Mr. Rager will become vested in their respective account balance in accordance with the following schedules:

In the case of Mr. Ocheltree, and assuming his continued employment through the applicable vesting date, Mr. Ocheltree became 80% vested in his account balance on September 1, 2018, and will become vested in the remaining 20% of the account balance on January 1, 2019.

Notwithstanding the foregoing vesting schedules, the officers’ respective vesting in their account balance will be accelerated if:

Early Termination Benefit . Under the 2018 SERPs, if the officer experiences a separation from service (other than due to death or a termination with cause) prior to attaining the age of 65, he will be entitled to a benefit amount calculated as the amount that fully amortizes (over 10 years) his vested account balance existing at the end of the month before the month in which he separates from service (and taking into account interest between when he separates from service and the date full payment is made under the agreement). If the separation from service is due to the officer’s disability, the officer will be fully vested in his account balance, notwithstanding any failure to meet the time-vesting requirements set forth in the agreement. The benefit amount would be paid in ten-equal annual installments, commencing on the first day of the year following the year in which the officer turns age 65, unless the officer is a “specified employee,” in which case the benefit would commence on the latter of: (i) on the first day of the year following the year in which the officer turns age 65 or (ii) the seventh month after the month in which the officer experiences a separation from service.

Change in Control Benefit . Should a change in control (as defined in the 2018 SERPs) occur prior to the officer both attaining his normal retirement age of 65 and prior to a separation from service, the officer would be paid his vested account balance calculated on the date of the change in control. This change in control benefit would be paid in a lump sum within 10 days following the change in control. Further, the officer would become fully vested in his account balance upon the change in control, notwithstanding any failure to meet the time-vesting requirements set forth in the respective agreement. Additionally, under each of the 2018 SERPs, the timing of the payment of Normal Retirement Benefits, Early Termination Benefits, or disability benefits under the agreement that have already commenced due to a prior separation from service or due to the officer reaching normal retirement age will also be accelerated to a single lump sum payment if a change in control event subsequently occurs. Such accelerated payment will be made on the day of the change in control in the case of

an acceleration of the Normal Retirement Benefits or, in the case of an acceleration of the Early Termination Benefits or disability benefits, three days after the later of: (i) the effective date of the change in control or (ii) the seventh month after the month in which the officer experiences a separation from service.

Death Benefits . Under the 2018 SERPs, if the officer should die prior to experiencing a separation from service, the officer’s beneficiary (as designated under the agreement), will be entitled to be paid a benefit amount in cash equal to the officer’s vested account balance on the date of death. If the officer is not already fully vested in his account balance, the officer will become fully vested upon death. The benefit amount upon death prior to separation from service would be paid within 21 days of the date of the officer’s death. If the officer dies after separation from service, the officer’s beneficiary would be entitled to be paid a benefit amount in cash equal to the remaining account balance at the officer’s death. Such lump sum cash payment would be paid 90 days after the officer’s death.

Termination with Cause . Under 2018 SERPs, the officers would not be entitled to any retirement benefit if the respective officer experiences a separation from service due to a termination with cause (as defined in the respective agreement) of the officer’s employment with Carolina Trust Bank.

Identified problem and impaired loans are measured for impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral, if the loan is collateral dependent. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change. The adequacy of the allowance is also reviewed by management based upon its evaluation of then-existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, collateral values, loan concentrations, changes in the mix and volume of the loan portfolio, trends in portfolio credit quality, including delinquency and charge-off rates and current economic conditions that may affect a borrower's ability to repay. Although management believes it has established and maintained the allowance for loan losses at appropriate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.

Non-interest earning assets consisting of cash and due from banks, bank premises, equipment and software, foreclosed assets and other assets increased to $25.1 million at June 30, 2018 compared to $15.6 million at December 31, 2017. The increase is attributed mostly to the increase in cash and due from banks of $8.4 million, or 155.20% and to an increase in foreclosed assets of $1.2 million or 149.83%. At June 30, 2018, foreclosed assets consisted of six properties valued at $2.0 million. At December 31, 2017, foreclosed assets consisted of five properties valued at $789,000.

Deposit accounts represent the Company’s primary funding source and consist of non-interest bearing demand deposits, interest-bearing demand deposits, savings accounts and time deposits. Total deposits increased by approximately $52.6 million, or 15.45%, for the six months ended June 30, 2018. The growth is due to the increases in noninterest-earning demand deposits of $17.6 million, or 35.76%, interest-earning demand deposits of $10.7 million, or 9.28%, savings deposits of $1.5 million or 7.00%, and time deposits of $22.8 million or 14.79%.

Federal Home Loan Bank advances totaled $16.1 million at June 30, 2018, a decrease of $7.5 million over the $23.6 million advanced at December 31, 2017.

On March 29, 2018, the Company entered into a Term Loan Agreement and a Security Agreement with, and executed and delivered a Promissory Note to Community Bankers’ Bank, Midlothian, Virginia (the “Lender”). These documents provide for a $3 million secured term loan to the Company. The term loan accrues interest at the Wall Street Journal prime rate, which was 4.75% on the Promissory Note date, with a maximum rate of 18.0%. The Company will make 12 interest payments beginning on April 29, 2018, and on the 29 ^th day of each month thereafter. Beginning on April 29, 2019, and on the 29 ^th day of each month thereafter, the Company will make 84 payments of principal and interest of the lesser of $41,798.65, or accrued interest and so much of the $3,000,000 Promissory Note amount as has been advanced. Changes to the scheduled payments will be made to reflect changes, if any, in the interest rate. There is no penalty for voluntary prepayment of the Promissory Note, and on April 27 ^th , the Company repaid the outstanding balance.

Stockholders’ equity amounted to $48.2 million, or 10.24% of total assets at June 30, 2018, compared to $29.1 million, or 7.16% of total assets at December 31, 2017.

Results of Operations for the Three- and Six-Month Periods Ended June 30, 2018 and 2017

For the three months ended June 30, 2018 and 2017

Net Income and Net Income Available to Common Shareholders

Net income for the three months ended June 30, 2018 was $510,000 compared to $196,000 for the second quarter of 2017, an increase of $314,000. Diluted earnings per common share was $0.08 for the three months ended June 30, 2018 compared to $0.04 for the second quarter of 2017. The increase in net income is primarily due to an increase in interest income on loans of $830,000 as average loans increased by $54 million from the second quarter of 2017 to the second quarter of 2018. The interest income was partially offset by an increase in interest expense of $309,000 due to an increase in total deposits outstanding and merger expenses of $323,000 relating to the proposed acquisition of Clover Community Bankshares, Inc.

Net Interest Income

Net interest income is the primary source of earnings for the Company. Net interest income is the difference between interest income on earning assets (primarily loans and investment securities) and the interest expense on

deposits and other interest bearing liabilities. Net interest spread is the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Net interest margin is the ratio of net interest income to average assets for the period. Changes in net interest income result from changes in interest rates and the volume and mix of earning assets and interest-bearing liabilities.

Net interest income for the quarter ended June 30, 2018 totaled $4,043,000 compared to $3,420,000 for the quarter ended June 30, 2017. The Company’s net interest spread was approximately 3.52% and 3.64% for the quarters ended June 30, 2018 and 2017, respectively. Net interest margin on average interest earning assets was 3.76% and 3.80% for the quarters ended June 30, 2018 and 2017, respectively. Net interest spread decreased by 12 basis points, and net interest margin decreased by 4 basis points. The decreases in net interest spread and net interest margin are due primarily to increase in the cost of funds.

Provision for Loan Losses

The Company recorded a provision for loan losses of $88,000 and $64,000 for the quarters ended June 30, 2018 and 2017. This increase of $22,000 in the provision for loan losses is due to an increase in the amount of loans outstanding. The ratio of the allowance for loan and lease losses as a percentage of total loans increased from 0.99% at June 30, 2017 to 1.03% at June 30, 2018. The increase in this percentage is due to increase in the qualitative factor for nature and volume of the portfolio for Residential and Commercial acquisition, development and construction (“ADC”) loans, Commercial Real Estate loans and Commercial and Industrial loans used in the model. The provision for loan losses is charged to operations to bring the allowance to a level deemed appropriate based on management’s evaluation of the adequacy of the allowance for loan losses.

The following table sets forth information with respect to the asset quality of our loan portfolio as of the dates indicated.