UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
(Rule
12g-3(a))
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): August 16, 2016
CAROLINA
TRUST BANCSHARES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
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North
Carolina
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To
be assigned*
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81-2019652
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(State
or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification No.)
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901
East Main Street, Lincolnton, North Carolina
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28093
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(Address
of principal executive offices)
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(Zip
Code)
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(704)
735-1104
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
*
This report is filed by the Registrant as successor issuer to Carolina Trust Bank (the “Bank”). The Bank’s common
stock previously was registered under Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and,
pursuant to Section 12(i) of the Exchange Act, the Bank’s periodic reports were filed with the Federal Deposit Insurance
Corporation. The Registrant’s common stock is deemed to be registered under Section 12(b) of the Exchange Act by virtue
of Rule 12g-3(a).
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant
under any of the following provisions:
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item
8.01. Other Events.
[In
this Current Report on Form 8-K, the terms “we,” “us,” and “our”
refer
to the Registrant, Carolina Trust BancShares, Inc.]
COMPLETION
OF SHARE EXCHANGE
We
were incorporated on February 29, 2016, by and at the direction of the board of directors of Carolina Trust Bank (the “Bank”)
for the sole purpose of acquiring the Bank and serving as the Bank’s parent bank holding company. Effective August 16, 2016
(the “Effective Time”), we acquired the Bank in a statutory share exchange (the “Reorganization”) effected
under North Carolina law and in accordance with the terms of an Agreement and Plan of Reorganization and Share Exchange dated
March 30, 2016 (the “Agreement”). Prior to the Effective Time, we had no material assets and had not conducted any
business or operations except for activities related to our organization and the Reorganization.
The
Agreement and the Reorganization previously were approved by the Bank’s shareholders at the Bank’s annual meeting
held on May 10, 2016. Pursuant to the Agreement, at the Effective Time each of the 4,650,558 outstanding shares of the Bank’s
$2.50 par value common stock formerly held by its shareholders was converted into and exchanged for one newly issued share of
our $2.50 par value common stock, and the Bank became our subsidiary. The shares of our common stock issued to the Bank’s
shareholders were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”),
pursuant to the exemption from registration provided by Section 3(a)(12) of the Securities Act.
Also
at the Effective Time, we assumed the Bank’s obligations under the following plans, which are collectively referred to herein
as the “Plans”:
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Carolina
Trust Bank 2001 Incentive Stock Option Plan;
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Carolina
Trust Bank 2005 Incentive Stock Option Plan;
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Carolina
Trust Bank 2005 Nonstatutory Stock Option Plan;
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Carolina
Commerce Bank Employee Stock Option Plan (previously assumed by the Bank in connection with its October 2009 merger with Carolina
Commerce Bank); and
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●
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Carolina
Commerce Bank Director Stock Option Plan (previously assumed by the Bank in connection with its October 2009 merger with Carolina
Commerce Bank).
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At
the Effective Time, each then-current outstanding option to purchase shares of the Bank’s common stock (“Stock Options”)
under the Plans was converted into an option to purchase the same number of shares of our common stock on the same terms and conditions
as were in effect with respect to those outstanding Stock Options under the written agreements pertaining thereto and the written
plans under which such Stock Options were issued.
Our
directors are six of the directors of the Bank, and our current shareholders consist of the former common shareholders of the
Bank who own the same percentages of our common stock as they previously owned of the Bank’s common stock. Shareholders
holding physical stock certificates will receive transmittal materials from us instructing such holders how to properly surrender
their certificates representing shares of Bank common stock. Our common stock has become listed on the Nasdaq Capital Market in
place of the Bank’s common stock. The trading symbol for our common stock is “CART” which is the same as the
Bank’s former trading symbol.
We
are a North Carolina business corporation that will operate as a registered bank holding company under the Bank Holding Company
Act of 1956, as amended. As such, we are subject to supervision and examination by, and the regulations and reporting requirements
of, the Board of Governors of the Federal Reserve System. We have no other subsidiaries. Our principal office is the same as the
Bank’s main banking office and is located at 901 East Main Street, Lincolnton, North Carolina. Our telephone number at that
address is (704) 735-1104.
The
Bank is an insured, North Carolina state-chartered commercial bank which was incorporated during 2000 and which engages in a general
commercial and consumer banking business. The Bank’s operations are primarily retail-oriented and are aimed at individuals
and small to medium-sized businesses located in its market area. The Bank will continue to exist and to conduct its business in
the same manner and under the same name as it did before the Reorganization.
At
the Effective Time, the Bank’s common stock was registered under Section 12(b) of the Exchange Act by virtue of its listing
on the Nasdaq Capital Market. The Bank was subject to the information requirements of the Exchange Act and, in accordance with
Section 12(i) thereof, it filed annual, quarterly, and current reports, proxy statements, and other information with the Federal
Deposit Insurance Corporation (the “FDIC”). Copies of reports filed by the Bank are on file with the FDIC and are
available for inspection at the office of the FDIC’s Accounting and Securities Disclosure Section located at 550 17
th
Street, N.W., Washington, DC 20429. Copies of those reports also may be obtained by contacting the FDIC’s Accounting
and Securities Disclosure Section at (202) 898-8913, or by e-mail at PublicBankReports@FDIC.gov.
As
a result of the Reorganization, we have become a successor issuer to the Bank as provided in the Commission’s Rule 12g-3(a)
under the Exchange Act, and our common stock is deemed to be registered under Section 12(b) of the Exchange Act. We have become
subject to the information requirements of the Exchange Act and will file reports, proxy statements, and other information with
the Commission. This Current Report on Form 8-K is our initial report under the Exchange Act.
DESCRIPTION
OF REGISTRANT’S CAPITAL STOCK
Authorized
Capital Stock.
Our Articles of Incorporation authorize us to issue 11,000,000 shares of capital stock, consisting of 10,000,000
shares of common stock, par value $2.50 per share, and 1,000,000 shares of preferred stock with such rights, privileges, and preferences
as may be determined by our board of directors.
Shares of our capital stock represent equity interests in Carolina Trust
BancShares, Inc. They are not bank deposits or savings accounts and are not insured or guaranteed by the FDIC or any other governmental
agency or by the Bank.
Common
Stock
Voting
Rights.
Except as described below, each share of our common stock entitles the holder thereof to one vote on all matters
upon which shareholders have the right to vote. In addition, in the election of directors, each holder of our common stock has
the right to vote the number of shares owned by such holder on the record date for as many persons as there are directors to be
elected. Cumulative voting is not available with respect to the election of directors.
The
North Carolina Control Share Acquisition Act, in general, provides that shares of voting stock of a corporation (to which the
Act applies) acquired in a “control share acquisition” (“Control Shares”) will have no voting rights unless
those rights are granted by resolution adopted by the holders of at least a majority of the outstanding shares of the corporation
entitled to vote in the election of directors, excluding
shares
held by the person who has acquired or proposes to acquire the Control Shares and excluding shares held by any officer or director
who is also an employee of the corporation. “Control Shares” are defined as shares of a corporation that are acquired
by any person and which, when added to any other shares already owned by that person, would entitle that person (except for the
application of the Act) to voting power in the election of directors equal to or greater than (1) one-fifth of all voting
power, (2) one-third of all voting power, or (3)
a majority of all voting power. “Control share acquisition”
means the acquisition by any person of beneficial ownership of Control Shares with certain exceptions, including an acquisition
pursuant to certain agreements of merger or consolidation to which the corporation is a party, and purchases of shares directly
from the corporation. The Control Share Acquisition Act applies to us.
Dividend
Rights.
Holders of shares of our common stock are entitled to dividends when, as, and if declared by our board of directors
from funds legally available therefor, whether in cash or in stock. Our payment of dividends is subject to the restrictions of
North Carolina law applicable to the declaration of dividends by a business corporation. Under such provisions, dividends may
not be paid if a corporation will not be able to pay its debts as they become due in the usual course of business after making
such dividend distribution or if the corporation’s total assets would be less than the sum of its total liabilities plus
the amount that would be needed to satisfy certain preferential liquidation rights. Further, our ability to pay dividends on our
common stock may be limited by the terms of one or more series of preferred stock that may be authorized by our board of directors
in the future. Our board of directors may not be required to seek shareholder approval before issuing such newly authorized series
of preferred stock.
Since
the source of funds for the payment of dividends to our shareholders and our other separate obligations will be dividends we receive
from the Bank (as its sole common shareholder), our ability to pay dividends will depend on factors which affect the Bank’s
ability to pay dividends. FDIC regulations and North Carolina banking laws restrict the Bank from paying dividends if, after paying
such dividends, the Bank’s capital ratios would be below the level necessary to categorize the Bank as “adequately
capitalized” under the FDIC’s prompt corrective action regulations. In addition, regulatory authorities may limit
payment of dividends by any bank when it is determined that such a limitation is in the public interest and is necessary to ensure
the financial soundness of the bank.
Furthermore,
the Bank has a series of preferred stock issued and outstanding, designated Fixed Rate Non-Cumulative Perpetual Preferred Stock,
Series A (the “Series A Preferred Stock”). The Series A Preferred Stock was not exchanged in the Reorganization and
remains outstanding at the Bank level. As a result of the Series A Preferred Stock, the Bank may be prohibited from paying cash
dividends or distributions on its common stock (all of which is owned by Carolina Trust BancShares, Inc.) if full dividends have
not been paid on the Series A Preferred Stock for the most recently completed quarterly dividend period. Failure to pay dividends
on the Series A Preferred Stock would impact the ability of the Bank to pay dividends to us.
Liquidation
Rights.
In the event of our liquidation, dissolution, or winding up, the holders of our common stock will be entitled
to receive, after payment of all debts and liabilities and the liquidation preference on any preferred securities that may be
outstanding at the time of such liquidation, all remaining assets available for distribution in cash or in kind. In the event
of any liquidation, dissolution, or winding up of the Bank, we, as the holder of all shares of the Bank’s common stock,
would be entitled to receive, after satisfaction of the $1,000 per share liquidation preference on the Bank’s Series A Preferred
Stock, payment of all debts and liabilities of the Bank (including all deposits and accrued interest thereon) and all remaining
assets of the Bank available for distribution in cash or in kind.
Preemptive
Rights; Redemption.
Holders of shares of our common stock are not entitled to preemptive rights with respect to any shares
that may be issued. Our common stock is not subject to call or redemption.
Charter
Amendments.
With certain exceptions, an amendment to our Articles of Incorporation, including a provision to increase
our authorized capital stock or to authorize an additional class of capital stock, may be effected if the amendment is recommended
to our shareholders by our board of directors and if the votes cast by shareholders in favor of the amendment exceed the votes
cast against it.
Merger,
Share Exchange, Sale of Assets, and Dissolution.
In general, North Carolina law requires that any merger, share exchange,
voluntary liquidation, or transfer of substantially all the assets (other than in the ordinary course of business) of or involving
our company be recommended to shareholders by our board of directors and be approved by the affirmative vote of at least a majority
of all outstanding shares of our common stock.
The
North Carolina Shareholder Protection Act requires the affirmative vote of the holders of 95% of the outstanding shares of common
stock (excluding shares owned by an “interested shareholder”) of a corporation (to which the Act applies) to approve
certain business combinations between that corporation and an entity which owns more than 20% of the corporation’s voting
shares. The Shareholder Protection Act applies to us.
Preferred
Stock
Our
Articles of Incorporation authorize the issuance of 1,000,000 shares of preferred stock with such rights, privileges, and preferences
as may be determined by our board of directors, in its sole discretion. Our board of directors also has the authority to fix the
number of shares constituting any series, the designation of such series, and the dividend rate for each series of preferred stock,
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, discourage 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.
Warrant
In
February 2009, the Bank issued a warrant to purchase up to 86,957 shares of its common stock at an exercise price of $6.90 per
share to the U.S. Department of the Treasury in connection with the Bank’s prior participation in the Treasury’s TARP
Capital Purchase Program. The Treasury subsequently told the warrant to a private investor on June 12, 2013. The warrant expires
on February 6, 2019. Under the terms of the Agreement, at the Effective Time, the warrant was automatically converted into a warrant
to acquire up to 86,957 shares of our common stock at the same per share exercise price and with the same expiration date and
other terms as the Bank-level warrant. A copy of the form of warrant is filed as Exhibit 4.01 to this Current Report on Form 8-K
and is incorporated by reference herein. At this time, we do not anticipate executing a revised warrant to reflect the Reorganization,
as the terms of the Bank-level warrant automatically became binding on us at the Effective Time.
Certain
Articles and Bylaw Provisions Having Potential Anti-Takeover Effects
General
.
The following is a summary of the material provisions of our Articles of Incorporation and Bylaws which address matters of
corporate governance and the rights of shareholders. Certain of
these
provisions may delay or prevent takeover attempts not first approved by our board of directors (including takeovers which certain
shareholders may deem to be in their best interests). These provisions also could delay or frustrate the removal of incumbent
directors or the assumption of control by shareholders.
Classification
of the Board of Directors
.
Our Bylaws provide that the number of directors constituting the board of directors shall be
not less than five nor more than thirty. Our Bylaws also provide that our board of directors shall be divided into three classes,
which will be as nearly equal in number as possible. Initially, the classes will be elected for terms of one, two or three years,
after which each director will serve for a term ending on the date of the third annual meeting of shareholders following the annual
meeting at which the director was elected (i.e., “staggered terms”). A director elected to fill a vacancy will serve
only until the next meeting of shareholders at which directors are elected. Approximately one-third of the members of our board
of directors will be elected each year, and two annual or special meetings would be required for our shareholders to change a
majority of the members constituting our board of directors.
Filling
Vacancies
.
Except for vacancies occurring as a result of an increase in the size of the board of directors, vacancies
occurring on our board of directors may be filled by the shareholders or a majority of the remaining directors, even though less
than a quorum. Vacancies resulting from an increase in the size of our board of directors generally can only be filled by shareholders
at a duly called meeting of shareholders. The shareholders, at any meeting thereof, may authorize not more than two (2) additional
directorships, which may be left unfilled by the shareholders at such meeting to be filled in the discretion of our board of directors
during the interval between meetings of the shareholders.
Amendment
of Bylaws
.
Subject to certain restrictions, either a majority of our board of directors or our shareholders may amend
or repeal our Bylaws. A bylaw adopted, amended, or repealed by the shareholders may not be readopted, amended, or repealed by
our board of directors. Generally, our shareholders may adopt, amend, or repeal the Bylaws in accordance with the North Carolina
Business Corporation Act.
Special
Meetings of Shareholders
.
Our Bylaws provide that only the chairman of the board, the president, the secretary, or our
board of directors may call a special meeting of shareholders.
Item
9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are being filed or furnished with this Report:
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10.01
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Employment Agreement dated January 2, 2014 with Jerry L. Ocheltree
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10.02
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Amendment One to Employment Agreement with Jerry L. Ocheltree dated August 1, 2014
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10.03
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Amendment Two to Employment Agreement with Jerry L. Ocheltree dated August 1, 2014
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10.04
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Employment Agreement dated May 25, 2016 with Edwin E. Laws
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10.05
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E
mployment Agreement dated June 6, 2006 with Richard M. Rager
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10.06
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Amendment One to Employment Agreement with Richard M. Rager dated November 1, 2007
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10.07
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A
mendment Two to Employment Agreement with Richard M. Rager dated December 1, 2008
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10.08
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Amendment Three to Employment Agreement with Richard M. Rager dated March 1, 2014
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10.09
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Supplemental Executive Retirement Plan Agreement for Jerry L. Ocheltree dated January 1, 2014
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10.10
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Supplemental Executive Retirement Plan adopted as of August 1, 2007
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10.11
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Carolina Trust Bank 2001 Incentive Stock Option Plan
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10.12
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Carolina Trust Bank 2005 Incentive Stock Option Plan
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10.13
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C
arolina Trust Bank 2005 Nonstatutory Stock Option Plan
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10.14
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Carolina Commerce Bank Employee Stock Option Plan
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10.15
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Carolina Commerce Bank Director Stock Option Plan
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21.01
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List of the Registrant’s Subsidiaries
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99.01
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The
Bank’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015
(1)
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99.02
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The
Bank’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016
(1)
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99.03
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The
Bank’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016
(1)
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99.04
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The
Bank’s Current Report on Form 8-K dated January 26, 2016
(1)
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99.05
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The
Bank’s Current Report on Form 8-K/A (Amendment No. 1) dated March 23, 2016 amending Form 8-K dated as of January 26, 2016
(1)
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99.06
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The Bank’s Current Report on Form 8-K dated March 23, 2016.
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99.07
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The
Bank’s Current Report on Form 8-K dated April 28, 2016
(1)
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99.08
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The
Bank’s Current Report on Form 8-K dated May 10, 2016
(1)
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99.09
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The
Bank’s Current Report on Form 8-K/A (Amendment No. 1) filed on May 31, 2016
(1)
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99.10
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The
Bank’s Current Report on Form 8-K dated July 27, 2016
(1)
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99.11
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The Bank’s definitive Proxy Statement, dated April 5, 2016, distributed to shareholders in connection with the Bank’s 2016 annual meeting of shareholders
(1)
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99.12
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The Bank’s Current Report on Form 8-K dated January 14, 2016
(1)
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(1)
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As
originally filed by the Bank with the Federal Deposit Insurance Corporation.
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This
Current Report on Form 8-K (including information included or incorporated by reference herein) may contain, among other things,
certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without
limitation, (i) statements regarding certain of the Registrant’s goals and expectations with respect to earnings, income
per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements
relating to estimates of credit quality trends, and (ii) statements preceded by, followed by or that include the words “may,”
“could,” “should,” “would,” “believe,” “anticipate,” “estimate,”
“expect,” “intend,” “plan,” “projects,” “outlook” or similar expressions.
These statements are based upon the current belief and expectations of the Registrant’s management and are subject to significant
risks and uncertainties that are subject to change based on various factors (many of which are beyond the Registrant’s control).
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized
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CAROLINA
TRUST BANCSHARES, INC,
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(Registrant)
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Date:
August 16, 2016
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By:
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/s/
Jerry L. Ocheltree
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Jerry
L. Ocheltree
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President
and Chief Executive Officer
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EXHIBIT
INDEX
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Exhibit
No.
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Description
of Exhibit
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2.01
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Agreement and Plan of Reorganization and Share Exchange dated March 30, 2016 between the Registrant and the Bank
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3.01
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Articles of Incorporation of the Registrant
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3.02
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Bylaws of the Registrant
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4.01
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Form of Warrant to Purchase Common Stock of Carolina Trust Bank dated June 12, 2013
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10.01
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Employment Agreement dated January 2, 2014 with Jerry L. Ocheltree
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10.02
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Amendment One to Employment Agreement with Jerry L. Ocheltree dated August 1, 2014
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10.03
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Amendment Two to Employment Agreement with Jerry L. Ocheltree dated August 1, 2014
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10.04
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Employment Agreement dated May 25, 2016 with Edwin E. Laws
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10.05
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Employment Agreement dated June 6, 2006 with Richard M. Rager
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10.06
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Amendment One to Employment Agreement with Richard M. Rager dated November 1, 2007
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10.07
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Amendment Two to Employment Agreement with Richard M. Rager dated December 1, 2008
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10.08
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Amendment Three to Employment Agreement with Richard M. Rager dated March 1, 2014
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10.09
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Supplemental Executive Retirement Plan Agreement for Jerry L. Ocheltree dated January 1, 2014
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10.10
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Supplemental Executive Retirement Plan adopted as of August 1, 2007
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10.11
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Carolina Trust Bank 2001 Incentive Stock Option Plan
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10.12
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Carolina Trust Bank 2005 Incentive Stock Option Plan
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10.13
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Carolina Trust Bank 2005 Nonstatutory Stock Option Plan
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10.14
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Carolina Commerce Bank Employee Stock Option Plan
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10.15
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Carolina Commerce Bank Director Stock Option Plan
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21.01
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List of the Registrant’s Subsidiaries
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99.01
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The Bank’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015
(1)
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99.02
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The Bank’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016
(1)
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99.03
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The Bank’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016
(1)
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99.04
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The Bank’s Current Report on Form 8-K dated January 26, 2016
(1)
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99.05
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The Bank’s Current Report on Form 8-K/A (Amendment No. 1) dated March 23, 2016 amending Form 8-K dated as of January 26, 2016
(1)
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99.06
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The Bank’s Current Report on Form 8-K dated March 23, 2016.
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99.07
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The Bank’s Current Report on Form 8-K dated April 28, 2016
(1)
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99.08
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The Bank’s Current Report on Form 8-K dated May 10, 2016
(1)
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99.09
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The
Bank’s Current Report on Form 8-K/A (Amendment No. 1) filed on May 31, 2016
(1)
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99.10
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The Bank’s Current Report on Form 8-K dated July 27, 2016
(1)
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99.11
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The Bank’s definitive Proxy Statement, dated April 5, 2016, distributed to shareholders in connection with the Bank’s 2016 annual meeting of shareholders
(1)
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99.12
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The Bank’s Current Report on Form 8-K dated January 14, 2016
(1)
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(1)
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As
originally filed by the Bank with the Federal Deposit Insurance Corporation.
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Carolina Trust Bank 8-K12G3
Exhibit 2.01
AGREEMENT AND PLAN OF REORGANIZATION AND
SHARE EXCHANGE
THIS AGREEMENT AND PLAN
OF REORGANIZATION AND SHARE EXCHANGE
(this “
Agreement
”), is made and entered into as of March 30,
2016, by and between
CAROLINA TRUST BANK
, a banking corporation incorporated under
the laws of the State of North Carolina and having its principal place of business in Lincolnton, North Carolina (the “
Bank
”),
and
CAROLINA TRUST BANCSHARES, INC.
, a North Carolina business corporation (the
“
Holding Company
”).
W I T N
E S S E T H
WHEREAS,
the Boards
of Directors of the Bank and the Holding Company believe that it is in the best interests of their respective shareholders that
the Bank be reorganized into a bank holding company structure pursuant to the terms of this Agreement, whereby the holders of the
Bank’s outstanding common stock would receive shares of the common stock of the Holding Company in exchange for their shares
of Bank common stock.
NOW, THEREFORE
,
in consideration of the mutual promises and conditions herein contained, the Bank and the Holding Company hereby mutually agree
to an exchange of shares on the terms and conditions and in the manner and on the basis hereinafter provided:
1.
The
Exchange.
(a) The name of the corporation whose
shares will be acquired is “Carolina Trust Bank”, and the name of the acquiring corporation is “Carolina Trust
BancShares, Inc.”
(b) At the Effective Time (as defined
in Paragraph 2 below), upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Article
11 of the North Carolina Business Corporation Act, as amended, each issued and outstanding share of common stock, $2.50 par value
per share, of the Bank (“
Bank Common Stock
”) shall be exchanged for one (1) share of common stock, $2.50
par value per share, of the Holding Company (“
Company Common Stock
”) (all the foregoing referred to collectively
as the “
Exchange
” and all such shares of Company Common Stock issued to the shareholders, collectively,
the “
Shares
”).
(c) As soon as possible after the Effective
Time, the Holding Company (or its duly authorized exchange agent acting on its behalf (the “
Exchange Agent
”))
shall furnish to each holder of Bank Common Stock transmittal forms and written instructions with respect to the Exchange. Until
shares of Bank Common Stock are surrendered for exchange in accordance with this Agreement, each outstanding certificate that,
prior to the Effective Time, represented shares of Bank Common Stock shall for all purposes evidence only the exchange rights established
pursuant to this Agreement. To the extent permitted by applicable law, the former shareholders of record of Bank Common Stock shall
be entitled to vote after the Effective Time at any meeting of the Holding Company’s shareholders the number of Shares of
Company Common Stock into which their Bank Common Stock was converted pursuant to this Agreement, regardless of whether such holders
have exchanged their physical certificates representing shares of Bank Common Stock for Shares of Holding Company Stock. The Holding
Company may in its discretion elect not to treat any such unsurrendered shares of Bank Common Stock as shares of Company Common
Stock for purposes of the payment of dividends or other distributions. If the Holding Company in its discretion so elects, then
unless and until any outstanding certificate evidencing Bank Common Stock is so surrendered, no dividends payable to the holders
of Company Common Stock will be paid to the holder of the unsurrendered Bank Common Stock certificate;
provided, however
,
upon surrender and exchange of each outstanding certificate evidencing Bank Common Stock for a certificate evidencing outstanding
Company Common Stock, there shall be paid to the holder thereof the amount, without interest, of all dividends and other distributions,
if
any, that theretofore were declared and became payable, but were not paid, with respect to said shares. The Holding Company,
subject to compliance with applicable law, may elect, in its sole discretion, to issue uncertificated Shares of Company Common
Stock in connection with the Exchange to former shareholders of Bank Common Stock.
(d) Each share of the Bank’s Fixed
Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value per share (“
Bank Preferred Stock
”),
issued and outstanding immediately prior to the Effective Time shall remain outstanding following the Effective Time and shall
be unaffected by the Exchange.
(e) At the Effective Time, all shares
of common stock of the Holding Company outstanding immediately prior to the Effective Time shall be redeemed from the holder(s)
thereof for the sum of $10.00 per share.
2. Closing;
Effective Time.
Consummation of the Exchange and the other transactions contemplated by this Agreement shall take place
at such time and date as the Holding Company and the Bank determine (the “
Closing
”). The Exchange shall
become effective at the time specified in Articles of Share Exchange to be filed with the Office of the Secretary of State of North
Carolina (the “
Effective Time
”).
3. NO
APPRAISAL RIGHTS
. Pursuant to Article 13 of Chapter 55 of the North Carolina General Statutes, the shareholders of the
Bank are not entitled to appraisal rights as a result of the Exchange.
4. Lost,
Destroyed, or Stolen Certificates
. Shareholders whose certificates evidencing shares of Bank Common Stock have been
lost, destroyed or stolen shall be entitled to receive certificates evidencing Shares for which such shares of Bank Common Stock
were exchanged pursuant to this Agreement upon compliance with conditions reasonably imposed by the Holding Company (or, as applicable,
its Exchange Agent), including, without limitation, a requirement that those shareholders provide a lost instruments indemnity
or surety bond in form, substance and amounts reasonably satisfactory to the Holding Company.
5. Stock
Option Plans and Equity grants
. At the Effective Time, all outstanding options under the Bank’s existing stock
option plans (the “
Option
Plans
”) shall be converted into options to acquire the number
of shares of Company Common Stock that the holders of such options were entitled to acquire of Bank Common Stock immediately prior
to the Exchange on substantially the same terms and conditions as set forth in the Option Plans and any grant agreements pertaining
to each specific option grant outstanding thereunder. The Option Plans shall be adopted by the Holding Company and amended and
restated in connection therewith, including, without limitation, to reflect any conforming amendments necessitated by the Exchange
or this Agreement. At the Effective Time, all outstanding awards of restricted stock, if any, that remain unvested will convert
into awards of restricted shares of BancShares common stock on substantially the same terms, restrictions and conditions as set
forth in the applicable grant or award agreement.
6. Bank
Warrants
.
At the Effective Time, any and all outstanding warrants entitling the holder thereof to purchase shares
of Bank Common Stock shall by virtue of this Agreement be converted into warrants to acquire the number of shares of Company Common
Stock that the holders of each such warrants were entitled to exercise for Bank Common Stock immediately prior to the Exchange
on substantially the same terms and conditions as set forth in the applicable warrant, warrant agreement or governing instrument.
7. Obligations
of the Parties Pending the Effective Time
. The Bank and the Holding Company shall, as soon as practicable, take the
following action, if such action has not already been taken:
(a) This Agreement shall be duly submitted
to the shareholders of the Bank for the purpose of considering and acting upon the Exchange in the manner required by law and the
Bank’s articles of incorporation and bylaws. The Bank shall use its best efforts to obtain the requisite approval of its
shareholders for the Exchange and the transactions contemplated by this Agreement, and the Bank and the Holding Company shall,
through their respective officers, execute and file with the appropriate regulatory authorities, including the Board of Governors
of the Federal Reserve System and the North Carolina Commissioner of Banks, such applications, notices, exhibits, documents and
papers as shall be necessary or appropriate to secure approval of or non-objection to this Agreement, the Exchange and the other
transactions contemplated hereby, as required by applicable statutes, rules and regulations;
(b) The Holding Company shall use its
best efforts to cause the issuance of Shares of Company Common Stock pursuant to this Agreement and the Exchange to be qualified
or exempted under the Securities Act of 1933, as amended, and the state securities laws of each state in which it deems such qualification
or exemption to be required; and
(c) Until the Effective Time, neither
the Bank nor the Holding Company shall dispose of its assets except in the ordinary and normal course of business.
8. TAX
MATTERS
.
The parties intend that the exchange of the Bank Common Stock for shares of Company Common Stock be treated
as a transfer and exchange of property by the exchanging shareholders described in section 351 of the Internal Revenue Code of
1986, as amended.
9. Conditions
Precedent to the Exchange
. The Exchange shall be subject to the satisfaction of the following conditions:
(a) Ratification and confirmation of
this Agreement by approval of the Bank’s shareholders as required by law;
(b) Approvals by the Board of Governors
of the Federal Reserve System, or a Reserve Bank acting under designated authority, of the Exchange and the transactions related
thereto;
(c) Approval, to the extent required,
of any other governmental or regulatory authority; and
(d) Expiration of any waiting period
required by any supervisory authority.
10. Termination
.
This Agreement may be terminated prior to the Effective Time for any of the following reasons by written notice by either the Bank
or the Holding Company to the other upon authorization by resolution adopted by either board of directors:
(a) Any condition precedent contained
in Paragraph 9 has not been fulfilled or waived;
(b) Any action, suit, proceeding, or
claim has been instituted, made or threatened relating to the proposed Exchange that makes consummation of the Exchange inadvisable
in the opinion of the board of directors of either the Bank or the Holding Company; or
(c) The board of directors of either
the Bank or the Holding Company has determined that consummation of the Exchange is inadvisable in the opinion of such board of
directors.
11. Entire
Agreement
. This Agreement contains the entire agreement of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject
matter hereof.
12. Effect
of Agreement
.
The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
13. Amendment
.
This Agreement may be amended and modified pursuant to a writing signed by both parties.
14. Governing
Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.
[
Signature Page Follows
]
IN WITNESS WHEREOF,
the Bank and the Holding Company have caused this Agreement to be executed by their duly authorized officers to be effective as
of the date first above written.
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CAROLINA TRUST BANCSHARES, INC.
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By:
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/s/ Jerry L. Ocheltree
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Jerry L. Ocheltree
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President and Chief Executive Officer
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ATTEST:
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/s/ Sue S. Stamey
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Sue S. Stamey
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Corporate Secretary
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CAROLINA TRUST BANK
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By:
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/s/ Jerry L. Ocheltree
|
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Jerry L. Ocheltree
|
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President and Chief Executive Officer
|
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ATTEST:
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/s/ Sue S. Stamey
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Sue S. Stamey
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Corporate Secretary
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Carolina Trust Bank 8-K12G3
Exhibit 3.01
ARTICLES OF INCORPORATION
OF
Carolina
trust bancshares, INC.
The undersigned hereby makes
and acknowledges these Articles of Incorporation for the purpose of forming a business corporation under and by virtue of the laws
of the State of North Carolina as contained in Chapter 55 of the General Statutes of North Carolina, entitled “North Carolina
Business Corporation Act,” and the several amendments thereto, and to that end hereby sets forth the following:
ARTICLE I
The name of the corporation is Carolina Trust
BancShares, Inc. (herein referred to as the “Corporation”).
ARTICLE II
The Corporation shall have authority to issue
a total of 11,000,000 shares of capital stock consisting of 10,000,000 shares of common stock, $2.50 par value per share, each
with one vote per share and 1,000,000 shares of preferred stock, with such voting powers, designations, preferences, limitations
and relative rights as the Board of Directors may and hereby is authorized to determine.
ARTICLE III
The street address of the initial registered
office of the Corporation is 901 East Main Street, Lincolnton, Lincoln County, North Carolina 28092; the mailing address of the
initial registered office of the Corporation is 901 East Main Street, Lincolnton, Lincoln County, North Carolina 28092; and, the
name of the initial registered agent at such address is Jerry L. Ocheltree.
ARTICLE IV
The location of the Corporation’s principal
office in this State shall be in Lincolnton, Lincoln County, North Carolina.
ARTICLE V
The name of the incorporator is Todd H. Eveson,
and the address of the incorporator is Wyrick Robbins Yates & Ponton LLP, 4101 Lake Boone Trail, Suite 300, Raleigh, Wake County,
North Carolina 27607.
ARTICLE VI
The shares issued by the Corporation
will not have preemptive rights to acquire other or additional shares which might, from time to time, be issued by the Corporation.
ARTICLE VII
The Corporation shall indemnify and hold harmless
to the fullest extent from time to time permitted by law any person who was or is a party or is threatened to be made a party to
any threatened, pending, or completed civil, criminal, administrative, investigative, or arbitrative action, suit or proceeding
and any appeal therein (and any inquiry or investigation that could lead to such action, suit, or proceeding) by reason of the
fact that such person is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other
enterprise, or as trustee or administrator under an employee benefit plan. The indemnification provided for herein shall, to the
fullest extent from time to time permitted by law, apply against all liability and expense incurred by any such person in connection
with such action, suit, or proceeding, including, without limitation, all reasonable attorneys’ fees and expenses, judgments,
fines, excise taxes, and amounts paid in settlement, and all reasonable costs, expenses, and attorneys’ fees incurred in
connection with the enforcement of such rights to indemnification. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption
that any such person did not meet any requisite standard of conduct imposed by law in order to be entitled to such indemnification.
To the fullest extent from time to time permitted by law, expenses of any such person incurred in defending any civil or criminal
action, suit, or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding.
The rights of indemnification set forth herein shall inure to the benefit of any such person, whether or not such person is an
officer, director, employee, or agent at the time such liabilities or expenses are imposed or incurred, and, in the event of such
person’s death, shall extend to his or her legal representative. The rights to indemnification hereunder shall be in addition
to and not exclusive of any other rights to which any such person may be entitled under any statute, agreement, insurance policy,
or otherwise.
ARTICLE VIII
No individual serving as a director of the Corporation
shall be personally liable in an action whether by or in the right of the Corporation or otherwise for monetary damages for breach
of such person’s duty as a director of the Corporation; provided, however, that the foregoing clause shall not apply to any
liability of a director with respect to (i) acts or omissions not made in good faith that the director at the time of breach knew
or believed were in conflict with the best interests of the Corporation; (ii) any liability under Section 55-8-33 of the North
Carolina General Statutes; (iii) any transaction from which the director derived an improper personal benefit (which does not include
a director’s compensation or other incidental benefit for or on account of his service as a director, officer, employee,
independent contractor, attorney, or consultant of the Corporation); or (iv) acts or omissions as to which the elimination of personal
liability for directors would be inconsistent with provisions of Chapter 53C of the North Carolina General Statutes (or any successor
statute) or with the business of banking. If the North Carolina General Statutes are amended after the filing of these Articles
to authorize corporate action
further eliminating or limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent permitted by the North Carolina General Statutes, as so
amended. No amendment or repeal of the provisions of this Article VIII shall apply to or have any affect on the liability or alleged
liability of any director of the Corporation for or with respect to any act or failure to act on the part of such director occurring
prior to such amendment or repeal. This provision shall not affect any charter or by-law provision or contract or resolution of
the Corporation indemnifying or agreeing to indemnify a director against personal liability pursuant to and in accordance with
the North Carolina General Statutes.
ARTICLE IX
In connection with the exercise of its or their
judgment in determining what is in the best interests of the Corporation and its shareholders, the Board of Directors of the Corporation,
any committee of the Board of Directors, or any individual director may, but shall not be required to, in addition to considering
the long-term and short-term interests of the shareholders, consider any of the following factors and any other factors which it
or they deem relevant: (i) the social and economic effects of the matter to be considered on the Corporation and its subsidiaries,
its and their employees, depositors, customers, and creditors, and the communities in which the Corporation and its subsidiaries
operate or are located; and (ii) when evaluating a business combination or a proposal by another person or persons to make a business
combination or a tender or exchange offer or any other proposal relating to a potential change of control of the Corporation (x)
the business and financial condition and earnings prospects of the acquiring person or persons, including, but not limited to,
debt service and other existing financial obligations of the acquiring person or persons, and the possible effect of such conditions
upon the Corporation and its subsidiaries and the communities in which the Corporation and its subsidiaries operate or are located,
(y) the competence, experience, and integrity of the acquiring person or persons and its or their management, and (z) the prospects
for successful conclusion of the business combination, offer or proposal. The provisions of this Article IX shall be deemed solely
to grant discretionary authority to the directors and shall not be deemed to provide to any constituency the right to be considered.
As used in this Article IX, the term “person” means any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity; and, when two or more persons act as a partnership, limited partnership, syndicate,
or other group acting in concert for the purpose of acquiring, holding, voting or disposing of securities of the Corporation, such
partnership, limited partnership, syndicate or group shall also be deemed a “person” for purposes of this Article IX.
ARTICLE X
The number of directors may be fixed in the
Bylaws.
This the 26
th
day of February 2016.
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/s/
Todd H. Eveson
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Todd
H. Eveson
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Incorporator
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Carolina Trust Bank 8-K12G3
Exhibit 3.02
BYLAWS
OF
CAROLINA TRUST BANCSHARES, INC.
BYLAWS
OF
CAROLINA TRUST BANCSHARES,
INC.
Index
ARTICLE I
Offices
|
Section
1.
|
Principal
Office
|
|
Section
2.
|
Registered
Office
|
|
Section
3.
|
Other
Offices
|
ARTICLE
II
Meetings
of Shareholders
|
Section
1.
|
Annual
Meeting
|
|
Section
2.
|
Substitute
Annual Meeting
|
|
Section
3.
|
Special
Meetings
|
|
Section
4.
|
Place
of Meetings
|
|
Section
5.
|
Notice
of Meetings
|
|
Section
6.
|
Waiver
of Notice
|
|
Section
7.
|
Voting
Lists
|
|
Section
8.
|
Quorum
|
|
Section
9.
|
Voting
|
|
Section
10.
|
Proxies
|
|
Section
11.
|
Business
To Be Transacted
|
ARTICLE
III
Board
of Directors
|
Section
1.
|
General
Powers
|
|
Section
2.
|
Number,
Term of Office and Qualifications
|
|
Section
3.
|
Election
of Directors
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Section
4.
|
Directors'
Immunity
|
|
Section
5.
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Removal
of Directors
|
|
Section
6.
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Vacancies
|
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Section
7.
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Compensation
of Directors
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|
Section
8.
|
Committees
|
|
Section
9.
|
Chairman
and Vice Chairman of Board
|
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Section
10.
|
Nominations
|
ARTICLE
IV
Meetings
of Directors
|
Section
1.
|
Regular
Meetings
|
|
Section
2.
|
Special
Meetings
|
|
Section
3.
|
Place
of Meetings
|
|
Section
4.
|
Notice
of Meetings
|
|
Section
5.
|
Quorum;
Manner of Acting
|
|
Section
6.
|
Presumption
of Assent
|
|
Section
7.
|
Informal
Action of Directors
|
|
Section
8.
|
Resignations
|
|
Section
9.
|
Minutes
|
ARTICLE
V
Officers
|
Section
1.
|
Number
of Officers
|
|
Section
2.
|
Election,
Term of Office and Qualifications
|
|
Section
3.
|
Subordinate
Officers and Agents
|
|
Section
4.
|
Removal
|
|
Section
5.
|
Resignations
|
|
Section
6.
|
Vacancies
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Section
7.
|
President
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Section
8.
|
Vice
President
|
|
Section
9.
|
Secretary
|
|
Section
10.
|
Assistant
Secretary
|
|
Section
11.
|
Treasurer
|
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Section
12.
|
Duties
of Officers May Be Delegated
|
|
Section
13.
|
Salaries
of Officers
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Section
14.
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Bonds
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ARTICLE
VI
Contracts,
Loans, Deposits, Checks, Drafts, Etc.
|
Section
1.
|
Contracts
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Section
2.
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Loans
|
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Section
3.
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Deposits
|
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Section
4.
|
Checks,
Drafts, Etc.
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ARTICLE
VII
Share
Certificates and Their Transfer
|
Section
1.
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Share
Certificates
|
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Section
2.
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Transfers
of Shares
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|
Section
3.
|
Lost
or Destroyed Certificates
|
|
Section
4.
|
Regulations
|
|
Section
5.
|
Fixing
Record Date
|
|
Section
6.
|
Holder
of Record
|
|
Section
7.
|
Reacquired
Shares
|
ARTICLE
VIII
General
Provisions
|
Section
1.
|
Corporate
Seal
|
|
Section
2.
|
Distributions
|
|
Section
3.
|
Fiscal
Year
|
|
Section
4.
|
Waiver
of Notice
|
|
Section
5.
|
Amendments
|
|
Section
6.
|
Indemnification
|
|
Section
7.
|
Interpretation
of Bylaws
|
BYLAWS
ARTICLE I
Offices
Section 1. Principal
Office
. The Company’s principal office shall be located in Lincolnton, North Carolina, or at such other place(s) as the
Board may designate from time to time.
Section 2. Registered
Office
. The Company’s registered office, which by law is required to be maintained within the State, shall be located
at such place or places within the State of North Carolina as the Board may designate from time to time.
Section 3. Other Offices
.
The Company may have offices at such places, either within or outside the State, as the Board may determine from time to time.
ARTICLE II
Meeting of Shareholders
Section 1. Annual Meeting
.
The annual meeting of shareholders shall be held within one hundred fifty (150) days of the close of the fiscal year, as set by
the Board, for the purpose of electing Directors of the Company and for the transaction of such other business as properly may
be brought before the meeting.
Section 2. Substitute
Annual Meeting
. If the annual meeting shall not be held on the day designated by these Bylaws, a substitute annual meeting
may be called in the manner provided for the call of a special meeting in accordance with the provisions of Section 3 of this Article
and a substitute annual meeting so called shall be designated as and shall be treated, for all purposes, as the annual meeting.
Section 3. Special Meetings
.
Special meetings of the shareholders may be called at any time by (a) the President of the Company, (b) the Chairman of the Company,
(c) the Secretary of the Company or (d) the Board.
Section 4. Place of
Meetings
. All meetings of shareholders shall be held at the principal office of the Company or at such other place, either
within or without the State of North Carolina, as shall be designated in the notice of the meeting or agreed upon by a majority
of the shareholders entitled to vote thereat.
Section 5. Notice of
Meetings
. Written or printed notice stating the time and place of a shareholders’ meeting shall be delivered, personally
or by mail, by or at the direction of the President, the Board or by such other person or persons calling such meeting, to each
shareholder of record entitled to vote at such meeting, not less than ten (10) or more than sixty (60) days
prior to the date of
such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the
shareholder to the address determined in the manner indicated below, with postage thereon prepaid. A statement of the business
to be transacted at an annual or substitute annual meeting of shareholders need not be set forth in the notice of such meeting
except that if any matter is to be considered or acted upon, other than the election of Directors, on which the vote of shareholders
is required under the provisions of the Act then a specific statement thereof shall be set forth in such notice. In the case of
a special meeting, the notice shall set forth the nature of the business to be transacted. If any meeting of shareholders is adjourned
to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is
announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting. If a new record date
for the adjourned meeting is or must be fixed pursuant to the Act, notice of the adjourned meeting must be given as provided in
this Section to persons who are shareholders as of the new record date. Any notice which shall be mailed shall be directed to each
shareholder at its address as set forth on the Company’s share books, except that if any shareholder shall have filed with
the Secretary a written request that notices intended for such shareholder be mailed to some other address, then notice to such
shareholder shall be mailed to the address set forth in such written request.
Section 6. Waiver of
Notice
. Any shareholder may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed
by the shareholder, and delivered to the Company for inclusion in the minutes or filing with the corporate records. A shareholder’s
attendance, in person or by proxy, at a meeting (a) waives objection to lack of notice or defective notice of the meeting, unless
the shareholder or the shareholder’s proxy at the beginning of the meeting objects to holding the meeting or transacting
business thereat, and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose
or purposes described in the meeting notice, unless the shareholder or the shareholder’s proxy objects to considering the
matter before it is voted upon.
Section 7. Voting Lists
.
No later than two (2) days after notice of a shareholders’ meeting is given, the Secretary shall prepare an alphabetical
list of the shareholders entitled to notice of such meeting. The Secretary shall maintain such list and make it available as provided
by the Act.
Section 8. Quorum
.
Except as otherwise provided by the Act, the Articles or these Bylaws, the presence in person or by proxy of holders of record
of a majority of the shares entitled to vote shall be necessary to constitute a quorum for action on such matters; provided, however,
that at any substitute annual shareholders’ meeting called in accordance with Section 2 of this Article, the shares entitled
to vote there represented, in person or by proxy, shall constitute a quorum. In the absence of a quorum, a majority of the shares
entitled to vote there represented, in person or by proxy, may adjourn the meeting from time to time. At any such adjourned meeting,
at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally
called if a quorum had been there present. Once a share is represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for
that adjourned meeting.
Section 9. Voting
.
At each shareholders’ meeting, every holder of record of shares entitled to vote shall be entitled to one vote for every
share standing in his name on the Company’s books, unless otherwise provided by the terms of such shares, and all questions,
except as otherwise provided by the Act, the Articles, or these Bylaws, shall be determined by a majority of the votes so cast.
Any provision in these Bylaws prescribing the vote required for any purpose as permitted by law may not itself be amended by a
vote less than the vote prescribed therein. Persons holding shares in a fiduciary capacity shall be entitled to vote the shares
so held. Shares owned by the Company, directly or indirectly, through a subsidiary corporation or otherwise, or held directly or
indirectly in a fiduciary capacity by it or by a subsidiary corporation, shall not be voted at any shareholders’ meeting
and shall not be counted in determining the total number of outstanding shares at a given time entitled to vote, except to the
extent permitted by the Act. Voting on all matters, except the election of Directors, shall be by voice vote or by show of hands
except that if prior to voting on any particular matter demand shall be made by or on behalf of the holders of not less than one-tenth
(1/10th) of the shares represented, in person or by proxy, at such meeting and entitled to vote on such matter that the vote thereon
be taken by ballot, then the vote on such matter shall be taken by ballot.
Section 10. Proxies
.
Any shareholder entitled to vote may vote by proxy, provided that the instrument authorizing such proxy to act shall have been
executed in writing by the shareholder or his duly authorized attorney. No proxy shall be valid after the expiration of eleven
months from the date of its execution, unless the person executing it shall have specified therein the length of time it is to
continue in force or limits its use to a particular meeting. Each instrument designating a proxy shall be exhibited to the Secretary
and shall be filed with the Company’s records.
Section 11. Business
To Be Transacted
. No business shall be transacted at a meeting of shareholders, except such business as shall be (a) specified
in the notice of meeting given as provided in Section 5 of this Article, (b) otherwise brought before the meeting by or at the
direction of the Chief Executive Officer or the Board, or (c) otherwise brought before the meeting by a shareholder of record entitled
to vote at the meeting, in compliance with the procedures set forth in this Section. For business to be brought before a meeting
by a shareholder pursuant to (c) above, the shareholder must have given timely notice in writing to the Secretary. To be timely
for consideration at the annual meeting of shareholders, a shareholder’s notice must be received at the principal office
of the Company on a day which is at least forty-five (45) calendar days prior to the date that notice of the previous year’s
annual meeting was mailed to shareholders. For the proposal to be considered for inclusion in the proxy statement for the annual
meeting of shareholders, the notice must be received at the principal office of the Company on a day which is at least one hundred
and twenty (120) calendar days prior to the date that notice of the previous year’s annual meeting was mailed to shareholders
and the proposing shareholder must satisfy the qualification requirements of the rules adopted pursuant to the Securities Exchange
Act of 1934, as amended. To be timely for a special meeting of shareholders, a shareholder’s notice must be received at the
principal office of the Company on a day which is at least three (3) business days and not more than sixty (60) days prior to the
date of the meeting. Notice of actions to be brought before the meeting pursuant to (c) above shall set forth as to each matter
the shareholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought before the
meeting and the reasons for bringing such business before the meeting; (ii) the name and address of each shareholder proposing
such
business as they appear on
the Company’s books; (iii) the number of shares of the Company that are owned of record and beneficially by such shareholder;
and (iv) any material interest of such shareholder in such business other than his or her interest as a shareholder of the Company.
Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with
the provisions set forth in this Section. If the person or persons, as the case may be, presiding over the meeting determine(s)
that any business was not properly brought before the meeting in accordance with provisions prescribed by these Bylaws, such person(s)
shall so declare to the meeting, and to the extent permitted by law, any such business not properly brought before the meeting
shall not be transacted.
ARTICLE III
Board of Directors
Section 1. General Powers
.
All corporate powers shall be exercised by or under the authority of and the business and affairs of the Company managed under
the direction of the Board, except as otherwise provided in the Articles.
Section 2. Number, Term
of Office and Qualifications
. (a) The number of Directors shall be not less than five (5) nor more than thirty (30). The exact
number of Directors, within the minimum and maximum limitations of the preceding sentence, shall be fixed from time to time by
the Board pursuant to a resolution adopted by a majority of the entire Board prior to the annual meeting of shareholders at which
such Directors are to be elected. In addition to the foregoing relating to the determination of the number and election of Directors,
the shareholders, at any meeting thereof, may authorize not more than two (2) additional directorships, which may be left unfilled
by the shareholders at such meeting to be filled in the discretion of the Directors during the interval between meetings of the
shareholders.
(b) At the first annual
meeting of shareholders, the Board shall be divided into three classes, containing as nearly equal a number of Directors as possible,
with the term of office for the first class to expire at the first annual meeting of shareholders after their election, the term
of office for the second class to expire at the second annual meeting of shareholders after their election, and the term of office
for the third class to expire at the third annual meeting of the shareholders after their election. At each annual meeting of shareholders
following such initial classification and election, Directors elected to succeed those Directors whose terms expire shall be selected
for a term of office to expire the third succeeding annual meeting of shareholders after their election. In the event of any increase
or decrease in the number of Directors, the additional or eliminated directorships shall be so classified or chosen so that all
classes of Directors shall remain and become as nearly equal in number as possible. Each Director shall continue in office until
the expiration of his term as specified above and until his successor shall have been elected and qualified, or until his death
or until he shall resign or shall have become disqualified or shall have been removed in the manner hereinafter provided. No Director
shall be eligible to serve after the annual meeting following the date upon which the director attains the age of sixty-eight (68);
provided that any such Director may continue to serve as an honorary director; and provided however, that any Director that attains
the age of sixty-eight (68) during his or her term beginning May 1, 2001 may serve out the full term notwithstanding the fact that
the Director attains the age of sixty-eight (68) during the term. An Honorary Director may attend meetings of the Board, but may
not vote, serve as an officer of the Board, or receive any fee or other benefit of Board membership.
(c) Each Director shall
be the owner and holder of shares of stock in the Company representing not less than $1,000 in book value as of the last business
day of the calendar year immediately prior to the election of that Director. For the purposes hereof, book value shall consist
of common capital stock, unimpaired surplus, undivided profits, and reserves for contingencies if any such reserves are segregations
of capital. If any Director is appointed during the interval between meetings of shareholders, pursuant to the provisions of these
Bylaws, such Director shall hold the required qualifying shares as of the time of his appointment. In the event the Company is
a wholly-owned subsidiary, the required qualifying shares shall be shares in the parent corporation. Every Director shall hold
his qualifying shares in his own name unpledged and unencumbered in any way. The office of any Director at any time violating any
of the provisions of this Section shall immediately become vacant, and the remaining Directors shall declare his office vacant
and proceed to fill the vacancy forthwith in accordance with the provisions of these Bylaws. Not less than three-fourths (3/4)
of the Directors of the Company shall be residents of the State of North Carolina.
Section 3. Election
of Directors
. Except as provided in Section 6 of this Article, the Directors shall be elected at the shareholders’ annual
meeting of shareholders and the persons who shall receive the highest number of votes shall be the elected Directors. If prior
to voting for the election of Directors, demand therefor shall be made by or on behalf of any share entitled to vote at such meeting,
the election of Directors shall be by ballot.
Section 4. Directors’
Immunity
. To the fullest extent permitted by law, each Director shall be immune from personal liability arising out of an action
whether by or in the right of the Company or otherwise for monetary damages for breach of any duty as a Director.
Section 5. Removal of
Directors
. Any Director may be removed from office at any time with or without cause by either (i) a two-thirds (2/3) vote
of all the Directors or (ii) a vote of shareholders whenever the number of votes cast in favor of removal of the Director exceeds
the number of votes cast against such removal. A Director may not be removed by the shareholders at a meeting unless the notice
of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the Director. If any Directors are
so removed, new Directors may be elected at the same meeting to fill the unexpired term of the removed Director.
Section 6. Vacancies
.
Except as provided in Section 2 of this Article, a vacancy in the Board created by an increase in the authorized number of Directors
shall be filled only by election at an annual meeting of shareholders or at a special meeting of shareholders called for that purpose;
provided, however, that prior to the issuance of the Company’s shares any such vacancy may be filled by the then existing
Board. Any vacancy in the Board created other than by an increase in the authorized number of Directors may be filled by a majority
of the remaining Directors, even though less than a quorum, or by the sole remaining Director. The shareholders may elect a Director
at any time to fill any vacancy not filled by the Directors. In the event of the resignation of a Director to take effect at a
future date, either the Board or the shareholders, at any time after tender of such resignation, may elect a successor to such
Director
to take office as of the effective date of such resignation. Any Director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor.
Section 7. Compensation
of Directors
. The Board may cause the Company to compensate non-employee Directors for their services as Directors and may
provide for the payment by the Company of all expenses incurred by Directors in attending regular and special meetings of the Board.
Section 8. Committees
.
The Board, by resolution of a majority of the number of Directors in office, may designate three or more Directors to constitute
an Executive Committee and such other committees as the Board shall deem advisable, each of which, to the extent authorized by
law and provided in such resolution, shall have and may exercise all of the authority of the Board in the management of the Company.
The Executive Committee, between meetings of the Board, except when otherwise noted, exercises all authority of the Board. The
designation of any committee and the delegation thereto of authority shall not operate to relieve the Board, or any member thereof,
of any responsibility or liability imposed upon the Board, or any member thereof, by law.
Section 9. Chairman
and Vice Chairman of Board
. The Directors shall elect a Chairman and may elect a Vice Chairman from their number at any meeting
of the Board. The Chairman shall preside at all meetings of the shareholders and the Board and perform such other duties as the
Board may direct.
Section 10. Nominations
. Only
persons who are nominated in accordance with the provisions set forth in these Bylaws shall be eligible to be elected as Directors
at an annual or special meeting of shareholders. Nomination for election to the Board shall be made by or at the direction of the
Board or a Nominating Committee appointed by the Board. Nomination for election of any person to the Board may also be made by
a shareholder entitled to vote on such election if written notice of the nomination of such person shall have been received by
the Secretary of the Company at the principal office of the Company on a day which is at least forty-five (45) calendar days prior
to the date that notice of the previous year’s annual meeting was mailed to shareholders. Each such notice shall set forth:
(a) the name and address of the shareholder who intends to make the nomination; (b) a representation that such shareholder is a
holder of the record of shares of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) as to each person to be nominated (i) such person’s
name and address, employment history for the past five years, affiliations, if any, with the Company and other corporations, the
number of shares of the Company that are owned of record or beneficially by such person and information concerning any transactions
in such shares within the prior sixty (60) days, whether such person has been convicted in a criminal preceding (excluding traffic
violations or similar misdemeanors) within the past five years and the details thereof, whether such person has been a party to
any proceeding or subject to any judgment, decree or final order with respect to violations of federal or state securities laws
within the past five years and the details thereof, and the details of any contract, arrangement, understanding or relationships
with any person with respect to any securities of the Company; (ii) such person’s written consent to being named as a nominee
and to serving as a Director if elected; and (iii) a description of all arrangements or understanding between the shareholder and
each nominee and any other person or persons
(naming such person or persons)
pursuant to which the nomination or nominations are to be made by the shareholder. The person or persons, as the case may be,
presiding over the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
ARTICLE IV
Meetings of Directors
Section 1. Regular Meetings
.
A regular annual meeting of the Board may be held immediately after the shareholders’ annual meeting and if not then held
shall be held within a reasonable time thereafter. In addition, the Board may provide, by resolution, the time and place, within
or without the State, for the holding of additional regular meetings. The Board shall meet at least quarterly, including the regular
meeting to be held immediately or shortly after the annual meeting of shareholders.
Section 2. Special Meetings
.
Special Board meetings may be called by or at the request of the Chairman, the President or any two Directors.
Section 3. Place of
Meetings
. All Board meetings shall be held at the Company’s principal office except that such meetings may be held at
such other place, within or without the State, as may be designated in a duly executed waiver of notice of such meeting or as may
be otherwise agreed upon in advance of the meeting by a majority of Directors.
Section 4. Notice of
Meetings
. Regular meetings of the Board may be held without notice. Special meetings shall be called on not less than three
(3) days’ prior notice. Notice of a special meeting need not state the purpose thereof, unless otherwise required by the
Act or these Bylaws, and such notice shall be directed to each Director at his residence or usual place of business by mail, cable
or telegram, or may be delivered personally. A Director’s presence at a meeting shall constitute a waiver of notice of that
meeting except when such Director attends the meeting solely for the purpose of objecting to the transaction of any business thereat,
on the grounds that the meeting has not been lawfully called, and does not otherwise participate in such meeting.
Section 5. Quorum; Manner
of Acting
. A majority of the number of Directors then authorized as the number of Directors of the Company shall constitute
a quorum for the transaction of any business at any meeting. Except as otherwise expressly provided in the Articles or these Bylaws,
the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. The vote
of a majority of the Directors then holding office shall be required to adopt, amend or repeal a bylaw or to dissolve the Company
pursuant to the Act without shareholder consent.
Section 6. Presumption
of Assent
. A Director who is present at a Board meeting at which action on any matter is taken shall be presumed to have assented
to the action taken on any such matter unless (a) his contrary vote is recorded or his dissent or abstention is otherwise entered
in the minutes of the meeting, (b) the Director files his written dissent or abstention to
such action with a person acting as
the secretary of the meeting before the adjournment thereof or (c) the Director forwards such dissent or abstention by registered
mail to such secretary immediately after the adjournment of the meeting. Such right to dissent or abstention shall not apply to
a Director who voted in favor of such action.
Section 7. Informal
Action of Directors
. Action taken without a meeting shall constitute action of the Board if written consent to the action in
question is signed by a majority of (or of a committee appointed by the Board in accordance with these Bylaws) the Directors then
holding office or members of the committee, as the case may be, and filed with the minutes of the proceedings of the Board or such
committee, whether done before or after the action so taken. Any one or more Directors may participate in any Board or committee
meeting by means of a conference telephone or similar communications device which allows all persons participating in the meeting
simultaneously to hear each other, and such participation in a meeting shall be deemed presence in person at such meeting.
Section 8. Resignations
.
A Director may resign at any time by communicating his resignation to the Board, its chairman, or the Company. A resignation is
effective when it its communicated unless it specifies in writing a later effective date or subsequent event upon which it will
become effective. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it
effective.
Section 9. Minutes
.
The Secretary or an Assistant Secretary shall keep minutes of all Board meetings, and the same shall be recorded in
a book or books which shall be kept for that purpose, which book of books shall be kept on file in the Company. The minutes shall
show a record of all action taken by the Board concerning the Company’s conduct, management, and welfare. The minutes of
any meeting of a Board committee, showing the actions taken by such committee since the last meeting, shall be submitted to the
Board at each Board meeting. All minutes must be signed by either the chairman or the secretary of the meeting.
ARTICLE V
Officers
Section 1. Number of
Officers
. The Company’s officers shall be a President, one or more Vice Presidents, a Secretary and a Treasurer, and
such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any two offices or more
may be held by one person, except the offices of President and Secretary, but no officer shall sign or execute any document in
more than one capacity.
Section 2. Election,
Term of Office and Qualifications
. Each officer, except such officers as may be appointed in accordance with the provisions
of Section 3 of this Article, shall be chosen by the Board and shall hold office until the annual meeting of the Board held next
after his election or until his successor shall have been duly chosen and qualified or until his death or until he shall resign
or shall have been disqualified or shall have been removed from office.
Section 3. Subordinate
Officers and Agents
. The Board from time to time may appoint other officers or agents, each of whom shall hold office for such
period, have such authority, and perform such duties as the Board from time to time may determine. The Board may delegate to any
officer or agent the power to appoint any subordinate officer or agent and to prescribe his respective authority and duties.
Section 4. Removal
.
The officers specifically designated in Section 1 of this Article may be removed, either with or without cause, by vote of a majority
of the whole Board at a special meeting of the Board called for that purpose. The officers appointed in accordance with the provisions
of Section 3 of this Article may be removed, either with or without cause, by a majority vote of the Directors present at any meeting,
or by any officer or agent upon whom the Board may confer such power of removal. The removal of any person from office shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 5. Resignations
.
Subject to any contract obligations or provisions in this regard, any officer may resign at any time by giving written notice to
the Board or to the President or Secretary, or if he were appointed by an officer or agent in accordance with Section 3 of this
Article, by giving written notice to the officer or agent who appointed him. Any such resignation shall take effect upon its being
accepted by the Board or by the officer or agent appointing the person so resigning.
Section 6. Vacancies
.
A vacancy in any office because of death, resignation, removal, or disqualification, or any other cause, shall be filled for the
unexpired portion of the term in the manner prescribed by these Bylaws for regular appointments or elections to such offices.
Section 7. President
.
The President shall be the Company’s chief executive officer and, subject to the Board’s instructions, shall have general
charge of the Company’s business, affairs and property and control over its other officers, agents and employees. He shall
preside at all meetings of shareholders in the absence of the Chairman. The President shall sign, with the Secretary, an Assistant
Secretary, or any other proper officer of the Company thereunto authorized by the Board, certificates for shares of the Company,
any deeds, mortgages, bonds, contracts, or other instruments which the Board has authorized to be executed, except in cases where
the signing and execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of
the Company, or shall be required by law to be otherwise signed or executed. The President shall do and perform such other duties
as the Board may from time to time assign to him.
Section 8. Vice President
.
At the President’s request, or in the President’s absence or disability, the Vice President, and if there be more than
one (1) Vice President, the Vice President designated by the Board, or in the absence of such designation, the Vice President designated
by the President, or absent such designation, in order of length of service, shall perform all the duties of the President and
when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall
perform such other duties and have such authority as the Board may from time to time assign to them.
Section 9. Secretary
.
The Secretary shall keep the minutes of the meetings of shareholders and of the Board, and shall see that all notices are duly
given in accordance with the
provisions of these Bylaws or the Act. He shall be custodian of the Company’s records, books,
reports, statements, certificates and other documents and of the Company’s seal, and see that the seal is affixed to all
share certificates prior to their issuance and to all documents requiring such seal. In general, he shall perform all duties and
possess all authority incident to the office of Secretary, and he shall perform such other duties and have such other authority
as the Board may from time to time assign to him.
Section 10. Assistant
Secretary
. In the absence of the Secretary or in the event of his death, inability, or refusal to act, any Assistant Secretary,
if such an officer is appointed by the Board, shall, unless otherwise determined by the Board, perform the duties of the Secretary,
and when so acting shall have all the powers of and be subject to all the restrictions upon the Secretary. An Assistant Secretary
shall perform such other duties as may be assigned to him by the Secretary, by the President, or by the Board. Any Assistant Secretary
may sign, with the President or Vice President, certificates for shares of the Company.
Section 11. Treasurer
.
The Treasurer shall have supervision over the Company’s funds, securities, receipts and disbursements of the Company. He
shall keep full and accurate accounts of the Company’s finances in books especially provided for that purpose, and he shall
cause a true statement of its assets and liabilities, as of the close of each fiscal year, and of the results of its operations
and of changes in surplus for such fiscal year, all in reasonable detail, to be made and filed at the Company’s principal
office within four months after the end of such fiscal year. The statement so filed shall be kept available for inspection by any
shareholder for a period of ten years and the Treasurer shall mail or otherwise deliver a copy of the latest such statement to
any shareholder upon his written request for the same. He shall in general perform all duties and have all authority incident to
the office of Treasurer and shall perform such other duties and have such other authority as the Board may from time to time assign
or grant to him.
Section 12. Duties of
Officers May Be Delegated
. In case of the absence of any officer of the Company or for any other reason that the Board may
deem sufficient, the Board may delegate the powers or duties of such officer to any other officer or to any Director for the time
being provided a majority of the entire Board concurs therein.
Section 13. Salaries
of Officers
. No officer shall be prevented from receiving a salary as such officer or from voting thereon by reason of the
fact that he is also a Director. The Board shall from time to time fix the salaries of the Company’s officers, including
such officers as may be Directors, except that the Board may delegate to any officer who has been given power to appoint subordinate
officers or agents, as provided in Section 3 of this Article, the authority to fix the salaries or other compensation of any such
officers or agents appointed by him.
Section 14. Bonds
.
Each officer and employee of the Company shall give bond to the Company, in a suitable amount to be approved by the Board, conditioned
upon the faithful performance of the duties of his respective office or position, and to comply with such other conditions as may
from time to time be required by the Board.
ARTICLE VI
Contracts, Loans, Deposits, Checks, Drafts,
Etc.
Section 1. Contracts
.
The Board may authorize any officer or officers, agent or agents to enter into any contract or to execute or deliver any instrument
on behalf of the Company, and such authority may be general or confined to specific instances.
Section 2. Loans
.
No loans shall be contracted on the Company’s behalf and no evidences of indebtedness shall be issued in its name, unless
and except as authorized by resolution of the Board. Any officer or agent of the Company so authorized may effect loans or advances
for the Company and for such loans and advances may make, execute and deliver promissory notes, bonds, or other evidences of indebtedness
of the Company. Any such officer or agent, when so authorized, may mortgage, pledge, hypothecate or transfer as security for the
payment of any and all loans, advances, indebtedness and liabilities of the Company any real property and all stocks, bonds, other
securities and other personal property at any time held by the Company, and to that end may endorse, assign and deliver the same,
and do every act and thing necessary or proper in connection therewith. Such authority may be general or confined to specific instances.
Section 3. Deposits
.
All corporate funds shall be deposited from time to time to the Company’s credit in such banks or trust companies or with
such bankers or other depositories as the Board may select, or as may be selected by any corporate officer or officers, agent or
agents to whom the Board may give such power from time to time.
Section 4. Checks,
Drafts, Etc
. All notes, drafts, acceptances, checks and endorsements or other evidences of indebtedness shall
be signed by the President or a Vice President and by the Secretary or the Treasurer, or in such other manner as the Board from
time to time may determine. Endorsements for deposit to the Company’s credit in any of its duly authorized depositories
shall be made by the President or Treasurer or by any officer or agent who may be designated by Board resolution in such manner
as such resolution may provide.
ARTICLE VII
Share Certificates and Their Transfer
Section 1. Share Certificates
.
The Board of Directors may authorize the issuance of some or all of the shares of the Company without issuing certificates to represent
such shares. If shares are represented by certificates, the certificates shall be in such form as required by law and as determined
by the Board of Directors. Certificates shall be signed, either manually or in facsimile, by the President or a Vice-President
and by the Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer. All certificates for the shares shall be
consecutively numbered or otherwise identified and entered into the stock transfer books of the Company. When shares are represented
by certificates, the Company shall issue and deliver to each shareholder to whom such shares have been issued or transferred certificates
representing the shares owned by him. When shares are not represented by certificates, then within a reasonable
time after the
issuance or transfer of such shares, the Company shall send the shareholder to whom such shares have been issued or transferred
a written statement of the information required by law to be on certificates.
Section 2. Transfers
of Shares
. The Secretary shall keep books containing the names, alphabetically arranged, of all shareholders of the Company,
and showing their address, the number and class of shares held by them respectively, the date of issue of such shares, the time
when they respectively became the owners thereof and the amount paid thereon. Transfers of the Company’s shares shall be
made on such books at the direction of the record holder thereof or his attorney, duly authorized by a power of attorney thereunto
duly executed and filed with the Secretary, or with the transfer agent, if any, for such shares, and the surrender of the certificate
or certificates for such shares properly endorsed.
Section 3. Lost or Destroyed
Certificates
. The Board may authorize the issuance of a new share certificate in place of a certificate theretofore issued
by the Company claimed to have been lost or destroyed, upon receipt of an affidavit to such fact from the person claiming the loss
or destruction. The Board in its discretion may require the owner of the certificate alleged to have been lost, destroyed, stolen
or mutilated, or his legal representative, to give the Company and its transfer agent and its registrar, if any, before the issuance
of such new certificate, a bond of indemnity in such sum and in such form and with such surety or sureties as the Board may direct
or the Board, by resolution reciting that the circumstances justify such action, may authorize the issuance of such new certificate
without requiring such bond.
Section 4. Regulations
.
The Board may make such rules and regulations as it may deem expedient concerning the issuance and transfer of certificates for
the Company’s shares and may appoint transfer agents or registrars, or both, and may require all certificates of stock to
bear the signature of either or both.
Section 5. Fixing Record
Date
. (a) The Board may fix a future date as the record date in order to determine (i) the shareholders entitled to notice
of a meeting of shareholders, (ii) the shareholders entitled to demand a special meeting, (iii) the shareholders entitled to vote,
or (iv) the shareholders entitled to take any other action. A record date fixed under this Section may not be more than seventy
(70) days before the meeting or action requiring a determination of shareholders.
(b) A determination of
shareholders entitled to notice of or to vote at a meeting of shareholders is effective for any adjournment of the meeting unless
the Board fixes a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than one
hundred twenty (120) days after the date fixed for the original meeting.
Section 6. Holder of
Record
. The Company may treat as absolute owner of shares the person in whose name the shares stand of record on its books
just as if that person has full competency, capacity and authority to exercise all rights of ownership irrespective of any knowledge
or notice to the contrary or any description indicating a representative, pledge or other fiduciary relation or any reference to
any other instrument or to the rights of any other person appearing upon its record or upon the share certificate, except that
any person furnishing
to the Company proof of his appointment as a fiduciary shall be treated as if he were a holder of record
of its shares, and except as may otherwise by expressly provided by the laws of the State.
Section 7. Reacquired
Shares
. Shares of the Company that have been issued and thereafter reacquired by the Company shall constitute
authorized but unissued shares.
ARTICLE VIII
General Provisions
Section 1. Corporate
Seal
. The corporate seal shall be in such form as the Board may approve from time to time.
Section 2. Distributions
.
The Board from time to time may authorize, and the Company may pay, distributions and share dividends on the Company’s outstanding
shares in the manner and upon the terms and conditions provided by law and by the Articles.
Section 3. Fiscal Year
.
The Company’s fiscal year shall be the year ending December 31 of each year.
Section 4. Waiver of
Notice
. Whenever any notice is required to be given to any shareholder or Director under the Act, the Articles or these Bylaws,
a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein,
shall be equivalent to the giving of such notice.
Section 5. Amendments
.
Except as otherwise herein provided, these Bylaws may be amended or repealed and new Bylaws may be adopted by the affirmative vote
of a majority of the Directors then holding office at any regular or special Board meeting. The Board shall not have power to adopt
a Bylaw: (a) requiring more than a majority of the voting shares for a quorum at a shareholders’ meeting or more than a majority
of the votes cast to constitute action by the shareholders, except where higher percentages are required by law; or (b) providing
for the management of the Company other than by the Board or its Executive Committee. The shareholders may make, alter, amend or
repeal the Company’s Bylaws at any annual meeting or at a special meeting called for such purpose, and Bylaws adopted by
the Directors may be altered or repealed by the shareholders. No Bylaw adopted or amended by the shareholders shall be altered
or repealed by the Board, unless specific authority to do so is provided to the Board by the shareholders.
Section 6. Indemnification
.
The Company shall, to the fullest extent from time to time permitted by law, indemnify (a) all Directors, officers, employees
or agents of the Company and (b) any person who, at the Company’s request, is or was serving as a Director, officer,
partner, trustee, employee or agent of another company, partnership, joint venture, trust or other enterprise or as a trustee or
administrator under an employee benefit plan, against liability and expenses in any proceeding (including without limitation a
proceeding brought by or on behalf of the Company itself) arising out of their status as such or their activities in any of the
foregoing capacities (“Indemnified Person”); provided, however, that the Company shall not indemnify or
agree to indemnify
an Indemnified Person against liability or expenses he may incur on account of his activities which were at the time taken known
or believed by him to be clearly in conflict with the Company’s best interests.
The term “Indemnified
Person” shall specifically include all persons who were initial Directors, officers or employees of the Company prior to
its incorporation and the Company shall, to the fullest extent from time to time permitted by law, indemnify such Indemnified Persons
against liability and expenses in any proceeding arising out of their status as such or their activities on behalf of the Company
prior to its incorporation.
The Company may pay in
advance expenses incurred by an Indemnified Person in defending a proceeding in advance of the final disposition of such proceeding
as authorized by the Board in the specific case or as authorized or required under any provision in the Articles or these Bylaws
or by any applicable resolution or contract, upon receipt of an undertaking by or on behalf of such Indemnified Person to repay
such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company against such expenses.
The Company shall also
pay or indemnify an Indemnified Person for such person’s reasonable costs, expenses and reasonable attorney’s fees
in connection with the enforcement of rights to indemnification granted herein.
The Board shall take all
such action as may be necessary and appropriate to authorize the Company to pay the indemnification required by this bylaw, including
without limitation a determination by a majority vote of disinterested Directors that the activities giving rise to the liability
or expense for which indemnification is requested were not, at the time taken, known or believed by the person requesting indemnification
to be clearly in conflict with the best interests of the Company.
The Company may purchase
and maintain insurance on behalf of an Indemnified Person against liability asserted against or incurred by him in that capacity
or arising from his status, whether or not the Company would have the power to indemnify him against the same liability under any
provision of these Bylaws.
The provisions of this
section are subject to the following provisions:
(a) the termination
of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that any such Indemnified Person did not meet any requisite standard of conduct imposed
by law in order to be entitled to such indemnification;
(b) in the
event of such Indemnified Person’s death, the rights to indemnification hereunder shall extend to his or her legal representative;
and
(c) the rights
to indemnification hereunder shall be in addition to and not exclusive of any other rights to which any such Indemnified Person
may be entitled under any statute, agreement, insurance policy, or otherwise.
For the purposes of this
section, “liability” means any obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding, “expenses”
means expenses of every kind incurred in defending a proceeding, including counsel fees, and “proceeding” means any
threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal.
Section 7. Interpretation
of Bylaws
.
(a) All references
in these Bylaws to Directors, officers, shares and shareholders are references to Directors, officers, shares and shareholders
of the Company and the Board, unless the context clearly indicates otherwise.
(b) The following
terms, as used in these Bylaws, shall have the following meanings, unless the context clearly indicates otherwise:
“Act” means the North Carolina
Business Corporation Act, North Carolina General Statutes,
Chapter 55.
“Articles” means the Company’s
Articles of Incorporation.
“Board” means
the Company’s Board of Directors.
“Company” means Carolina Trust
Bancshares, Inc., a North Carolina corporation.
“State” shall mean the state
of North Carolina.
15
Carolina Trust Bank 8-K12G3
Exhibit 4.01
WARRANT
to purchase up to 86,957
Shares of Common Stock
of Carolina Trust Bank
1.
Definitions
. Unless the context
otherwise requires, when used herein the following terms shall have the meanings indicated.
“
Affiliate
” means, with respect
to any Person, any Person directly or indirectly controlling, controlled by or under common control with, such other Person. For
purposes of this definition, “
control
” (including, with correlative meanings, the terms “
controlled
by
” and “
under common control with
”) when used with respect to any Person, means the possession, directly
or indirectly, of the power to cause the direction of management and/or policies of such Person, whether through the ownership
of voting securities by contract or otherwise.
“
Board of Directors
” means
the board of directors of the Company, including any duly authorized committee thereof.
“
Business Combination
” means
a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s stockholders.
“
business day
” means any
day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required
by law or other governmental actions to close.
“
Capital Stock
” means (A)
with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents
(however designated) of capital or capital stock of such Person and (B) with respect to any Person that is not a corporation or
company, any and all partnership or other equity interests of such Person.
“
Charter
” means, with respect
to any Person, its certificate or articles of incorporation, articles of association, or similar organizational document.
“
Common Stock
” means the
common stock, par value $2.50 per share, of the Company.
“
Company
” means the Person
whose name, corporate or other organizational form and jurisdiction of organization is set forth in Item 1 of Schedule A hereto.
“
Exchange Act
” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.
“
Exercise Price
” means the
amount set forth in Item 2 of Schedule A hereto.
“
Expiration Date
” means the
date set forth in Item 3 of Schedule A hereto.
“
Expiration Time
” means 5:00
p.m., New York City time on the Expiration Date.
“
Fair Market Value
” means,
with respect to any security or other property, the fair market value of such security or other property as determined by the Board
of Directors, acting in good faith.
“
Governmental Entities
” means,
collectively, all United States and other governmental, regulatory or judicial authorities.
“
Market Price
” means, with
respect to a particular security, on any given day, the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the last closing bid and ask prices regular way, in either case on the principal national
securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the average of the closing bid and ask prices as furnished by two members of the Financial
Industry Regulatory Authority, Inc. selected from time to time by the Company for that purpose. “Market Price” shall
be determined without reference to after hours or extended hours trading. If such security is not listed and traded in a manner
that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock
shall be deemed to be the fair market value per share of such security as determined in good faith by the Board of Directors in
reliance on an opinion of a nationally recognized independent investment banking corporation retained by the Company for this purpose
and certified in a resolution to the Warrantholder. For the purposes of determining the Market Price of the Common Stock on the
“trading day” preceding, on or following the occurrence of an event, (i) that trading day shall be deemed to commence
immediately after the regular scheduled closing time of trading on the principal stock exchange on which the Common Stock is then
listed or traded (or, if not so listed or traded, the New York Stock Exchange) or, if trading is closed at an earlier time, such
earlier time and (ii) that trading day shall end at the next regular scheduled closing time, or if trading is closed at an earlier
time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last
trading day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event
occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).
“
Ordinary Cash Dividends
”
means a regular quarterly cash dividend on shares of Common Stock out of surplus or net profits legally available therefor (determined
in accordance with U.S. GAAP in effect from time to time),
provided
that Ordinary Cash Dividends shall not include any cash
dividends to the extent the aggregate per share dividends paid on the outstanding Common Stock in any quarter exceed the Quarterly
Dividend Threshold, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
“
Person
” has the meaning
given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.
“
Per Share Fair Market Value
”
has the meaning set forth in Section 13(C).
“
Pro Rata Repurchases
” means
any purchase of shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any tender offer or exchange offer
subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any other offer available
to substantially all holders of Common Stock, in the case of both (A) or (B), whether for cash, shares of Capital Stock of the
Company, other securities of the Company, evidences of indebtedness of the Company or any other Person or any other property (including,
without limitation, shares of Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination
thereof, effected while this Warrant is outstanding. The “
Effective Date
” of a Pro Rata Repurchase shall mean
the date of acceptance of shares for purchase or exchange by the Company under any tender or exchange offer which is a Pro Rata
Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer.
“
Quarterly Dividend Threshold
”
means the amount set forth in Item 4 of Schedule A hereto.
“
Regulatory Approvals
” with
respect to the Warrantholder, means, to the extent applicable and required to permit the Warrantholder to exercise this Warrant
for shares of Common Stock and to own such Common Stock without the Warrantholder being in violation of applicable law, rule or
regulation, the receipt of any necessary approvals and authorizations of, filings and registrations with, notifications to, or
expiration or termination of any applicable waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
“
SEC
” means the U.S. Securities
and Exchange Commission.
“
Securities Act
” means the
Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.
“
Shares
” has the meaning
set forth in Section 2.
“trading day”
means (A) if
the shares of Common Stock are not traded on any national or regional securities exchange or association or over-the-counter market,
a business day or (B) if the shares of Common Stock are traded on any national or regional securities exchange or association or
over-the-counter market, a business day on which such relevant exchange or quotation system is scheduled to be open for business
and on which the shares of Common Stock (i) are not suspended from trading on any national or regional securities exchange or association
or over-the-counter market for any period or periods aggregating one half hour or longer; and (ii) have traded at least once on
the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading
of the shares of Common Stock. The term “trading day” with respect to any security other than the Common Stock shall
have a correlative meaning based on the primary exchange or quotation system on which such security is listed or traded.
“
U.S. GAAP
” means United
States generally accepted accounting principles.
“
Warrantholder
” has the meaning
set forth in Section 2.
“
Warrant
” means this Warrant.
“
Warrant Shares
” means the
number of Shares set forth in Item 6 of Schedule A hereto, as may be adjusted pursuant to the terms hereof from time to time.
2.
Number of Shares; Exercise Price
.
This certifies that, for value received, the person in whose name this Warrant is registered as set forth in Item 9 of Schedule
A or such person’s permitted assigns (the “
Warrantholder
”) is entitled, upon the terms and subject to
the conditions hereinafter set forth, to acquire from the Company, in whole or in part, after the receipt of all applicable Regulatory
Approvals, if any, up to an aggregate of the number of fully paid and nonassessable shares of Common Stock set forth in Item 6
of Schedule A hereto, at a purchase price per share of Common Stock equal to the Exercise Price. The number of shares of Common
Stock (the “
Shares
”) and the Exercise Price are subject to adjustment as provided herein, and all references
to “Common Stock,” “Shares” and “Exercise Price” herein shall be deemed to include any such
adjustment or series of adjustments.
3.
Exercise of Warrant; Term
. Subject
to Section 2, to the extent permitted by applicable laws and regulations, the right to purchase the Shares represented by this
Warrant is exercisable, in whole or in part by the Warrantholder, at any time or from time to time after the execution and delivery
of this Warrant by the Company on the date hereof, but in no event later than the Expiration Time, by (A) the surrender of this
Warrant and Notice of Exercise annexed hereto, duly completed and executed on behalf of the Warrantholder, at the principal executive
office of the Company located at the address set forth in Item 7 of Schedule A hereto (or such other office or agency of the Company
in the United States as it may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing
on the books of the Company), and (B) payment of the Exercise Price for the Shares thereby purchased by having the Company withhold,
from the shares of Common Stock that would otherwise be delivered to the Warrantholder upon such exercise, shares of Common Stock
issuable upon exercise of the Warrant equal in value to the aggregate Exercise Price as to which this Warrant is so exercised based
on the Market Price of the Common Stock on the trading day on which this Warrant is exercised and the Notice of Exercise is delivered
to the Company pursuant to this Section 3.
If the Warrantholder does not exercise this
Warrant in its entirety, the Warrantholder will be entitled to receive from the Company within a reasonable time, and in any event
not exceeding three business days, a new warrant in substantially identical form for the purchase of that number of Shares equal
to the difference between the number of Shares subject to this Warrant and the number of Shares as to which this Warrant is so
exercised. Notwithstanding anything in this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees that its
exercise of this Warrant for Shares is subject to the condition that the Warrantholder will have first received any applicable
Regulatory Approvals.
4.
Issuance of Shares; Authorization;
Listing
. Certificates for Shares issued upon exercise of this Warrant will be issued in such name or names as the Warrantholder
may designate (or, if requested by the Warrantholder and agreed by the Company, Shares will be issued via book-entry transfer crediting
the specified account of such named Person or Persons) and will be delivered to such named Person or Persons within a reasonable
time, not to exceed three business days after the date on which this Warrant has been duly exercised in accordance
with the terms
of this Warrant. The Company hereby represents and warrants that any Shares issued upon the exercise of this Warrant in accordance
with the provisions of Section 3 will be duly and validly authorized and issued, fully paid and nonassessable and free from all
taxes, liens and charges (other than liens or charges created by the Warrantholder, income and franchise taxes incurred in connection
with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company agrees
that the Shares so issued will be deemed to have been issued to the Warrantholder as of the close of business on the date on which
this Warrant and payment of the Exercise Price are delivered to the Company in accordance with the terms of this Warrant, notwithstanding
that the stock transfer books of the Company may then be closed or certificates representing such Shares may not be actually delivered
on such date. The Company will at all times until the Expiration Time (or, if such date shall not be a business day, then on the
next succeeding business day) reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose
of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock then issuable upon exercise of this
Warrant at any time. The Company will (A) procure, at its sole expense, the listing of the Shares issuable upon exercise of this
Warrant at any time, subject to issuance or notice of issuance, on all principal stock exchanges on which the Common Stock is then
listed or traded and (B) maintain such listings of such Shares at all times after issuance. The Company will use reasonable best
efforts to ensure that the Shares may be issued without violation of any applicable law or regulation or of any requirement of
any securities exchange on which the Shares are listed or traded.
5.
No Fractional Shares or Scrip
.
No fractional Shares or scrip representing fractional Shares shall be issued upon any exercise of this Warrant. In lieu of any
fractional Share to which the Warrantholder would otherwise be entitled, the Warrantholder shall be entitled to receive a cash
payment equal to the Market Price of the Common Stock on the last trading day preceding the date of exercise less the pro-rated
Exercise Price for such fractional share.
6.
No Rights as Stockholders; Transfer
Books
. This Warrant does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company
prior to the date of exercise hereof. The Company will at no time close its transfer books against transfer of this Warrant in
any manner which interferes with the timely exercise of this Warrant.
7.
Charges, Taxes and Expenses
. Issuance
of Shares to the Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder for any issue
or transfer tax or other incidental expense in respect of the issuance of such Shares (other than liens or charges created by the
Warrantholder, income and franchise taxes incurred in connection with the exercise of the Warrant or taxes in respect of any transfer
occurring contemporaneously therewith), all of which taxes and expenses shall be paid by the Company.
8.
Transfer/Assignment
.
(A) Subject to compliance with clause (B)
of this Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Company by
the registered holder hereof in person or by duly authorized attorney, and a new warrant shall be made and delivered by the Company,
of the same tenor and date as this Warrant but registered in the name
of one or more transferees, upon surrender of this Warrant,
duly endorsed, to the office or agency of the Company described in Section 3. All expenses (other than stock transfer taxes) and
other charges payable in connection with the preparation, execution and delivery of the new warrants pursuant to this Section 8
shall be paid by the Company.
(B) Subject to compliance with applicable
securities laws, the Warrantholder may transfer, sell, assign or otherwise dispose (“
Transfer
”) all or a portion
of the Warrant or the Shares issuable upon exercise of the Warrant at any time, and the Company shall take all steps as may be
reasonably requested by the Warrantholder to facilitate such Transfer.
9.
Exchange and Registry of Warrant
.
This Warrant is exchangeable, upon the surrender hereof by the Warrantholder to the Company, for a new warrant or warrants of like
tenor and representing the right to purchase the same aggregate number of Shares. The Company shall maintain a registry showing
the name and address of the Warrantholder as the registered holder of this Warrant. This Warrant may be surrendered for exchange
or exercise in accordance with its terms, at the office of the Company, and the Company shall be entitled to rely in all respects,
prior to written notice to the contrary, upon such registry.
10.
Loss, Theft, Destruction or Mutilation
of Warrant
. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation
of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity or security reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company
shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing
the right to purchase the same aggregate number of Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.
11.
Saturdays, Sundays, Holidays, etc
.
If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be
a business day, then such action may be taken or such right may be exercised on the next succeeding day that is a business day.
12. [Reserved]
13.
Adjustments and Other Rights
.
The Exercise Price and the number of Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to
time as follows;
provided
, that if more than one subsection of this Section 13 is applicable to a single event, the subsection
shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection
of this Section 13 so as to result in duplication:
(A)
Stock Splits, Subdivisions, Reclassifications
or Combinations
. If the Company shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of
Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine
or reclassify the outstanding shares of Common Stock into a smaller number of shares, the number of Shares issuable upon exercise
of this Warrant at the time of the record date for such dividend or distribution or the effective date of such
subdivision, combination
or reclassification shall be proportionately adjusted so that the Warrantholder after such date shall be entitled to purchase the
number of shares of Common Stock which such holder would have owned or been entitled to receive in respect of the shares of Common
Stock subject to this Warrant after such date had this Warrant been exercised immediately prior to such date. In such event, the
Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted to the number obtained by dividing (x) the product of (1) the number of Shares
issuable upon the exercise of this Warrant before such adjustment and (2) the Exercise Price in effect immediately prior to the
record or effective date, as the case may be, for the dividend, distribution, subdivision, combination or reclassification giving
rise to this adjustment by (y) the new number of Shares issuable upon exercise of the Warrant determined pursuant to the immediately
preceding sentence.
(B) [Reserved]
(C)
Other Distributions
. In case
the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock of securities,
evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and
other dividends or distributions referred to in Section 13(A)), in each such case, the Exercise Price in effect prior to such record
date shall be reduced immediately thereafter to the price determined by multiplying the Exercise Price in effect immediately prior
to the reduction by the quotient of (x) the Market Price of the Common Stock on the last trading day preceding the first date on
which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or
admitted to trading without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the
securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock
(such amount and/or Fair Market Value, the “
Per Share Fair Market Value
”) divided by (y) such Market Price on
such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In such event,
the number of Shares issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product
of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect
immediately prior to the distribution giving rise to this adjustment by (y) the new Exercise Price determined in accordance with
the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly
cash dividend, the Per Share Fair Market Value would be reduced by the per share amount of the portion of the cash dividend that
would constitute an Ordinary Cash Dividend. In the event that such distribution is not so made, the Exercise Price and the number
of Shares issuable upon exercise of this Warrant then in effect shall be readjusted, effective as of the date when the Board of
Directors determines not to distribute such shares, evidences of indebtedness, assets, rights, cash or warrants, as the case may
be, to the Exercise Price that would then be in effect and the number of Shares that would then be issuable upon exercise of this
Warrant if such record date had not been fixed.
(D)
Certain Repurchases of Common Stock
.
In case the Company effects a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be reduced to the price determined
by multiplying the Exercise Price in effect immediately prior to the Effective Date of such Pro Rata Repurchase by a fraction of
which the numerator shall be (i) the product of (x) the number
of shares of Common Stock outstanding immediately before such Pro
Rata Repurchase and (y) the Market Price of a share of Common Stock on the trading day immediately preceding the first public announcement
by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price
of the Pro Rata Repurchase, and of which the denominator shall be the product of (i) the number of shares of Common Stock outstanding
immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so repurchased and (ii) the Market Price
per share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates
of the intent to effect such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon the exercise
of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon
the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase
giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence.
For the avoidance of doubt, no increase to the Exercise Price or decrease in the number of Shares issuable upon exercise of this
Warrant shall be made pursuant to this Section 13(D).
(E)
Business Combinations
. In case
of any Business Combination or reclassification of Common Stock (other than a reclassification of Common Stock referred to in Section
13(A)), the Warrantholder’s right to receive Shares upon exercise of this Warrant shall be converted into the right to exercise
this Warrant to acquire the number of shares of stock or other securities or property (including cash) which the Common Stock issuable
(at the time of such Business Combination or reclassification) upon exercise of this Warrant immediately prior to such Business
Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification;
and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the Warrantholder’s
right to exercise this Warrant in exchange for any shares of stock or other securities or property pursuant to this paragraph.
In determining the kind and amount of stock, securities or the property receivable upon exercise of this Warrant following the
consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration
receivable upon consummation of such Business Combination, then the consideration that the Warrantholder shall be entitled to receive
upon exercise shall be deemed to be the types and amounts of consideration received by the majority of all holders of the shares
of common stock that affirmatively make an election (or of all such holders if none make an election).
(F)
Rounding of Calculations; Minimum
Adjustments
. All calculations under this Section 13 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest
one-hundredth (1/100th) of a share, as the case may be. Any provision of this Section 13 to the contrary notwithstanding, no adjustment
in the Exercise Price or the number of Shares into which this Warrant is exercisable shall be made if the amount of such adjustment
would be less than $0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.
(G)
Timing of Issuance of Additional
Common Stock Upon Certain Adjustments
. In any case in which the provisions of this Section 13 shall require that an adjustment
shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i)
issuing to the Warrantholder of this Warrant exercised after such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares
of Common Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such Warrantholder any amount
of cash in lieu of a fractional share of Common Stock;
provided
,
however
, that the Company upon request shall deliver
to such Warrantholder a due bill or other appropriate instrument evidencing such Warrantholder’s right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such adjustment.
(H) [Reserved]
(I)
Other Events
. The Exercise Price
or the number of Shares into which this Warrant is exercisable shall not be adjusted in the event of a change in the par value
of the Common Stock or a change in the jurisdiction of incorporation of the Company.
(J)
Statement Regarding Adjustments
.
Whenever the Exercise Price or the number of Shares into which this Warrant is exercisable shall be adjusted as provided in Section
13, the Company shall forthwith file at the principal office of the Company a statement showing in reasonable detail the facts
requiring such adjustment and the Exercise Price that shall be in effect and the number of Shares into which this Warrant shall
be exercisable after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Warrantholder at the address appearing in the Company’s records.
(K)
Notice of Adjustment Event
. In
the event that the Company shall propose to take any action of the type described in this Section 13 (but only if the action of
the type described in this Section 13 would result in an adjustment in the Exercise Price or the number of Shares into which this
Warrant is exercisable or a change in the type of securities or property to be delivered upon exercise of this Warrant), the Company
shall give notice to the Warrantholder, in the manner set forth in Section 13(J), which notice shall specify the record date, if
any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set
forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the Exercise Price and the number,
kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of
any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed,
and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure
to give such notice, or any defect therein, shall not affect the legality or validity of any such action.
(L)
Proceedings Prior to Any Action Requiring
Adjustment
. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section
13, the Company shall take any action which may be necessary, including obtaining regulatory, New York Stock Exchange, NASDAQ Stock
Market or other applicable national securities exchange or stockholder approvals or exemptions, in order that the Company may thereafter
validly and
legally issue as fully paid and nonassessable all shares of Common Stock that the Warrantholder is entitled to receive
upon exercise of this Warrant pursuant to this Section 13.
(M)
Adjustment Rules
. Any adjustments
pursuant to this Section 13 shall be made successively whenever an event referred to herein shall occur. If an adjustment in Exercise
Price made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock, then such adjustment in
Exercise Price made hereunder shall reduce the Exercise Price to the par value of the Common Stock.
14. [Reserved]
15.
No Impairment
. The Company will
not, by amendment of its Charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions
of this Warrant and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholder.
16.
Governing Law
.
This Warrant
will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed
entirely within such State. To the extent permitted by applicable law, each of the Company and the Warrantholder hereby unconditionally
waives trial by jury in any civil legal action or proceeding relating to the Warrant or the transactions contemplated hereby or
thereby.
17.
Binding Effect
. This Warrant
shall be binding upon any successors or assigns of the Company.
18.
Amendments
. This Warrant may
be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Warrantholder.
19 .
Prohibited Actions
. The Company
agrees that it will not take any action which would entitle the Warrantholder to an adjustment of the Exercise Price if the total
number of shares of Common Stock issuable after such action upon exercise of this Warrant, together with all shares of Common Stock
then outstanding and all shares of Common Stock then issuable upon the exercise of all outstanding options, warrants, conversion
and other rights, would exceed the total number of shares of Common Stock then authorized by its Charter.
20.
Notices
. Any notice, request,
instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been
duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second
business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall
be delivered as set forth in Item 8 of Schedule A hereto, or pursuant to such other instructions as may be designated in writing
by the party to receive such notice.
21.
Entire Agreement
. This Warrant,
the forms attached hereto and Schedule A hereto (the terms of which are incorporated by reference herein) contain the entire agreement
between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings
with respect thereto.
[Remainder of page intentionally
left blank]
[Form of Notice of Exercise]
Date: _________
TO: Carolina Trust Bank
RE: Election to Purchase Common Stock
The undersigned, pursuant to the provisions
set forth in the attached Warrant, hereby agrees to subscribe for and purchase the number of shares of the Common Stock set forth
below covered by such Warrant. The undersigned, in accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate
Exercise Price for such shares of Common Stock via the cashless exercise provision of Section 3 of the Warrant. A new warrant evidencing
the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued
in the name set forth below.
Number of Shares of Common Stock __________________
Aggregate Exercise Price: __________________
IN WITNESS WHEREOF, the Company has caused this
Warrant to be duly executed by a duly authorized officer.
Dated:
_______________
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CAROLINA TRUST BANK
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Name:
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Title:
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Attest:
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[Signature Page to Warrant]
Schedule A
Item 1
Name: CAROLINA TRUST BANK
Corporate or other organizational form: Banking
Corporation
Jurisdiction of organization: North Carolina
Item 2
Exercise Price: $6.90
Item 3
Expiration Date: February 6, 2019
Item 4
Quarterly Dividend Threshold: zero
Item 5
[reserved]
Item 6
Number of shares of Common Stock underlying the
Warrant (the “
Warrant Shares
”): 86,957
Item 7
Company’s address: 901 East Main Street,
Lincolnton, North Carolina 28092
Item 8
Notice information: J. Michael Cline, President and Chief Executive
Officer, 901 East Main Street, Lincolnton, North Carolina 28092; Telepone: 704-735-1104; Fax: 704-735-1258; Email: mcline@carolinatrust.com
Item 9
Name of Registered Warrantholder: _________________________
14
Carolina Trust Bank 8-K12G3
Exhibit
10.1
EXECUTIVE
EMPLOYMENT AGREEMENT
This
EXECUTIVE EMPLOYMENT AGREEMENT
(this “
Agreement
”), effective as of January 2, 2014 (the
“Effective
Date”
)
,
by and between Carolina Trust Bank, a North Carolina banking association (the
“Bank”
) with its principal
location in Lincolnton, North Carolina, and Jerry L. Ocheltree (the
“Executive”
),
collectively (the
“Parties”
).
WHEREAS,
the Bank is engaged in the business of banking and financial services serving individuals and businesses in North Carolina
and other areas; and
WHEREAS,
the Bank desires to employ the Executive, and the Executive wishes to accept such employment, upon the terms and conditions
set forth in this Agreement;
NOW,
THEREFORE,
in consideration of the premises and of the mutual promise, covenants and agreements contained herein, the Parties
hereto agree as follows:
SECTION
1.
Employment
.
The Bank hereby employs the Executive as its Chief Executive Officer, and the Executive hereby accepts
such employment with the Bank, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set
forth.
SECTION
2.
Term of Employment
.
Unless earlier terminated as provided in this Agreement, the initial term of this Agreement
shall begin on January 1, 2014 (the
“Start Date”
) and shall terminate two (2) years after the Effective Date
(the
“Initial Term”
) and, after the Initial Term, on or before each annual anniversary date from the Effective
Date, the term of this Agreement shall be extended for up to an additional one year period beyond the then effective expiration
date upon a determination and resolution of the Board of Directors that the performance of the Executive has met the requirements
and standards of the Board of Directors, and that the term shall be extended. The Initial Term and any successive terms, subject
to earlier termination as set forth in this Agreement, is hereinafter referred to as the
“Employment Term”
.
SECTION
3.
Duties
.
The Executive shall be employed as the Bank’s Chief Executive Officer
(
“CEO”
).
In this position, the Executive shall have such duties, responsibilities and authority normally associated with the position of
CEO of financial institutions of similar size and in the same industry as the Bank, shall be responsible for overseeing and managing
the Bank’s operations and promoting the Bank’s business, and shall have such other duties as are assigned by the Bank’s
Board of Directors from time to time. The Executive agrees to faithfully and diligently perform his duties and devote all of his
business time to the business of the Bank. The Executive shall not during the Employment Term engage in any other business activity.
The Executive shall perform the Executive’s duties principally at the Bank’s principal place of business in Lincolnton,
North Carolina but will be expected to travel to the Bank’s other locations on a periodic basis and to engage in such other
travel as necessary to fulfill his duties hereunder. Executive represents and warrants that he is neither bound by nor subject
to any valid and enforceable restrictive covenant, confidentiality agreement, or similar agreement with any individual, partnership,
corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization, other
business entity, or governmental entity (or any
department, agency, or political subdivision thereof) which shall adversely affect,
or be violated by, Executive’s employment with the Bank and the performance of his duties hereunder.
SECTION
4.
Compensation
.
(a)
Base
Salary
. As compensation for the performance by the Executive of the services to be performed by the Executive during the Employment
Term, the Bank shall pay Executive an annual base salary of Two Hundred Forty Thousand and no/100 Dollars ($240,000.00), payable
in equal installments on the Bank’s regular paydays (the
“Base Salary”
).
(b) Bonus,
In addition, the Executive shall be eligible to participate in the Bank’s management incentive program subject to the terms
and conditions of the program, and subject to the Bank and Executive achieving targets and expectations as set by the Bank’s
Board of Directors after consideration of Executive’s recommendations. Executive’s target bonus under the management
incentive program for 2014 shall be $60,000. Any such bonus shall be paid less deductions and withholdings required by law and
such deductions authorized by Executive on the next regular pay day after the bonus is calculated by the Board, but in any event
prior to March 15 of the following year. Such bonus shall be deemed earned when paid, and the Executive must be employed with
the Bank on the date of payment to be entitled to payment.
SECTION
5.
Benefits
.
During the Employment Term, Executive will be eligible for the following benefits, subject to the terms
and conditions of the applicable plans and policies.
(a)
General
Benefit Plans
. The Executive shall be permitted to participate in all employee benefit plans, including group health plans
and disability insurance plans, in the scope and form as currently provided, to other employees of the Bank generally, and as
may be amended from time to time at the discretion of the Bank in accordance with the Bank’s standard procedures.
(b)
Vacation
.
During the term of the Executive’s employment, he shall be entitled to four (4) weeks’ vacation for each calendar
year or ratable part thereof subject to the terms and conditions of the Bank’s vacation policy as amended from time to time.
(c)
Expense
Reimbursement
. The Bank shall reimburse the Executive for all reasonable travel, entertainment, and other out-of-pocket expenses
that are incurred by him in the good faith performance of his duties under this Agreement and that the Bank, in its’ reasonable
discretion, determines are both reasonable in amount and ordinary and necessary to the Bank’s business, upon the Executive’s
submission to the Bank of appropriate evidence and itemization of those expenses in accordance with Bank’s policies and
procedures.
(d)
Company
Phone and Laptop
. Bank will provide Executive access to a cellular telephone and laptop computer for business use. Executive
may use this equipment only as reasonably necessary in the performance of Executive’s duties for Bank and in the furtherance
of Bank’s business. Use of these items for personal reasons is prohibited, except for limited personal use that does not
interference with Bank’s business or damage the
equipment, and Executive will be held responsible for the costs and expenses
associated with any personal use of these items. Executive understands and agrees that Bank may inspect these devices, including
any personal documents, messages or other personal use, to confirm compliance with this Agreement and Bank’s policies. Further,
Executive will be required to exercise utmost due care in the use of these items and will be responsible for any loss or damage
caused by Executive or caused while these items are in Executive’s possession. The Executive accepts full responsibility
for the care and safekeeping of all Bank owned equipment, which is provided for use. Executive agrees that the cost of any damage
or loss to Bank owned equipment while under Executive’s care, other than routine maintenance or repairs necessitated by
normal use, can be deducted from any compensation owed to Executive by Bank. Executive further agrees to sign the Authorization
for Deduction from Wages attached to this Agreement as Attachment A and to execute any other documents necessary to authorize
the deduction. Use of personal devices for Bank business is prohibited.
(e)
Stock
Options
. Executive will be awarded options to purchase 35,000 shares in the Bank at a strike price equal to the Bank’s
stock price at the date of issuance of the options, subject to the terms and conditions of the 2005 Employee Stock Option Plan
assumed from Carolina Commerce Bank
(
“Carolina Commerce Plan”
)
as modified from time to time, and the applicable award agreement. These options will vest two (2) years after the date
of issuance, provided Executive remains employed through the vesting date. In the event the Bank is sold in a stock deal or an
asset deal in which the shareholders of the Bank do not own a majority of the voting stock of the surviving entity or substantially
all of the assets of the Bank are sold. Executive’s options will vest immediately prior to such transaction.
(f)
Restricted
Stock Award
. Executive also will be awarded 10,000 shares of restricted common stock in the Bank which will vest one-third
on January 1, 2015, one- third on January 1, 2016 and one-third on January 1, 2017, subject to Executive’s continuous employment
through each of such vesting dates and the terms and conditions of the plan to be adopted by the Bank, as modified from time to
time, and the applicable award agreement.
(g)
Car
Allowance
. Bank will provide Executive with a monthly car allowance of $750.00 for the lease or purchase and maintenance of
a suitable vehicle to use for Bank business.
(h)
Country
Club Membership
. The Bank shall pay the initiation fee (no greater than the initiation fee for Gaston Country Club) and family
membership dues for Executive in one country club in the Lincolnton, North Carolina area (or such other area as approved by the
Board) with the expectation that Executive also will use the membership for business development purposes.
(i)
Life
Insurance
. The Executive shall be insured by the Bank under a term insurance policy providing a death benefit of up to two
times Base Salary with such members of the Executive’s family named as beneficiaries as the Executive may determine.
(j)
Relocation
.
The Bank shall reimburse Executive for the relocation of Executive and his family from Pinehurst, North Carolina to a residence
in the Bank’s market area and within 60 miles of Lincolnton, North Carolina area, up to the amount of Seven
Thousand Five
Hundred and No/100 Dollars ($7,500.00), to be paid to Executive within fifteen (15) days after Executive’s submission of
receipts reflecting the relocation expenses incurred by him.
(k)
Supplemental
Employee Retirement Plan
. The Bank will adopt, and Executive will participate in, a defined contribution supplemental employee
retirement plan funded annually at a level no less than twenty percent (20%) of the Executive’s base salary and consistent
with applicable law. The Executive’s benefits under the plan will vest after five (5) years provided that Executive is still
employed with the Bank at that time.
SECTION
6.
Termination and Severance
.
(a) The
Executive’s employment will terminate upon the earlier to occur of the following;
(i) The
expiration of the Term as provided in
Section 2
above;
(ii) The
Executive’s death;
(iii) The
Executive’s inability to perform his duties on account of disability or incapacity for a period of ninety (90) or more days,
whether or not consecutive within any period of twelve (12) consecutive months. The determination of incapacity or disability
under the preceding sentence shall be made in good faith by the Bank and may be based upon information supplied by a physician
selected by the Bank or its insurers and reasonably acceptable to the Executive or his legal representative; provided that the
Executive shall cooperate fully with such physician to permit such physician to make an accurate determination as to incapacity
or disability. Nothing in this
subsection 6(a)(‘iii’)
is intended to modify the Bank’s obligations under
any applicable laws related to disabilities in employment;
(iv) Termination
of the Executive’s employment by the Bank for any of the following reasons:
(A) Cause.
Delivery of written notice (as set forth below) that the Executive’s employment is terminated for “Cause”, such
termination to take effect immediately;
“Cause”
shall mean the good faith determination by the Board of Directors
that any one or more of the following has occurred:
(1) Employee’s
substantial failure to perform or material neglect of the material duties of his employment under this Agreement;
(2) the
conviction of Employee of, or the guilty or nolo contendere plea of Employee with respect to, any crime or offense involving property
of the Bank (other than a
de minimis
offense) or involving moral turpitude;
(3) the
conviction of Employee of, or the guilty or nolo contendere plea of Employee with respect to, or any crime or offense (A) constituting
a felony, or (B) which has a material adverse impact on the Bank’s reputation or financial condition;
(4) the
breach of any material provision of this Agreement (including, without limitation, the provisions of
Section 3
,
Section
7
,
Section 8
or
Section 10
hereof);
(5) Employee’s
dishonesty in connection with the Bank or appropriating assets or opportunities of the Bank for his own benefit; or
(6) violation
of a generally recognized lawful material policy of the Bank, of which Executive is provided a copy or is otherwise made aware,
(after written notice thereof and a reasonable opportunity to cure if the event the violation is an issue which reasonably is
curable).
(B)
Without
Cause
. Delivery of a written notice by the Bank at any time that the Executive’s employment is terminated other than
for “Cause,” disability, death or expiration of the Employment Term; or
(v) Termination
of employment by the Executive upon delivery of written notice that the Executive is terminating his employment for any reason
(including without limitation, resignation or retirement). The Executive agrees that in the event of a voluntary termination,
he shall provide ninety (90) days’ notice of such termination. Executive agrees to use his best efforts to reasonably cooperate
with any remaining obligations thereafter under
Section 10(f)
hereof.
(b) In
the event that the Executive’s employment is terminated pursuant to
subsections 6(a)(i), (ii), (iii),
(iv)(A)
, or
(v)
above, the Bank shall not be obligated to make any payments to the Executive or on his behalf of
whatever kind or nature by reason of the Executive’s cessation of employment, other than the Base Salary and expense
reimbursements, if any, earned by the Executive that remain unpaid as of the effective date of Executive’s
termination.
(c) If
the Bank, without Executive’s consent, substantially reduces the Executive’s duties and responsibilities to a level
inconsistent with that of a CEO or requires the Executive’s relocation from Lincoln County, North Carolina, such actions
shall effect a termination without cause as set forth in
Section 6(a)(iv)(B)
.
(d) In
the event that the Executive’s employment is terminated by the Bank without cause pursuant to
Section 6(a)(iv)(B)
above, the Bank shall pay to the Executive the Base Salary and expense reimbursements, if any, earned by the Executive that remain
unpaid as of the effective date of the Executive’s termination. In addition, contingent upon Executive’s post-employment
obligations to the Bank and the execution by the Executive and delivery to the Bank of an unconditional release, in the form provided
by the Bank, of all
claims against the Bank and affiliates arising from or in connection with this Agreement, the Executive’s
employment with the Bank, and the termination of that employment, the Bank shall pay the Executive as follows:
(i) The
Bank shall pay to Executive severance pay in the amount of Twenty Thousand Dollars ($20,000.00) for each full month remaining
in the then current Employment Term (the
“Severance Period”
),
payable on the Bank’s regular paydays
over the course of the remainder of the Initial Term following such termination without cause, pursuant to and as part of the
normal payroll practices of the Bank; and
(ii) a
pro rata portion of his Bonus (if any) per the terms of
Section 4(b)
of this Agreement for the calendar year in which the
termination without cause occurs based on the number of days that the Executive was employed with the Bank during that calendar
year, payable at the time that the Bonus would have been paid to the Executive under this Agreement had his employment not been
terminated (such payments under subsections (i) and (ii) the
“Severance Payment”
); and
(iii) reimbursement
to Executive for the premiums paid by Executive for group health plan continuation coverage to which the Employee and his dependents
are entitled pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986, 26 U.S.C. § 4980B
et
seq
.,
(
“COBRA”
),
for each month during the Severance Period.
(e) Payments
provided for in this
Section 6
are in lieu of, and not in addition to, payments that might otherwise be due to Executive
under any other agreement or arrangement between or among Executive and Bank. Upon the Bank’s satisfaction of its obligations
to Executive in full hereunder, neither the Bank nor any of its affiliates shall have any obligation to Executive.
SECTION
7.
Agreement Not to Disclose or Use Trade Secrets or Confidential Information
.
The Executive acknowledges that as an
executive of the Bank, the Executive will from time to time come into contact with and have access to Trade Secrets and Confidential
Information (as defined below) of Bank. In consideration of the Executive’s employment with the Bank, receipt of compensation
and additional benefits, access to the Bank’s Confidential Information and Trade Secrets, and other good and valuable consideration,
each of which constitutes separate sufficient and independent consideration for this covenant, the Executive expressly covenants
and agrees that the Executive will not, during his employment with the Bank or following termination of the Executive’s
employment with the Bank, whether by the Executive or the Bank for any reason (with or without cause); (i) use any Trade Secrets
or Confidential Information of the Bank, except during his employment with the Bank in the performance of services for the Bank;
(ii) reveal or disclose or allow to be revealed or disclosed any Trade Secrets or Confidential Information to any person, firm,
partnership, trust, corporation or other entity outside the Bank (whether governmental or private) except during his employment
with the Bank in the Executive’s performance of services for the Bank as expressly authorized by the Bank; or (iii) remove
or aid in the removal from the premises of the Bank, or from any other location where Trade
Secrets or Confidential Information
are maintained or stored by the Bank, any such Trade Secrets or Confidential Information, in whatever form or manner they are
maintained, or any materials or electronic data which relate thereto. The foregoing obligations shall survive termination of the
Executive’s employment with the Bank until the information is no longer Confidential or Trade Secrets, as defined herein.
The Executive agrees that all Confidential information which the Executive creates or to which the Executive has access as a result
of his employment is and shall remain the sole and exclusive property of the Bank.
Without
limiting the foregoing. Executive is prohibited from using or disclosing Bank’s Trade Secrets or Confidential Information
on or in connection with blogs, chat rooms and similar social media. Executive also is prohibited from using names, contact information
and other sensitive information regarding Bank’s customers and prospective customers on or in connection with social networking
sites, including without limitation LinkedIn, Twitter, MySpace, Skype, Messenger, or Facebook. The foregoing obligations shall
survive termination of Executive’s employment with Bank
(a)
Definition
of Trade Secrets
. As used in this Agreement, the term
“Trade Secrets”
shall mean all formulas, techniques,
and procedures used by the Bank in its technical processes which are not generally known or used in the industry; specific Bank-developed
customer information (including customer data, preferences, financial information and requirements); computer programs developed
by the Bank agents or for use solely by Bank; and any other information or data which meets the definition of Trade Secrets under
North Carolina law.
(b)
Definition
of Confidential Information
. As used in this Agreement,
“Confidential Information”
means data or information,
whether constituting Trade Secrets or not, which is of value to, and not generally known outside of, the Bank developed or compiled
by or on behalf of the Bank (including without limitation. Intellectual Property as defined in
Section 8
below), including
but not limited to the following: (i) current and historical sales information about customers, customer business procedures or
processes, and any other information which the Executive learns about current and potential customers of the Bank through the
Executive’s employment with the Bank; (ii) information about the financial aspects of the business of the Bank, such as
costs, financial statements, selling prices, pricing policies, quoting procedures, sales, financial projections, business strategies
and other financial information; (iii) business opportunities for new or developing businesses for, and business and marketing
plans, techniques, and strategies of, the Bank (including plans for new products or services); (iv) private personnel information
(such as social security numbers and medical information); (v) information regarding the design, development, and technical aspects
of Company’s products or services; (vi) any information received by the Bank from third parties in confidence (or subject
to non-disclosure or similar covenants) and the terms and conditions of negotiations or confidential contracts between the Bank
and third parties; and (vii) any documents, files, electronic records or other information marked “Confidential”.
(c)
Limitations
on Use of Bank Information through Personal Devices
. Executive may from time to time in the course of performing his duties
for Bank need to access Bank’s confidential, proprietary or trade secret information when he is not at Bank’s offices.
Executive understands that information that Executive accesses or obtains regarding Bank’s business, customers, prospective
customers, vendors, products and services by virtue of Executive’s employment with Bank, including but not limited to Confidential
Information or Trade Secrets, is the property of Bank. Executive is prohibited from downloading, storing, copying, cutting and
pasting, or otherwise transmitting this information to any personal data device not owned by Bank, including but not limited to
Executive’s personal computers (including but not limited to computers in Executive’s vehicles), cellular telephones,
smart phones, texting devices, jumpdrives, compact discs, DVD’s hard drives, owned or third party storage or back-up services,
or any other device or medium on which data can be stored. Executive is expressly prohibited from emailing or otherwise transmitting
any Bank information to his personal email accounts. Further, to the extent that Executive does access the Bank’s information
through a device outside of the Bank’s offices, Executive agrees follow all Bank security procedures and to protect the
confidentiality of the information from exposure to third persons, including family members, roommates, and others who are not
expressly authorized by Bank to view the information.
SECTION
8.
Intellectual Property
.
(a) During
the term of Executive’s employment by Bank, Executive covenants that in the event that Executive should conceive, author
or make any invention, trade secret, idea, discovery or improvement relating in any way, directly or indirectly, to the business
of Bank or to any prospective business which Bank is pursuing or investigating (the
“Prospective Business
”)
whether patentable or unpatentable (collectively,
“Intellectual Property”
),
Executive shall promptly
communicate and disclose all such Intellectual Property to Executive’s supervisor together with all related data and information.
(b) Any
and all Intellectual Property which Executive may conceive, author or make, in any place and at any time, during the term of Executive’s
employment, relating in any matter, directly or indirectly, to the business of Bank or the Prospective Business shall be the sole
and exclusive property of Bank, and Executive hereby assigns to Bank any and all right and interest which Executive may have at
any time to such Intellectual Property including without limitation all patents, trademarks, trade secrets and copyrights that
may result therefrom. Any Intellectual Property that Executive reduces to practice or begins to reduce to practice, or with respect
to which Executive files a patent or other document pertaining to ownership of Intellectual Property, within one year of the termination
of Executive’s employment with Bank for any reason (with or without cause), shall be presumed to have been conceived during
Executive’s employment unless Executive shall prove otherwise.
(c) Whenever
requested to do so by Bank, Executive shall execute all papers and documents and do such other legal acts (at Bank’s expense)
as may be required to enable Bank to obtain, maintain and enforce its rights hereunder and to obtain, maintain and enforce patent
protection, copyright protection or other legal protection of any Intellectual Property in the United States or in any foreign
country, or to complete or to transfer title or otherwise protect Bank’s interest in the Intellectual Property. These obligations
shall be binding upon Executive’s assigns, executors, administrators and other legal representatives.
(d) Notwithstanding
anything herein to the contrary, the assignments made herein shall not apply to any invention that Executive developed entirely
on his own time without using the Bank’s equipment, supplies, facilities or confidential or trade secret information, except
for those inventions that (i) relate at the time of conception or reduction to practice to the Bank’s business or actual
or demonstrably anticipated research or development of Bank; or (ii) result from any work performed by Executive for Bank.
(e) Executive
acknowledges that as of the date hereof, Executive has not invented, authored or conceived of any such Intellectual Property,
except as listed on Attachment B to this Agreement.
SECTION
9.
Executive to Return Property
.
The Executive agrees that upon the earlier of (a) the termination of the Executive’s
employment with the Bank, whether by the Executive or the Bank for any reason (with or without cause), or (b) the written request
of the Bank, the Executive (or in the event of the death or disability of Executive, Executive’s heirs, successors, assigns
and legal representatives) shall return to the Bank the Bank cellphone and computer and any and all other equipment, documents
and information, including but not limited to Confidential Information and all Trade Secret information contained in, notes, notebooks,
letters, papers, data, tapes, lists, reference items, files, records, documents, keys, pass or access cards, identification badges
or cards, passwords, laptops, PDAs, memoranda, sketches, computer files and other electronic data (wherever and however recorded,
including but not limited to information and files on the Executive’s personal computer, phones and other electronic devices
if any), drawings, memos, communications, materials, software, discs, product samples, forms, manuals, and equipment, which are
not generally available in the industry, without retaining any copies or summaries of such property.
SECTION
10.
Restrictive Covenants/Non-Disparagement/Kev Man
.
(a)
Legitimate
Business Interests
. The Executive acknowledges that: the provisions of this
Section 10
are reasonable and necessary
to protect the Bank’s business. The Executive further acknowledges that as an employee of the Bank, the Executive will not
only from time to time come into contact with and have access to Trade Secrets and Confidential Information, but also will have
contact with and access to the customers of the Bank. In consideration of the Executive’s initial employment with the Bank,
his access and exposure to the Bank’s customers, Trade Secrets and Confidential Information, and other good and valuable
consideration, each of which constitutes separate sufficient and independent consideration for each covenant below, the Executive
hereby agrees to the following restrictive covenants, for the periods of time specified.
(b)
Non-compete
.
Executive agrees that during his employment with the Bank and for a period of one year after termination of his employment for
any reason, with or without notice or cause, Employee will not, in competition with the Bank:
(i) engage
in the financial services industry in the Restricted Territory (as defined below);
(ii) perform
for another financial institution in the Restricted Territory the same or substantially similar services that Executive performed
for the Bank.
For
purposes of this
subsection 10(b)
, the term
“Restricted Territory”
shall mean:
(A) North
Carolina;
(B) the
counties of Avery, Buncombe, Burke, Cabarrus, Catawba, Cherokee, Clay, Cleveland, Gaston, Graham, Haywood, Henderson, Jackson,
Lincoln, Macon, Madison, McDowell, Mitchell, Mecklenburg, Polk, Rowan, Rutherford, Swain, Transylvania, Union, Watauga and Yancey,
North Carolina;
(C) any
and all counties in North Carolina or any other state in the United States in which the Bank conducted business or solicited customers
while Executive was employed by the Bank and in which the Bank still does business at the time of Executive’s termination;
(D) Each
and every city in which the Bank’s customers are located.
(c)
Non-solicitation
of Clients
. During the Executive’s employment by the Bank and for two (2) years following Executive’s termination
of employment, whether by Executive or Bank for any reason (with or without notice or cause). Executive will not, directly or
indirectly, on his own behalf or on behalf of another person or entity:
(i) Request,
induce, or attempt to influence any customer or client of the Bank to limit, curtail, cancel, or terminate any business it transacts
with, or products or services it receives from, Bank;
(ii) Request,
induce or attempt to influence any Prospective Customer (as defined below) of Bank to terminate any business negotiations it is
having with Bank or to otherwise not do business with Bank;
(iii) Request,
induce, or solicit any customer of the Bank to purchase products or services from an entity other than Bank which are the same
or closely similar to those offered to the customer by Bank; or
(iv) Request,
induce, or solicit, on behalf of a person other than the Bank, any Prospective Customer to purchase products or services from
an entity other than Bank which are the same or closely similar to those offered to the Prospective Customer by Bank.
For
purposes of this
Section 10(c)
, the term
“Prospective Customer”
shall mean any person or entity who
has not yet purchased Bank’s products or services, but who has been targeted or identified by Bank as a potential user of
Bank’s products or services, and
(A) Whom
Executive or his direct subordinates was engaged in soliciting on behalf of Bank during the twelve months preceding his
termination
(or if Executive is still employed with the Bank at the time of the conduct described in
subsection 10(c)(i)
or
(ii)
,
then during the 12-month period preceding the prohibited contact); or
(B) Whom
Executive would have an advantage in soliciting as a result of confidential information gained by Executive as a result of his
employment with Bank.
(d)
Non-solicitation
of Employees
. The Executive agrees that during the Executive’s employment and for two (2) years following the Executive’s
termination of employment, the Executive will not directly or indirectly solicit for employment, or advise or recommend to any
competitor of the Bank that they employ or solicit for employment, any person who is employed (currently or at any time during
the time of Executive’s employment) by the Bank, or solicit or encourage any other employee of the Bank or any of its affiliates
to do any act that is disloyal to the Bank.
(e)
Non-Disparagement
.
The Executive agrees that during and after his employment he shall not disparage or malign the Bank or its agents, officers or
directors with respect to the Bank to anyone outside of the Bank. This provision shall not be deemed to require Executive to make
or fail to make any representation or statement that would subject such party to liability or potential liability by virtue of
making any such representation or statement or failing to make a representation or statement, including but not limited to truthful
representations consistent with requirements of applicable securities laws and regulations.
(f)
Cooperation
Regarding Key Man
. The Executive agrees to reasonably cooperate and assist the Bank in the transitioning of certain operations
to any new “Key Man” as identified and designated by the Bank during the period of his employment with the Bank and/or
at the time of termination of his employment and for a transition period of up to ninety days thereafter. Following the ninety
day transition period. Executive agrees to use his best efforts to be reasonably available to cooperate with regard to continuing
transition issues, at the request of the Bank.
(g)
Reasonableness
of Restrictions
. The Executive agrees that the limitations set forth in this
Section 10
(including, without limitation,
any time or territorial limitations) and in
Sections 7, 8
and
9
of this Agreement are reasonable and properly
required for the adequate protection of the businesses of the Bank. It is understood and agreed that the covenants made by the
Executive in this
Section 10
(and in
Sections 7, 8
and
9
hereof) shall survive the expiration or termination
of this Agreement, and that the Executive’s compliance with the terms of these Sections and
subsections (b), (c), (d),
(e)
and
(f)
of this
Section 10
shall be a condition of the receipt of any payment under this Agreement.
SECTION
11.
Preliminary Injunctive Relief and Additional Remedy
.
The
Executive
and the Bank agree that a breach by either of the provisions of this Agreement may cause irreparable damage incapable of measurement
and for which money damages alone would be an insufficient remedy. Therefore, in the event of such breach or threatened breach,
the Parties, in addition to any other remedies available at law or in equity, shall be entitled to a temporary restraining order
and preliminary and permanent injunctions from a court of
competent jurisdiction sitting in Lincoln County, North Carolina, restraining
the breach or continuing any breach of any of the provisions of this Agreement. The parties further covenant and agree that in
the event of a violation of any of the covenants and agreements contained in
Sections 7, 8, 9
or
10
of this Agreement
or any subsections thereof, the aggrieved party shall be entitled to an accounting of the profits the non-aggrieved party directly
or indirectly has realized and/or may realize as a result of, growing out of or in connection with any such violation.
SECTION
12.
Additional Regulatory Requirements
.
Notwithstanding anything contained in this Agreement to the contrary, it is
understood and agreed that the Bank (or any of its successors in interest) shall not be required to make any payment or take any
action under this Agreement if:
(a) the
Bank is declared by any governmental agency having jurisdiction over the Bank (hereinafter referred to as
“Regulatory
Authority”
) to be insolvent, in default or operating in an unsafe or unsound manner; or,
(b) in
the reasonable opinion of counsel to the Bank, such payment or action (i) would be prohibited by or would violate any provision
of state or federal law applicable to the Bank, including, without limitation, the Federal Deposit Insurance Act as now in effect
or hereafter amended, (ii) would be prohibited by or would violate any applicable rules, regulations, orders or statements of
policy, whether now existing or hereafter promulgated, of any Regulatory Authority, or (iii) otherwise would be prohibited by
any Regulatory Authority.
Section
13.
Change in Control
.
(a) In
the event of a termination of the Executive’s employment in connection with, or within twenty-four (24) months after, a
“Change in Control”
(as defined in
subsection (d)
below) of the Bank other than for Cause (as defined
in
Section 6
of this Agreement), the Executive shall be entitled to receive liquidated damages as set forth in
subsection
(c)
below. Said sum shall be payable as provided in
subsection (e)
below.
(b) The
Executive shall have the right to terminate this Agreement upon the occurrence of any of the following events (the
“Termination
Events”
) within twenty-four months following a Change in Control of the Bank:
(i) Executive
is assigned any duties and/or responsibilities that are inconsistent with or constitute a demotion or reduction in the Executive’s
position, duties, responsibilities or status as such existed at the time of the Change in Control or with his reporting responsibilities
or titles with the Bank in effect at such time, regardless of Executive’s resulting position; or
(ii) Executive’s
annual base salary rate is reduced below the annual amount in effect as of the effective date of a Change in Control or as the
same shall have been increased from time to time following such effective date; or
(iii) Executive’s
life insurance, medical or hospitalization insurance, disability insurance, stock options plans, stock purchase plans, deferred
compensation plans, management retention plans, retirement plans or similar plans or benefits being provided by the Bank to the
Executive as of the effective date of the Change in Control are reduced in their level, scope or coverage, or any such insurance,
plans or benefits are eliminated; unless such reduction or elimination applies proportionately to all salaried employees of the
Bank who participated in such benefits prior to such Change in Control; or
(iv) Executive
is transferred to a location which is an unreasonable distance from his current principal work location without the Executive’s
express written consent.
A
Termination Event shall be deemed to have occurred on the date such action or event is implemented or takes effect.
(c) In
the event that the Executive terminates this Agreement pursuant to this
Section 13
in the first year of this Agreement,
the Bank will be obligated to pay or cause to be paid to Executive liquidated damages in an amount equal to 1.99 times the Executive’s
“base amount” as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
“Code”
)
,
and in the event that the Executive terminates this Agreement pursuant to this
Section 13
in the any subsequent year
of this Agreement, the Bank will be obligated to pay or cause to be paid to Executive liquidated damages in an amount equal to
1.0 times the Executive’s “base amount” as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the
“Code”
)
.
In addition, in the event that the Executive terminates this Agreement pursuant
to this
Section 13
in any year of this Agreement, and unless otherwise prohibited by applicable law, and subject to the
terms and conditions of the applicable plans. Executive’s restricted stock awarded under this Agreement and Executive’s
supplemental retirement plan benefits (as set forth under
Section 5(k)
of this Agreement) will fully vest immediately prior
to the effective date of the Executive’s termination.
(d) For
the purposes of this Agreement, the term Change in Control shall mean any of the following events:
(i) After
the effective date of this Agreement, any “person” (as such term is defined in Section 7(j)(8)(A) of the Change in
Bank Control Act of 1978), directly or indirectly, acquires beneficial ownership of voting stock, or acquires beneficial ownership
of voting stock, or acquires irrevocable proxies or any combination of voting stock and irrevocable proxies, representing thirty-five
percent (35%) or more of any class of voting securities of the Bank, or acquires control of, in any manner, the election of a
majority of the Directors; or
(ii) The
Bank consolidates or merges with or into another corporation, association or entity, or is otherwise reorganized, where the Bank
is not the surviving corporation in such transaction; or
(iii) All
or substantially all of the assets of the Bank are sold or otherwise transferred to or are acquired by any other corporation,
association or other person, entity or group.
Notwithstanding
the other provisions of this
Section 13
, a transaction or event shall not be considered a Change in Control if, prior to
the consummation or occurrence of such transaction or event, Executive and Bank agree in writing that the same shall not be treated
as a Change in Control for purposes of this Agreement.
(e) Such
amounts payable pursuant to this
Section 13
shall be paid, at the option of the Executive, in one lump sum payment following
termination of this Agreement.
(f) Following
a Termination Event which gives rise to Executive’s rights hereunder, the Executive shall have twelve (12) months from the
date of occurrence of the Termination Event to terminate this Agreement pursuant to this
Section 13
. Any such termination
shall be deemed to have occurred only upon delivery to the Bank (or to any successor corporation) of written notice of termination
which describes the Change in Control and the Termination Event. If Executive does not so terminate this Agreement within such
twelve-month period, he shall thereafter have no further rights hereunder with respect to that Termination Event, but shall retain
rights, if any, hereunder with respect to any other Termination Event as to which such period has not expired.
(g) It
is the intent of the parties hereto that all payments made pursuant to this Agreement be deductible by the Bank for federal income
tax purposes and. not result in the imposition of an excise tax on the Executive. Notwithstanding anything contained in this Agreement
to the contrary, any payments to be made to or for the benefit of the Executive which 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 by the
Directors to avoid the imposition of excise taxes on the Executive under Section 4999 of the Code or the disallowance of a deduction
to the Bank under Section 280(a) of the Code.
(h) In
the event any dispute shall arise between the Executive and the Bank as to the terms or interpretation of this Agreement, including
this
Section 13
, whether instituted by formal legal proceedings or otherwise, including any action taken by the Executive
to enforce the terms of this
Section 13
or in defending against any action taken by the Bank, the Bank shall reimburse
the Executive for all costs and expenses, proceedings or actions, in the event the Executive prevails in any such action.
SECTION
14.
Code Section 409A
.
Notwithstanding any other provision in the Agreement to the contrary, if and to the extent that
Code Section 409A is deemed to apply to any benefit under the Agreement, it is the general intention of the Bank that such benefits
shall, to the extent practicable, comply with, or be exempt from. Code Section 409A, and the Agreement shall, to the extent practicable,
be construed in accordance therewith. Deferrals of benefits distributable pursuant to the Agreement that are otherwise exempt
from Code Section 409A in a manner that would cause Code Section 409A to apply shall not be permitted unless such deferrals are
in compliance with Code Section 409A. hi the event that the Bank (or a successor thereto) has any stock which is publicly traded
on an established
securities market or otherwise and the Executive is determined to be a “specified employee” (as
defined under Code Section 409A), any payment to be made to the Executive upon a separation from service may not be made before
the date that is six months after the Executive’s separation from service (or death, if earlier). To the extent that the
Executive becomes subject to the six-month delay rule, all payments that would have been made to the Executive during the six
months following his separation from services that are not otherwise exempt from Code Section 409A, if any, will be accumulated
and paid to the Executive during the seventh month following his separation from service, and any remaining payments due will
be made in their ordinary course as described in the Agreement. For the purposes herein, the phrase “termination of employment”
or similar phrases will be interpreted in accordance with the term “separation from service” as defined under Code
Section 409A if and to the extent required under Code Section 409A. Further, (i) in the event that Code Section 409A requires
that any special terms, provisions or conditions be included in the Agreement, then such terms, provisions and conditions shall,
to the extent practicable, be deemed to be made a part of the Agreement, and (ii) terms used in the Agreement shall be construed
in accordance with Code Section 409A if and to the extent required. Further, in the event that the Agreement or any benefit thereunder
shall be deemed not to comply with Code Section 409A, then neither the Bank, the Board, the Compensation Committee nor its or
their designees or agents shall be liable to any participant or other person for actions, decisions or determinations made in
good faith.
SECTION
15.
Binding Effect
.
This Agreement may not be assigned by Executive. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, successors, and legal representatives and as to Bank, its assigns.
SECTION
16.
Notices
.
Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and
either delivered in person or sent by first class or by certified or registered mail, postage prepaid, if to the Bank, at the
Bank’s principal place of business, and if to the Executive, at the Executive’s home address most recently filed with
the Bank, or to such other address or addresses as either party shall have designated in writing to the other party hereto.
SECTION
17.
Law Governing
.
This Agreement shall be governed by and construed in accordance with the laws of the State of North
Carolina, exclusive of the conflicts of laws provisions thereof.
SECTION
18.
Severability
.
If any portion of this Agreement, including but not limited to any provision of
Sections 4, 5,
7, 8, 9
,
and
10
of this Agreement, are deemed unreasonable or unenforceable by any court of competent jurisdiction, then such portion shall be
severable from that portion of this Agreement which is reasonable and which is enforceable, it being the intention of the parties
that any illegal or unenforceable provision shall not affect the remainder of this Agreement that is valid and enforceable and
that all other covenants and provisions in this Agreement shall in every other respect continue in full force and effect.
SECTION
19.
Waiver
.
Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not
be deemed a waiver of such term, covenant or
condition, nor shall any waiver or relinquishment of any right or power hereunder
at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times.
SECTION
20.
Entire Agreement; Modifications
.
This Agreement constitutes the entire agreement between the Parties with respect
to the subject matter hereof and supersedes all prior agreements, oral and written, with respect thereto. This Agreement may be
modified or amended only by an instrument in writing signed by both parties hereto.
SECTION
21.
Counterparts
.
For the convenience of the Parties, this Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN
WITNESS WHEREOF, the Bank and the Executive have duly executed and delivered this Agreement as of the day and year first above
written.
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BANK:
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Carolina
Trust Bank
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By:
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/s/
Johnathan L. Rhyne, Jr.
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Name:
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Johnathan L. Rhyne, Jr.
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Title:
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Chairman
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EXECUTIVE:
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/s/
Jerry L. Ocheltree
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Jerry
L. Ocheltree
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16
Carolina Trust Bank 8-K12G3
Exhibit
10.02
AMENDMENT
NUMBER ONE TO
EMPLOYMENT
AGREEMENT
This
Amendment Number One is made as of August 1, 2014, to the Employment Agreement dated January 2, 2014 (the “Agreement”),
by and between Carolina Trust Bank (the “Bank”) and Jerry L. Ocheltree (“Executive”). All capitalized
terms shall have the same meaning as in the Agreement.
1. Section
2 of the Agreement is amended to read as follows:
Term.
The term of this Agreement and Executive’s employment shall begin on January 1, 2014 (the
“Start Date”
)
and shall continue for two (2) calendar years thereafter to and including December 31, 2015 (the
“Initial Term”
),
unless sooner terminated as provided in this Agreement. The term of this Agreement and Executive’s employment shall automatically
extend for an additional one (1) year period on each anniversary of the Start Date of this Agreement unless written notice of
nonextension is given by the Bank or the Executive to the other party at least 90 days prior to such anniversary of the Start
Date, such that Executive will continue to have a two year term of employment unless such 90 days’ notice of nonextension
is given by one party to the other party or unless this Agreement and Executive’s employment is otherwise terminated as
provided in this Agreement. The Initial Term and any successive terms (whether two years or less than two years), subject to earlier
termination as set forth in this Agreement, is hereinafter referred to as the
“Employment Term.”
Each calendar
year during the Employment Term, at least 90 days prior to the anniversary of the Start Date, the Board of Directors shall review
the performance of the Executive and the Bank and make a determination as to whether the Employment Term shall be extended for
the additional year.
2. Subsection
6(d)(i) of the Agreement is amended to read as follows:
the
Bank shall pay to Executive severance pay in the amount of Twenty Thousand Dollars ($20,000.00) for each full month remaining
in the then current Employment Term (the
“Severance Period”
),
payable on the Bank’s regular paydays
over the course of the remainder of the then current Employment Term following such termination without cause, pursuant to and
as part of the normal payroll practices of the Bank; and
3. No
other terms and conditions of the Agreement are affected by this Amendment.
IN
WITNESS WHEREOF,
the parties have executed this Amendment (the Bank by it duly authorized officer) effective as of the day
and year first written above.
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CAROLINA
TRUST BANK
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By:
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/s/
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Johnathan L. Rhyne, Jr.
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Johnathan L. Rhyne, Jr. Chairman
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EXECUTIVE
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By:
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/s/
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Jerry L. Ocheltree
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(SEAL)
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Jerry L. Ocheltree
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Carolina Trust Bank 8-K12G3
Exhibit
10.03
AMENDMENT
NUMBER TWO TO
EMPLOYMENT
AGREEMENT
This
Amendment Number Two is made as of August 1, 2014, to the Employment Agreement dated January 2, 2014 (the “Agreement”),
by and between Carolina Trust Bank (the “Bank”) and Jerry L. Ocheltree (“Executive”). All capitalized
terms shall have the same meaning as in the Agreement.
1. Section
13(c) of the Agreement is amended to read as follows:
Change
in Control.
Subsection (c); In the event that the Executive terminates this Agreement pursuant to this
Section 13
,
the Bank will be obligated to pay or cause to be paid to Executive liquidated damages in an amount equal to
2.99
times
the Executive’s “base amount” as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
(the
“Code”
)
.
In addition, in the event that the Executive terminates this Agreement pursuant to this
Section 13
in any year of this Agreement, and unless otherwise prohibited by applicable law, and subject to the terms and
conditions of the applicable plans, Executive’s restricted stock awarded under this Agreement and Executive’s supplemental
retirement plan benefits (as set forth under
Section 5(k)
of this Agreement) will fully vest immediately prior to the effective
date of the Executive’s termination.
2. No
other terms and conditions of the Agreement including without limitation Section 13(a), are affected by this Amendment.
IN
WITNESS WHEREOF,
the parties have executed this Amendment (the Bank by it duly authorized officer) effective as of the day
and year first written above.
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CAROLINA
TRUST BANK
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By:
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/s/
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Johnathan L. Rhyne, Jr.
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Johnathan L. Rhyne, Jr. Chairman
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EXECUTIVE
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By:
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/s/
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Jerry L. Ocheltree
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(SEAL)
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Jerry L. Ocheltree
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Carolina Trust Bank 8-K12G3
Exhibit
10.4
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT
(the “Agreement”) is entered into as of May 25, 2016 (the “Effective Date”),
by and between
CAROLINA TRUST BANK,
a North Carolina banking corporation (the “
Bank
”) and
EDWIN E.
LAWS,
an individual resident of North Carolina (the “
Officer
”). The Bank and Officer are sometimes herein
referred to each as a “
Party
” and together as the “
Parties
.”
For
and in consideration of their mutual promises, covenants and conditions hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which hereby are acknowledged, the Parties agree as follows:
1.
Employment
.
The Bank agrees to employ the Officer, and the Officer agrees to accept employment upon the terms and conditions stated herein
as an Executive Vice President of the Bank. The Officer shall render such administrative and management services to the Bank and
to the Bank’s parent holding company, Carolina Trust Bancshares, Inc. (the “Company”), as are customarily performed
by persons situated in a similar executive capacity. The Officer shall promote the business of the Bank and perform such other
duties as shall, from time to time, be reasonably assigned by the President of the Bank. Upon the request of the Board of Directors
(the “
Directors
”), the Officer shall disclose all business activities or commercial pursuits in which Officer
is engaged, other than Bank duties.
2.
Compensation
.
The Bank shall pay the Officer during the Term of this Agreement (as defined below), as compensation for all services rendered
by the Officer to the Bank, a base salary at the rate of One Hundred Forty-Two Thousand Dollars ($142,000.00) per annum, payable
in cash not less frequently than monthly (the “
Base Salary
”). The rate of such Base Salary shall be reviewed
by the Directors not less often than annually and may be increased, but not decreased, during the Term of this Agreement in such
amounts as the Directors, in their discretion, may decide. In determining salary increases, the Directors may compensate the Officer
for increases in the cost of living and may also provide for performance or merit increases. Participation in the Bank’s
incentive compensation, deferred compensation, discretionary bonus, profit-sharing, retirement and other employee benefit plans
and participation in any fringe benefits shall not reduce the Base Salary payable to the Officer under this Paragraph.
Following
a Change in Control (as defined in Paragraph 10), the Officer’s rate of Base Salary shall be increased not less than
five percent (5%) annually during the remaining Term of this Agreement.
Any
payments made under this Agreement shall be subject to such deductions as are required by law or regulation or as may be agreed
to by the Bank and the Officer.
3.
Discretionary
Bonuses
.
During the Term of this Agreement, the Officer shall be entitled, in an equitable manner with all other key management
personnel of the Bank, to such discretionary bonuses as may be authorized, declared and paid by the Directors to the Bank’s
key management employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Officer’s
right to such discretionary bonuses when and as declared by the Directors.
4.
Participation
in Retirement and Employee Benefit Plans: Fringe Benefits
.
(a) The
Officer shall be entitled to participate in any plan relating to medical and dental insurance, deferred compensation, stock options,
stock purchases, pension, thrift, profit sharing, group life insurance, education, or other retirement or employee benefits that
the Bank has adopted, or may, from time to time adopt, for the benefit of its executive employees or for employees generally,
subject to the eligibility rules of such plans.
(b) The
Officer shall also be entitled to participate in any other fringe benefits that are now or may be or become applicable to the
Bank’s executive employees and any other benefits that are commensurate with the duties and responsibilities to be performed
by the Officer under this Agreement. Additionally, the Officer shall be entitled to such vacation and sick leave as shall be established
under uniform employee policies promulgated by the Directors. The Bank shall reimburse the Officer for all out-of-pocket reasonable
and necessary documented business expenses, including dues for one civic club and mileage for the use of Officer’s personal
automobile, which the Officer may incur in connection with the Officer’s services on behalf of the Bank.
(c) All
employee benefits provided by the Bank are subject to the provisions of their respective plan documents in accordance with their
terms and are subject to amendment or termination by the Bank without Officer’s consent.
5.
Term
.
The initial term of employment under this Agreement shall be for the period commencing upon the Effective Date of this Agreement
and ending two (2) calendar years from the Effective Date of this Agreement (the “
Initial Term
”). On each anniversary
of the Effective Date of this Agreement, the term of this Agreement shall automatically be extended for an additional one year
period beyond the then effective expiration date (each an “
Extension Term
”) unless the Bank provides the Officer
with written notice at least ninety (90) days prior to the end of the Initial Term or any Extension Term advising the Officer
that this Agreement shall not be further extended; provided that the President shall review the Officer’s performance annually
and make a specific determination pursuant to such review to renew this Agreement prior to the ninety (90) days’ notice.
The Initial Term and any Extension Term(s) are referred to herein as the “Term” of this Agreement.
6.
Loyalty;
Noncompetition
.
(a) During
the Term of this Agreement, the Officer shall devote his full efforts and entire business time to the performance of the Officer’s
duties and responsibilities under this Agreement.
(b) The
Officer agrees he will not, within the “Restricted Area,” directly or indirectly, engage in any business that competes
with the Bank or any of its subsidiaries without the prior written consent of the Bank (i) in which the Officer will have duties,
or will perform or be expected to perform services for such business, that are the same as or substantially similar to the duties
or services actually performed by the Officer for the Bank within the twelve (12)
month period immediately preceding the termination
of the Officer’s employment with the Bank, or (ii) in which the Officer will use or disclose or be reasonably expected to
use or disclose any confidential or proprietary information of the Bank for the purpose of providing, or attempting to provide,
such business with a competitive advantage. For the purposes of this Agreement, the “
Restricted Area
” is defined
as the following divisible territories: Lincoln County, North Carolina, or within thirty (30) miles of any Bank office operated
during the Term of this Agreement. The one-year restricted period, however, does not include any period of violation or period
of time required for litigation to enforce the Officer’s agreement not to compete against the Bank. Notwithstanding the
foregoing, the Officer shall be free, without such consent, to purchase or hold as an investment or otherwise, up to five percent
(5%) of the outstanding stock or other security of any corporation that has its securities publicly traded on any recognized securities
exchange or in any over-the counter market. Notwithstanding the foregoing, the provisions of this Paragraph 6(b) shall not
apply in the event that, within twenty-four (24) months following a “Change of Control” (as such term is defined in
Paragraph 10(d) hereof), the Officer’s employment is terminated by the Bank other than for “Cause” (as
such term is defined in Paragraph 8(d) hereof), or the Officer terminates his employment with the Bank due to the occurrence
of a “Termination Event” (as such term is defined in Paragraph 10(b) hereof).
(c) The
Officer agrees he will hold in confidence all knowledge or information of a confidential nature with respect to the business of
the Bank or any subsidiary received by the Officer during the term of this Agreement and will not disclose or make use of such
information without the prior written consent of the Bank. The Officer agrees that he will be liable to the Bank for any damages
caused by unauthorized disclosure of such information. Upon termination of his employment, the Officer agrees to return all records
or copies thereof of the Bank or any subsidiary in his possession or under his control that relate to the activities of the Bank
or any subsidiary.
(d) The
Officer acknowledges that the Bank will suffer irreparable harm in the event that the Officer breaches any of his obligations
under Paragraph 6 of this Agreement and that it would not be possible to ascertain the amount of monetary damages in the
event of such a breach. Accordingly, the Officer agrees that, in the event of a breach by the Officer of any of his obligations
under Paragraph 6 of this Agreement, the Bank, in addition to any other relief available to it at law or in equity, will
be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief, and expedited discovery
for the purpose of seeking relief, in order to prevent or to restrain any such breach. If the scope of any restriction contained
in this Paragraph 6 is determined to be too broad by any court of competent jurisdiction, then such restriction shall be
enforced to the maximum extent permitted by law, and the Officer consents that the scope of this restriction may be modified judicially.
7.
Standards
.
The Officer shall perform his duties and responsibilities under this Agreement in accordance with such reasonable standards
expected of executives with comparable positions in comparable organizations and as may be established from time to time by the
Directors. The Bank will provide the Officer with the working facilities and staff customary for similar executives and necessary
for the Officer to perform his duties.
8.
Termination
and Termination Pay
.
(a) The
Officer’s employment under this Agreement shall be terminated upon the death of the Officer during the Term of this Agreement,
in which event, the Officer’s estate shall be entitled to receive the compensation due the Officer through the last day
of the calendar month in which the Officer’s death shall have occurred and for a period of one month thereafter.
(b) The
Officer may terminate his employment under this Agreement at any time upon sixty (60) days’ prior written notice to the
Directors. Upon such termination, the Officer shall be entitled to receive compensation through the effective date of such termination.
The Bank, at its sole election, may relieve the Officer of his duties and pay the Officer his current Base Salary in lieu of all
or a portion of such notice period. Notwithstanding such termination, the Officer’s obligations under Paragraph 6 shall
survive any termination of employment.
(c) The
Directors may terminate the Officer’s employment at any time and for any reason in the absence of “Cause” as
defined below. Upon a termination without Cause during the Initial Term, the Officer shall continue to receive his Base Salary
through the end of the Initial Term; upon a termination without Cause during an Extension Term, the Officer shall continue to
receive his Base Salary through the end of such Extension Term. Notwithstanding such termination, the Officer’s obligations
under Paragraph 6 shall survive any termination of employment.
(d) The
Directors may terminate the Officer’s employment for Cause immediately upon written notice specifying the grounds for a
termination for Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination
for Cause. For the purpose of this Agreement, a termination for
Cause
shall include 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 minor traffic violations
or similar minor offenses); or material breach of any provision of this Agreement. Notwithstanding such termination, the Officer’s
obligations under Paragraph 6 shall survive any termination of employment.
(e) Subject
to the Bank’s obligations and the Officer’s rights under (i) Title I of the Americans with Disabilities Act, §504
of the Rehabilitation Act, and the Family and Medical Leave Act, and to (ii) the vacation leave, disability leave, sick leave
and any other leave policies of the Bank, the Officer’s employment under this Agreement automatically shall be terminated
in the event the Officer becomes disabled during the term of this Agreement and it is determined by the Bank that the Officer
is unable to perform the essential functions of the Officer’s job under this Agreement with or without a reasonable accommodation
for sixty (60) business days or more (which need not be consecutive) during any 12-month period. Upon any such termination, the
Officer shall be entitled to receive any compensation the Officer shall have earned prior to the date of termination but which
remains unpaid, and shall be entitled to any payments provided under any disability income plan of the Bank which is applicable
to the Officer. Notwithstanding such termination, the Officer’s obligations under Paragraph 6 shall survive any termination
of employment.
In
the event of any disagreement between the Officer and the Bank as to whether the Officer is physically or mentally incapacitated
such as will result in the termination of the Officer’s employment pursuant to this Paragraph 8(e), the question of
such incapacity shall be submitted to an impartial physical licensed to practice medicine in North Carolina for determination
and who will be selected by mutual agreement of the Officer and the Bank, or failing such agreement, by two (2) physicians (one
(1) of whom shall be selected by the Bank and the other by the Officer), and such determination of the question of such incapacity
by such physician or physicians shall be final and binding on the Officer and the Bank, The Bank shall pay the reasonable fees
and expenses of such physician or physicians in making any determination required under this Paragraph 8(e).
9.
Additional
Regulatory Requirements
.
Notwithstanding anything contained in this Agreement to the contrary, it is understood and agreed
that the Bank (or any of its successors in interest) shall not be required to make any payment or take any action under this Agreement
if:
(a) the
Bank is declared by any governmental agency having jurisdiction over the Bade (hereinafter referred to as “
Regulatory
Authority
”) to be insolvent, in default or operating in an unsafe or unsound manner; or
(b) in
the reasonable opinion of counsel to the Bank, such payment or action (i) would be prohibited by or would violate any provision
of state or federal law applicable to the Bank, including, without limitation, the Federal Deposit Insurance Act as now in effect
or hereafter amended, (ii) would be prohibited by or would violate any applicable rules, regulations, orders or statements of
policy, whether now existing or hereafter promulgated, of any Regulatory Authority, or (iii) otherwise would be prohibited by
any Regulatory Authority.
10.
Change
in Control
.
(a) In
the event of a termination of the Officer’s employment by the Bank other than for Cause (as defined in Paragraph 8(d)),
and other than due to the Officer’s death or disability, within twenty-four (24) months after a “Change in Control”
of the Bank (as defined in Subparagraph (d) below), the Officer shall be entitled to receive the amount set forth in Subparagraph (c)
below. Said sum shall be payable as provided in Subparagraph (e) below.
(b) In
addition to any rights the Officer might have to terminate this Agreement contained in Paragraph 8, the Officer shall have
the right to terminate this Agreement upon the occurrence of any of the following events (the “
Termination Events
”)
without the Officer’s consent within twenty-four (24) months following a Change in Control of the Bank:
(i) Officer
is assigned any duties and/or responsibilities that are inconsistent with or constitute a demotion or reduction in the Officer’s
position, duties, responsibilities or status as such existed at the time of the Change in Control or with his reporting responsibilities
or titles with the Bank in effect at such time, regardless of Officer’s resulting position; or
(ii) Officer’s
annual base salary rate is reduced below the annual amount in effect as of the effective date of a Change in Control or as the
same shall have been increased from time to time following such effective date; or
(iii) Officer’s
life insurance, medical or hospitalization insurance, disability insurance, stock options plans, stock purchase plans, deferred
compensation plans, management retention plans, retirement plans or similar plans or benefits being provided by the Bank to the
Officer as of the effective date of the Change in Control are reduced in their level, scope or coverage, or any such insurance,
plans or benefits are eliminated, unless such reduction or elimination applies proportionately to all salaried employees of the
Bank who participated in such benefits prior to such Change in Control; or
(iv)
Officer
is transferred to a location that is an unreasonable distance from his current principal work location without the Officer’s
express written consent.
The
Officer shall notify the Bank within ninety (90) days of the
initial existence of a Termination Event described above.
If the Bank does not correct the Termination Event within thirty (30) days following such notification, the Officer shall have
the right to terminate this Agreement in accordance with this Paragraph 10. If Officer does not so terminate this Agreement
within seven (7) days following the end of the thirty (30) day correction period, he shall thereafter have no further rights hereunder
with respect to that Termination Event, but shall retain rights, if any, hereunder with respect to any other Termination Event
as to which the twenty four (24) month period has not expired.
(c)
In
the event that the Officer terminates this Agreement pursuant to Paragraph 10(b), the Bank will be obligated to pay or cause
to be paid to Officer an amount equal to 2.99 times the Officer’s then current Base Salary.
(d)
For
the purposes of this Agreement, the term “Change in Control”
shall mean any of the following events:
(i)
After
the effective date of this Agreement, any “person” (as such term is defined in Section 7(j)(8)(A) of the Change in
Bank Control Act of 1978), directly or indirectly, acquires beneficial ownership of voting stock, or acquires irrevocable proxies
or any combination of voting stock and irrevocable proxies, representing thirty-five percent (35%) or more of any class of voting
securities of the Company or the Bank, or acquires control of, in any manner, the election of a majority of the Directors; or
(ii) The
Company or the Bank consolidates or merges with or into another corporation, association or entity, or is otherwise reorganized,
where the Company or the Bank, as applicable, is not the surviving corporation in such transaction; or
(iii) All
or substantially all of the assets of the Company or the Bank are sold or otherwise transferred to or are acquired by any other
corporation, association or other person, entity or group. Notwithstanding the other provisions of this Paragraph 10; (A)
the reorganization of the Bank as a wholly-owned subsidiary of the Company shall not constitute a Change in Control; and (B) a
transaction or event shall not be considered a Change in Control if, prior to the consummation or occurrence of such transaction
or event, Officer
and
Bank agree in writing that the same shall not be treated as a Change in
Control for
purposes of this Agreement.
(e) Such
amounts payable pursuant to this Paragraph 10 shall be paid in one
lump sum following termination of this Agreement.
(f) It
is the intent of the Parties hereto that all payments made pursuant to this Agreement be deductible by the Bank for federal income
tax purposes and not result in the imposition of an excise tax on the Officer. Notwithstanding anything contained in this Agreement
to the contrary, any payments to be made to or for the benefit of the
Officer
which are deemed to be “parachute payments”
as that term is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), shall be modified
or reduced to the extent deemed to be necessary by the Directors to avoid the imposition of excise taxes on the Officer under
Section 4999 of the Code or the disallowance of a deduction to the Bank under Section 280(a) of the Code.
11.
Code
Section 409A
.
Notwithstanding any other provision in the Agreement to the contrary, if and to the extent that Code Section
409A is deemed to apply to any benefit under the Agreement, it is the general intention of the Bank that such benefits shall,
to the extent practicable, comply with, or be exempt from Code Section 409A, and the Agreement shall, to the extent practicable,
be construed in accordance therewith. Deferrals of benefits distributable pursuant to the Agreement that are otherwise exempt
from Code Section 409A in a manner that would cause Code Section 409A to apply shall not be permitted unless such deferrals are
in compliance with Code Section 409A. In the event that the Bank (or a successor thereto) has any stock which is publicly traded
on an established securities market or otherwise and the Officer is determined to be a “specified employee” (as defined
under Code Section 409A), any payment to be made to the Officer upon a separation from service may not be made before the date
that is six months after the Officer’s separation from service (or death, if earlier). To the extent that the Officer becomes
subject to the six-month delay rule, all payments that would have been made to the Officer during the six months following his
separation from service that are not otherwise exempt from Code Section 409A, if any, will be accumulated and paid to the Officer
during the seventh month following his separation from service, and any remaining payments due will be made in their ordinary
course as described in the Agreement. The parties intend that each installment of any payments provided for in this Agreement
is a separate “payment” for purposes of Section 409A. For the purposes herein, the phrase “termination of employment”
or similar phrases will be interpreted in accordance with the term “separation from service” as defined under Code
Section 409A if and to the extent required under Code Section 409A. Further, (i) in the event that Code Section 409A requires
that any special terms, provisions or conditions be included in the Agreement, then such terms, provisions and conditions shall,
to the extent practicable, be deemed to be made a part of the Agreement, and (ii) terms used in the Agreement shall be construed
in accordance with Code Section 409A if and to the extent required. Further, in the event that the Agreement or any benefit thereunder
shall be deemed not to comply with Code Section 409A, then neither the Bank, the Board, the Compensation Committee nor its or
their designees or agents shall be liable to any participant or other person for actions, decisions or determinations made in
good faith.
12.
Successors
and Assigns
.
(a) This
Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire,
directly or indirectly, by conversion, merger, purchase or otherwise, all or substantially all of the assets of the Bank.
(b) Since
the Bank is contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of the Bank.
13.
Modification:
Waiver; Amendments
.
No provision of this Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by the Officer and on behalf of the Bank by such officer as may be specifically designated
by the Directors. No waiver by either Party hereto, at any time, of any breach by the other Party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No amendment or addition to this Agreement shall be binding
unless in writing and signed by both Parties, except as herein otherwise provided.
14.
Applicable
Law
.
This Agreement shall be governed in all respects whether as to validity, construction, capacity, performance or otherwise,
by the laws of North Carolina, except to the extent that federal law shall be deemed to apply.
15.
Severability
.
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
[Signature
page follows.]
IN
WITNESS WHEREOF,
the Parties have executed this Agreement as of the day and year first written above.
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By:
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/s/
Jerry L. Ocheltree
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Jerry
L. Ocheltree
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President
and Chief Executive Officer
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Attest:
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/s/
Sue S. Stamey
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Sue S. Stamey, Corporate Secretary
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OFFICER
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/s/
Edwin E. Laws
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Edwin
E. Laws
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Carolina Trust Bank 8-K12G3
Exhibit
10.5
EMPLOYMENT
AGREEMENT
THIS
AGREEMENT
is entered into as of June 6, 2006, by and between
CAROLINA TRUST BANK,
a North Carolina banking corporation
(hereinafter referred to as the “Bank”) and
RICHARD M. RAGER,
an individual resident of North Carolina (hereinafter
referred to as the “Officer”).
For
and in consideration of their mutual promises, covenants and conditions hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which hereby is acknowledged, the parties agree as follows:
1.
Employment
.
The Bank agrees to employ the Officer and the Officer agrees to accept employment upon the terms and conditions stated herein
as a Senior Vice President of the Bank. The Officer shall render such administrative and management services to the Bank as are
customarily performed by persons situated in a similar executive capacity. The Officer shall promote the business of the Bank
and perform such other duties as shall, from time to time, be reasonably assigned by the President of the Bank. Upon the request
of the Board of Directors (the “Directors”), the Officer shall disclose all business activities or commercial pursuits
in which Officer is engaged, other than Bank duties.
2.
Compensation
.
The Bank shall pay the Officer
during the term of this Agreement, as compensation for all services rendered by the Officer to the Bank, a base salary at the
rate of $90,000 per annum, payable in cash not less frequently than monthly. The rate of such salary shall be reviewed by the
Directors not less often than annually and if increased, shall not be decreased during the term of this Agreement. Such rate of
salary, or increased rate of salary, as the case may be, may be further increased from time to time in such amounts as the Directors,
in their discretion, may decide. In determining salary increases, the Directors shall compensate the Officer for increases in
the cost of living and may also provide for performance or merit increases. Participation in the Bank’s incentive compensation,
deferred compensation, discretionary bonus, profit-sharing, retirement and other employee benefit plans and participation in any
fringe benefits shall not reduce the salary payable to the Officer under this Paragraph. In the event of a Change in Control (as
defined in Paragraph 10), the Officer’s rate of salary shall be increased not less than five percent annually during the
term of this Agreement. Any payments made under this Agreement shall be subject to such deductions as are required by law or regulation
or as may be agreed to by the Bank and the Officer.
3.
Discretionary
Bonuses
.
During the term of this Agreement, the Officer shall be entitled, in an equitable manner with all other key management
personnel of the Bank, to such discretionary bonuses as may be authorized, declared and paid by the Directors to the Bank’s
key management employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Officer’s
right to such discretionary bonuses when and as declared by the Directors.
4.
Participation
in Retirement and Employee Benefit Plans; Fringe Benefits
.
(a) The
Officer shall be entitled to participate in any plan relating to medical and dental insurance, deferred compensation, stock options,
stock purchases, pension, thrift, profit sharing, group life insurance, education, or other retirement or employee benefits that
the Bank has adopted,
or may, from time to time adopt, for the benefit of its executive employees or for employees generally,
subject to the eligibility rules of such plans.
(b) The
Officer shall also be entitled to participate in any other fringe benefits which are now or may be or become applicable to the
Bank’s executive employees and any other benefits which are commensurate with the duties and responsibilities to be performed
by the Officer under this Agreement. Additionally, the Officer shall be entitled to such vacation and sick leave as shall be established
under uniform employee policies promulgated by the Directors. The Bank shall reimburse the Officer for all out-of-pocket reasonable
and necessary business expenses, including dues for one civic club and mileage for the use of Officer’s personal automobile,
which the Officer may incur in connection with the Officer’s services on behalf of the Bank.
5.
Term
.
The initial term of employment under this Agreement shall be for the period commencing upon the effective date of this Agreement
and ending three calendar years from the effective date of this Agreement. On each anniversary of the effective date of this Agreement,
the term of this Agreement shall automatically be extended for an additional one year period beyond the then effective expiration
date unless written notice from the Bank or the Officer is received 90 days prior to an anniversary date advising the other that
this Agreement shall not be further extended; provided that the President shall review the Officer’s performance annually
and make a specific determination pursuant to such review to renew this Agreement prior to the 90 days’ notice.
6.
Loyalty;
Noncompetition
.
(a) The
Officer shall devote his full efforts and entire business time to the performance of the Officer’s duties and responsibilities
under this Agreement.
(b) During
the term of this Agreement, or any renewals thereof, and for a period of one year after termination, the Officer agrees he will
not, within the “Restricted Area,” directly or indirectly, engage in any business that competes with the Bank or any
of its subsidiaries without the prior written consent of the Bank; provided, however, that the provisions of this Paragraph shall
not apply in the event the Officer’s employment is unilaterally terminated by the Bank for. Cause, (as such term is defined
in Paragraph 8(c) hereof) or in the event the Officer terminates his employment with the Bank after the occurrence of a “Termination
Event” (as such term is defined in Paragraph 10(b) hereof) following a “Change of Control” (as such term is
defined in Paragraph 10(d) hereof). The Restricted Area covers the following divisible list of territories: Lincoln County, North
Carolina, or within 30 miles of any Bank office operated during the term of this Agreement. The one-year restricted period, however,
does not include any period of violation or period of time required for litigation to enforce the Officer’s agreement not
to compete against the Bank. Notwithstanding the foregoing, the Officer shall be free, without such consent, to purchase or hold
as an investment or otherwise, up to five percent of the outstanding stock or other security of any corporation that has its securities
publicly traded on any recognized securities exchange or in any over-the counter market.
(c) The
Officer agrees he will hold in confidence all knowledge or information of a confidential nature with respect to the business of
the Bank or any subsidiary received by the Officer during the term of this Agreement and will not disclose or make use of such
information without the prior written consent of the Bank. The Officer agrees that he will be liable to the Bank for any damages
caused by unauthorized disclosure of such information. Upon termination of his employment, the Officer agrees to return all records
or copies thereof of the Bank or any subsidiary in his possession or under his control which relate to the activities of the Bank
or any subsidiary.
(d) The
Officer acknowledges that it would not be possible to ascertain the amount of monetary damages in the event of a breach by the
Officer under the provisions of this Paragraph 6. The Officer agrees that, in the event of a breach of this Paragraph 6, injunctive
relief enforcing the terms of this Paragraph 6 is an appropriate remedy. If the scope of any restriction contained in this Paragraph
6 is determined to be too broad by any court of competent jurisdiction, then such restriction shall be enforced to the maximum
extent permitted by law and the Officer consents that the scope of this restriction may be modified judicially.
7.
Standards
.
The Officer shall perform his duties and responsibilities under this Agreement in accordance with such reasonable standards
expected of employees with comparable positions in comparable organizations and as may be established from time to time by the
Directors. The Bank will provide the Officer with the working facilities and staff customary for similar executives and necessary
for the Officer to perform his duties.
8.
Termination
and Termination Pay
.
(a) The Officer’s employment under this Agreement shall be terminated upon the death of the
Officer during the term of this Agreement, in which event, the Officer’s estate shall be entitled to receive the compensation
due the Officer through the last day of the calendar month in which the Officer’s death shall have occurred and for a period
of one month thereafter.
(b) The
Officer’s employment under this Agreement may be terminated at any time by the Officer upon 60 days’ written notice
to the Directors. Upon such termination, the Officer shall be entitled to receive compensation through the effective date of such
termination.
(c) The
Directors may terminate the Officer’s employment at any time, but any termination by the Directors, other than termination
for Cause, shall not prejudice the Officer’s right to compensation or other benefits under this Agreement. The Bank shall
provide written notice specifying the grounds for termination for Cause. The Officer shall have no right to receive compensation
or other benefits for any period after termination for Cause. Termination for Cause shall include 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 this Agreement. Notwithstanding such
termination, the obligations under Paragraph 6(c) shall survive any termination of employment.
(d) Subject
to the Bank’s obligations and the Officer’s rights under (i) Title I of the Americans with Disabilities Act, §504
of the Rehabilitation Act, and the Family and Medical Leave Act, and to (ii) the vacation leave, disability leave, sick leave
and any other leave policies of the Bank, the Officer’s employment under this Agreement automatically shall be terminated
in the event the Officer becomes disabled during the term of this Agreement and it is determined by the Bank that the Officer
is unable to perform the essential functions of the Officer’s job under this Agreement for sixty (60) business days or more
during any 12-month period. Upon any such termination, the Officer shall be entitled to receive any compensation the Officer shall
have earned prior to the date of termination but which remains unpaid, and shall be entitled to any payments provided under any
disability income plan of the Bank which is applicable to the Officer.
In
the event of any disagreement between the Officer and the Bank as to whether the Officer is physically or mentally incapacitated
such as will result in the termination of the Officer’s employment pursuant to this Paragraph 8(d), the question of such
incapacity shall be submitted to
an impartial physical licensed to practice medicine in North Carolina for determination and who
will be selected by mutual agreement of the Officer and the Bank, or failing such agreement, by two (2) physicians (one (1) of
whom shall be selected by the Bank and the other by the Officer), and such determination of the question of such incapacity by
such physician or physicians shall be final and binding on the Officer and the Bank. The Bank shall pay the reasonable fees and
expenses of such physician or physicians in making any determination required under this Paragraph 8(d).
9.
Additional
Regulatory Requirements
.
Notwithstanding anything contained in this Agreement to the contrary, it is understood and agreed
that the Bank (or any of its successors in interest) shall not be required to make any payment or take any action under this Agreement
if:
(a) the
Bank is declared by any governmental agency having jurisdiction over the Bank (hereinafter referred to as “Regulatory Authority”)
to be insolvent, in default or operating in an unsafe or unsound manner; or,
(b) in
the reasonable opinion of counsel to the Bank, such payment or action (i) would be prohibited by or would violate any provision
of state or federal law applicable to the Bank, including, without limitation, the Federal Deposit Insurance Act as now in effect
or hereafter amended, (ii) would be prohibited by or would violate any applicable rules, regulations, orders or statements of
policy, whether now existing or hereafter promulgated, of any Regulatory Authority, or (iii) otherwise would be prohibited by
any Regulatory Authority.
10.
Change
in Control
.
(a) In the event of a termination of the Officer’s employment in connection with, or within
twenty-four (24) months after, a “Change in Control” (as defined in Subparagraph (d) below) of the Bank other
than for Cause (as defined in Paragraph 8), the Officer shall be entitled to receive the amount set forth in Subparagraph (c)
below. Said sum shall be payable as provided in Subparagraph (e) below.
(b) In
addition to any rights the Officer might have to terminate this Agreement contained in Paragraph 8, the Officer shall have the
right to terminate this Agreement upon the occurrence of any of the following events (the “Termination Events”) within
twenty-four months following a Change in Control of the Bank:
(i) Officer
is assigned any duties and/or responsibilities that are inconsistent with or constitute a demotion or reduction in the Officer’s
position, duties, responsibilities or status as such existed at the time of the Change in Control or with his reporting responsibilities
or titles with the Bank in effect at such time, regardless of Officer’s resulting position; or
(ii) Officer’s
annual base salary rate is reduced below the annual amount in effect as of the effective date of a Change in Control or as the
same shall have been increased from time to time following such effective date; or
(iii) Officer’s
life insurance, medical or hospitalization insurance, disability insurance, stock options plans, stock purchase plans, deferred
compensation plans, management retention plans, retirement plans or similar plans or benefits being provided by the Bank to the
Officer as of the effective date of the Change in Control are reduced in their level, scope or coverage, or any such insurance,
plans or benefits are eliminated, unless such reduction or elimination applies proportionately to all salaried employees of the
Bank who participated in such benefits prior to such Change in Control; or
(iv) Officer
is transferred to a location that is an unreasonable distance from his current principal work location without the Officer’s
express written consent.
A
Termination Event shall be deemed to have occurred on the date such action or event is implemented or takes effect.
(c) In
the event that the Officer terminates this Agreement pursuant to this Paragraph 10, the Bank will be obligated to pay or cause
to be paid to Officer an amount equal to 2.99 times the Officer’s “base amount” as defined in Section 280G(b)(3)
of the Internal Revenue Code of 1986, as amended (the “Code”).
(d) For
the purposes of this Agreement, the term Change in Control shall mean any of the following events:
(i) After
the effective date of this Agreement, any “person” (as such term is defined in Section 7(j)(8)(A) of the Change in
Bank Control Act of 1978), directly or indirectly, acquires beneficial ownership of voting stock, or acquires irrevocable proxies
or any combination of voting stock and irrevocable proxies, representing twenty-five percent (25%) or more of any class of voting
securities of the Bank, or acquires control of, in any manner, the election of a majority of the Directors; or
(ii) The
Bank consolidates or merges with or into another corporation, association or entity, or is otherwise reorganized, where the Bank
is not the surviving corporation in such transaction; or
(iii) All
or substantially all of the assets of the Bank are sold or otherwise transferred to or are acquired by any other corporation,
association or other person, entity or group.
Notwithstanding
the other provisions of this Paragraph 10, a transaction or event shall not be considered a Change in Control if, prior to the
consummation or occurrence of such transaction or event. Officer and Bank agree in writing that the same shall not be treated
as a Change in Control for purposes of this Agreement.
(e) Such
amounts payable pursuant to this Paragraph 10 shall be paid, at the option of the Officer, either in one lump sum or in thirty-six
(36) equal monthly payments following termination of this Agreement.
(f) Following
a Termination Event which gives rise to Officer’s rights hereunder, the Officer shall have twelve (12) months from the date
of occurrence of the Termination Event to terminate this Agreement pursuant to this Paragraph 10. Any such termination shall be
deemed to have occurred only upon delivery to the Bank (or to any successor corporation) of written notice of termination that
describes the Change in Control and the Termination Event. If Officer does not so terminate this Agreement within such twelve-month
period, he shall thereafter have no further rights hereunder with respect to that Termination Event, but shall retain rights,
if any, hereunder with respect to any other Termination Event as to which such period has not expired.
(g) It
is the intent of the parties hereto that all payments made pursuant to this Agreement be deductible by the Bank for federal income
tax purposes and not result in the imposition of an excise tax on the Officer. Notwithstanding anything contained in this Agreement
to the contrary, any payments to be made to or for the benefit of the Officer which 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 by the
Directors to avoid the imposition of excise taxes on the Officer under Section 4999 of the Code or the disallowance of a deduction
to the Bank under Section 280(a) of the Code.
(h) In
the event any dispute shall arise between the Officer and the Bank as to the terms or interpretation of this Agreement, including
this Paragraph 10, whether instituted by formal legal proceedings or otherwise, including any action taken by the Officer to enforce
the terms of this
Paragraph 10 or in defending against any action taken by the Bank, the Bank shall reimburse the Officer for
all costs and expenses, proceedings or actions, in the event the Officer prevails in any such action.
11.
Successors
and Assigns
.
(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor
of the Bank which shall acquire, directly or indirectly, by conversion, merger, purchase or otherwise, all or substantially
all of the assets of the Bank.
(b) Since
the Bank is contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of the Bank.
12.
Modification;
Wavier; Amendments
.
No provision of this Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by the Officer and on behalf of the Bank by such officer as may be specifically designated
by the Board of Directors. No waiver by either party hereto, at any time, of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent time. No amendment or addition to this Agreement
shall be binding unless in writing and signed by both parties, except as herein otherwise provided.
13.
Applicable
Law
.
This Agreement shall be governed in all respects whether as to validity, construction, capacity, performance or otherwise,
by the laws of North Carolina, except to the extent that federal law shall be deemed to apply.
14.
Severability
.
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN
WITNESS WHEREOF,
the parties have executed this Agreement as of the day and year first written above.
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By:
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/s/
John Michael Cline
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John
Michael Cline
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President
and Chief Executive Officer
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Attest:
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/s/ Sue S. Stamey
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Sue S. Stamey, Corporate Secretary
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OFFICER
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/s/ Richard
M. Rager
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Richard M. Rager
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Carolina Trust Bank 8-K12G3
Exhibit
10.06
AMENDMENT
NUMBER ONE TO
EMPLOYMENT
AGREEMENT
This
Amendment Number One is made as of November 1, 2007, to the Employment Agreement dated as of June 6, 2006 (the “Agreement”),
by and between Carolina Trust Bank (the “Bank”) and Richard Rager. This Amendment is being made solely to conform the
provisions of the Agreement with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
1.
Paragraph
10(d) of the Agreement is amended to read as follows:
“For
the purposes of this Agreement, the term Change in Control shall mean any of the following events:
(i)
Any
person, or more than one person acting as a group, accumulates ownership of the Bank’s common stock constituting more than
50% of the total fair market value or total voting power of the Bank’s common stock;
(ii)
Any
person, or more than one person acting as a group, acquires within a 12-month period ownership of the Bank common stock possessing
30% or more of the total voting power of the Bank’s common stock;
(iii)
A
majority of the Bank’s Board of Directors is replaced during any 12-month period by directors whose appointment or election
is not endorsed in advance by a majority of the Bank’s Board of Directors before the date of appointment or election; or
(iv)
Within
a 12-month period, any person, or more than one person acting as a group, acquires assets from the Bank having a total gross fair
market value equal to or exceeding 40% of the total gross fair market value of all of the assets of the Bank immediately before
the acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the Bank’s assets,
or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.
Persons
will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase,
or acquisition of stock, or a similar transaction, involving the Bank. Notwithstanding the other provisions of this Paragraph 10,
a transaction or event shall not be considered a Change in Control if, prior to the consummation or occurrence of such transaction
or event, the Officer and the Bank agree in writing that the same shall not be treated as a Change in Control for purposes of this
Agreement.”
2.
No
other terms and conditions of the Agreement are affected by this Amendment.
IN
WITNESS WHEREOF,
the parties have executed this Amendment (the Bank by its duly
authorized officer) effective as of the day and year first written above.
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CAROLINA TRUST BANK
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By:
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/s/ John Michael Cline
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John Michael Cline, President
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OFFICER
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By:
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/s/ Richard Rager
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(SEAL)
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Richard Rager
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Carolina Trust Bank 8-K12G3
Exhibit
10.07
AMENDMENT
NUMBER TWO TO
EMPLOYMENT AGREEMENT
This
Amendment Number Two is made as of December 1, 2008, to the Employment Agreement dated as of June 6, 2006 (the “Agreement”),
by and between Carolina Trust Bank and Richard Rager (“Officer”). This Amendment is being made solely to conform the
provisions of the Agreement to the requirements of Section 409A and 280G(e) of the Internal Revenue Code of 1986, as amended (“Code”).
1.
Paragraph
10(e) of the Agreement is amended to read
as
follows:
“(e) Such
amounts payable pursuant to this Paragraph 10 shall be paid in one lump sum within sixty (60 days) following termination of
this Agreement.”
2.
The
Agreement is amended by adding the following Paragraphs 15, 16 and 17:
“
15.
Delayed Payments to Specified Employee of Publicly Traded Corporation
.
If the Officer qualifies
as a “specified employee” within the meaning of Treasury Regulation 1.409A-l(i) and if the Bank determines that any
benefit paid to the Officer hereunder is deferred compensation as defined by Section 409A of the Code, then notwithstanding anything
herein to the contrary, the Bank shall, to the extent necessary to avoid the imposition of additional income taxes or penalties
or interest on the Officer under Section 409A of the Code, accumulate any payments of such benefit due hereunder and pay such
benefit to the Officer in a lump-sum payment on the first day of the seventh month following the date of the Officer’s termination
of employment.
16.
Compliance with Code Section 409A; No Deferral of Compensation
.
In
interpreting,
construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall comply with the terms
of Section 409A of the Code, and in the event of any inconsistency with the terms of Section 409A of the Code, the Corporation
shall reform the violating provision so as to meet such terms. All payments of compensation due to Officer for the performance
of services pursuant to this Agreement, other than those provided for under Section 10 above, shall be paid to Officer no later
than two and one-half months following the year in which the Officer performed such services or, if later, the year in which the
Officer attained a vested right to the payment.
17.
Compliance
with ESSA
.
To the extent that any payment under this Agreement would
constitute a prohibited parachute payment under Section 111(b)(2)(C) of the Emergency Economic Stabilization Act of 2008
(“EESA”), the Bank agrees to pay executive an additional payment equal to the prohibited payment on July 1, 2012,
or if later, the earliest date when Section 111(b)(2)(C) of EESA no longer prohibits such payment. Such payment shall be made
in a single lump sum in cash, without interest. The Executive or Participant may be entitled to severance payments from
multiple agreements and plans with the Bank. The Bank, it its sole discretion, shall determine which payments shall be
delayed in order to comply with ESSA. Notwithstanding anything in this paragraph to the contrary, the additional amounts due
under the Agreement shall not be paid if the Treasury Department or other governmental agency issues guidance subsequent to
the date of this Agreement that would prohibit such payment. A prohibited parachute payment
shall be interpreted in a manner that is consistent with Notice 2008- TAAP, Notice 2008-94 and all other current
or future guidance issued pursuant to Section 111(b)(2)(C) of EESA or Section 280G(e) of the Internal Revenue Code of 1986, as
amended.”
3.
No
other terms and conditions of the Agreement are affected by this Amendment.
IN
WITNESS WHEREOF
, the parties have executed this Amendment as of the day and year first written above.
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CAROLINA TRUST BANK
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By:
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/s/ John Michael Cline
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John Michael Cline, President
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OFFICER
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By:
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/s/ Richard Rager
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(SEAL)
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Richard Rager
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Carolina Trust Bank 8-K12G3
Exhibit
10.08
AMENDMENT
NUMBER THREE TO
EMPLOYMENT
AGREEMENT
This
Amendment Number Three is made as of March 1, 2014, to the Employment Agreement dated as of June 6, 2006 (the “Agreement”),
by and between Carolina Trust Bank (the “Bank”) and Richard Rager (“Officer”). All capitalized terms shall
have the same meaning as in the Agreement.
1.
Paragraph
5 of the Agreement is amended to read as follows:
“
Term
.
The term of employment under this Agreement shall be for a period of two calendar years ending on June 6, 2015. On
each anniversary date of this Agreement, the term of this Agreement shall automatically be extended for an additional one year
period beyond the then effective expiration date unless written notice from the Bank or the Officer is received 90 days prior
to an anniversary date advising the other that this Agreement shall not be further extended.”
2.
No
other terms and conditions of the Agreement are affected by this Amendment.
IN
WITNESS WHEREOF,
the
parties have executed this Amendment (the Bank by its duly authorized officer) effective as of the day and year first written
above.
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CAROLINA TRUST BANK
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By:
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/s/ John Michael Cline
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John Michael Cline, President
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OFFICER
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By:
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/s/ Richard Rager
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(SEAL)
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Richard Rager
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Carolina Trust Bank 8-K12G3
Exhibit
10.09
SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN AGREEMENT
THIS
AGREEMENT
, made and entered into this 1st day of January, 2014, by and between Carolina Trust Bank, a bank organized and existing
under the laws of the State of North Carolina (hereinafter referred to as the “Bank”), and Jerry L. Ocheltree, an
Executive of the Bank (hereinafter referred to as the “Executive”).
WITNESSETH:
WHEREAS
,
it is the desire of the Bank and the Executive to enter into this Agreement under which the Bank will agree to make certain payments
to the Executive at retirement or the Executive’s beneficiary(ies) in the event of the Executive’s death pursuant
to this Agreement;
WHEREAS
,
it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide
supplemental retirement benefits for the Executive, and be considered a nonqualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”).
NOW
THEREFORE
, in consideration of Executive’s employment to be performed in the future as well as the mutual promises and
covenants herein contained it is agreed as follows:
I.
EFFECTIVE DATE
The
Effective Date of this Agreement shall be January 1, 2014.
II.
EMPLOYMENT
The
Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue
in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such
compensation as may be determined from time to time by the Board of Directors of the Bank (“Board”).
III.
FRINGE BENEFITS
The
salary continuation benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Executive and are not
part of any salary reduction plan or an arrangement deferring a bonus or a salary increase. The Executive has no option to take
any current payment or bonus in lieu of these salary continuation benefits except as set forth hereinafter,
IV.
DEFINITIONS
A.
Retirement
Date
:
If
the Executive remains
in
the continuous employ of the Bank, the Executive shall retire from active employment with the Bank
on the Executive’s sixty-fifth (65
th
)
birthday,
unless by action of the Board of Directors this period of active employment shall be shortened or extended.
B.
Normal
Retirement Age
:
Normal
Retirement Age shall mean the date on which the Executive attains age sixty-five (65).
C.
Plan
Year
:
Any
reference to “Plan Year” shall mean a calendar year from January 1 to December 31. In the year of implementation,
the term “Plan Year” shall mean the period from the effective date to December 31 of the year of the effective date.
D.
Termination
of Employment
:
Termination
of Employment shall mean voluntary resignation of employment by the Executive or the Bank’s discharge of the Executive without
cause (“cause” defined in Subparagraph IV [E] hereinafter),
prior
to the Normal Retirement Age (defined in Subparagraph IV [B]).
E.
Discharge
for Cause
:
The
term “for cause” shall mean the good faith determination by the Board that any one or more of the following has occurred:
(i)
Executive’s
substantial failure to perforin or material neglect of the material duties of his employment under this Agreement;
(ii)
the
conviction of Executive of, or the guilty or nolo contendere plea of Executive with respect to, any crime or offense involving
properly of the Bank (other than a
de minimis
offense) or involving moral turpitude;
(iii)
the
conviction of Executive of, or the guilty or nolo contendere plea
of
Executive with respect to, or any crime or offense (A) constituting a felony, or (B) which has a
material adverse impact on the Bank’s reputation or financial condition;
(iv)
the
breach of any material provision of the Employment Agreement with the Bank dated January 1, 2014 (including, without limitation,
the provisions of
Section 3
,
Section 7
,
Section 8
or
Section 10
thereof);
(v)
Executive’s
dishonesty
in
connection
with
the
Bank
or
appropriating assets or opportunities of the Bank for his own benefit; or
(vi)
the
violation of a generally recognized lawful material policy of the Bank, of which Executive is provided a copy or is otherwise
made aware, (after
written
notice hereof and a reasonable opportunity to cure if the event the violation is an issue which reasonably is curable).
If
a
dispute
arises
as to discharge “for
cause”,
such
dispute shall be
resolved by
arbitration
as
set forth in
this Agreement.
F.
Change
of Control
:
Change
of Control shall be defined as follows:
(i)
After
the effective date of this Agreement, any “person” (as such term is defined
in
Section
7(j)(8)(A) of the Change in Bank Control Act of 1978), directly or indirectly, acquires
beneficial ownership of voting stock, or acquires beneficial ownership of voting stock, or acquires irrevocable proxies or any
combination of voting stock and irrevocable proxies, representing thirty-five percent (35%) or more of any class of voting securities
of the Bank, or acquires control of, in any manner, the election of a majority of the Board; or
(ii)
The
Bank consolidates or merges with or into another corporation, association or entity, or is otherwise reorganized, where the Bank
is not the surviving corporation in such transaction; or
(iii)
All
or substantially all of the assets of the Bank are sold or otherwise transferred to or are acquired by any other corporation,
association or other person, entity or group.
A
transaction or event shall not be considered a Change of Control if, prior to the consummation or occurrence of such transaction
or event. Executive and Bank agree in writing that the same shall not be
treated
as a Change of Control for purposes of this Agreement.
G.
Vesting
Date
:
Vesting
Date shall mean the date that is five years from the date of this Agreement.
V.
RETIREMENT BENEFIT AND POST-RETIREMENT DEATH BENEFIT
The
Bank will annually accrue a liability retirement account on behalf of the Executive equal to or not less than twenty percent (20%)
of the Executive’s base salary consistent with applicable law. The Bank, commencing with the first day of the month following
the Retirement Date (Subparagraph IV [A]) shall pay the Executive the balance in the accrued liability retirement account
in a five equal installments. The first payment shall not be made until the seventh month following his separation from service,
as defined in Section XIII of this Agreement. The next four payments shall be made on each of the next four anniversaries
of the Executive’s Retirement Date. Upon the death of the Executive, if there is a balance in the accrued liability retirement
account, such balance shall be paid in a lump sum to the individual or individuals the Executive may have
designated
in writing and filed with the Bank. In the absence of any effective beneficiary designation, any
such
amount
becoming
due and payable upon the death of the Executive shall be payable to the duly qualified executor or administrator of the Executive’s
estate. Said payment due hereunder shall be made the first day of the second month following the decease of the Executive.
VI.
DEATH BENEFIT PRIOR TO RETIREMENT
In
the event the Executive should die while actively employed by the Bank at any time after the Vesting Date but prior to the Executive
attaining the age of sixty-five (65) years (or such later date as may be agreed upon), the Bank will pay the accrued balance,
on the date of death, of the Executive’s liability retirement account in one (1) lump sum to such individual or individuals
as (he Executive may have designated in writing and filed with the Bank, at which time this Agreement shall terminate. In the
absence of any effective beneficiary
designation,
any such amount becoming due and payable upon the death of the Executive shall be payable to
the
duly qualified executor or administrator of the Executive’s estate. Said payment due hereunder shall be made by the first
day of the second month following the decease of the Executive.
VII.
BENEFIT ACCOUNTING/ACCRUED LIABILITY RETIREMENT ACCOUNT
The
Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary
fe
deral
regulator. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves
shall be accrued.
VIII.
VESTING
Executive
shall be one hundred percent (100%) vested in the accrued liability retirement account five years from the Effective Date of this
Agreement.
IX.
DISABILITY
In
the event that there is a finding of any qualified period of disability for the Executive after the Vesting Date (“Period
of Disability”), (he Bank will deposit into a Contingent Disability Trust for Executive (hereafter “Trust”)
an amount equal to the accrued liability retirement account established on the Executive’s behalf pursuant to this Agreement.
No other benefits will be owed to the Executive under this Agreement during the Period of Disability.
An
Executive is considered disabled if he is unable to perform his duties on account of disability or incapacity for a period of
ninety (90) or more days, whether or not consecutive within any period of twelve (12) consecutive months. The determination of
incapacity or disability under the preceding sentence shall be made in good faith by the Bank and may be based upon information
supplied by a physician selected by the Bank or its insurers and reasonably acceptable to the Executive or his legal representative;
provided that the Executive shall cooperate fully with such physician to permit such physician to make an accurate determination
as to incapacity or disability.
If
the Executive is under a Period of Disability on the date the Executive reaches Normal Retirement
Age, this agreement shall automatically terminate and the Executive shall not be entitled to any further benefits under this Agreement.
If
the Period of Disability ends prior to Normal Retirement Age and the Executive returns to active employment with the Bank, the
Trust will be terminated and the Bank will resume accruing the retirement benefit in accordance with Paragraph V of this
Agreement.
X.
TERMINATION OF EMPLOYMENT
Subject
to Subparagraph IV (E), in the event that the employment of the Executive shall terminate after the Vesting Date but prior
to Normal Retirement Age, as provided in Subparagraph IV (B), by the Executive’s voluntary action, or by the Executive’s
discharge by the Bank without cause, then this Agreement shall terminate upon the date of such termination of employment and the
Bank shall cease any further accrual of benefits under this Agreement. An amount equal to the Executive’s accrued liability
retirement account on the date of said termination plus accumulated interest shall be paid to the Executive in a lump sum thirty
(30) days following Normal Retirement Age. Upon Termination of Employment, the Executive’s liability retirement account
shall accrue interest on a monthly basis equal to the average prior years’ tax equivalent yield for the Bank’s cumulative
Bank Owned Life Insurance policies until said payment is made.
In
the event the Executive’s death should occur after such termination but prior to the payment provided for in this Paragraph X,
the lump sum shall be paid to such individual or individuals as the Executive may have designated in writing and filed with the
Bank. In the absence of any effective beneficiary designation, any such amount shall be payable to the duly qualified executor
or administrator of the Executive’s estate. Said payment due hereunder shall be made the first day of the second month following
the decease of the Executive.
In
the event the Executive shall be discharged for cause at any time in accordance with Subparagraph IV (E), this Agreement
shall terminate and all benefits provided herein shall be forfeited.
XI.
CHANGE OF CONTROL
If
the Executive subsequently suffers a Termination of Employment (voluntarily or involuntarily) after the Vesting Date, except for
cause, thirty (30) days prior to or twelve (12) months subsequent to a Change of Control as defined in Subparagraph IV
(F), then the Executive shall be paid the balance in the accrued liability retirement account in a lump sum thirty (30) days following
the Change of Control or Termination of Employment, whichever is later.
XII.
RESTRICTIONS ON FUNDING
The
Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this
Agreement. The Executive, his beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of
the Bank in the
same
manner as any other creditor having a general claim for matured and unpaid compensation.
The
Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Agreement or to refrain
from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Agreement,
in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves
the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Executive
be deemed to have any lien, right, title or interest in any specific funding investment or assets of the Bank.
If
the Bank elects to invest in a life insurance, disability or annuity policy on the life of the Executive, then the Executive shall
assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance
or annuities.
XIII.
CODE SECTION 409A.
Notwithstanding
any other provision in the Agreement to the contrary, if and to the extent that Section 409A of the Internal Revenue Code
of 1986 (“Code Section 409A”), as amended, is deemed to apply to any benefit under this Agreement, it is the
general intention of the Bank that such benefits shall, to the extent practicable, comply with, or be exempt from. Code Section 409A,
and this Agreement shall, to the extent practicable, be construed in accordance therewith. Deferrals of benefits distributable
pursuant to this Agreement that are otherwise exempt from Code Section 409A in a manner that would cause Code Section 409A
to apply shall
not be
permitted unless such deferrals are in compliance with Code Section 409A. In the event that the Bank (
or
a successor thereto) has any stock which is publicly traded on an established securities market or otherwise and the Executive
is determined to be a “specified employee” (as defined under Code Section 409A), any payment to be made to the
Executive upon a separation from service may not be made before the date that is six months after the Executive’s separation
from service (or death, if earlier). To the extent that the Executive becomes subject to the six-month delay rule, all payments
that would have been made to the Executive during the six months following his separation from service that are not otherwise
exempt from Code Section 409A, if any, will be accumulated and paid to the Executive during the seventh month following his
separation from service, and any remaining payments due will be made in their ordinary course as described in this Agreement.
For the purposes herein, the phrase “termination of employment” or similar phrases will be interpreted in accordance
with the term “separation from service” as defined under Code Section 409A if and to the extent required under
Code Section 409A. Further, (i) in the event that Code Section 409A requires that any special terms, provisions or conditions
be included in this Agreement, then such terms, provisions and conditions shall, to the extent practicable, be deemed to be made
a part of this Agreement, and (ii) terms used in this Agreement shall be construed in accordance with Code Section 409A if
and to the extent required. Further, in the event that this Agreement or any benefit hereunder shall be deemed not to comply with
Code Section 409A, then neither the Bank, the Board, the Compensation Committee nor its or their designees or agents shall
be liable to any participant or other person for actions, decisions or determinations made in good faith.
XIV.
MISCELLANEOUS
A.
Alienability
and Assignment Prohibition
:
Neither
the Executive, nor the Executive’s surviving spouse, nor any other beneficiary(ies) under this Agreement shall have any
power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of
the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony
or separate maintenance owed by the Executive or the Executive’s beneficiary(ies), nor be transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.
B.
Binding
Obligation of the Bank and any Successor in Interest
:
The
Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or
person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the
Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiaries, heirs and
personal representatives.
C.
Amendment
or Revocation
:
Subject
to Paragraph XIV, it is agreed by and between the parties hereto that, during the lifetime of the Executive, this Agreement
may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank.
D.
Gender
:
Whenever
in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
E.
Effect
on Other Bank Benefit Plans
:
Nothing
contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified
pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s
existing or future compensation structure.
F.
Headings
:
Headings
and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.
G.
Applicable
Law
:
This
Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, exclusive of the conflicts
of laws provisions thereof.
H.
Partial
Invalidity
:
If
any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to
be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid,
void, or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.
I.
Not
a Contract
of
Employment
:
This
Agreement shall not be deemed lo constitute a contract of employment between the parties hereto, nor shall any provision hereof
restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate employment.
XV.
ADMINISTRATIVE AND CLAIMS PROVISION
A.
Named
Fiduciary and Plan Administrator
:
The
“Named Fiduciary and Plan Administrator” of this Agreement shall be the Bank. As Named Fiduciary and Plan Administrator,
the Bank shall be responsible for the management, control and administration of the provisions of this Agreement. The Named Fiduciary
and Plan Administrator may delegate to others certain aspects of the management and operation responsibilities of this Agreement
including the employment of advisors and the delegation of ministerial duties to qualified individuals.
B.
Claims
Procedure
:
In
the event
a
dispute arises over
benefits under
this
Agreement and benefits are not paid to the Executive (or to the Executive’s beneficiary(ies) in the case of the Executive’s
death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary
and Plan Administrator named above within forty-five (45) days from the date payments are refused. The Named Fiduciary and Plan
Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within
forty-five (45) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Agreement
upon which the denial is based and any additional material or information necessary to denial of the claim. Such written notice
shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desked. A claim
shall be deemed denied if the Named Fiduciary and Plan Administrator fail to lake any action within the aforesaid forty-five (45)
day period.
If
claimants desire a second review they shall notify the Named
Fiduciary
and Plan Administrator in writing within forty-five (45) days of the first claim denial. Claimants
may review this Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate.
In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written
decision within forty-five (45) days of receipt of such claim. This decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of the Agreement upon which the decision is based.
C.
Arbitration
:
If
claimants continue to dispute the benefit denial based upon completed performance of this Agreement
or
the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to
an
Arbitrator for final arbitration. The Arbitrator shall be selected by mutual agreement of the Bank and the claimants). The Arbitrator
shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision of such Arbitrator with respect to any controversy properly
submitted to it for determination.
Where
a dispute arises as to the Bank’s discharge of the Executive “for cause,” such dispute shall likewise be submitted
to arbitration as above described and the parties hereto agree to be bound by the decision thereunder.
In
any event of litigation or arbitration, should the Executive be successful, the Bank will reimburse the Executive for all costs
and expenses, proceedings or actions, including his reasonable legal fees.
XVI.
TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS
The
Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in
effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Agreement,
then the Bank reserves the right to terminate or modify this Agreement accordingly.
IN
WITNESS WHEREOF,
the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof
as of the first day set forth hereinabove, and that, upon execution each has received a conforming copy.
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BANK:
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Carolina
Trust Bank
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By:
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/s/
Johnathan Rhyne, Jr.
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Name:
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Johnathan
Rhyne, Jr.
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Title:
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Chairman
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EXECUTIVE:
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By:
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/s/
Jerry L. Ocheltree
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Jerry
L. Ocheltree
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Carolina Trust Bank 8-K12G3
Exhibit
10.10
SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
THIS
PLAN is adopted as of the 1st day of August, 2007, by Carolina Trust Bank a banking corporation organized and existing under the
laws of the State of North Carolina, hereinafter referred to as the “Plan Sponsor”.
WITNESSETH
WHEREAS,
it is the consensus of the Board that the Participant’s services to the Plan Sponsor in the past have been of exceptional
merit and have constituted an invaluable contribution to the general welfare of the Plan Sponsor bringing it to its present status
of operating efficiency, and its present position in its field of activity; and.
WHEREAS,
the experience of the Participant, his knowledge of the affairs of the Plan Sponsor, his reputation and contacts in the industry
are so valuable that assurance of his continued services is essential for the future growth and profits of the Plan Sponsor and
it is in the best interests of the Plan Sponsor to arrange terms of continued employment for the Participant so as to reasonably
assure his remaining in the Plan Sponsor’s employment during his lifetime or until the age of retirement; and.
WHEREAS,
it is the desire of the Plan Sponsor that his services be retained as herein provided; and.
WHEREAS,
the Participant is willing to continue in the employ of the Plan Sponsor provided the Plan Sponsor agrees to pay to him or
his beneficiaries certain benefits in accordance with the terms and conditions hereinafter set forth; and.
WHEREAS,
the Plan Sponsor intends that the Plan shall at all times be administered and interpreted in such a manner as to constitute
an unfunded nonqualified deferred compensation plan for tax purposes and for purposes of Title I of ERISA. This Plan is not intended
to qualify for favorable tax treatment pursuant to IRC Section 401(a) of the Code or any successor section or statute.
This Plan is intended to comply with IRC Section 409A as created under The American Jobs Creation Act of 2004 (the “Jobs
Act of 2004”). It is both anticipated and expected that the terms and provisions of this Plan may need to be amended in
the future to assure continued compliance. The Plan Sponsor and the Participant acknowledge that fact and agree to take any and
all steps necessary to operate the plan in “good faith” based on their current understanding of the regulations;
NOW
THEREFORE,
in consideration of services performed in the past and to be performed in the future as well as of the mutual promises
and covenants herein contained, it is agreed as follows:
ARTICLE
1
DEFINITIONS
DEFINITION
OF TERMS.
Certain words and phrases are defined when first used in later Articles of this Plan. Whenever any words are used
herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and
whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural
or the singular-, as the case may be, in all cases where they would so apply, For the purpose of this Plan, unless otherwise clearly
apparent from the context, the following phrases or terms shall have the following indicated meanings:
1.1 “Accrued
Benefit”
shall mean the Participant’s Supplemental Retirement Benefit calculated for purposes of Generally Accepted
Accounting Principles (GAAP) and recorded on the books of the Plan Sponsor.
1.2 “Aggregated
Plans”
shall mean this Plan and any other like-type plan or arrangement (nonaccount balance plan) of the Plan Sponsor
in which the Participant participates and to which the Plan or Applicable Guidance requires the aggregation of all such nonqualified
Deferred Compensation Plans in applying Code §409A and associated regulations.
1.3 “Annual
Compensation”
shall mean the annual rate of base pay (excluding bonuses) on January 1st of each year.
1.4 “Applicable
Guidance”
shall mean, as the context requires, Code §409A, Final Treasury Regulations §1.409A, or other
written Treasury or IRS guidance regarding or affecting Code §409A. Applicable Guidance also includes, through December
31, 2007, Notice 2005-1, Notice 2006-79 and Notice 2006-100.
1.5 “Beneficiary”
shall mean the person or persons, natural or otherwise, designated in writing by a Participant before his or her death to
receive Plan benefits in the event of the Participant’s death.
1.6 “Benefit
Computation Base”
shall mean the average of the Participant’s “Annual Compensation” for the five (5)
completed years of employment immediately preceding the year
-
in which an event occurs giving rise to the need for
such calculation.
1.7 “Benefit
Eligibility Date”
shall mean the time at which benefits shall become payable under the terms of the Plan, as specified
by the Plan Sponsor in the Participation Agreement.
1.8 “Board”
shall mean the board of director’s of the Plan Sponsor, unless specifically noted otherwise.
1.9 “Cause”
shall mean any of the following acts or circumstances: (i) willful destruction by the Participant of property of the Plan
Sponsor having a material value to the Plan Sponsor; (ii) fraud, embezzlement, theft, or comparable dishonest activity committed
by the Participant (excluding acts involving a de minimis dollar value and not related to the Plan Sponsor); (iii) the Participant’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 (excluding acts involving a de minimis dollar value and not related to the Plan Sponsor);
(iv) the Participant’s breach, neglect, refusal, or failure to materially discharge the Participant’s duties (other
than due to physical or mental illness) commensurate with the Participant’s title and function or the Participant’s
failure to comply with the lawful directions of a senior managing officer of the Plan Sponsor in any such case that is not cured
within fifteen (15) days after the Participant has received written notice thereof from such senior managing officer; or (v) any
willful misconduct by the Participant which may cause substantial economic or reputation injury to the Plan Sponsor, including,
but not limited to, sexual harassment.
1.10 “Claimant”
shall mean a person who believes that he or she is being denied a benefit to which he or she is entitled hereunder.
1.11 “Code”
shall mean the Internal Revenue Code of 1986, as amended.
1.12 “Effective
Date”
shall mean August 1, 2007.
1.13 “Election
Form”
shall mean the form or forms established, from time to time, by the Plan Administrator on which the Participant
makes certain designations as required under the terms of the Plan. The Participant Election Form may take the form of an electronic
communication followed by appropriate written confirmation according to specifications established by the Plan Administrator.
1.14 “Eligible
Employee”
shall mean for any Plan Year (or applicable portion of a Plan Year), an Employee who is determined by the
Plan Sponsor, or its designee, to be a Participant under the Plan. If the Plan Sponsor determines that an Employee first becomes
an Eligible Employee during a Plan Year, the Plan Sponsor shall notify the individual in writing of its determination and of the
date during the Plan Year on which the individual shall first become a Plan Participant.
1.15 “Employee”
shall mean a person or entity, (in accordance with Treasury Regulations §1.409A-l(f)(l), and which is on the cash basis
method of accounting for Federal income tax purposes) providing services to the Plan Sponsor in the capacity of a common law Employee
of the Plan Sponsor.
1.16 “ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
1.17 “Form
of Payment”
shall mean the modal form of payments (e.g. monthly, quarterly, annual etc.) made to a Participant and/or
a Beneficiary under the permissible payment events defined in Article 3. Modal forms may be determined at the sole discretion
of the Plan Sponsor or may be options offered by the Plan Sponsor and selected by the Participant in the Participation Agreement.
1.18 “Legally
Binding Right”
shall mean, with respect to compensation: (i) the Participant’s right to such compensation, granted
by the Plan Sponsor, after the Participant has performed the services which created the Legally Binding Right, and (ii) where
compensation may not be reduced unilaterally or eliminated by the Plan Sponsor or any other person after the services creating
the right to compensation has been performed. The Plan Sponsor, based on the facts and circumstances, will determine whether a
Legally Binding Right exists or does not exist with respect to compensation, in accordance with Treasury Regulation §1.409A-l(b)(l).
1.19 “Normal
Retirement Age”
shall mean the later of; (a) date stated by the Plan Sponsor in the Participation Agreement, or (b)
the date the Participant incurs a Separation from Service.
1.20 “Participant”
shall mean any Eligible Emplo3’ee: (i) who is selected to participate in this Plan, (ii) who elects to participate in
this Plan by signing a Participation Agreement, (iii) who completes and signs certain Election Form required by the Plan
Administrator, and (iv) whose signed Election Form are accepted by the Plan Administrator or, (v) a former Eligible Employee
who continues to be entitled to a benefit under this Plan.
1.21 “Participation
Agreement”
shall mean the agreement executed by the Eligible Employee and Plan Administrator whereby the Eligible Employee
agrees to participate in the Plan.
1.22 “Payout
Period”
shall mean the duration of benefit payments (e.g. 5 years, 10 years, lifetime etc.) made to a Participant
and/or a Beneficiary under the permissible payment events defined in Article 3. Payout Periods may be determined at the sole discretion
of the Plan Sponsor or may be options offered by the Plan Sponsor and selected by the Participant in the Participation Agreement.
1.23 “Plan”
shall mean this Supplemental Executive Retirement Plan Agreement, the Participation Agreement, all Election Forms, the Trust,
(if any), and any other written documents relevant to the Plan. For purposes of applying Code §409A requirements, this
Plan is a non-account balance plan under Treasury Regulation §1.409-l(c)(2)(i)(A).
1.24 “Plan
Administrator”
shall be the Plan Sponsor or its designee. A Participant in the Plan should not serve as a singular Plan
Administrator. If a Participant is part of a
group of persons designated as a committee or Plan Administrator, then the
Participant may not participate in any activity or decision relating solely to his or her individual benefits under this Plan.
Matters solely affecting the applicable Participant will be resolved by the remaining committee members.
1.25 “Plan
Sponsor”
shall mean the person or entity: (i) receiving the services of the Participant; (ii) with respect to whom the
Legally Binding Right to compensation arises; and (iii) all persons with whom such person or entity would be considered
a
single employer under Code §414(b) or §414(c).
1.26 “Plan
Year”
shall mean, for the first Plan Year, the period beginning on the Effective Date of the Plan and ending December
31 of such calendar year, and thereafter, a twelve (12) month period beginning January 1 of each calendar year and continuing
through December 31 of such calendar year.
1.27 “Section 409A”
shall mean Section 409A of the Code and the Treasury Regulations and other Applicable Guidance issued under that
Section.
1.28 “Separation
from Service”
shall mean the occurrence of a Participant’s death, retirement, or “other termination of employment”
(as defined in Treasury Regulations §1,409A- 1 (h)(1)(ii)) with the Plan Sponsor (as defined in Treasury Regulations §1.409A-l(h)(3)).
However, a Separation from Service shall not occur if the Participant is on military leave, sick leave, or other bona fide leave
of absence if the period of such leave does not exceed six months, or if longer, so long as the Participant retains a right to
reemployment with the Plan Sponsor under an applicable statute or by contract.
1.29 “Service
Year”
shall mean a Participant’s Taxable Year in which the Participant performs services which give rise to compensation.
1.30 “Specified
Employee”
shall mean that the Participant also satisfies the definition of a “key employee” as such term
is defined in Code §416(i) (without regard to Section 416(i)(5)), However, the Participant is not a Specified Employee
unless any stock of the Plan Sponsor is publicly traded on an established securities market or otherwise, as defined in Code §1.897-l(m).
If the Participant is a key employee at any time during the twelve (12) months ending on the identification date (see below),
the Participant is a Specified Employee for the twelve (12) month period commencing on the first day of the fourth month following
the identification date. For purposes of this Article, the identification date is December 31, The determination of the Participant
as a Specified Employee shall be made by the Administrator in accordance with IRC Section 416(i), the “specified employee”
requirements of Section 409A, and Treasury Regulations.
1.31 “Supplemental
Retirement Benefit”
shall mean a dollar amount payable to the Participant, for the Payout Period and in the Form of
Payment, as defined in the Participation Agreement.
1.32 “Survivor
Benefit”
shall mean the dollar benefit payable to the Participant’s Beneficiary in the event the Participant dies
while in active employment of the Plan Sponsor or following active employment but prior to commencement of payments hereunder,
or the completion of payments hereunder, as defined in the Participation Agreement.
1.33 “Taxable
Year”
shall mean the twelve (12) consecutive month period ending each December 31.
1.34 “Treasury
Regulations”
shall mean regulations promulgated by the Internal Revenue Service for the U.S. Department of the Treasury,
as they may be amended from time to time.
1.35 “Trust”
shall mean one or more trusts that may be established in accordance with the terms of this Plan.
1.36 “Vested
Accrued Benefit”
shall mean the Accrued Benefit multiplied by a vesting schedule (if any), as defined in the Participation
Agreement.
1.37 “Year
of Service”
shall mean each twelve
(12)
month period during which the Participant is employed on a full-time
basis by the Plan Sponsor, with a minimum of
1,000
hours of service, inclusive of any approved leaves of absence,
beginning on the Participant’s date of hire.
ARTICLE
2
Selection, Enrollment, Eligibility
2.1 Selection
by Plan Sponsor.
Participation in the Plan shall be limited to a select group of management or highly compensated employees
of the Plan Sponsor, as determined by the Plan Sponsor in its sole and absolute discretion. The initial group of Eligible Employees
shall become Participants on the Effective Date. Any Eligible Employee selected as a Plan Participant after the Effective Date,
shall become a Participant on a date determined by the Plan Sponsor.
2.2 Re-Employment.
If a Participant who incurs a Separation from Service is subsequently re-employed, he or she may, at the sole and absolute
discretion of the Plan Administrator, become a Participant in accordance with the provisions of the Plan.
2.3 Enrollment
Requirements.
As a condition of participation, each selected Employee shall complete, execute, and return to the Plan Administrator
a Participation Agreement and any Election Form(s) required by the Plan Administrator and within the time specified by the Plan
Administrator. In addition, the Plan Administrator shall establish such other enrollment requirements as it determines necessary
or advisable.
2.4 Eligibility;
Commencement of Participation.
Provided that an Employee selected to participate in the Plan has met all enrollment requirements
set forth in the Plan and required by the Plan Administrator, the Employee shall commence participation in the Plan on the date
his or her Participation Agreement is executed by the Plan Sponsor.
2.5 Termination
of Participation,
If the Plan Administrator determines in good faith that a Participant no longer qualifies as a member of
a select group of management or highly compensated employees, as membership in such group is determined in accordance with Section 201(2),
301(a)(3) and 401(a)(1) of ERISA, the Plan Administrator shall have the right, in its sole discretion, to cease further benefit
accruals hereunder.
ARTICLE
3
BENEFITS
3.1 Normal
Retirement Benefit.
If the Participant remains in the service of the Plan Sponsor until reaching his Normal Retirement Age,
the Participant shall be entitled to a Supplemental Retirement Benefit as stated and payable in the form and duration defined
in the Participation Agreement.
3.2 Death
Prior to Commencement of Benefit Payments.
If the Participant dies prior to commencement of benefit payments hereunder, the
Participant’s Beneficiary shall be entitled to a benefit in the amount, form, and duration defined in the Participation
Agreement.
3.3 Death
Subsequent to Commencement of Benefit Payments.
In the event the Participant dies while receiving payments, but prior to receiving
all such payments due and owing hereunder, the unpaid balance of the payments shall continue to be paid to the Participant’s
Beneficiary for the remainder of the Payout Period.
3.4 Disability
Benefit.
In the event the Participant becomes disabled, as defined below, prior to the commencement of benefit payments hereunder,
the Participant shall be entitled to receive a Disability Benefit in the amount, form, and duration defined in the Participation
Agreement. If the Participant incurs a Separation of Service pursuant to this Article, the Participant shall receive the Disability
Benefit in lieu of any other benefit available under this Plan. For purposes of this Agreement, “Disability” shall
be defined as a condition of the Participant whereby he or she either: (i) is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected
to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months,
receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees
of the Plan Sponsor. The Administrator will determine whether the Participant has incurred a Disability based on its own good
faith determination and may require the Participant to submit to reasonable physical and mental examinations for this purpose.
The Participant will also be deemed to have incurred a Disability if determined to be totally disabled by the Social Security
Administration, Railroad Retirement Board, or in accordance with a disability insurance program, provided that the definition
of disability applied under such disability insurance program complies with the requirements of Treasury Regulation §1.409A-3(i)(4)
and authoritative guidance.
3.5 Separation
from Service Benefit.
If a Participant’s employment is terminated voluntarily, or involuntarily but not for “Cause”,
at any time prior to his Normal Retirement Date, the Participant shall be entitled to the Vested Accrued Benefit in the amount,
form, and duration defined in the Participation Agreement.
3.6 Change
in Control Benefit.
If a Change in Control event occurs prior to the Participant attaining his or her Normal Retirement Age,
and If the Participant incurs a Separation of Service pursuant to this Article, the Participant shall be entitled to receive a
dollar benefit in the amount, form, and duration defined in the Participation Agreement. For purposes of this Agreement, “Change
in Control” shall mean the occurrence of a Change in Control event, within the meaning of Treasury’ Regulations §1,409A-3(i)(5)
and described in any of subparagraph (a), (b), or (c), (collectively referred to as “Change in Control Events”), or
any combination of the Change in Control Events. To constitute a Change in Control Event with respect to the Participant or Beneficiary,
the Change in Control Event must relate to: (i) the Plan Sponsor for whom the Participant is performing services at the time of
the Change in Control Event; (ii) the Plan Sponsor that is liable for the payment of the Accrued Benefit (or all Plan Sponsors
liable for the payment if more than one Plan Sponsor is liable); or (iii) a Plan Sponsor that is a majority
shareholder
of a Plan Sponsor identified in clause (i) or (ii), or any Plan Sponsor in a chain of Plan Sponsors in which each Plan Sponsor
is a majority’ shareholder of another Plan Sponsor in the chain, ending in a Plan Sponsor identified in clause (i) or (ii).
(a)
Change
in Ownership.
A Change in Ownership occurs if a person, or a group of persons acting together, acquires more than fifty percent
(50%) of the stock of the Plan Sponsor, measured by voting power or value. Incremental increases in ownership by a person or group
that already owns fifty percent (50%) of the Plan Sponsor do not result in a Change of Ownership, as defined in Treasury Regulations
§1.409A-3(i)(5)(v).
(b)
Change
in Effective Control.
A Change in Effective Control occurs if, over a twelve (12) month period: (i) a person or group acquires
stock representing thirty percent (30%) of the voting power of the Plan Sponsor; or (ii) a majority of the members of the Board
of the ultimate parent Plan Sponsor is replaced by directors not endorsed by the persons who were members of the Board before
the new directors’ appointment, as defined in Treasury Regulations §1.409A-3(i)(5)(vi).
(c)
Change
in Ownership of a Substantial Portion of Corporate Assets.
Change in Control based on the sale of assets occurs if a person
or group acquires forty percent (40%) or more of the gross fair market value of the assets of a Plan Sponsor over a twelve (12)
month period. No change in control results pursuant to this Article (c) if the assets are transferred to certain entities controlled
directly or indirectly by the shareholders of the transferring corporation, as defined in Treasury Regulations §1.409A-3(i)(5)(vii).
3.7 Termination
for Cause Prior To Plan Retirement Date.
If the Plan Sponsor terminates the Participant’s employment for “Cause”,
then the Participant shall not be entitled to any benefits under the terms of this Agreement.
3.8 Prohibition
on Acceleration of Payments.
Notwithstanding anything in this Plan to the contrary, neither the Plan Sponsor nor a Participant
may accelerate the time or schedule of any payment or amount scheduled to be paid under this Plan, except as otherwise permitted
by Treasury Regulations §1.409A-3(j)(4). The Plan Sponsor shall deny any change made to an election if the Plan Sponsor determines
that the change violates the requirements of authoritative guidance. However, the Plan Sponsor shall permit the acceleration of
the time or schedule of payment to pay the Participant at any time the arrangement fails to meet the requirements of Code Section 409A
and the Treasury Regulations and other guidance promulgated thereunder. Such payment shall not exceed the amount required to be
included in income as the result of the failure to comply with the requirements of Code Section 409A.
3.9 Delay
in Payment by Plan Sponsor.
(a) A
payment may be delayed to a date after the designated payment date under any of the circumstances described below, and the provision
will not fail to meet the requirements of establishing a permissible payment event, The delay in the payment will not constitute
a subsequent deferral election, so long as the Plan Sponsor treats all payments to similarly situated Participants on a reasonably
consistent basis.
(i)
Payments
subject to Section 162(m).
A payment may be delayed to the extent that the Plan Sponsor reasonably anticipates that if
the payment were made as scheduled, the Plan Sponsor’s deduction with respect to such payment would not be permitted due
to the application of Code §162(m). If a payment is delayed, such payment must be made either;
(1) during
the Participant’s first taxable year in which the Plan Sponsor reasonably anticipates, or should reasonably anticipate,
that if the payment is made during such year, the deduction of such payment will not be barred by application of Code §162(m)
or,
(2) during
the period beginning with the date of the Participant’s Separation from Service and ending on the later of the last da)’
of the Taxable Year of the Plan Sponsor in which the Participant separates from service or the 15
lh
day of the third
month following the Participant’s Separation from Service. Where any scheduled payment to a specific Participant in the
Plan Sponsor’s Taxable Year is delayed in accordance with this Article, the delay in payment will be treated as a subsequent
deferral election unless all scheduled payments to the Participant that could be delayed in accordance with this Article are also
delayed. Where the payment is delayed to a date on or after the Participant’s Separation from Service, the payment will
be considered a payment upon a Separation from Service for purposes of the rules under Treasury Regulations §l,409A-3(i)(2)
(payments to specified employees upon a separation from service) and, the 6 month delay rule will apply for Specified Employees.
(ii)
Payments
that would violate Federal securities laws or other applicable law.
A payment may be delayed where the Plan Sponsor reasonably
anticipates that the malting of the payment will violate Federal securities laws or other applicable law provided that the payment
is made at the earliest date at which the Plan Sponsor reasonably anticipates that the making of the payment will not cause such
violation, The making of a payment that would cause inclusion in gross income or the application of any penalty provision or other
provision of the Internal Revenue Code is not treated as a violation of applicable law.
(iii)
Other
events and conditions.
The Plan Sponsor may delay a payment upon such other events and conditions as the Commissioner of the
IRS may prescribe.
(iv) Not
withstanding the above, a payment may be delayed where the payment would jeopardize the ability of the Plan Sponsor to continue
as a going concern.
(b)
Treatment
of Payment as Made on Designated Payment Date.
Each payment under this Plan is deemed made on the required payment date even
if the payment is made after such date, provided the payment is made by the latest of: (i) the end of the calendar year in which
the payment is due; (ii) the 15th day of the third calendar month following the payment due date; (iii) in case the Plan Sponsor
cannot calculate the payment amount on account of administrative impracticality which is beyond the Participant’s control
(or the control of the Participant’s estate), in the first calendar year in which payment is practicable; (iv) in case the
Plan Sponsor does not have sufficient funds to make the payment without jeopardizing the Plan Sponsor’s solvency, in the
first calendar year in which the Plan Sponsor’s funds are sufficient to make the payment.
3.10 Subsequent
Changes in the Time or Form of Payment.
If permitted by the Plan Sponsor, a Participant may elect to change the time or form
of payments (collectively, “payment elections”), provided the following conditions are met:
(i) Such
change will not take effect until at least twelve (12) months after the date on which the new payment election is made and approved
by the Plan Administrator;
(ii) If
the change of payment election relates to a payment based on Separation from Service or on a Change in Control, or if the payment
is at a Specified Time or pursuant to a Fixed Schedule, the change of payment election must result in payment being deferred for
a period of not less than five (5) years from the date such payment would otherwise have been paid (or in the case of a life annuity
or installment payments treated as a single payment, five (5) years from the date the first amount was scheduled to be paid);
(iii) If
the change of payment election relates to a payment at a Specified Time or pursuant to a Fixed Schedule, the Participant or Plan
Sponsor must make the change of payment election not less than twelve (12) months before the date the payment is scheduled to
be paid (or in the case of a life annuity or installment payments treated as a single payment, twelve (12) months before the date
the first amount was scheduled to be paid).
3.11 Unsecured
General Creditor Status of Participant.
(a) Payment
to the Participant or any Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of
the general, unrestricted assets of the Plan Sponsor and no person shall have any interest in any such asset by virtue of any
provision of this Plan. The Plan Sponsor’s obligation hereunder shall be an unfunded and unsecured promise to pay money
in the future. To the extent that any person acquires a right to receive payments from the Plan Sponsor under the provisions hereof,
such right shall be no greater than the right of any unsecured general creditor of the Plan Sponsor and no such person shall have
or acquire any legal or equitable right, interest, or claim in or to any property or assets of the Plan Sponsor.
(b) In
the event that the Plan Sponsor purchases an insurance policy or policies insuring the life of a Participant or employee, to allow
the Plan Sponsor to recover or meet the cost of providing benefits, in whole or in part, hereunder, no Participant or Beneficiary
shall have any rights whatsoever in said policy or the proceeds therefrom. The Plan Sponsor or the Trustee of the Trust (if any)
shall be the primary owner and beneficiary of any such insurance policy or properly and shall possess and may exercise all incidents
of ownership therein. No insurance policy with regard to any director, “highly compensated employee”, or “highly
compensated individual” as defined in IRS Section 101(j) shall be acquired before satisfying the Section 101(j)
“Notice and Consent” requirements.
(c) In
the event that the Plan Sponsor purchases an insurance policy or policies on the life of a Participant as provided for above,
then all of such policies shall be subject to the claims of the creditors of the Plan Sponsor.
(d) If
the Plan Sponsor chooses to obtain insurance on the life of a Participant in connection with its obligations under this Plan,
the Participant hereby agrees to take such physical examinations and to truthfully and completely supply such information as may
be required by the Plan Sponsor or the insurance company designated by the Plan Sponsor.
3.12 Facility
of Payment.
If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Plan Administrator
may make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains
his or her residence; or (ii) to the conservator or administrator or, if none, to the person having custody of an incompetent
payee. Any such distribution shall fully discharge the Plan Sponsor and the Plan Administrator from further liability on account
thereof.
3.13 Excise
Tax Limitation.
In the event that any payment or benefit (within the meaning of Code §280G(b)(2) of the Code) to
the Participant or for the Participant’s benefit paid or payable or distributed or distributable (including, but not limited
to, the acceleration of the time for the vesting or payment of such benefit or payment) pursuant to the terms of this Plan or
otherwise in connection with, or arising out of, the Participant’s employment with the Plan Sponsor or any of its Affiliates
or a Change in Control within the meaning of Code §280G of the Code (a “Payment” or “Payments”),
would be subject to the excise tax imposed by Code §4999 of the Code (the “Excise Tax”), then the Payments
shall be reduced (but not below zero) but only to the extent necessary that no portion thereof shall be subject to the excise
tax imposed by Code §4999 (the “Section 4999 Limit”). Unless the Participant shall have given prior
written notice specifying a different order to the Plan Sponsor to effectuate the limitations described in the preceding sentence,
the Plan Sponsor shall reduce or eliminate the Payments by first reducing or eliminating those Payments or benefits which are
not payable in cash and then by reducing or eliminating cash Payments, in each case in reverse order beginning with payments or
benefits which are to be paid the farthest in time. Any notice given by the Participant pursuant to the preceding sentence shall
take precedence over the provisions of any other plan, arrangement or agreement governing the Participant’s rights and entitlements
to any benefits or compensation.
ARTICLE
4
BENEFICIARY DESIGNATION
4.1 Designation
of Beneficiaries.
(a) The
Participant may designate any person or persons (who may be named contingently or successively) to receive any benefits payable
under the Plan upon the Participant’s death, and the designation may be changed from time to time by the Participant by
filing a new designation. Each designation will revoke all prior designations by the Participant and shall be in the Form prescribed
by the Administrator, and shall be effective only when filed in writing with the Administrator during the Participant’s
lifetime.
(b) In
the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living
Beneficiary validly named by the Participant, the Plan Sponsor shall pay the benefit payment to the Participant’s spouse,
if then living, and if the spouse is not then living to the Participant’s then living descendants, if any, per stirpes,
and if there are no living descendants, to the Participant’s estate. In determining the existence or identity of anyone
entitled to a benefit payment, the Plan Sponsor may rely conclusively upon information supplied by the Participant’s personal
representative, executor, or administrator.
(c) If
a question arises as to the existence or identity of anyone entitled to receive a death benefit payment under the Plan, or if
a dispute arises with respect to any death benefit payment under the Plan, the Plan Sponsor may distribute the payment to the
Participant’s estate without liability for any tax or other consequences, or may take any other action which the Plan Sponsor
deems to be appropriate.
4.2 Information
to be Furnished by Participants and Beneficiaries; Inability to Locate Participants or Beneficiaries.
Any communication, statement,
or notice addressed to the Participant or to a Beneficiary at his or her last post office address as shown on the Plan Sponsor’s
records shall be binding on the Participant or Beneficiary for all purposes of this Plan, The Plan Sponsor shall not be obligated
to search for any Participant or Beneficiary beyond the sending of a registered letter to the last known address.
ARTICLE
5
ADMINISTRATION
5.1 Administrator
Duties.
The Administrator shall be responsible for the management, operation, and administration of the Plan. The Administrator
shall act at meetings by affirmative vote of a majority of its members. Any action permitted to be taken at a meeting may be taken
without a meeting if, prior to such action, a unanimous written consent to the action is signed by all members and such written
consent is filed with the minutes of the proceedings of the Administrator, provided, however that no member may vote or act upon
any matter which relates solely to the Participant. The Chair, or any other member or members of the Administrator designated
by the Chair, may execute any certificate or other written direction on behalf of the Administrator. When making a determination
or calculation, the Administrator shall be entitled to rely on information furnished by the Participant or the Plan Sponsor. No
provision of this Plan shall be construed as imposing on the Administrator any fiduciary duty under ERISA or other law, or any
duty similar to any fiduciary duty under ERISA or other law.
5.2 Administrator
Authority.
The Administrator shall enforce this Plan in accordance with its terms, shall be charged with the general administration
of this Plan, and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:
(a) To
construe and interpret the terms and provisions of this Plan;
(b) To
compute and certify the amount and kind of benefits payable to the Participant and their Beneficiaries; to determine the time
and manner in which such benefits are paid; and to determine the amount of any withholding taxes to be deducted;
(c) To
maintain all records that may be necessary for the administration of this Plan;
(d) To
provide for the disclosure of all information and the filing or provision of all reports and statements to the Participant, Beneficiaries,
and governmental agencies as shall be required by law;
(e) To
make and publish such rules for the regulation of this Plan and procedures for the administration of this Plan as are not inconsistent
with the terms hereof;
(f) To
administer this Plan’s claims procedures;
(g) To
approve election forms and procedures for use under this Plan; and
(h) To
appoint a plan record keeper or any other agent, and to delegate to them such powers and duties in connection with the administration
of this Plan as the Administrator may from time to time prescribe.
5.3 Binding
Effect of Decision.
The decision or action of the Administrator with respect to any question arising out of or in connection
with the administration, interpretation, and application of this Plan and the rules and regulations promulgated hereunder shall
be final and conclusive and binding upon all persons having any interest in this Plan.
5.4 Compensation,
Expenses, and Indemnity.
The Administrator shall serve without compensation for services rendered hereunder. The Administrator
is authorized at the expense of the Plan Sponsor to employ such legal counsel and/or Plan record keeper as it may
deem
advisable to assist in the performance of its duties hereunder. Expense and fees in connection with the administration of this
Plan shall be paid by the Plan Sponsor.
5.5 Plan
Sponsor Information.
To enable the Administrator to perform its functions, the Plan Sponsor shall supply full and timely information
to the Administrator, on all matters relating to the compensation of the Participant, the date and circumstances of the Disability,
death, or Separation from Service of the Participant, and such other pertinent information as the Administrator may reasonably
require.
5.6 Periodic
Statements.
Under procedures established by the Administrator, Participant shall be provided a statement of his Accrued Benefit
on an annual basis.
ARTICLE
6
CLAIMS PROCEDURE
6.1 Claims
Procedure.
This Article is based on final regulations issued by the Department of Labor and published in the Federal Register
on November 21, 2000 and codified in Section 2560.503-1 of the Department of Labor Regulations. If any provision of this
Article conflicts with the requirements of those regulations, the requirements of those regulations will prevail.
(a)
Claim.
The Participant or Beneficiary (hereinafter referred to as a “Claimant”) who believes he or she is entitled to
any Plan benefit under this Plan ma)’ file a claim with the Plan Sponsor. The Plan Sponsor shall review the claim itself
or appoint an individual or entity to review the claim.
(b)
Claim
Decision.
The Claimant shall be notified within ninety
(90)
days after the claim is filed whether the claim
is allowed or denied, unless the claimant receives written notice from the Plan Sponsor or appointee of the Plan Sponsor prior
to the end of the ninety
(90)
day period stating that special circumstances require an extension of the time for
decision. Such extension is not to extend beyond the day which is one hundred eighty
(180)
days after the day the
claim is filed. If the Plan Sponsor denies the claim, it must provide to the Claimant, in writing or by electronic communication:
(i) The
specific reasons for such denial;
(ii) Specific
reference to pertinent provisions of this Plan on which such denial is based;
(iii) A
description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation
why such material or such information is necessary; and
(iv) A
description of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of
the Claimant’s right to bring a civil action under Section 502(a) of ERISA following a denial of the appeal of the
denial of the benefits claim.
(c)
Review
Procedures.
A request for review of a denied claim must be made in writing to the Plan Sponsor within sixty (60) days after
receiving notice of denial. The decision upon review will be made within sixty (60) days after the Plan Sponsor’s receipt
of a request for review, unless special circumstances require an extension of time for processing, in which case a decision will
be rendered not later than one hundred twenty
(120)
days after receipt of a request for review. A notice of such an extension must be provided to the Claimant within the initial
sixty (60) day period and must explain the special circumstances and provide an expected date of decision. The reviewer shall
afford the Claimant an opportunity to review and receive, without charge, all relevant documents, information, and records and
to submit issues and comments in writing to the Plan Sponsor. The reviewer shall take into account all comments, documents, records,
and other information submitted by the Claimant relating to the claim regardless of whether the information was submitted or considered
in the benefit determination. Upon completion of its review of an adverse initial claim determination, the Plan Sponsor will give
the Claimant, in writing or by electronic notification, a notice containing:
(i) its
decision;
(ii) the
specific reasons for the decision;
(iii) the
relevant Plan provisions on which its decision is based;
(iv) a
statement that the Claimant is entitled to receive, upon request and without charge, reasonable access to, and copies of, all
documents, records and other information in the Plan’s files which is relevant to the Claimant’s claim for benefit;
(v) a
statement describing the Claimant’s right to bring an action for judicial review under ERISA Section 502(a); and
(vi) If
an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination on review,
a statement that a copy of the rule, guideline, protocol or other similar criterion will be provided without charge to the Claimant
upon request.
(d)
Calculation
of Time Periods.
For purposes of the time periods specified in this Article, the period of time during which a benefit determination
is required to be made begins at the time a claim is filed in accordance with this Plan procedures without regard to whether all
the information necessary to make a decision accompanies the claim. If a period of time is extended due to a Claimant’s
failure to submit all information necessary, the period for making the determination shall be tolled from the date the notification
is sent to the Claimant until the date the Claimant responds.
(e)
Failure
of Plan to Follow Procedures.
If the Plan Sponsor fails to follow the claims procedure required by this Article, a Claimant
shall be deemed to have exhausted the administrative remedies available under this Plan and shall be entitled to pursue any available
remedy under Section 502(a) of ERISA on the basis that this Plan has failed to provide a reasonable claims procedure that
would yield a decision on the merits of the claim.
(f)
Failure
of Claimant to Follow Procedures.
A Claimant’s compliance with the foregoing provisions of this Article is a mandatory
prerequisite to the Claimant’s right to commence any legal action with respect to any claim for benefits under the Plan.
6.2 Arbitration
of Claims.
All claims or controversies arising out of or in connection with this Plan shall, subject to the initial review
provided for in the foregoing provisions of this Article, be resolved through arbitration. Except as otherwise mutually agreed
to by the parties, any arbitration shall be administered under and by the Judicial Arbitration & Mediation Services, Inc.
(“JAMS”), in accordance with the JAMS procedures then in effect. The arbitration shall be
held
in the JAMS office nearest to where the Claimant is or was last employed by the Plan Sponsor or at a mutually agreeable location.
The prevailing part}’ in the arbitration shall have the right to recover its reasonable attorney’s fees, disbursements,
and costs of the arbitration (including enforcement of the arbitration decision), subject to any contrary determination by the
arbitrator.
ARTICLE
7
AMENDMENT AND TERMINATION
7.1 Amendment.
The Plan Sponsor reserves the right to amend this Plan at any time to comply with Section 409A and other Applicable Guidance
or for any other purpose, provided that such amendment will not cause the Plan to violate the provisions of Section 409A.
Except to the extent necessary to bring this Plan into compliance with Section 409A, no amendment or modification shall be
effective to decrease the value or vested percentage of a Participant’s Accrued Benefit in existence at the time an amendment
or modification is made to the Plan.
7.2 Plan
Termination.
The Plan Sponsor reserves the right to terminate this Plan in accordance with one of the following, subject to
the restrictions imposed by Section 409A and authoritative guidance:
(a)
Corporate
Dissolution or Bankruptcy.
This Plan may be terminated within twelve (12) months of a corporate dissolution taxed under Code §331,
or with the approval of a Plan Sponsor bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1)(A), and distributions may
then be made to the Participant provided that the amounts payable under this Plan are included in the Participants’ gross
income in the latest of:
(i) The
calendar year in which the Plan termination occurs;
(ii) The
calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or
(iii) The
first calendar year in which the payment is administratively practicable.
(b)
Change
in Control.
This Plan may be terminated within the thirty (30) clays preceding or the twelve (12) months following a Change
in Control. This Plan will then be treated as terminated only if all substantially similar arrangements sponsored by the Plan
Sponsor are terminated so that all participants in all similar arrangements are required to receive all amounts of compensation
deferred under the terminated arrangements within twelve (12) months of the date of termination of the
:
arrangements.
(c)
Discretionary
Termination,
The Plan Sponsor may also terminate this Plan and make distributions provided that:
(i) All
plans sponsored by the Plan Sponsor that would be aggregated with any terminated arrangements under Treasury Regulations §l.409A-l(c)
are terminated;
(ii) No
payments, other than payments that would be payable under the terms of this plan if the termination had not occurred, are made
within twelve (12) months of this plan termination;
(iii) All
payments are made within twenty-four (24) months of this plan termination; and
(iv) Neither
the Plan Sponsor nor any of its affiliates adopts a new plan that would be aggregated with any terminated plan if the same Participant
participated in both arrangements at any time within three (3) years following the date of termination of this Plan.
(v) The
termination does not occur proximate to a downturn in the financial health of the Plan Sponsor.
ARTICLE
8
THE TRUST
8.1 Establishment
of Trust.
The Plan Sponsor may establish a grantor trust (the “Trust”), of which the Plan Sponsor is the grantor,
within the meaning of subpart E, part I, subchapter J, subtitle A of the Code, to pay benefits under this Plan. If the Plan Sponsor
establishes a Trust, all benefits payable under this Plan to a Participant shall be paid directly by the Plan Sponsor from the
Trust. To the extent such benefits are not paid from the Trust, the benefits shall be paid from the general assets of the Plan
Sponsor. The Trust, (if any), shall be a grantor trust which conforms to the terms of the model trust as described in IRS Revenue
Procedure 92-64, I.R.B. 1992-33, as same may be amended or modified from time to time. If the Plan Sponsor establishes a Trust,
the assets of the Trust will be subject to the claims of the Plan Sponsor’s creditors in the event of its insolvency. Except
as may otherwise be provided under the Trust, the Plan Sponsor shall not be obligated to set aside, earmark, or escrow any funds
or other assets to satisfy its obligations under this Plan, and the Participant and/or his
or
her designated Beneficiaries
shall not have any property interest in any specific assets of the Plan Sponsor other than the unsecured right to receive payments
from the Plan Sponsor, as provided in this Plan.
8.2 Interrelationship
of the Plan and the Trust.
The provisions of this Plan shall
govern the rights of a Participant to receive distributions
pursuant to this Plan. The provisions of the Trust (if established) shall govern the rights of the Participant and the creditors
of the Plan Sponsor to the assets transferred to the Trust. The Plan Sponsor and each Participant shall at all times remain liable
to carry out its obligations under this Plan. The Plan Sponsor’s obligations under this Plan may be satisfied with Trust
assets distributed pursuant to the terms of the Trust.
8.3 Contribution
to the Trust.
Amounts may be contributed by the Plan Sponsor to the Trust at the sole discretion of the Plan Sponsor.
ARTICLE
9
MISCELLANEOUS
9.1 Validity.
In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been
inserted herein. To the extent any provision of this Plan is determined by the Plan Administrator (acting in good faith), the
Internal Revenue Service, the United States Department of the Treasury, or a court of competent jurisdiction to fail to comply
with Section 409A of the Code or authoritative guidance with respect to any Participant or Participants, such provision
shall have no force or effect with respect to such Participant or Participants.
9.2 Nonassignability.
Neither any Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate, alienate, or convey in advance of actual receipt, the amounts, if any,
payable hereunder, or any part hereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable.
No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment (except to the extent
the Plan Sponsor may be required to garnish amounts from payments due under this Plan pursuant to applicable law), or sequestration
for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, be transferable
by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency, or be transferable
to a spouse as a result of a property settlement or otherwise. If any Participant, Beneficiary, or successor in interest is adjudicated
bankrupt or purports to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber transfer, hypothecate,
alienate, or convey in advance of actual receipt, the amount, if any, payable hereunder, or any part thereof, the Plan Administrator,
in its discretion, may cancel such distribution or payment (or any part thereof) to or for the benefit of such Participant, Beneficiary,
or successor in interest in such manner as the Plan Administrator shall direct.
9.3 Not
a Contract of Employment.
The terms and conditions of this Plan shall not he deemed to constitute a contract of employment
between the Plan Sponsor and the Participant. Nothing in this Plan shall be deemed to give a Participant the right to be retained
in the sendee of the Plan Sponsor as an employee or otherwise or to interfere with the right of the Plan Sponsor to discipline
or discharge the Participant at any time.
9.4 Unclaimed
Benefits.
In the case of a benefit payable on behalf of such Participant, if the Plan Administrator is unable to locate the
Participant or Beneficiary to whom such benefit is payable, such Plan benefit may be forfeited to the Plan Sponsor upon the Plan
Administrator’s determination. Notwithstanding the foregoing, if, subsequent to any such forfeiture, the Participant or
Beneficiary to whom such Plan benefit is payable makes a valid claim for such Plan benefit, such forfeited Plan benefit shall
be paid by the Plan Administrator to the Participant or Beneficiary, without interest, from the date it would have otherwise been
paid.
9.5 Governing
Law.
Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the
State of North Carolina without regard to its conflicts of laws principles.
9.6 Notice.
Any notice, consent or demand required or permitted to be given under the provisions of this Plan shall be in writing and
shall be signed by the party giving or making the same. If such notice, consent, or demand is mailed, it shall be sent by United
States certified mail, postage prepaid, addressed to the addressee’s last known address as shown on the records of the Plan
Sponsor. The date of such mailing shall be deemed the date of notice consent or demand. Any person may change the address to which
notice is to be sent by giving notice of the change of address in the manner aforesaid.
9.7 Coordination
with Other Benefits.
The benefits provided for a Participant and Participant
’s
Beneficiary under this Plan are
in addition to any other benefits available to such Participant under any other plan or program for employees of the Plan Sponsor.
This Plan shall supplement and shall not supersede, modify, or amend any other such plan or program except as may otherwise be
expressly provided herein.
9.8 Compliance.
A Participant shall have no right to receive payment with respect to the Participant’s Accrued Benefit until all legal
and contractual obligations of the Plan Sponsor relating to establishment of the Plan and the making of such payments shall have
been complied with in full.
9.9 Compliance
with Section 409A and Authoritative Guidance.
Notwithstanding anything in this Plan to the contrary, all provisions of
this Plan, including but not limited to the definitions of terms, elections to defer, and distributions, shall be made in accordance
with and shall comply with Section 409A and any authoritative guidance. The Plan Sponsor will amend the terms of this Plan
retroactively, if necessary, to the extent required to comply with Section 409A and any authoritative guidance. No provision
of this Plan shall be followed to the extent that following such provision would result in a violation of Section 409A or
the authoritative guidance, and no election made by a Participant hereunder, and no change made by a Participant to a previous
election, shall be accepted by the Plan Sponsor if the Plan Sponsor determines that acceptance of such election or change could
violate any of the requirements of Section 409A or the authoritative guidance. This Plan and any accompanying forms shall
be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A and the authoritative
guidance, including, without limitation, any such Treasury Regulations or other guidance that may be issued after the date hereof.
IN
WITNESS WHEREOF,
the Plan Sponsor has signed this Plan document as of August 1, 2007.
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ATTEST/WITNESS
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For:
Carolina
Trust Bank
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/s/
Sue S. Stamey
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/s/
J. Michael Cline
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(Signature)
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(Signature)
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Sue
S. Stamey
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J.
Michael Cline
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(Print
Name)
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(Print
Name)
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President
& CEO
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(Title)
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Page
16
of 17
Carolina Trust Bank 8-K12G3
Exhibit 10.11
CAROLINA
TRUST BANK
2001 INCENTIVE STOCK OPTION PLAN
Carolina
Trust Bank, a North Carolina corporation (the “Corporation”), does herein set forth the terms of the its 2001 Incentive
Stock Option Plan (the “Plan”) which was adopted by the Corporation’s Board of Directors (the “Board”)
subject to approval by the Corporation’s shareholders, as provided in Paragraph 21 hereof, and by the appropriate regulatory
authorities, as provided by law.
1.
Purpose
of the Plan
.
The purpose of this Plan is to provide for the grant of Incentive Stock Options (an “Option”
or “Options”) qualifying for the tax treatment afforded by Section 422 of the Internal Revenue Code of 1986,
as amended, to eligible officers and employees of the Corporation (“Eligible Employees”) who wish to invest in the
Corporation’s common stock, par value $5.00 per share (the “Common Stock”). The Corporation believes that participation
in the ownership of the Corporation by Eligible Employees will be to the mutual benefit of the Corporation and Eligible Employees.
The existence of this Plan will make it possible for the Corporation and any of its subsidiaries to attract capable individuals
to employment in key employee positions.
2.
Administration
of the Plan
.
(a) This Plan shall be administered by the Compensation Subcommittee of the Executive Committee of
the Board (the “Committee”). The Committee shall consist of at least three (3) members of the Board, all of whom shall
qualify as disinterested persons as provided in Section 16(b), and the rules and regulations promulgated thereunder, of the
Securities Exchange Act of 1934, as amended. The members of the Committee shall be appointed by the Board and shall serve at the
pleasure of the Board, which may remove members from, add members to, or fill vacancies in the Committee.
(b) The
Committee shall decide to whom Options shall be granted under this Plan, the number of shares as to which Options shall be granted,
the Option Price (as hereinafter defined) for such shares and such additional terms and conditions for such Options as the Committee
deems appropriate. The Committee shall interpret the Plan and prescribe, amend and rescind any rules and regulations regarding
the Plan. AH interpretations and constructions of the Plan by the Committee shall be final and conclusive.
(c) A
majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which
a quorum is present, or acts approved unanimously in writing by the Committee, shall be considered as valid actions by the Committee.
(d) The
Board and the Committee may designate any officers or employees of the Corporation to assist in the administration of this Plan.
The Board and the Committee may authorize such individuals to execute documents on its behalf and may delegate to them such other
ministerial and limited discretionary duties as the Board may deem fit.
3.
Shares
of Common Stock Subject to the Plan
.
The number of shares of Common Stock that shall be available initially
for Options under this Plan is Sixty eight thousand six hundred and thirty one (68,631), subject to adjustment as provided in
Paragraph 14 hereof. Common Stock subject to Options which expire or terminate prior to exercise of the Options shall lapse
and such shares shall again be available for future grants of Options under this Plan.
4.
Eligibility
.
Options under this Plan may be granted to any Eligible Employee as determined by the Committee. An individual may hold more
than one Option under this or other plans adopted by the Corporation.
5.
Grant
of Options
.
(a) The Committee may authorize the grant of Options to certain current officers and employees
of the Corporation. Such Options shall be granted based upon the past service and the continued participation of those individuals
in the management of the Corporation.
(b) Upon
the forfeiture of an Option for whatever reason prior to the expiration of the Option Period (as defined in Paragraph 9 hereof)
the shares of Common Stock covered by a forfeited Option shall be available for the granting of additional Options to Eligible
Employees during the remaining term of this Plan upon such terms and conditions as may be determined by the Committee. The number
of additional Options to be granted to specific Eligible Employees during the term of this Plan shall be determined by the Committee
as provided in Subparagraph 2(b) hereof.
6.
Option
Price
.
(a) The price per share of each Option granted under this Plan (the “Option Price”) shall
be determined by the Committee as of the effective date of grant of such Option. In no event shall the Option Price be less than
100% of the fair market value of the Common Stock on the date of grant. If an Optionee (as hereinafter defined) at the time that
an Option is granted owns stock possessing more than ten (10%) of the total combined voting power of all classes of stock of the
Corporation, then the Option Price per share of each Option granted under this Plan shall be no less than 110% of the fail- market
value of the Common Stock on the date of grant and such Option shall not be exercisable more than five (5) years from the date
of grant. An Option shall be considered as granted on the date that the Committee acts to grant such Option or such later date
as the Committee shall specify in an Option Agreement (as hereafter defined).
(b) The
fair market value of a share of Common Stock shall be determined as follows:
(i)
If on the date as of which such determination is being made, the Common Stock is admitted to trading on a
securities exchange or exchanges for which actual sale prices are regularly reported, or actual sale prices are otherwise
regularly published, the fair market value of a share of Common Stock shall be deemed to be equal to the mean of the closing
sale price as reported on each of the five (5) trading days immediately preceding the date as of which such determination is
made;
provided
,
however
,
that, if a closing sale price is not reported for each of the five (5) trading days immediately preceding the date as of
which such determination.is made, then the fair market value shall be equal to the mean of the closing sale prices on those
trading days for which such price is available.
(ii) If
on the date as of which such determination is made, no such closing sale prices are reported, but quotations for the Common Stock
are regularly listed on the National Association of Securities Dealers Nasdaq system or another comparable system (“System”),
the fair market value of a share of Common Stock shall be deemed to be equal to the mean of the average of the closing bid and
asked prices for such Common Stock quoted on such system on each of the five (5) trading days preceding the date as of which such
determination is made. If a closing bid and asked price is not available for each of the five (5) trading days, then the fair
market value shall be equal to the mean of the average of the closing bid and asked prices on those trading days during the five-day
period for which such prices are available.
(iii) If
no such quotations are available, the fair market value of a share of Common Stock shall be deemed to be the average of the closing
bid and asked prices furnished by a professional securities dealer making a market in the Common Stock, as selected by the Committee,
for the trading date first preceding the date as of which such determination is made.
If
the Common Stock has not been listed on any market or System or if the Committee determines that the price as determined above
does not represent the fair market value of a share of Common Stock, the Committee may then consider such other factors as it
deems appropriate and then fix the fair market value for the purposes of this Plan.
7.
Payment
of Option Price
.
Payment for shares subject to an Option must be made in cash.
8.
Terms
and Conditions of Grant of Options
.
Each Option granted pursuant to this Plan shall be evidenced by a written Incentive
Stock Option Agreement (the “Option Agreement”) with each Eligible Employee (the “Optionee”) to whom an
Option is granted. The Option Agreement shall be in such form as the Committee shall adopt and may contain such terms and conditions
as the Committee may determine.
9.
Option
Period
.
Each Option Agreement shall set forth a period during which such Option may be exercised (the “Option Period”);
provided
,
however
, that the Option Period shall not exceed ten (10) years after the date of grant of such Option
as specified in the Option Agreement.
10.
Limitations
on Grant of Incentive Stock Options
.
(a) Notwithstanding any other provision of this Plan, no person shall be granted
an Option under this Plan which would cause such person’s “annual vesting amount” to exceed $100,000. With respect
to any calendar year, a person’s “annual vesting amount” is the aggregate fair market value of stock subject
to incentive stock options which are first exercisable during such calendar year. The aggregate fair market value of stock with
respect to which incentive stock options are first exercisable during any calendar year shall be determined by taking into account
all incentive stock options granted to such person under all incentive stock options plans of the Corporation or of any of its
parent or subsidiary corporations.
(b) Notwithstanding
any other provision of this Plan, no person shall be granted an Option or Options under this Plan which would result in the total
number of shares granted to such Optionee to exceed 40%. of the shares allocated to this Plan, or, if greater, the maximum permitted
by the Commissioner of Banks of North Carolina (hereinafter the “Commissioner of Banks”).
11.
Exercise
of Incentive Stock Options
.
(a) An Option shall be exercised by written notice to the Committee signed by
an Optionee or by such other person as may be entitled to exercise such Option. The written notice shall state the number of shares
with respect to which an Option is being exercised and shall either be accompanied by the payment of the aggregate Option Price
for such shares or shall fix a date (not more than ten (10) business days from the date of such notice) by which the payment of
the aggregate Option Price will be made. An Optionee shall not exercise an Option to purchase less than 100 shares, unless the
Committee otherwise approves, or unless the partial exercise is for the remaining share available under such Option.
(b) A
certificate or certificates for the shares of Common Stock purchased by the exercise of an Option shall be issued in the regular
course of business subsequent to the exercise of such Option and the payment therefore. During the Option Period, no person entitled
to exercise any Option granted under this Plan shall have any of the rights or privileges of a shareholder with respect to any
shares of Common Stock issuable upon exercise of such Option, until certificates representing such shares shall have been issued
and delivered and the individual’s name entered as a shareholder of record on the books of the Corporation for such shares.
12.
Effect
of Termination of Employment, Retirement, Disability or Death
.
(a) In
the event of the termination of employment of an Optionee either by reason of (i) being Discharged for Cause or (ii) voluntary
separation on the part of such Optionee for a reason other than retirement or disability, any Option or Options granted to the
Optionee under this Plan, to the extent not previously exercised or surrendered by the Optionee or expired, shall immediately
terminate. “Discharged for Cause” shall include termination at the sole discretion of the Board because of such Optionee’s
personal dishonesty, 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),
a final cease and desist order, or material breach of any provision of any employment agreement that such Optionee may have with
the Corporation.
(b) In
the event of the termination of employment of an Optionee as a result of such Optionee’s retirement, such Optionee shall
have the right to exercise any Option or Options granted to the Optionee under this Plan, to the extent that they have not previously
been exercised or surrendered by the Optionee or expired, for a period of three (3) months after the date of retirement, but in
no event may any Option be exercised later than the end of the Option Period provided in such Option Agreement in accordance with
Paragraph 9 hereof. Notwithstanding any other provision contained herein, or in any Option Agreement, upon retirement, any
Option then held by an Optionee shall be exercisable immediately in full. For purposes of this Plan, the term “retirement”
shall mean (i) termination of an Optionee’s employment under conditions which would constitute retirement Under any tax
qualified retirement plan maintained by the Corporation or (ii) attaining age 65.
(c) In
the event of the termination of employment of an Optionee by reason of such Optionee’s disability, such Optionee shall have
the right to exercise any Options held by the Optionee, to the extent that they previously have not been exercised or surrendered
by the Optionee or expired, notwithstanding any limitations placed on the exercise of such Options by this Plan or an Option Agreement,
immediately in full and at any time within twelve (12) months after the last date on which such Optionee provides services as
an officer or an employee of the Corporation before being disabled, but in no event may any Option be exercised later than the
end of the Option Period provided in the Option Agreement .in accordance with Paragraph 9 hereof. For purposes of this Plan,
the term “disability” shall be defined in-the same manner as such term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended.
(d) In
the event that an Optionee should die while employed by the Corporation, or within three (3) months after retirement, any Option
or Options granted to the Optionee under this Plan and not previously exercised or surrendered by the Optionee or expired shall
vest and shall be exercisable, according to their respective terms, by the personal representative of such Optionee or by any
person or persons who acquired such Options by bequest or inheritance from such Optionee, notwithstanding any limitations placed
on the exercise of such Options by this Plan or any Option Agreement, immediately in full and at any time within twelve (12) months
after the
date of death of such Optionee, but in no event may any Option be exercised later than the end of the Option Period
provided in such Option Agreement in accordance with Paragraph 9 hereof. Any references herein to an Optionee shall be deemed
to include any person entitled to exercise an Option under the terms of this Plan after the death of such Optionee.
13.
Effect
of Plan on Employment Status
.
The fact that the Committee has granted an Option to an Optionee under this
Plan shall not confer on such Optionee any right to employment with the Corporation, or to a position as an officer or an employee
of the Corporation, nor shall it limit the right of the Corporation to remove such Optionee from any position held by the Optionee
or to terminate the Optionee’s employment at any time.
14.
Adjustment
Upon Changes in Capitalization; Dissolution or Liquidation
.
(a) In
the event of a change in the number of shares of the Common Stock outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital adjustment, prior to the termination of an Optionee’s
rights under this Plan, equitable proportionate adjustments shall be made by the Committee in (i) the number and kind of
shares which remain available under this Plan and (ii) the number, kind, and the Option Price of shares subject to unexercised
Options under this Plan. The adjustments to be made shall be determined by the Committee and shall be consistent with such change
or changes in the Corporation’s total number of outstanding shares;
provided
,
however
, that no adjustment shall change the aggregate
Option Price for the exercise of Options granted under this Plan.
(b) The
grant of Options under this Plan shall not affect in any way the right or power of the Corporation or its shareholders to make
or authorize any adjustment, recapitalization, reorganization, or other change in the Corporation’s capital structure or
its business, or any merger of the Corporation, or to issue bonds, debentures, preferred or other preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer
of all or any part of the Corporation’s assets or business.
(c) Upon
the effective date of the dissolution or liquidation of the Corporation, or of a reorganization or merger of the Corporation with
one or more other corporations in which the Corporation is not the surviving corporation, or the transfer of all or substantially
all of the assets or shares of the Corporation to another person or entity, or a tender offer approved by the Board (any such
transaction being hereinafter referred to as an “Acceleration Event”), this Plan and any Options granted hereunder
shall terminate unless provision is made in writing in connection with such Acceleration Event for the continuance of this Plan
and for the assumption of Options granted hereunder, or the substitution for such Options of new options for the shares of the
successor corporation, or a parent or a subsidiary thereof, with such appropriate adjustments, as may be determined or approved
by the Committee or the successor to the Corporation, to the number, kind and Option Price of shares subject to such substituted
options in which event this-Plan and Options granted hereunder, or the new options substituted therefore, shall continue in the
manner and under the terms so provided, but any vesting periods or other restrictions on exercise that would otherwise apply shall
no longer be applicable. Upon the occurrence of any Acceleration Event in which provision is not made for the continuance of this
Plan and for the assumption of Options granted hereunder, or the substitution for such Options of new options for the shares of
a successor corporation or a parent or a subsidiary thereof, each Optionee to whom an Option has been granted under this Plan
(or such person’s personal representative, the executor or administrator of such person’s estate, or any person who
acquired the right to exercise such Option from such person by bequest of inheritance) shall be entitled, prior the effective
date of any
Acceleration Event, (i) to exercise, in whole or in part, the Optionee’s rights under any Option granted to
the Optionee without any regard to any restrictions on exercise that would otherwise apply, or (ii) to surrender any such Option
to the Corporation in exchange for receipt of cash equivalent to the amount by which the fair market value of the shares of Common
Stock such person would have received had such person exercised the Option in full immediately prior to consummation of such Acceleration
Event exceeds the applicable aggregate Option Price. To the extent that a person, pursuant to this Subparagraph 14(c), has
a right to exercise or surrender any Option on account of a Acceleration Event which such person otherwise would not have had
at that time, such right shall be contingent upon the consummation of the Acceleration Event.
15.
Non-Transferability
.
Any Option granted under this Plan shall not be assignable or transferable except, in the case of the death of an Optionee,
by will or by the laws of descent and distribution. In the event of the death of an Optionee, the personal representative, the
executor or the administrator of such
Optionee’s
estate,
or the person or persons who acquired by bequest or inheritance the rights to exercise such Option, may exercise Or surrender
any Option or portion thereof to the extent not previously exercised or surrendered by an Optionee or expired, in accordance with
the terms of the Option Agreement, prior to the expiration of the exercise period as specified in Subparagraph 12(d) hereof.
16.
Tax
Withholding
.
The employer of a person granted an Option under this Plan shall have the right to deduct or otherwise effect
a withholding or payment of any amount required by federal or state laws to be withheld or paid with respect to the grant, exercise
or surrender for cash of any Option or the sale of stock acquired upon the exercise of an Option in order for the employer to
obtain a tax deduction otherwise available as a consequence of such grant, exercise, surrender for cash, or sale, as the case
may be.
17.
Listing
and Registration of Option Shares
.
Any Option granted under the Plan shall be subject to the requirement that if at any
time the Committee shall determine, in its sole discretion, that the listing, registration, or qualification of the shares of
Common Stock covered thereby upon any securities exchange or under any state or federal law or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of such Option or
the issuance or purchase of shares thereunder, such Option may not be exercised in whole or in part unless and until such listing,
registration, or qualification consent, or approval shall have been effected or obtained free of any conditions not acceptable
to the Committee.
18.
Exculpation
and Indemnification
.
In connection with this Plan, no member of the Committee shall be personally liable
for any act or omission to act in such person’s capacity as a member of the Committee, nor for any mistake in judgment made
in good faith, unless arising out of, or resulting from, such person’s own bad faith, gross negligence, willful misconduct,
or criminal acts. To the extent permitted by applicable law and regulation, the Corporation shall indemnify and hold harmless
the members of the Committee, and each other officer of employee of the Corporation to whom any duty or power relating to the
administration or interpretation of this Plan may be assigned or delegated, from and against any and all liabilities (including
any amount paid in settlement of a claim with approval of the Board) and any costs or expense (including reasonable counsel fees)
incurred by such person arising out of, or as a result of, such person’s duties, responsibilities, and obligations under
this Plan, other than such liabilities, costs,
and expenses as may arise out of, or result from, the bad faith, gross negligence,
willful misconduct, or criminal acts of such persons.
19.
Amendment
and Modification of the Plan
.
The Board may at any time and from time to time amend or modify this Plan in any respect;
provided
,
however
, that no amendment or modification shall be made that increases the total number of shares covered
by this Plan or effects any change in the categories of persons who may receive Options under this Plan or materially increases
the benefits accruing to Optionees under this Plan unless such change is approved by the holders of two thirds of the shares of
Common Stock. Any amendment or modification of this Plan shall not materially reduce the benefits under any Option theretofore
granted to an Optionee under this Plan without the consent of such Optionee or the permitted transferee thereof.
20.
Termination
and Expiration of the Plan
.
This Plan may be abandoned, suspended, or terminated at any time by the Board;
provided
,
however
,
that abandonment, suspension, or termination of this Plan shall not affect any Options then outstanding under this Plan. No Option
shall be granted pursuant to this Plan after ten (10) years from the effective date of this Plan as provided in Paragraph 21
hereof.
21.
Effective
Date; Shareholder Approval
.
This Plan has been adopted by the Board. This Plan shall not be effective until approved by
the Commissioner of Banks and by the holders of two thirds of the shares of Common Stock.
22.
Captions
and Headings; Gender and Number
.
Captions and paragraph headings used herein are for convenience only, do not modify or
affect the meaning of any provision herein, are not a part hereof, and shall not serve as a basis for interpretation or in construction
of this Plan. As used herein, the masculine gender shall include the feminine and neuter, the singular number the plural, .and
vice versa, whenever such meanings are appropriate.
23.
Expenses
of Administration of Plan
.
All costs and expenses incurred in the operation and administration of this Plan shall be borne
by the Corporation.
24.
Governing
Law
.
Without regard to the principles of conflicts of laws, the laws of the State of North Carolina shall govern and control
the validity, interpretation, performance, and enforcement of this Plan.
25.
Inspection
of Plan
.
A copy of this Plan, and any amendments thereto or modification thereof, shall be maintained by
the Secretary of the Corporation and shall be shown to any proper person making inquiry about it.
-
7 -
Carolina Trust Bank 8-K12G3
Exhibit 10.12
CAROLINA TRUST BANK
2005 INCENTIVE STOCK OPTION PLAN
Carolina Trust Bank, a
North Carolina corporation (the “Corporation”), does herein set forth the terms of the its 2005 Incentive Stock Option
Plan (the “Plan”) which was adopted by the Corporation’s Board of Directors (the “Board”) subject
to approval by the Corporation’s shareholders, as provided in Paragraph 21 hereof, and by the appropriate regulatory authorities,
as provided by law.
1.
Purpose of the
Plan
.
The purpose of this Plan is to provide for the grant of Incentive Stock Options (an “Option” or “Options”)
qualifying for the tax treatment afforded by Section 422 of the Internal Revenue Code of 1986, as amended, to eligible officers
and employees of the Corporation (“Eligible Employees”) who wish to invest in the Corporation’s common stock,
par value $5.00 per share (the “Common Stock”). The Corporation believes that participation in the ownership of the
Corporation by Eligible Employees will be to the mutual benefit of the Corporation and Eligible Employees. The existence of this
Plan will make it possible for the Corporation and any of its subsidiaries to attract capable individuals to employment in key
employee positions.
2.
Administration
of the Plan
. (a) This Plan shall be administered by the Personnel Committee of the Board (the “Committee”).
The Committee shall consist of at least three (3) members of the Board, all of whom shall qualify as disinterested persons as provided
in Section 16(b), and the rules and regulations promulgated thereunder, of the Securities Exchange Act of 1934, as amended. The
members of the Committee shall be appointed by the Board and shall serve at the pleasure of the Board, which may remove members
from, add members to, or fill vacancies in the Committee.
(b) The Committee shall decide
to whom Options shall be granted under this Plan, the number of shares as to which Options shall be granted, the Option Price (as
hereinafter defined) for such shares and such additional terms and conditions for such Options as the Committee deems appropriate.
The Committee shall interpret the Plan and prescribe, amend and rescind any rules and regulations regarding the Plan. All interpretations
and constructions of the Plan by the Committee shall be final and conclusive.
(c) A majority of the Committee
shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, or acts
approved unanimously in writing by the Committee, shall be considered as valid actions by the Committee.
(d) The Board and the Committee
may designate any officers or employees of the Corporation to assist in the administration of this Plan. The Board and the Committee
may authorize such individuals to execute documents on its behalf and may delegate to them such other ministerial and limited discretionary
duties as the Board may deem fit.
3.
Shares of Common
Stock Subject to the Plan
. The number of shares of Common Stock that shall be available initially for Options under this
Plan is Fifty four thousand three hundred and eighty seven (54,387), subject to adjustment as provided in Paragraph 14 hereof.
Common Stock subject to Options which expire or terminate prior to exercise of the Options shall lapse and such shares shall again
be available for future grants of Options under this Plan.
4.
Eligibility
.
Options under this Plan
may be granted to any Eligible Employee as determined by the Committee. An individual may hold more than one Option under
this or other plans adopted by the Corporation.
5.
Grant of Options
.
(a) The Committee may authorize the grant of Options to certain current officers and employees of the Corporation. Such Options
shall be granted based upon the past service and the continued participation of those individuals in the management of the Corporation.
(b) Upon the forfeiture of
an Option for whatever reason prior to the expiration of the Option Period (as defined in Paragraph 9 hereof) the shares of Common
Stock covered by a forfeited Option shall be available for the granting of additional Options to Eligible Employees during the
remaining term of this Plan upon such terms and conditions as may be determined by the Committee. The number of additional Options
to be granted to specific Eligible Employees during the term of this Plan shall be determined by the Committee as provided in Subparagraph
2(b) hereof.
6.
Option Price
.
(a) The price per share of each Option granted under
this Plan (the “Option Price”) shall be determined by the Committee as of the effective date of grant of such Option.
In no event shall the Option Price be less than 100% of the fair market value of the Common Stock on the date of grant. If an
Optionee (as hereinafter defined) at the time that an Option is granted owns stock possessing more than ten (10%) of the total
combined voting power of all classes of stock of the Corporation, then the Option Price per share of each Option granted under
this Plan shall be no less than 110% of the fair market value of the Common Stock on the date of grant and such Option shall not
be exercisable more than five (5) years from the date of grant. An Option shall be considered as granted on the date that the
Committee acts to grant such Option or such later date as the Committee shall specify in an Option Agreement (as hereafter defined).
(b) The fair market value
of a share of Common Stock shall be determined as follows:
(i) If on the date as of
which such determination is being made, the Common Stock is admitted to trading on a securities exchange or exchanges for which
actual sale prices are regularly reported, or actual sale prices are otherwise regularly published, the fair market value of a
share of Common Stock shall be deemed to be equal to the mean of the closing sale price as reported on each of the five (5) trading
days immediately preceding the date as of which such determination is made;
provided
,
however
, that, if a closing
sale price is not reported for each of the five (5) trading days immediately preceding the date as of which such determination
is made, then the fair market value shall be equal to the mean of the closing sale prices on those trading days for which such
price is available.
(ii) If on the date as of
which such determination is made, no such closing sale prices are reported, but quotations for the Common Stock are regularly listed
on the National Association of Securities Dealers Nasdaq system or another comparable system (“System”), the fair market
value of a share of Common Stock shall be deemed to be equal to the average of the closing prices for such Common Stock quoted
on such system on each of the five (5) trading days preceding the date as of which such determination is made. If a closing price
is not available for each of the five (5) trading days, then the fair market value shall be equal to the average of the closing
prices on those trading days during the five-day period for which such prices are available.
(iii) If no such quotations
are available, the fair market value of a share of Common Stock shall be deemed to be the average of the closing bid and asked
prices furnished by a professional securities dealer making a market in the Common Stock, as selected by the Committee, for the
trading date first preceding the date as of which such determination is made.
If the Common Stock has
not been listed on any market or System or if the Committee determines that the price as determined above does not represent the
fair market value of a share of Common Stock, the Committee may then consider such other factors as it deems appropriate and then
fix the fair market value for the purposes of this Plan.
7.
Payment of Option Price
.
Payment for shares subject to an Option must be made in cash.
8.
Terms and Conditions of Grant of Options
.
Each Option granted pursuant to this Plan shall be evidenced by a written
Incentive Stock Option Agreement (the “Option Agreement”) with each
Eligible Employee (the “Optionee”) to whom an Option is granted. The
Option Agreement shall be in such form as the Committee shall adopt and may contain such terms and conditions as the Committee
may determine.
9.
Option Period
.
Each Option Agreement shall set forth a period during which such Option may be exercised (the “Option Period”);
provided
,
however
, that the Option Period shall not exceed ten (10) years after the date of grant of such Option as specified in the
Option Agreement.
10.
Limitations on
Grant of Incentive Stock Options
. (a) Notwithstanding any other provision of this Plan, no person shall be granted an Option
under this Plan which would cause such person’s “annual vesting amount” to exceed $100,000. With respect to any
calendar year, a person’s “annual vesting amount” is the aggregate fair market value of stock subject to incentive
stock options which are first exercisable during such calendar year. The aggregate fair market value of stock with respect to which
incentive stock options are first exercisable during any calendar year shall be determined by taking into account all incentive
stock options granted to such person under all incentive stock options plans of the Corporation or of any of its parent or subsidiary
corporations.
(b) Notwithstanding any other
provision of this Plan, no person shall be granted an Option or Options under this Plan which would result in the total number
of shares granted to such Optionee to exceed 40% of the shares allocated to this Plan, or, if greater, the maximum permitted by
the Commissioner of Banks of North Carolina (hereinafter the “Commissioner of Banks”).
11.
Exercise of Incentive
Stock Options
. (a) An Option shall be exercised by written notice to the
Committee signed by an Optionee or by such other person as may be entitled to exercise such Option. The written notice shall state
the number of shares with respect to which an Option is being exercised and shall either be accompanied by the payment of the
aggregate Option Price for such shares or shall fix a date (not more than ten (10) business days from the date of such notice)
by which the payment of the aggregate Option Price will be made. An Optionee shall not exercise an Option to purchase less than
100 shares, unless the Committee otherwise approves, or unless the partial exercise is for the remaining share available under
such Option.
(b) A certificate or certificates
for the shares of Common Stock purchased by the exercise of an Option shall be issued in the regular course of business subsequent
to the exercise of such Option and the payment therefore. During the Option Period, no person entitled to exercise any Option granted
under this Plan shall have any of the rights or privileges of a shareholder with respect to any shares of Common Stock issuable
upon exercise of such Option, until certificates representing such shares shall have been issued and delivered and the individual’s
name entered as a shareholder of record on the books of the Corporation for such shares.
12.
Effect
of Termination of Employment, Retirement, Disability or Death
.
(a) In the event of the termination
of employment of an Optionee either by reason of (i) being Discharged for Cause or (ii) voluntary separation on the part of such
Optionee for a reason other than retirement or disability, any Option or Options granted to the Optionee under this Plan, to the
extent not previously exercised or surrendered by the Optionee or expired, shall immediately terminate. “Discharged for Cause”
shall include termination at the sole discretion of the Board because of such Optionee’s personal dishonesty, 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), a final cease and desist order, or material
breach of any provision of any employment agreement that such Optionee may have with the Corporation.
(b) In the event of the termination
of employment of an Optionee as a result of such Optionee’s retirement, such Optionee shall have the right to exercise any
Option or Options granted to the Optionee under this Plan, to the extent that they have not previously been exercised or surrendered
by the Optionee or expired, for a period of three (3) months after the date of retirement, but in no event may any Option be exercised
later than the end of the Option Period provided in such Option Agreement in accordance with Paragraph 9 hereof. Notwithstanding
any other provision contained herein, or in any Option Agreement, upon retirement, any Option then held by an Optionee shall be
exercisable immediately in full. For purposes of this Plan, the term “retirement” shall mean (i) termination of an
Optionee’s employment under conditions which would constitute retirement under any tax qualified retirement plan maintained
by the Corporation or (ii) attaining age 65.
(c) In the event of the termination
of employment of an Optionee by reason of such Optionee’s disability, such Optionee shall have the right to exercise any
Options held by the Optionee, to the extent that they previously have not been exercised or surrendered by the Optionee or expired,
notwithstanding any limitations placed on the exercise of such Options by this Plan or an Option Agreement, immediately in full
and at any time within twelve (12) months after the last date on which such Optionee provides services as an officer or an employee
of the Corporation before being disabled, but in no event may any Option be exercised later than the end of the Option Period provided
in the Option Agreement in accordance with Paragraph 9 hereof. For purposes of this Plan, the term “disability” shall
be defined in the same manner as such term is defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.
(d) In the event that an
Optionee should die while employed by the Corporation, or within three (3) months after retirement, any Option or Options granted
to the Optionee under this Plan and not previously exercised or surrendered by the Optionee or expired shall vest and shall be
exercisable, according to their respective terms, by the personal representative of such Optionee or by any person or persons who
acquired such Options by bequest or inheritance from such Optionee, notwithstanding any limitations placed on the exercise of such
Options by this Plan or any Option Agreement, immediately in full and at any time within twelve (12) months after the date of death
of such Optionee, but in no event may any Option be exercised later than the end of the Option Period provided in such Option Agreement
in accordance with Paragraph 9 hereof. Any references herein to an Optionee shall be deemed to include any person entitled to exercise
an Option under the terms of this Plan after the death of such Optionee.
13.
Effect
of Plan on Employment Status
.
The fact that the Committee has granted an Option to an Optionee under this Plan shall not
confer on such Optionee any right to employment with the Corporation, or to a position as an officer or an employee of the Corporation,
nor shall it limit the right of the Corporation to remove such Optionee from any position held by the Optionee or to terminate
the Optionee’s employment at any time.
14.
Adjustment
Upon Changes in Capitalization; Dissolution or Liquidation
.
(a) In the event of a change
in the number of shares of the Common Stock outstanding by reason of a stock dividend, stock split, recapitalization, reorganization,
merger, exchange of shares, or other similar capital adjustment, prior to the termination of an Optionee’s rights under this
Plan, equitable proportionate adjustments shall be made by the Committee in (i) the number and kind of shares which remain available
under this Plan and (ii) the number, kind, and the Option Price of shares subject to unexercised Options under this Plan. The adjustments
to be made shall be determined by the Committee and shall be consistent with such change or changes in the Corporation’s
total number of outstanding shares;
provided
,
however
, that no adjustment shall change the aggregate Option Price
for the exercise of Options granted under this Plan.
(b) The grant of Options
under this Plan shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any
adjustment, recapitalization, reorganization, or other change in the Corporation’s capital structure or its business, or
any merger of the Corporation, or to issue bonds, debentures, preferred or other preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of
the Corporation’s assets or business.
(c) Upon the effective date
of the dissolution or liquidation of the Corporation, or of a reorganization or merger of the Corporation with one or more other
corporations in which the Corporation is not the surviving corporation, or the transfer of all or substantially all of the assets
or shares of the Corporation to another person or entity, or a tender offer approved by the Board (any such transaction being hereinafter
referred to as an “Acceleration Event”), this Plan and any Options granted hereunder shall terminate unless provision
is made in writing in connection with such Acceleration Event for the continuance of this Plan and for the assumption of Options
granted hereunder, or the substitution for such Options of new options for the shares of the successor corporation, or a parent
or a subsidiary thereof, with such appropriate adjustments, as may be determined or approved by the Committee or the successor
to the Corporation, to the number, kind and Option Price of shares subject to such substituted options in which event this Plan
and Options granted hereunder, or the new options substituted therefore, shall continue in the manner and under the terms so provided,
but any vesting periods or other restrictions on exercise that would otherwise apply shall no longer be applicable. Upon the occurrence
of any Acceleration Event in which provision is not made for the continuance of this Plan and for the assumption of Options granted
hereunder, or the substitution for such Options of new options for the shares of a successor corporation or a parent or a subsidiary
thereof, each Optionee to whom an Option has been granted under this Plan (or such person’s personal representative, the
executor or administrator of such person’s estate, or any person who acquired the right to exercise such Option from such
person by bequest of inheritance) shall be entitled, prior the effective date of any Acceleration Event, (i) to exercise, in whole
or in part, the Optionee’s rights under any Option granted to the Optionee without any regard to any restrictions on exercise
that would otherwise apply, or (ii) to surrender any such Option to the Corporation in exchange for receipt of cash equivalent
to the amount by which the fair market value of the shares of Common Stock such person would have received had such person exercised
the Option in full immediately prior to consummation of such Acceleration Event exceeds the applicable aggregate Option Price.
To the extent that a person, pursuant to this Subparagraph 14(c), has a right to exercise or surrender any Option on account of
a Acceleration Event which such person otherwise would not have had at that time, such right shall be contingent upon the consummation
of the Acceleration Event.
15.
Non-Transferability
.
Any Option granted under this Plan shall not be assignable or transferable except, in the case of the death of an Optionee, by
will or by the laws of descent and distribution. In the event of the death of an Optionee, the personal representative, the executor
or the administrator of such Optionee’s estate, or the person or persons who acquired by bequest or inheritance the rights
to exercise such Option, may exercise or surrender any Option or portion thereof to the extent not previously exercised or surrendered
by an Optionee or expired, in accordance with the terms of the Option Agreement, prior to the expiration of the exercise period
as specified in Subparagraph 12(d) hereof.
16.
Tax Withholding
.
The employer of a person granted an Option under this Plan shall have the right to deduct or otherwise effect a withholding or
payment of any amount required by federal or state laws to be withheld or paid with respect to the grant, exercise or surrender
for cash of any Option or the sale of stock acquired upon the exercise of an Option in order for the employer to obtain a tax
deduction
otherwise available as a consequence of such grant, exercise, surrender for cash, or sale, as the case may be.
17.
Listing and Registration
of Option Shares
. Any Option granted under the Plan shall be subject to the requirement that if at any time the Committee
shall determine, in its sole discretion, that the listing, registration, or qualification of the shares of Common Stock covered
thereby upon any securities exchange or under any state or federal law or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issuance or purchase
of shares thereunder, such Option may not be exercised in whole or in part unless and until such listing, registration, or qualification
consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
18.
Exculpation and
Indemnification
. In connection with this Plan, no member of the Committee shall be personally liable for any act or omission
to act in such person’s capacity as a member of the Committee, nor for any mistake in judgment made in good faith, unless
arising out of, or resulting from, such person’s own bad faith, gross negligence, willful misconduct, or criminal acts. To
the extent permitted by applicable law and regulation, the Corporation shall indemnify and hold harmless the members of the Committee,
and each other officer of employee of the Corporation to whom any duty or power relating to the administration or interpretation
of this Plan may be assigned or delegated, from and against any and all liabilities (including any amount paid in settlement of
a claim with approval of the Board) and any costs or expense (including reasonable counsel fees) incurred by such person arising
out of, or as a result of, such person’s duties, responsibilities, and obligations under this Plan, other than such liabilities,
costs, and expenses as may arise out of, or result from, the bad faith, gross negligence, willful misconduct, or criminal acts
of such persons.
19.
Amendment and
Modification of the Plan
. The Board may at any time and from time to time amend or modify this Plan in any respect;
provided
,
however
, that no amendment or modification shall be made that increases the total number of shares covered by this Plan
or effects any change in the categories of persons who may receive Options under this Plan or materially increases the benefits
accruing to Optionees under this Plan unless such change is approved by the holders of two thirds of the shares of Common Stock.
Any amendment or modification of this Plan shall not materially reduce the benefits under any Option theretofore granted to an
Optionee under this Plan without the consent of such Optionee or the permitted transferee thereof.
20.
Termination and
Expiration of the Plan
. This Plan may be abandoned, suspended, or terminated at any time by the Board;
provided
,
however
, that abandonment, suspension, or termination of this Plan shall not affect any Options then outstanding under this
Plan. No Option shall be granted pursuant to this Plan after ten (10) years from the effective date of this Plan as provided in
Paragraph 21 hereof.
21.
Effective Date;
Shareholder Approval
. This Plan has been adopted by the Board. This Plan shall not be effective until approved by the
Commissioner of Banks and by the holders of two thirds of the shares of Common Stock.
22.
Captions and
Headings; Gender and Number
. Captions and paragraph headings used herein are for convenience only, do not modify or affect
the meaning of any provision herein, are not a part hereof, and shall not serve as a basis for interpretation or in construction
of this Plan. As used herein,
the masculine gender shall include the feminine and neuter, the singular number the plural, and
vice versa, whenever such meanings are appropriate.
23.
Expenses of Administration
of Plan
. All costs and expenses incurred in the operation and administration of this Plan shall be borne by the Corporation.
24.
Governing Law
.
Without regard to the principles of conflicts of laws, the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
25.
Inspection of
Plan
. A copy of this Plan, and any amendments thereto or modification thereof, shall be maintained by the Secretary of
the Corporation and shall be shown to any proper person making inquiry about it.
7
Carolina Trust Bank 8-K12G3
Exhibit 10.13
CAROLINA
TRUST BANK
2005 NONSTATUTORY STOCK OPTION PLAN
Carolina
Trust Bank, a North Carolina corporation (the “Corporation”), does herein set forth the terms of its 2005 Nonstatutory
Stock Option Plan (the “Plan”), which was adopted by the Board of Directors (the “Board”) of the Corporation
subject to approval by the Corporation’s shareholders as provided in Paragraph 19 hereof, and by the appropriate regulatory
authorities as provided by law.
1.
Purpose
of this Plan
.
The purpose of this Plan is to provide for the grant of Nonstatutory Stock Options (the “Options”
or singularly, “Option”) to directors of the Corporation who wish to invest in the Corporation’s common stock,
par value $5.00 per share (the “Common Stock”). The Board believes the existence of this Plan will make it possible
for the Corporation to attract capable individuals to serve with the Corporation or any of its subsidiaries and on the Board.
2.
Administration
of this Plan
.
(a)
This Plan shall be administered by the Executive Committee of the Board (the “Committee”). The Committee shall have
full power and authority to construe, interpret and administer this Plan. All actions, decisions, determinations, or interpretations
of the Committee shall be final, conclusive, and binding upon all parties.
(b) The
Committee may designate any officers or employees of the Corporation to assist in the administration of this Plan. The Committee
may authorize such individuals to execute documents on its behalf and may delegate to them such other ministerial and limited
discretionary duties as the Committee may see fit.
3.
Shares
of Common Stock Subject to this Plan
.
The number of shares of Common Stock that shall be available initially
for Options under this Plan is Fifty five thousand two hundred and forty two (55,242), subject to adjustment as provided in
Paragraph 12. Common Stock subject to Options which expire or terminate prior to exercise of the Options shall lapse and such
shares shall again be available for future grants of Options under this Plan.
4.
Eligibility
.
(a) Options under this Plan may be granted to any director as determined by the Committee.
An individual may hold more than one Option under this or other plans adopted by the Corporation.
(b) Upon
the forfeiture of an Option for whatever reason prior to the expiration of the Option Period (as defined in Paragraph 8 hereof)
the shares of Common Stock covered by a forfeited Option shall be available for the granting of additional Options during the
remaining term of this Plan upon such terms and conditions and to such Optionees (as defined below) as may be determined by the
Committee.
5.
Option
Price
.
(a)
The price per share of each Option granted under this Plan (the “Option Price”) shall be determined by the Committee
as of the effective date of grant of such Option. In no event shall such Option Price be less than 100% of the fair market value
of the Common Stock on the date of the grant. An Option shall be considered as granted on the later of (i) the date the Committee
acts to grant such Option, or (ii) such later date as the Committee shall specify in an Option Agreement (as hereinafter defined).
(b) The
fair market value of a share of Common Stock shall be determined as follows:
(i) If
on the date as of which such determination is being made, the Common Stock is admitted to trading on a securities exchange or
exchanges for which actual sale prices are regularly reported, or actual sale prices are otherwise regularly published, the fair
market value of a share of the Common Stock shall be deemed to be equal to the mean of the closing sale price as reported for
each of the five (5) trading days immediately preceding the date as of which such determination is made;
provided
,
however
, that, if a closing sale price is not reported
for each of the five (5) trading days immediately preceding the date as of which such determination is made, then the fair market
value shall be equal to the mean of the closing sale prices on those trading days for which such price is available.
(ii) If
on the date as of which such determination is made, no such closing sale prices are reported, but quotations for the Common Stock
are regularly listed on the National Association of Securities Dealers Nasdaq system or another comparable system (“System”),
the fair market value of a share of Common Stock shall be deemed to be equal to the average of the closing prices for such Common
Stock quoted on such system on each of the five (5) trading days preceding the date as of which such determination is made. If
a closing price is not available for each of the five (5) trading days, then the fair market value shall be equal to the average
of the closing prices on those trading days during the five-day period for which such prices are available.
(iii) If
no such quotations are available, the fair market value of a share of Common Stock shall be deemed to be the average of the closing
bid and asked prices furnished by a professional securities dealer making a market in such shares, as selected by the Committee,
for the trading date first preceding the date as of which such determination is made.
If
the Common Stock has not been listed on any market or System or if the Committee determines that the price as determined above
does not represent the fair market value of a share of Common Stock, the Committee may then consider such other factors as it
deems appropriate and then fix the fair market value for the purposes of this Plan.
6.
Payment
of Option Price
.
Payment for shares subject to an Option must be made in cash.
7.
Terms
and Conditions of Grant of Options
.
(a) Each Option granted pursuant to this Plan shall be evidenced by a
written Nonstatutory Stock Option Agreement (the “Option Agreement”) with each employee or director to whom an
Option is granted (the “Optionee”). The Option Agreement shall be in the form the Committee shall adopt and may
contain such terms and conditions as the Committee may determine.
(b) Notwithstanding
any other provision of this Plan, no person shall be granted an Option or Options under this Plan which would result in the total
number of shares granted to such Optionee to exceed 40% of the shares allocated to this Plan, or, if greater, the maximum permitted
by the Commissioner of Banks of North Carolina (the “Commissioner of Banks”).
8.
Option
Period
.
Each Option Agreement shall set forth a period during which such Option may be exercised (the “Option
Period”)’
provided
,
however
,
that the Option Period shall not exceed ten (10) years after the date of grant of such Option as specified in an Option Agreement.
9.
Exercise
of Options
.
(a) An Option shall be exercised by written notice to the Committee signed by an Optionee or by
such other person as may be entitled to exercise such Option or to surrender such Option. The written notice shall state the
number of shares with respect to which an Option is being exercised and shall either be accompanied by the payment of the
aggregate Option Price for such shares or shall fix a date (not more than ten (10) business days after the date of such
notice) by which the payment of the aggregate Option Price will be made. An Optionee shall not exercise an Option to purchase
less than 100 shares, unless the Committee otherwise approves or unless the partial exercise is for the remaining shares
available under such Option.
(b) A
certificate or certificates for the shares of Common Stock purchased by the exercise of an Option shall be issued in the regular
course of business following the receipt of the notice of exercise of such Option and the payment therefor. During the Option
Period, no person entitled to exercise any Option granted under this Plan shall have any of the rights or privileges of a shareholder
with respect to any shares of the Common Stock issuable upon exercise of such Option, until certificates representing such shares
shall have been issued and delivered and the individual’s name entered as a shareholder of record on the books of the Corporation
for such shares.
10.
Effect
of Leaving the Corporation or Death
.
(a) In the event that an Optionee terminates the relationship with the Corporation
for any reason other than retirement, disability, death, or, in the event that the Optionee is a director as provided for in paragraph
(e) of this Section, the natural expiration of the director’s term on the board including but not limited to the director’s
decision not to pursue an additional term on the board or the director not being reelected to the board, any Option granted to
the Optionee under this Plan, to the extent not previously exercised or surrendered by the Optionee or expired, shall immediately
terminate.
(b) In
the event of an Optionee’s retirement, such Optionee shall have the right to exercise an Option granted under this Plan,
to the extent that it has not previously been exercised or surrendered by the Optionee or expired, for such period of time as
may be determined by the Committee and specified in the Option Agreement, but in no event may any Option be exercised later than
the end of the Option Period provided in the Option Agreement in accordance with Paragraph 8 hereof. Notwithstanding any other
provision contained this Plan, or in any Option Agreement, upon retirement, any Option then held by an Optionee shall be exercisable
immediately in full. For purposes of this Plan, the term “retirement” for a Director shall mean termination of a Director’s
membership on the Board (i) at any time after attaining age 65 with the approval of the Committee; or (ii) at the election of
the Director, at any time after not less than five (5) years service as a member of the Board.
(c) In
the event of an Optionee’s disability, such Optionee shall have the right to exercise an Option granted under this Plan,
to the extent that it has not previously been exercised or surrendered by the Optionee or expired, for such period of time as
may be determined by the Committee and specified in the Option Agreement, but in no event may any Option be exercised later than
the end of the Option Period provided in the Option Agreement in accordance with Paragraph 8 hereof. Notwithstanding any other
provision contained this Plan, or in any Option Agreement, upon an Optionee’s disability, any Option then held by the Optionee
shall be exercisable immediately in full. For purposes of this Plan, the term “disability” shall be defined as may
be determined by the Committee.
(d) In
the event that an Optionee should die while serving on the Board or as an employee during the Option Period, an Option granted
under this Plan, to the extent that it has not
previously been exercised or surrendered by the Optionee or expired, shall vest
and shall be exercisable, in accordance with the terms of the Option Agreement, by the personal representative of such Optionee,
the executor or administrator of such Optionee’s estate, or by any person or persons who acquired such Option by bequest
or inheritance from such optionee, notwithstanding any limitations placed on the exercise of such Option by this Plan or the Option
Agreement, at any time within twelve (12) months after the date of death of such Optionee. In no event may an Option be exercised
later than the end of the Option Period provided in the Option Agreement in accordance with Paragraph 8 hereof. Any references
herein to an Optionee shall be deemed to include any person entitled to exercise an Option after the death of such Optionee under
the terms of this Plan.
(e) In
the event the Optionee is a Director and either: (i) his term expires and he chooses not to run for reelection; or, (ii) he is
not reelected to serve beyond his current term, the Optionee shall have the right to exercise the Option, to the extent it has
not been exercised or expired, notwithstanding ny other provision contained in this Plan, or in any Option Agreement, immediately
in full for the remainder of such ten (10) year period.
11.
Effect
of Plan on Status with Corporation
.
The fact that an Optionee has been granted an Option under this Plan shall
not confer on such Optionee any right to continued service on the Board, nor shall it limit the right of the Corporation to remove
such Optionee from service with the Corporation at any time.
12.
Adjustment
Upon Changes in Capitalization; Dissolution or
Liquidation
.
(a) In
the event of a change in the number of shares of Common Stock outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital adjustment prior to the termination of an Optionee’s
rights under this Plan, equitable proportionate adjustments shall be made by the Committee in (i) the number and kind of
shares which remain available under this Plan and (ii) the number, kind, and the Option Price of shares subject to the unexercised
portion of an Option under this Plan. The adjustments to be made shall be determined by the Committee and shall be consistent
with such change or changes in the Corporation’s total number of outstanding shares;
provided
,
however,
that no adjustment shall change the aggregate
Option Price for the exercise of Options granted under this Plan.
(b) The
grant of Options under this Plan shall not affect in any way the right or power of the Corporation or its shareholders to make
or authorize any adjustment, recapitalization, reorganization, or other change in the Corporation’s capital structure or
its business, or any merger or consolidation of the Corporation, or to issue bonds, debentures, preferred or other preference
stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any
sale or transfer of all or any part of the Corporation’s assets or business.
(c) Upon
the effective date of the dissolution or liquidation of the Corporation, or of a reorganization, merger, or consolidation of the
Corporation with one or more other corporations in which the Corporation is not the surviving corporation, or the transfer of
all or substantially all of the assets or shares of the Corporation to another person or entity, or a tender offer approved by
the Board (any such transaction being hereinafter referred to as an “Acceleration Event”), this Plan and any Options
granted hereunder shall terminate unless provision is made in writing in connection with such Acceleration Event for the continuance
of this Plan and for the assumption of Options granted hereunder, or the substitution for such Options of new options for the
shares of the successor corporation, or a parent or a subsidiary thereof, with such appropriate
adjustments as may be determined
or approved by the Board, or the successor to the Corporation, to the number, kind and Option Price of shares subject to such
substituted options. In such event, this Plan and Options granted hereunder, or the new options substituted therefore, shall continue
in the manner and under the terms so provided, but any vesting periods or other restrictions on exercise that would otherwise
apply shall no longer be applicable. Upon the occurrence of any Acceleration Event in which provision is not made for the continuance
of this Plan and for the assumption of Options granted hereunder, or the substitution for such Options of new options for the
shares of a successor corporation or a parent or a subsidiary thereof, each Optionee to whom an Option has been granted under
this Plan (or such person’s personal representative, the executor or administrator of such person’s estate, or any
person who acquired the right to exercise such Option from such person by bequest or inheritance) shall be entitled, prior to
the effective date of the Acceleration Event, (i) to exercise, in whole or in part, the Optionee’s rights under any Option
granted to the Optionee without any regard to any restrictions on exercise that would otherwise apply, or (ii) to surrender any
such Option to the Corporation in exchange for receipt of cash equivalent to the amount by which the fair market value of the
shares of Common Stock such person would have received had such person exercised the Option in full immediately prior to consummation
of the Acceleration Event exceeds the applicable aggregate Option Price. To the extent that a person, pursuant to this Subparagraph 12(c)
has a right to exercise or surrender any Option on account of an Acceleration Event which such person otherwise would not have
had at that time, such right shall be contingent upon the consummation of the Acceleration Event.
13.
Non-Transferability
.
An Option granted under this Plan shall not be assignable or transferable except, in the event of the death of an Optionee,
by will or by the laws of descent and distribution. In the event of the death of an Optionee, his personal representative, the
executor or the administrator of such Optionee’s estate, or the person or persons who acquired by bequest or inheritance
the rights to exercise or to surrender such Options, may exercise or surrender any Option or portion thereof to the extend not
previously exercisable or surrendered by an Optionee or expired, in accordance with the terms of the Option Agreement, prior to
the expiration of the exercise period as specified in Subparagraph 10(d) hereof.
14.
Tax
Withholding
.
The Corporation shall have the right to deduct or otherwise effect a withholding or payment of any
amount required by federal or state laws to be withheld or paid with respect to the grant, exercise or surrender for cash of any
Option or the sale of stock acquired upon the exercise of an Option in order for the Corporation or any of its subsidiaries to
obtain a tax deduction otherwise available as a consequence of such grant, exercise, surrender for cash, or sale, as the case
may be.
15.
Listing
and Registration of Option Shares
.
Any Option granted
under this Plan shall be subject to the requirement that if at any time the Committee shall determine, in its sole discretion,
that the listing, registration, or qualification of the shares covered thereby upon any securities exchange or under any state
or federal law or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or
in connection with, the granting of such Option or the issuance or purchase of shares thereunder, such Option may not be exercised
in whole or in part unless and until such listing, registration, qualification, consent, or approval shall have been effected
or obtained free of any conditions not acceptable to the Committee.
16.
Exculpation
and Indemnification
.
In connection with this Plan, no member of the Committee shall be personally liable for any
act or omission to act in such person’s capacity as a member of the Committee, nor for any mistake in judgment made in good
faith, unless arising out of, or resulting from, such person’s own bad faith, gross negligence, willful misconduct, or criminal
acts. To the extent permitted by applicable law and regulation, the Corporation shall indemnify and hold harmless the members
of the Committee, and each other officer or employee of the Corporation to whom any duty or power relating to the administration
or interpretation of this Plan may be assigned or delegated, from and against any and all liabilities (including any amount paid
in settlement of a claim with the approval of the Committee) and any costs or expenses (including reasonable counsel fees) incurred
by such persons arising out of, or as a result of, any act or omission to act in connection with the performance of such person’s
duties, responsibilities, and obligations under this Plan, other than such liabilities, costs, and expenses as may arise out of,
or result from, the bad faith, gross negligence, willful misconduct, or criminal acts of such persons.
17.
Amendment
and Modification of this Plan
.
The Board may at any time, and from time to time, amend or modify this Plan in any
respect;
provided
,
however
,
that no amendment or modification shall be made that increases the total number of shares covered by this Plan or effects any
change in the category of persons who may receive Options under this Plan or materially increases the benefits accruing to Optionees
under this Plan unless such change is approved by the holders of two thirds of the outstanding shares of the Common Stock. Any
amendment or modification of this Plan shall not materially reduce the benefits under any Option therefore granted to an Optionee
under this Plan without the consent of such Optionee or any permitted transferee.
18.
Termination
and Expiration of this Plan
.
This Plan may be abandoned, suspended, or terminated at any time by the Board;
provided
,
however
,
that abandonment, suspension, or termination of this Plan shall not affect any Options
then outstanding under this Plan. No Option shall be granted pursuant to this Plan after ten (10) years from the effective date
of this Plan as provided in Paragraph 19 hereof.
19.
Effective
Date; Shareholder Approval
.
This Plan has been adopted by the Board. The Plan shall not be effective until approved
by the Commissioner of Banks and the holders of two thirds of the outstanding shares of Common Stock.
20.
Captions
and Headings; Gender and Number
.
Captions and paragraph headings used herein are for convenience only, do not modify
or affect the meaning of any provision herein, are not a part hereof, and shall not serve as a basis for interpretation or in
construction of this Plan. As used herein, the masculine gender shall include the feminine and neuter, the singular number, the
plural, and vice versa, whenever such meanings are appropriate.
21.
Expenses
of Administration of Plan
.
All costs and expenses incurred in the operation and administration of this Plan shall
be borne by the Corporation.
22.
Governing
Law
.
Without regard to the principles of conflicts of laws, the laws of the State of North Carolina shall govern
and control the validity, interpretation, performance, and enforcement of this Plan.
23.
Inspection
of Plan
.
A copy of this Plan, and any amendments thereto or modifications thereof, shall be maintained by the Secretary
of the Corporation and shall be shown to any proper person making inquiry about it.
Carolina Trust Bank 8-K12G3
Exhibit
10.14
CAROLINA
COMMERCE BANK
EMPLOYEE STOCK OPTION PLAN
Amended and Restated as of January 1, 2005 in accordance
with Section 409A of the Internal Revenue Code
THIS
IS THE EMPLOYEE STOCK OPTION PLAN (“Plan”) of Carolina Commerce Bank (the “Bank”), a North Carolina bank,
with its principal office in Gastonia, Gaston County, North Carolina, adopted by the Board of Directors of the Bank, under which
options may be granted from time to time to eligible employees of the Bank to purchase shares of common stock of the Bank (“Common
Stock”), as restated and amended as of June 27, 2007 (i) to comply with Section 409A of the Internal Revenue Code;
and (ii) to effect certain proposals approved by the Bank’s 2007 Annual Meeting of Stockholders, subject to the provisions
set forth below:
1.
PURPOSE
OF THE PLAN
.
The purpose of the Plan is to aid the Bank in attracting and retaining capable employees and to provide
a long range incentive for employees to remain in the management of the Bank, to perform at increasing levels of effectiveness
and to acquire a permanent stake in the Bank with the interest and outlook of an owner. These objectives will be promoted through
the granting of options to acquire shares of Common Stock pursuant to the terms of this Plan.
2.
ADMINISTRATION
.
The Plan shall be administered by a committee (the “Committee”), which shall consist of not less than three
members of the Board of Directors of the Bank (the “Board”) who are “Non-Employee Directors” as defined
in Rule 16b-3(b)(3) of the Rules and Regulations under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).
Members of the Committee shall serve at the pleasure of the Board. In the absence at any time of a duly appointed Committee, this
Plan shall be administered by the Board. The Committee may designate any officers or employees of the Bank to assist in the administration
of the Plan and to execute documents on behalf of the Committee and perform such other ministerial duties as may be delegated
to them by the Committee.
Subject
to the provisions of the Plan, the determinations or the interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of illustration and not of limitation, the Committee shall
have the discretion (a) to construe and interpret the Plan and all options granted hereunder and to determine the terms and provisions
(and amendments thereof) of the options granted under the Plan (which need not be identical); (b) to define the terms used in
the Plan and in the options granted hereunder; (c) to prescribe, amend and rescind the rules and regulations relating to the Plan
(provided, however, that no prescription, amendment or rescission will be effectuated unless it complies with Section 409A
to the extent Section 409A applies to such matters); (d) to determine the individuals to whom and the time or times at which
such options shall be granted, the number of shares to be subject to each option, the option price, and the determination of leaves
of absence which may be granted to participants without constituting a termination of their employment for the purposes of the
Plan; and (e) to make all other determinations necessary or advisable for the administration of the Plan. For purposes of this
Plan, Section 409A means Internal Revenue Code Section 409A, as amended, including regulations and guidance issued thereunder
(“Section 409A”).
It
shall be in the discretion of the Committee to grant options which qualify as “incentive stock options,” as that term
is defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) (“Incentive Stock
Options”) or which do not qualify as Incentive Stock Options (‘‘Nonqualified Stock Options”) (herein referred
to collectively as “Options;” however, whenever reference is specifically made only to “Incentive Stock Options”
or “Nonqualified Stock Options,” such reference shall be deemed to be made to the exclusion of the other). Any options
granted which fail to satisfy the requirements for Incentive Stock Options shall become Nonqualified Stock Options.
3.
STOCK
AVAILABLE FOR OPTIONS
.
In the discretion of the Committee, the stock to be subject to Options under the Plan shall
be authorized but unissued shares of Common Stock which are issued directly to optionees upon exercise of options and/or shares
of Common Stock which are acquired by the Plan or the Bank in the open market. The total number of shares of Common Stock for
which Options may be granted under the Plan is 123,687 shares, which is 10% of the total number of shares of Common Stock issued
by the Bank in connection with its initial public offering and rights and public offering. Such total number of shares is subject
to any capital adjustments as provided in Section 14. In the event that an Option granted under the Plan is forfeited, released,
expires or is terminated unexercised as to any shares covered thereby, such shares thereafter shall be available for the granting
of Options under the Plan; however, if the forfeiture, expiration, release or termination date of an Option is beyond the term
of existence of the Plan as described in Section 19, then any shares covered by forfeited, unexercised, released or terminated
options shall not reactivate the existence of the Plan and therefore may not be available for additional grants under the Plan.
The Bank, during the term of the Plan, will reserve and keep available a number of shares of Common Stock sufficient to satisfy
the requirements of the Plan. In the discretion of the Committee, the shares of Common Stock necessary to be delivered to satisfy
exercised options may be from authorized and unissued shares of Common Stock or may be purchased in the open market.
4.
ELIGIBILITY
.
Options shall be granted only to individuals who meet all of the following eligibility requirements:
(a)
Such
individual must be an employee of the Bank. For this purpose, an individual shall be considered to be an “employee”
only if there exists between the Bank and the individual the legal and bona fide relationship of employer and employee. In determining
whether such relationship exists, the regulations of the United States Treasury Department relating to the determination of such
relationship for the purpose of collection of income tax at the source on wages shall be applied.
(b)
Such
individual must have such knowledge and experience in financial and business matters that he or she is capable of evaluating the
merits and risks of the investment involved in the exercise of the Options.
(c)
Such
individual, being otherwise eligible under this Section 4, shall have been selected by the Committee as a person to whom
an Option shall be granted under the Plan.
In
determining the employees to whom Options shall be granted and the number of shares to be covered by each Option, the Committee
shall take into account the nature of the services rendered by respective employees, their present and potential contributions
to the success of the Bank and such other factors as the Committee shall deem relevant. An employee who has been granted an Option
under the Plan may be granted an additional Option or Options under the Plan if the Committee shall so determine.
If,
pursuant to the terms of the Plan, it is necessary that the percentage of stock ownership of any individual be determined, stock
ownership in the Bank or of a related corporation which is owned (directly or indirectly) by or for such individual’s brothers
and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants or by or for any corporation, partnership,
estate or trust of which such employee is a shareholder, partner or beneficiary shall be considered as owned by such employee.
5.
OPTION
GRANTS
.
Subject to the provisions of this Plan, Options shall be awarded to the employees in such amounts as are
determined by the Committee. The proper officers on behalf of the Bank and each Optionee shall execute a Stock Option Grant and
Agreement (the “Option Agreement”) which shall set forth the total number of shares of Common Stock to which it pertains,
the exercise price, whether it is a Nonqualified Stock Option or an Incentive Stock Option, and such other terms, conditions,
restrictions and privileges as the Committee in each instance shall deem appropriate, provided they are not inconsistent with
the terms, conditions and provisions of this Plan. Each Optionee shall receive a copy of his executed Option Agreement. Any Option
granted with the intention that it will be an Incentive Stock Option but which fails to satisfy a requirement for Incentive Stock
Options shall continue to be valid and shall be treated as a Nonqualified Stock Option.
6.
OPTION
PRICE
.
(a)
The
option price of each Option granted under the Plan shall be not less than 100% of the fair market value of the stock on the date
of grant of the Option. In the case of incentive stock options granted to a shareholder who owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Bank or a Subsidiary (a “ten percent shareholder”),
the option price of each Option granted under the Plan shall be not less than 110% of the fair market value of the stock on the
date of grant of the Option.
(b)
For
purposes of Incentive Stock Options issued under the Plan, “fair market value” means the value of a share of common
stock determined consistent with the requirements of Section 422 of the Code at the time of the valuation. As of the date
of the adoption of this Amendment to the Plan, Section 422 provides the following definitions (through regulations issued
under Section 422 that incorporate by reference Treasury Regulation §20.2031-2), as applicable: (i) if, on the applicable
date, there is a market for the common stock on a stock exchange, in an over-the-counter market, or otherwise, the value of a
share of common stock shall be deemed to be equal to the mean between the highest and lowest quoted selling prices on the valuation
date; (ii) if, on the applicable date, there were no sales of common stock but there were sales on dates within a reasonable period
both before and after the valuation date, the fair market value shall be
determined
by taking a weighted average of the means between the highest and lowest sales on the nearest date before and the nearest date
after the valuation date, with the average weighted inversely by the respective number of trading days between the selling dates
and the valuation date; (iii) if actual sales are not available during a reasonable period beginning before and ending after the
valuation date, the fair market value shall be determined by taking the mean between the bona fide bid and asked prices on the
valuation date, or if none, by taking a weighted average of the means between the bona fide bid and asked prices on the nearest
trading date before and the nearest trading date after the valuation date, if both such nearest dates are within a reasonable
period, with the average weighted as provided in Section 6(b)(ii) above; (iv) if no actual sales prices or bona fide bid
and asked prices are available on a date within a reasonable period before the valuation date, but such prices are available on
a date within a reasonable period after the valuation date (or vice versa), then the mean between the highest and lowest available
sales price or bid and asked prices may be taken as the value; (v) if it is established that the value of common stock determined
as provided in Sections 6(b)(i) through 6(b)(iv) does not reflect the fair market value of the Common Stock, then some reasonable
modification of that basis or other relevant facts and elements of value shall be considered in determining the fair market value;
(vi) if Sections 6(b)(i) through 6(b)(iv) are not applicable, then the fair market value shall be determined by taking into
account the Bank’s net worth, prospective earning power and dividend-paying capacity, and other relevant factors, including
the goodwill of the business, the economic outlook in the particular industry, the Bank’s position in the industry and its
management, the degree of control of the business represented by the block of common stock to be valued, the values of securities
of corporations engaged in the same or similar lines of business which are listed on a stock exchange or the over-the-counter
market, and various non-operating assets as provided for in Treasury Regulation §20.2031-2(f).
(c)
For
purposes of Nonqualified Stock Options issued under the Plan, “fair market value” means fair market value determined
consistent with the requirements of Section 409A. At the time of the adoption of this Amendment to the Plan, Section 409A
provides the following definitions, as applicable: (i) if, on the applicable date, the common stock is readily tradable on an
established securities market, the fair market value of the common stock may be determined based upon the last sale before or
the first sale after the grant, the closing price on the trading day before or the trading day of the grant, or any other reasonable
basis using actual transactions in such common stock as reported by such market and consistently applied (so long as it is reasonable
under Section 409A); (ii) if, on the applicable date, the common stock is not readily tradable on an established securities
market, the fair market value of the common stock means a value determined by the reasonable application of a reasonable valuation
method, which method shall consider all available information material to the value of the Bank and considers the following factors,
as applicable: (1) the value of tangible and intangible assets of the Bank, (2) the present value of future cash-flows of the
Bank, (3) the market value of stock or equity interests in similar corporations and other entities engaged in trades or businesses
substantially similar to those engaged in by the Bank, the value of which can be readily determined through objective means (such
as through trading prices on an established securities market or an amount paid in an arm’s length private transaction),
(4) control premiums, (5) discounts for lack of marketability, and
(6) whether
the valuation method is used for other purposes that have a material economic effect on the Bank, its stockholders or its creditors.
(d)
The
Committee shall maintain a written record of its method of determining fair market value of the Option at the time each Option
is granted under the Plan.
(e)
The
option price shall be payable to the Bank in cash or by check, bank draft or money order payable to the order of the Bank. No
share shall be delivered until full payment has been made.
7.
EXPIRATION
OF OPTIONS
.
The Committee shall determine the expiration date or dates of each Option, but such expiration date
shall not be later than ten years after the date such Option is granted. In the event an Incentive Stock Option is granted to
a ten percent shareholder, the expiration date or dates of each Option shall be not later than five years after the date such
Option is granted. The Committee, in its discretion, may extend the expiration date or dates of an Option after such date was
originally set; however, such expiration date may not exceed the maximum expiration date described in this Section 7.
8.
TERMS
AND CONDITIONS OF OPTIONS
.
(a)
All
Options must be granted within ten years of the Effective Date of this Plan as defined in Section 18.
(b)
The
Committee may grant Options which are intended to be Incentive Stock Options and Nonqualified Stock Options, either separately
or jointly, to an eligible employee.
(c)
The
grant of Options shall be evidenced by a written instrument (an Option Agreement) containing terms and conditions established
by the Committee consistent with the provisions of this Plan.
(d)
Not
less than 100 shares may be purchased at any one time unless the number purchased is the total number at that time purchasable
under the Plan.
(e)
The
recipient of an Option shall have no rights as a shareholder with respect to any shares covered by his Option until payment in
full by him for the shares being purchased. Except as provided in Section 14, no adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is
prior to the date such stock is fully paid for.
(f)
The
aggregate fair market value of the stock (determined as of the time the Option is granted) with respect to which Incentive Stock
Options are exercisable for the first time by any participant during any calendar year (under all benefit plans of the Bank, if
applicable) shall not exceed $100,000; provided, however, that such $100,000 limit of this subsection (f) shall not apply
to the grant of Nonqualified Stock Options. The Committee may grant Options which are exercisable in excess of the foregoing
limitations,
in which case Options granted which are exercisable in excess of such limitation shall be Nonqualified Stock Options.
(g)
All
stock obtained pursuant to an option which qualifies as an Incentive Stock Option shall be held in escrow for a period which ends
on the later of (i) two years from the date of the granting of the Option or (ii) one year after the transfer of the stock pursuant
to the exercise of the Option. The stock shall be held by the Bank or its designee. The employee who has exercised the Option
shall during such holding period have ail rights of a shareholder, including but not limited to the rights to vote, receive dividends
and sell the stock. The sole purpose of the escrow is to inform the Bank of a disqualifying disposition of the stock within the
meaning of Section 422 of the Code, as amended, and it shall be administered solely for that purpose.
(h)
No
more than 40% of the shares which have been set aside for option may be allocated to any one participant under the Plan.
(i)
Without
the prior written notification to the Federal Deposit Insurance Corporation (“FDIC”) and nonobjection by the FDIC,
Options shall not be issued to organizers and incorporators of the Bank which give such persons the right to purchase a number
of shares in excess of the number of shares subscribed by them and their affiliates in the Bank’s initial offering of its
shares.
(j)
All
Nonqualified Stock Options shall be issued at no less than 100% of fair market value as provided for in Section 6(a) The
number of shares subject to each Nonqualified Stock Option will be fixed in the applicable Option Agreement. When the Nonqualified
Stock Options are transferred or exercised, the transfer or exercise shall be subject to taxation under Code Section 83 and
Treasury Regulation §1.83-7. No Nonqualified Stock Option awarded hereunder shall contain any feature for the deferral of
compensation other than the deferral of recognition of income until the later of exercise or disposition of the option under Treasury
Regulation §1,83-7 or the time the stock acquired pursuant to the exercise of the option first becomes substantially vested
as defined in Treasury Regulation §1.83-3(b). Further, each Nonqualified Stock Option will comply with any other Section 409A
requirement in order to maintain the status of the Nonqualified Stock Option as exempt from the requirements of Section 409A.
9.
EXERCISE
OF OPTIONS
.
(a)
Options
shall become vested and exercisable at the times, at the rate and subject to such limitations as may be set forth in the Option
Agreement executed in connection therewith; provided, however, that all outstanding and nonforfeited options shall be exercisable,
if not sooner, on the day prior to the expiration date thereof.
(b)
Unless
the Committee shall specifically state otherwise at the time an Option is granted, all Options granted hereunder shall become
vested and exercisable upon the optionee’s death or disability within the meaning of Section 22(e)(3) of the Code,
and in the event of a change in control as set forth in Section 12 of this Plan.
(c)
The
exercise of any Option must be evidenced by written notice to the Bank that the optionee intends to exercise his Option. In no
event shall an Option be deemed granted by the Bank or exercisable by a recipient prior to the mutual execution by the Bank and
the recipient of an Option Agreement which comports with the requirements of Section 5 and Section 8(c).
(d)
Any
right to exercise Options in annual installments shall be cumulative and any vested installments may be exercised, in whole or
in pail, at the election of the optionee.
(e)
The
inability of the Bank to obtain approval from any regulatory body or authority deemed by counsel to be necessary to the lawful
issuance and sale of any shares of Common Stock hereunder shall relieve the Bank of any liability in respect of the non-issuance
or sale of such shares. As a condition to the exercise of an option, the Bank may require the person exercising the Option to
make such representations and warranties as may be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities laws.
(f)
The
Committee shall have the discretionary authority to impose in the Option Agreements such restrictions on shares of Common Stock
as it may deem appropriate or desirable, including but not limited to the authority to impose a right of first refusal or to establish
repurchase rights or both of these restrictions.
(g)
Notwithstanding
anything to the contrary herein, an optionee shall be required to exercise his Options within the periods set forth in Sections 10,
11 and 12 below.
10.
TERMINATION
OF EMPLOYMENT - EXCEPT BY DISABILITY OR DEATH
.
If any optionee ceases to be an employee of the Bank for any reason other than death or disability (as defined in Section 11),
he may, at any time within three months after his date of termination, but not later than the date of expiration of the Option,
exercise any Option only to the extent it was vested and he was entitled to exercise the Option on the date of termination. Any
Options or portions of Options of terminated optionees not so exercised shall terminate and be forfeited.
11.
TERMINATION
OF EMPLOYMENT - DISABILITY OR DEATH
.
If any optionee receiving the grant of an Option dies while in the employment
of the Bank or ceases to be employed by the Bank due to his becoming disabled within the meaning of Section 22(e)(3) of the
Code, all unvested and forfeitable Options of such optionee shall immediately become vested and nonforfeitable. In the event an
optionee ceases to be an employee due to becoming disabled, the optionee may at any time not later than the date of expiration
of the Option, exercise any Option with respect to all shares subject thereto; provided, however, that any such optionee having
an Incentive Stock Option may not exercise such Incentive Stock Option more than twelve moths after the date of termination. In
the event an optionee dies while in the employment of the Bank, the person or persons to whom the Option is transferred by will
or by the laws of descent and distribution, may, at any time until the term of the option has expired, exercise any Option with
respect to all shares subject thereto. Any portions of Options of
optionees
who die or who arc terminated because they become disabled which are not so exercised shall terminate.
12.
CHANGE
OF CONTROL
.
In the event that a “change of control” occurs prior to the time that all shares allocated
to an optionee would be 100% vested, nonforfeitable and exercisable in accordance with Sections 9, 10 and 11 above, then,
notwithstanding Sections 9, 10, and 11 above, all Options granted to such optionee shall immediately become fully vested
and nonforfeitable. For purposes of this Plan, a “change of control” shall mean (i) an affirmative vote of the Bank’s
shareholders approving a change of control of a nature that would be required to be reported by the Bank in response to Item 1
of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) such time as any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank representing 25% or more of the combined voting power of the outstanding Common Stock of the Bank; or (iii) individuals
who constitute the Board of the Bank on the date hereof (the “Incumbent Board”) cease for any reason to constitute
at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved
by a vote of at least three- quarters of the directors comprising the Incumbent Board, or whose nomination for election by the
Bank’s shareholders was approved by the Bank’s Board of Directors or Nominating Committee, shall be considered as
though he or she were a member of the Incumbent Board; or (iv) an affirmative vole of the Bank’s shareholders approving
the Bank’s consolidation or merger with or into a corporation, financial institution, limited liability company, partnership,
trust, joint stock company, trust company, association or entity or other reorganization, where the Bank is not the surviving
entity in such transaction; or (v) an affirmative vote of the Bank’s shareholders approving the sale or other transfer
or acquisition of all or substantially all of the assets of the Bank by any person, entity or group. The formation of a parent
holding company by the Bank’s Board of Directors shall not be deemed a “change of control.”
SECTION
13.
RESTRICTIONS ON TRANSFER
.
An Option granted under this Plan
may not be transferred except by will or the laws of descent and distribution and, during the lifetime of the optionee to whom
it was granted, may be exercised only by such optionee.
SECTION
14.
CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK
.
(a)
If
the outstanding shares of Common Stock of the Bank are increased, decreased, changed into or exchanged for a different number
or kind of shares or other securities of the Bank or another entity as a result of a recapitalization, reclassification, stock
dividend, stock split, amendment to the Bank’s Articles of Incorporation, reverse stock split, merger or consolidation,
an appropriate adjustment shall be made in the number and/or kind of securities allocated to the Options previously and subsequently
granted under the Plan, without change in the aggregate purchase price applicable to the unexercised portion of the outstanding
Options but with a corresponding adjustment in the option price for each share or other unit of any security covered by the Options.
(b)
In
the event that the Bank shall declare and pay any dividend with respect to the Common Stock (other than a dividend payable in
shares of the Bank’s Common
Stock
or a regular quarterly cash dividend), including a dividend which results in a nontaxable return of capital to the holders of
shares of Common Stock for federal income tax purposes, or otherwise than by dividend makes distribution of properly to the holders
of its shares of Common Stock, the Committee, in its discretion applied uniformly to all outstanding Options, may adjust the option
price per share of outstanding options in such a manner as the Committee may determine to be necessary to reflect the effect of
the dividend or other distribution on the fair market value of a share of Common Stock. In adjusting the option price per share
of outstanding Option, the Committee may, in its discretion, (i) require all holders of outstanding Options to return such Options
and reissue new Options with a new option price or (ii) adjust the option price without any such return and reissuance. Provided,
however, that any new option price must meet the requirements of Section 6 of the Plan and, with respect to Nonqualified
Stock Options, the new Options issued, if any, must meet the requirements of Section 8(j) of the Plan.
(c)
To
the extent that the foregoing adjustments described in Sections 14(a) and 14(b) above relate to particular Options or to
particular stock or securities of the Bank subject to Option under this Plan, such adjustments shall be made by the Committee,
whose determination in that respect shall be final and conclusive.
(d)
The
grant of an Option pursuant to this Plan shall not affect in any way the right or power of the Bank to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
(e)
No
fractional shares of stock shall be issued under the Plan for any such adjustment.
(f)
Any
adjustment made pursuant to this Section 14, shall be made, to the extent practicable, in such manner as not to constitute
a modification of any outstanding Incentive Stock Options within the meaning of Section 424(h) of the Code.
SECTION
15.
INVESTMENT PURPOSE
.
At the discretion of the Committee, any
Option Agreement may provide that the optionee shall, by accepting the Option, represent and agree, for himself and his transferees
by will or the laws of descent and distribution, that all shares of stock purchased upon the exercise of the Option will be acquired
for investment and not for resale or distribution, and that upon each exercise of any portion of an Option, the person entitled
to exercise the same shall furnish evidence of such facts which is satisfactory to the Bank. Certificates for shares of stock
acquired under the Plan may be issued bearing such restrictive legends as the Bank and its counsel may deem necessary to ensure
that the optionee is not an “underwriter” within the meaning of the regulations of the Securities and Exchange Commission.
SECTION
16.
APPLICATION OF FUNDS
.
The proceeds received by the Bank from
the sale of Common Stock pursuant to Options will be used for general corporate purposes.
SECTION
17.
NO OBLIGATION TO EXERCISE
.
The granting of an Option shall
impose no obligation upon the optionee to exercise such Option.
SECTION
18.
EFFECTIVE DATE OF PLAN
.
This Plan shall not be effective until
adopted by the Board of Directors and approved by the holders of at least two-thirds of the particular class or classes of stock
entitled to vote on such proposal and by the Commissioner of Banks. The effective date of the Plan shall be as designated by the
Board of Directors in accordance with applicable law.
SECTION
19.
TERM OF PLAN
.
Options may be granted pursuant to this Plan
from time to time within ten years from the effective date of the Plan.
SECTION
20.
TIME OF GRANTING OF OPTIONS
.
Nothing contained in the Plan
or in any resolution adopted or to be adopted by the Committee or the shareholders of the Bank and no action taken by the Committee
shall constitute the granting of any Option hereunder. The granting of an Option pursuant to the Plan shall take place only when
an Option Agreement shall have been duly executed and delivered by and on behalf of the Bank at the direction of the Committee.
SECTION
21.
WITHHOLDING TAXES
.
Whenever the Bank proposes or is required
to cause to be issued or transferred shares of stock, cash or other assets pursuant to this Plan, the Bank shall have the right
to require the optionee to remit to the Bank an amount sufficient to satisfy any federal, state and/or local withholding tax requirements
prior to the issuance of any certificate or certificates for such shares or delivery of such cash or other assets. Alternatively,
the Bank may issue or transfer such shares of stock or make other distributions of cash or other assets net of the number of shares
or other amounts sufficient to satisfy the withholding tax requirements. For withholding tax purposes, the shares of stock, cash
and other assets to be distributed shall be valued on the date the withholding obligation is incurred.
SECTION
22.
TERMINATION AND AMENDMENT
.
The Board may at any time amend,
modify, suspend, terminate or discontinue the Plan, subject to any applicable regulatory requirements and any required shareholder
approval or any shareholder approval which the Board may deem advisable for any reason. The Board may not, without the consent
of the holder of an Option previously granted, make any alteration which would deprive the optionee of his rights with respect
thereto. Provided, however, that, to the extent Section 409A applies to the Plan, any suspension, termination or discontinuance
of the Plan shall not be effective unless it complies with Section 409A.
SECTION
23.
CAPTIONS AND HEADINGS; GENDER AND NUMBER
.
Captions and paragraph
headings used herein are for convenience only, do not modify or affect the meaning of any provision herein, are not a part, and
shall not serve as a basis for interpretation or construction of, this Plan. As used herein, the masculine gender shall include
the feminine and neuter, and the singular number shall include the plural, and vice versa, whenever such meanings are appropriate.
SECTION
24.
COST OF PLAN; EXCULPATION AND INDEMNIFICATION
.
All
costs and expenses incurred in the operation and administration of the Plan shall be borne by the Bank. In connection with this
Plan, no member of the Board and no member of the Committee shall be personally liable for any act or omission to act, nor for
any mistake in judgment made in good faith, unless arising out of, or resulting from, such person’s own bad faith, willful
misconduct
or criminal acts. To the extent permitted by applicable law and regulation, the Bank shall indemnify, defend and hold harmless
the members of the Board and members of the Committee, and each other officer or employee of the Bank to whom any power or duty
relating to the administration or interpretation of this Plan may be assigned or delegated, from and against any and all liabilities
(including any amount paid in settlement of a claim with the approval of the Board), and any costs or expenses (including counsel
fees) incurred by such persons arising out of or as a result of, any act or omission to act, in connection with the performance
of such person’s duties, responsibilities and obligations under this Plan, other than such liabilities, costs; and expenses
as may arise out of, or result from the bad faith, willful misconduct or criminal acts of such persons.
SECTION
25.
GOVERNING LAW
.
Without regard to the principles of conflicts
of laws, the laws of the State of North Carolina shall govern and control the validity, interpretation, performance, and enforcement
of this Plan.
SECTION
26.
INSPECTION OF PLAN
.
A copy of this Plan, and any amendments
thereto, shall be maintained by the Secretary of the Bank and shall be shown to any proper person making inquiry about it.
SECTION
27.
OTHER PROVISIONS
.
The Option Agreements authorized under this
Plan shall contain such other provisions not inconsistent with the foregoing, including, without limitation, increased restrictions
upon the exercise of options, as the Committee may deem advisable.
SECTION
28.
REGULATORY REQUIREMENT OF EXERCISE OR FORFEITURE
.
Notwithstanding
any provision to the contrary in this Plan, the Bank’s primary federal regulator can direct the Bank to require Plan participants
to exercise or forfeit their options if the Bank’s capital falls below the minimum regulatory requirements as determined
by the Bank’s primary federal or state regulator. In such event, any options not so exercised shall terminate and be forfeited.
SECTION
29.
COMPLIANCE WITH SECTION 409A
.
It is intended that the Plan meet the requirements of the Section 409A exemption for option plans such that Section 409A
does not apply to the Options issued under the Plan. However, to the extent that the Board determines that any Option granted
under the Plan is subject to Section 409A, the Option Agreement evidencing such Option shall incorporate the terms and conditions
required by Section 409A. To the extent applicable, the Plan and Option Agreements shall be interpreted in accordance with
Section 409A. Notwithstanding any provision of the Plan to the contrary, in the event that, following the Effective Date,
the Board determines that any Option may be subject to Section 409A, the Board may adopt such amendments to the Plan and
the applicable Option Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive
effect), or take any other actions, that the Board determines are necessary or appropriate to (1) exempt the Option from Section 409A
and/or preserve the intended tax treatment of the benefits provided with respect to the Option, or (2) comply with the requirements
of Section 409A.
Carolina Trust Bank 8-K12G3
Exhibit 10.15
CAROLINA
COMMERCE BANK
DIRECTOR STOCK OPTION PLAN
Amended and Restated as of January 1, 2005 in accordance
with Section 409A of the Internal Revenue Code
THIS
IS THE DIRECTOR STOCK OPTION PLAN (“Plan”) of Carolina Commerce Bank (the “Bank”), a North Carolina bank,
with its principal office in Gastonia, Gaston County, North Carolina, adopted by the Board of Directors of the Bank, under which
options may be granted from time to time to eligible directors of the Bank to purchase shares of common stock of the Bank (“Common
Stock”), as amended and restated as of June 27, 2007 (i) to comply with Section 409A of the Internal Revenue Code;
and (ii) to effect certain proposals approved by the Bank’s 2007 Annual Meeting of Stockholders, subject to the provisions
set forth below:
1.
PURPOSE
OF THE PLAN
.
The purpose of the Plan is to aid the Bank in attracting and retaining capable directors and
to provide a long range incentive for directors to remain in the management of the Bank, to perform at increasing levels of effectiveness
and to acquire a permanent stake in the Bank with the interest and outlook of an owner. These objectives will be promoted through
the granting of options to acquire shares of Common Stock pursuant to the terms of this Plan.
2.
ADMINISTRATION
.
The Plan shall be administered by a committee (the “Committee”), which shall consist of not less than three members
of the Board of Directors of the Bank (the “Board”) who are
tt
Non-EmpIoyee Directors” as defined
in Rule 16b-3(b)(3) of the Rules and Regulations under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).
Members of the Committee shall serve at the pleasure of the Board. In the absence at any time of a duly appointed Committee, this
Plan shall be administered by the Board. The Committee may designate any officers or employees of the Bank to assist in the administration
of the Plan and to execute documents on behalf of the Committee and perform such other ministerial duties as may be delegated
to them by the Committee.
Subject
to the provisions of the Plan, the determinations or the interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of illustration and not of limitation, the Committee shall
have the discretion (a) to construe and interpret the Plan and all options granted hereunder and to determine the terms and provisions
(and amendments thereof) of the options granted under the Plan (which need not be identical); (b) to define the terms used in
the Plan and in the options granted hereunder; (c) to prescribe, amend and rescind the rules and regulations relating to the Plan
(provided, however, that no prescription, amendment or rescission will be effectuated unless it complies with Section 409A
to the extent Section 409A applies to such matters); (d) to determine the individuals to whom and the time or times at which
such options shall be granted, the number of shares to be subject to each option, the option price, and the determination of leaves
of absence which may be granted to participants without constituting a termination of their employment for the purposes of the
Plan; and (e) to make all other determinations necessary or advisable for the administration of the Plan. For purposes of this
Plan, Section 409A means Internal Revenue Code Section 409A, as amended, including regulations and guidance issued thereunder
(“Section 409A”).
It
shall be in the discretion of the Committee to grant options which qualify as “incentive stock options” as that term
is defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) (“Incentive Stock
Options”) or which do not qualify as Incentive Stock Options (“Nonqualified Stock Options”) herein referred
to collectively as “Options,” however, whenever reference is specifically made only to “Incentive Stock options”
or ‘‘Nonqualified Stock Options,” such reference shall be deemed to be made to the exclusion of the other).
Any options granted which fail to satisfy the requirements for Incentive Stock Options shall become Nonqualified Stock Options.
3.
STOCK
AVAILABLE FOR OPTIONS
.
In the discretion of the Committee, the stock to be subject to Options under the
Plan shall be authorized but unissued shares of Common Stock which are issued directly to optionees upon exercise of options and/or
shares of Common Stock which are acquired by the Plan or the Bank in the open market. The total number of shares of Common Stock
for which Options may be granted under the Plan is 123,687 shares, which is 10% of the total number of shares of Common Stock
issued by the Bank in connection with its initial public offering and rights and public offering. Such total number of shares
is subject to any capital adjustments as provided in Section 15. In the event that an Option granted under the Plan is forfeited,
released, expires or is terminated unexercised as to any shares covered thereby, such shares thereafter shall be available for
the granting of Options under the Plan; however, if the forfeiture, expiration, release or termination date of an Option is beyond
the term of existence of the Plan as described in Section 20, then any shares covered by forfeited, unexercised, released
or terminated options shall not reactivate the existence of the Plan and therefore may not be available for additional grants
under the Plan. The Bank, during the term of the Plan, will reserve and keep available a number of shares of Common Stock sufficient
to satisfy the requirements of the Plan. In the discretion of the Committee, the shares of Common Stock necessary to be delivered
to satisfy exercised options may be from authorized and unissued shares of Common Stock or may be purchased in the open market.
4.
ELIGIBILITY
.
Options shall be granted only to individuals who meet all of the following eligibility requirements:
(a) Such
individual must be a member of the Board of Directors of the Bank, including directors who are also employees of the Bank. For
this purpose, an individual shall be considered to be an “employee” only if there exists between the Bank and the
individual the legal and bona fide relationship of employer and employee. In determining whether such relationship exists, the
regulations of the United States Treasury Department relating to the determination of such relationship for the purpose of collection
of income tax at the source on wages shall be applied.
(b) Such
individual must have such knowledge and experience in financial and business matters that he or she is capable of evaluating the
merits and risks of the investment involved in the exercise of the Options.
(c) Such
individual, being otherwise eligible under this Section 4, shall have been selected by the Committee as a person to whom
an Option shall be granted under the Plan.
In
determining the directors to whom Options shall be granted and the number of shares to be covered by each Option, the Committee
shall take into account the nature of the services rendered by respective directors, their present and potential contributions
to the success of the Bank and such other factors as the Committee shall deem relevant. A director who has been granted an Option
under the Plan may be granted an additional Option or Options under the Plan if the Committee shall so determine.
If,
pursuant to the terms of the Plan, it is necessary that the percentage of stock ownership of any individual be determined, stock
ownership in the Bank or of a related corporation which is owned (directly or indirectly) by or for such individual’s brothers
and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants or by or for any corporation, partnership,
estate or trust of which such employee is a shareholder, partner or beneficiary shall be considered as owned by such director.
5.
OPTION
GRANTS
.
Subject to the provisions of this Plan, Options shall be awarded to the directors in such amounts
as are determined by the Committee. The proper officers on behalf of the Bank and each Optionee shall execute a Stock Option Grant
and Agreement (the “Option Agreement”) which shall set forth the total number of shares of Common Stock to which it
pertains, the exercise price, whether it is a Nonqualified Stock Option or an Incentive Stock Option, and such other terms, conditions,
restrictions and privileges as the Committee in each instance shall deem appropriate, provided they are not inconsistent with
the terms, conditions and provisions of this Plan. Each Optionee shall receive a copy of his executed Option Agreement. Any Option
granted with the intention that it will be an Incentive Stock Option but which fails to satisfy a requirement for Incentive Stock
Options shall continue to be valid and shall be treated as a Nonqualified Stock Option.
6.
OPTION
PRICE
.
(a) The
option price of each Option granted under the Plan shall be not less than 100% of the fair market value of the stock on the date
of grant of the Option. In the case of incentive stock options granted to a shareholder who owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Bank or a Subsidiary (a “ten percent shareholder”),
the option price of each Option granted under the Plan shall be not less than 110% of the fair market value of the stock on the
date of grant of the Option.
(b) For
purposes of Incentive Stock Options issued under the Plan, “fair market value” means the value of a share of common
stock determined consistent with the requirements of Section 422 of the Code at the time of the valuation. As of the date
of the adoption of this Amendment to the Plan, Section 422 provides the following definitions (through regulations issued
under Section 422 that incorporate by reference Treasury Regulation §20.2031-2), as applicable: (i) if, on the applicable
date, there is a market for the common stock on a stock exchange, in an over-the-counter market, or otherwise, the value of a
share of common stock shall be deemed to be equal to the mean between the highest and lowest quoted selling prices on the valuation
date; (ii) if, on the applicable date, there were no sales of common stock but there were sales on dates within a reasonable period
both before and after the valuation date, the fair market value shall be determined by taking a weighted average of the means
between the highest and lowest sales on the nearest date before and the nearest date after the valuation date, with the
average
weighted inversely by the respective number of trading days between the selling dates and the valuation date; (iii) if actual
sales are not available during a reasonable period beginning before and ending after the valuation date, the fair market value
shall be determined by taking the mean between the bona fide bid and asked prices on the valuation date, or if none, by taking
a weighted average of the means between the bona fide bid and asked prices on the nearest trading date before and the nearest
trading date after the valuation date, if both such nearest dates are within a reasonable period, with the average weighted as
provided in Section 6(b)(ii) above; (iv) if no actual sales prices or bona fide bid and asked prices are available on a date
within a reasonable period before the valuation date, but such prices are available on a date within a reasonable period after
the valuation date (or vice versa), then the mean between the highest and lowest available sales price or bid and asked prices
may be taken as the value; (v) if it is established that the value of common stock determined as provided in Sections 6(b)(i)
through 6(b)(iv) does not reflect the fair market value of the Common Stock, then some reasonable modification of that basis or
other relevant facts and elements of value shall be considered in determining the fair market value; (vi) if Sections 6(b)(i)
through 6(b)(iv) are not applicable, then the fair market value shall be determined by taking into account the Bank’s net
worth, prospective earning power and dividend- paying capacity, and other relevant factors, including the goodwill of the business,
the economic outlook in the particular industry, the Bank’s position in the industry and its management, the degree of control
of the business represented by the block of common stock to be valued, the values of securities of corporations engaged in the
same or similar lines of business which are listed on a stock exchange or the over-the-counter market, and various non-operating
assets as provided for in Treasury Regulation §20.2031-2(f).
(c) For
purposes of Nonqualified Stock Options issued under the Plan, “fair market value” means fair market value determined
consistent with the requirements of Section 409A. At the time of the adoption of this Amendment to the Plan, Section 409A
provides the following definitions, as applicable: (i) if, on the applicable date, the common stock is readily tradable on an
established securities market, the fair market value of the common stock may be determined based upon the last sale before or
the first sale after the grant, the closing price on the trading day before or the trading day of the grant, or any other reasonable
basis using actual transactions in such common stock as reported by such market and consistently applied (so long as it is reasonable
under Section 409A); (ii) if, on the applicable date, the common stock is not readily tradable on an established securities
market, the fair market value of the common stock means a value determined by the reasonable application of a reasonable valuation
method, which method shall consider all available information material to the value of the Bank and considers the following factors,
as applicable: (1) the value of tangible and intangible assets of the Bank, (2) the present value of future cash-flows of
the Bank, (3) the market value of stock or equity interests in similar corporations and other entities engaged in trades or businesses
substantially similar to those engaged in by the Bank, the value of which can be readily determined through objective means (such
as through trading prices on an established securities market or an amount paid in an arm’s length private transaction),
(4) control premiums, (5) discounts for lack of marketability, and (6) whether the valuation method is used for other purposes
that have a material economic effect on the Bank, its stockholders or its creditors.
(d) The
Committee shall maintain a written record of its method of determining fair market value of the Option at the time each Option
is granted under the Plan.
(e) The
option price shall be payable to the Bank in cash or by check, bank draft or money order payable to the order of the Bank. No
share shall be delivered until full payment has been made.
7.
EXPIRATION
OF OPTIONS
.
The Committee shall determine the expiration date or dates of each Option, but such expiration
date shall not be later than ten years after the date such Option is granted. In the event an Incentive Stock Option is granted
to a ten percent shareholder, the expiration date or dates of each Option shall not be later than five years after the date such
Option is granted. The Committee, in its discretion, may extend the expiration date or dates of an Option after such date was
originally set; however, such expiration date may not exceed the maximum expiration date described in this Section 7.
8.
TERMS
AND CONDITIONS OF OPTIONS
.
(a) All
Options must be granted within ten years of the Effective Date of this Plan as defined in Section 18.
(b) The
Committee may grant Options which are intended to be Incentive Stock Options and Nonqualified Stock Options, either separately
or jointly, to an eligible recipient.
(c) The
grant of Options shall be evidenced by a written instrument (an Option Agreement) containing terms and conditions established
by the Committee consistent with the provisions of this Plan.
(d) Not
less than 100 shares may be purchased at any one time unless the number purchased is the total number at that time purchasable
under the Plan.
(e) The
recipient of an Option shall have no rights as a shareholder with respect to any shares covered by his Option until payment in
full by him for the shares being purchased. Except as provided in Section 14, no adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is
prior to the date such stock is fully paid for.
(f) The
aggregate fair market value of the stock (determined as of the time the Option is granted) with respect to which Incentive Stock
Options are exercisable for the first time by any participant during any calendar year (under all benefit plans of the Bank, if
applicable) shall not exceed $100,000; provided, however that such $100,000 limit of this subsection (f) shall not apply
to the grant of Nonqualified Stock Options. The Committee may giant Options which are exercisable in excess of the foregoing limitations,
in which case Options granted which are exercisable in excess of such limitation shall be Nonqualified Stock Options.
(g) All
stock obtained pursuant to an Option which qualifies as an Incentive Stock Option shall be held in escrow for a period which ends
on the later of (i) two years from the date of the granting of the Option or (ii) one year after the transfer of the stock
pursuant to the exercise of the Option. The stock shall be held by the Bank or its designee. The recipient who has exercised the
Option shall during such holding period have all rights of a shareholder, including but not limited to the rights to vote, receive
dividends and sell the stock. The sole purpose of the escrow is to inform the Bank of a disqualifying disposition of the stock
within the
meaning
of Section 422 of the Code, as amended, and it shall be administered solely for that purpose.
(h) No
more than 40% of the shares which have been set aside for option may be allocated to any one participant under the Plan.
(i) Without
the prior written notification to the Federal Deposit Insurance Corporation (“FDIC”) and non-objection by the FDIC,
Options shall not be issued to organizers and incorporators of the Bank which give such persons the right to purchase a number
of shares in excess of the number of shares subscribed by them and their affiliates in the Bank’s initial offering of its
shares.
9.
EXERCISE
OF OPTIONS
.
(a) Options
shall become vested and exercisable at the times, at the rate and subject to such limitations as may be set forth in the Option
Agreement executed in connection therewith; provided, however, that all outstanding and nonforfeited options shall be exercisable,
if not sooner, on the day prior to the expiration date thereof.
(b) Unless
the Committee shall specifically state otherwise at the time an Option is granted, all Options granted hereunder shall become
vested and exercisable upon the optionee’s death or disability within the meaning of Section 22(e)(3) of the Code and
in the event of a change of control as set forth in Section 12 of this Plan.
(c) The
exercise of any Option must be evidenced by written notice to the Bank that the optionee intends to exercise his Option. In no
event shall an Option be deemed granted by the Bank or exercisable by a recipient prior to the mutual execution by the Bank and
the recipient of an Option Agreement which comports with the requirements of Section 5 and Section 8(c).
(d) Any
right to exercise Options in annual installments shall be cumulative and any vested installments may be exercised, in whole or
in part, at the election of the optionee.
(e) The
inability of the Bank to obtain approval from any regulatory body or authority deemed by counsel to be necessary to the lawful
issuance and sale of any shares of Common Stock hereunder shall relieve the Bank of any liability in respect of the non- issuance
or sale of such shares. As a condition to the exercise of an Option, the Bank may require the person exercising the Option to
make such representations and warranties as
may be necessary to assure
the availability of an exemption from the registration requirements of federal or state securities laws.
(f)
The
Committee shall have the discretionary authority to impose in the Option Agreements such restrictions
on
shares
of Common Stock as it may deem appropriate or desirable, including but not limited to the authority to impose a right of first
refusal or to establish repurchase rights or both of these restrictions.
(g) Notwithstanding
anything to the contrary herein, an optionee shall be required to exercise his Options within the
periods set forth in Sections 10 and 11 below.
10.
TERMINATION
OF EMPLOYMENT - EXCEPT BY DISABILITY QR DEATH
.
If any optionee receiving an Option by virtue of his or her
position as a nonemployee director (as specified in the Option Agreement) ceases to be a director of the Bank for any reason other
than death or disability (as defined in Section 11), he or she may, at any time not later than the date of expiration of
the Option, exercise any Option only to the extent it was vested and he or she was entitled to exercise the Option on the date
of termination. If any optionee receiving an Option by virtue of his or her position as a director who is also an employee (as
specified in the Option Agreement) ceases to be an employee of the Bank, for any reason other than death or disability (as defined
in Section 11), he or she may, at any time within three months after his or her date of termination, but not later than the
date of expiration of the Option, exercise any Option only to the extent it was vested and he or she was entitled to exercise
the Option on the date of termination. Any Options or portions of Options of terminated optionees not so exercised within the
periods set forth above in this Section 10 shall terminate and be forfeited.
11.
TERMINATION
OF EMPLOYMENT - DISABILITY OR DEATH
.
If any optionee receiving an Option as a nonemployee director
(as specified in the Option Agreement) dies while serving as a director or ceases to be a director of the Bank due to becoming
disabled within the meaning of Section 22(e)(3) of the Code, or if any optionee receiving an Option as a director who is
also an employee of the Bank (as set forth in the Option Agreement) dies while employed or ceases to be an employee of the Bank
due to becoming disabled within the meaning of Section 22(e)(3) of the Code, then, in either event, all unvested and forfeitable
Options of such optionee shall immediately become vested and nonforfeitable.
In
the event an optionee receiving an Option as a director who is also an employee of the Bank ceases to be an employee due to becoming
disabled, the optionee may (a) at anytime not later than the date of expiration of the Option, exercise the Option with respect
to all shares subject thereto; provided, however, that any such optionee having an Incentive Stock Option may not exercise such
Incentive Stock Option more than one year after the date of termination.
In
the event an optionee receiving an Option as a director who is also an employee dies while serving as an employee, then the optionee
or the person to whom the Option is transferred by will or by the laws of descent and distribution may at any time not later than
the date of expiration of the Option exercise any Option with respect to all shares subject thereto.
In
the event an optionee receiving an Option as a nonemployee director dies while serving as a director or ceases to be a director
of the Bank due to becoming disabled, then the optionee or the person to whom the Option is transferred by will or by the laws
of descent and distribution may at any time not later than the date of expiration of the Option exercise any Option with respect
to all shares subject thereto.
Any
portion of Options of optionees who die or who are terminated because they become disabled which are not exercised within the
periods set forth above in this Section 11 shall terminate and be forfeited.
12.
CHANGE
OF CONTROL
.
In the event that a “change of control” occurs prior to the time that all shares allocated to
an optionee would be 100% vested, nonforfeitable and exercisable in accordance with Sections 9, 10, and 11 above, then, notwithstanding
Sections 9,
10, and 11 above, all
Options granted to such optionee shall immediately become fully vested and nonforfeitable. For purposes of this Plan, a “change
of control” shall mean (i) an affirmative vote of the Bank’s shareholders approving a change of control of a nature
that would be required to be reported by the Bank in response to Item 1 of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Exchange Act; (ii) such time as any “person” (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in
Rule I3d-3 under the Exchange Act), directly or indirectly, of securities of the Bank representing 25% or more of the combined
voting power of the outstanding Common Stock of the Bank; or (iii) individuals who constitute the Board of the Bank on the date
hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for election by the Bank’s shareholders was approved by the Bank’s
Board of Directors or Nominating Committee, shall be considered as though he or she were a member of the Incumbent Board; or (iv)
an affirmative vote of the Bank’s shareholders approving the Bank’s consolidation or merger with or into another corporation,
financial institution, limited liability company, partnership, trust, joint stock company, trust company, association or entity
or other reorganization, where the Bank is not the surviving entity in such transaction; or (v) an affirmative vote of the Bank’s
shareholders approving the sale or other transfer or acquisition of all or substantially all of the assets of the Bank by any
other entity or group.
13.
RESTRICTIONS
ON TRANSFER
.
An Option granted under this Plan may not be transferred except
by will or the laws of descent and distribution and, during the lifetime of the optionee to whom it was granted, may be exercised
only by such optionee.
14.
CAPITAL
ADJUSTMENTS AFFECTING COMMON STOCK
.
(a)
If
the outstanding shares of Common Stock of the Bank are increased, decreased, changed into or exchanged for a different number
or kind of shares or other securities of the Bank or another entity as a result of a recapitalization, reclassification, stock
dividend, stock split, amendment to the Bank’s Articles of Incorporation, reverse stock split, merger or consolidation,
an appropriate adjustment shall be made in the number and/or kind of securities allocated to the Options previously and subsequently
granted under the Plan, without change of the aggregate purchase price app
licable to the unexercised portion of the outstanding
Options but with a corresponding adjustment in the option price for each share or other unit of any security covered by the Options.
(b) In
the event that the Bank shall declare and pay any dividend with respect to the Common Stock (other than a dividend payable in
shares of the Bank’s Common Stock or a regular quarterly cash dividend), including a dividend which results in a nontaxable
return of capital to the holders of shares of Common Stock for federal income tax purposes, or otherwise than by dividend makes
distribution of property to the holders of its shares of Common Stock, the Committee, in its discretion applied uniformly to all
outstanding Options, may adjust the option price per share of outstanding options in such a manner as the Committee may determine
to be necessary to reflect the effect of the dividend or other distribution on the fair market value of a share of Common Stock.
In adjusting the option price per share of outstanding Option, the
Committee
may, in its discretion, (i) require all holders of outstanding Options to return such Options and reissue new Options with a new
option price or (ii) adjust the option price without any such return and reissuance. Provided, however, that any new option price
must meet the requirements of Section 6 of the Plan and, with respect to Nonqualified Stock Options, the new Options issued,
if any, must meet the requirements of Section 8(j) of the Plan.
(c) To
the extent that the foregoing adjustments described in Sections 14(a) and (b) above relate to particular Options or to particular
stock or securities of the Bank subject to Option under this Plan, such adjustments shall be made by the Committee, whose determination
in that respect shall be final and conclusive.
(d) The
grant of an Option pursuant to this Plan shall not affect in any way the right or power of the Bank to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
(e) No
fractional shares of stock shall be issued under the Plan for any such adjustment.
(f) Any
adjustment made pursuant to this Section 14 shall be made, to the extent practicable, in such manner as
not to constitute a modification of any outstanding Incentive Stock Options within the meaning of Section 424(h) of the Code.
15.
INVESTMENT
PURPOSE
.
At the discretion of the Committee, any Option Agreement may
provide that the optionee shall, by accepting the Option, represent and agree, for himself and his transferees by will or the
laws of descent and distribution, that all shares of stock purchased upon the exercise of the Option will be acquired for investment
and not for resale or distribution, and that upon each exercise of any portion of an Option, the person entitled to exercise the
same shall furnish evidence of such facts which is satisfactory to the Bank. Certificates for shares of stock acquired under the
Plan may be issued bearing such restrictive legends as the Bank and its counsel may deem necessary to ensure that the optionee
is not an “underwriter” within the meaning of the regulations of the Securities and Exchange Commission.
16.
APPLICATION
OF FUNDS
.
The proceeds received by the Bank from the sale of Common
Stock pursuant to Options will be used for general corporate purposes.
17.
NO
OBLIGATION
TO EXERCISE
.
The granting of an Option shall impose no obligation upon
the optionee to exercise such Option.
18.
EFFECTIVE
DATE OF PLAN
.
This Plan shall not be effective until adopted by the Board
of Directors and approved by the holders of at least two-thirds of the Common Stock and by the Commissioner of Banks. The effective
date of the Plan shall be as designated by the Board of Directors in accordance with applicable law.
19.
TERM
OF PLAN
.
Options may be granted pursuant to this Plan from time to time within ten years from the effective date of the
Plan.
20.
TIME
OF
GRANTING
OF OPTIONS.
Nothing contained in the Plan or in any resolution adopted or to be adopted by the Committee or the shareholders of the Bank and
no action taken by the Committee shall constitute the granting of any Option hereunder. The granting of an Option pursuant to
the Plan shall take place only when an Option Agreement shall have been duly executed and delivered by and on behalf of the Bank
at the direction of the Committee.
21.
WITHHOLDING
TAXES
.
Whenever the Bank proposes or is required to cause to be issued
or transferred shares of stock
,
cash or other assets pursuant to this Plan, the Bank shall have the right to require
the optionee to remit to the Bank an amount sufficient to satisfy any federal, state and/or local withholding tax requirements
prior to the issuance of any certificate or certificates for such shares or delivery of such cash or other assets. Alternatively,
the Bank may issue or transfer such shares of stock or make other distributions of cash or other assets net of the number of shares
or other amounts sufficient to satisfy the withholding tax requirements. For withholding tax purposes, the shares of stock, cash
and other assets to be distributed shall be valued on the date the withholding obligation is incurred.
22.
TERMINATION
AND AMENDMENT
.
The Board may at any time amend, modify, suspend, terminate or discontinue the Plan, subject to any applicable
regulatory requirements and any required shareholder approval or any shareholder approval which the Board may deem advisable for
any reason. The Board may not, without the consent of the holder of an Option previously granted, make any alteration which would
deprive the optionee of his rights with respect thereto. Provided, however, that, to the extent Section 409A applies to the
Plan, any suspension, termination or discontinuance of the Plan shall not be effective unless it complies with Section 409A.
23.
CAPTIONS
AND HEADINGS: GENDER AND NUMBER
.
Captions and paragraph headings used herein are for convenience only, do not modify or
affect the meaning of any provision herein, are not a part, and shall not serve as a basis for interpretation or construction
of, this Plan. As used herein, the masculine gender shall include the feminine and neuter, and the singular number shall include
the plural, and vice versa, whenever such meanings are appropriate.
24.
COST
OF
PLAN
; EXCULPATION AND INDEMNIFICATION
.
All costs and expenses incurred in the operation and administration
of the Plan shall be borne by the Bank. In connection with this Plan, no member of the Board and no member of the Committee shall
be personally liable for any act or omission to act, nor for any mistake in judgment made in good faith, unless arising out of,
or resulting from, such person’s own bad faith, willful misconduct or criminal acts. To the extent permitted by applicable
law and regulation, the Bank shall indemnify, defend and hold harmless the members of the Board and members of the Committee,
and each other officer or employee of the Bank to whom any power or duty relating to the administration or interpretation of this
Plan may be assigned or delegated, from and against any and all liabilities (including any amount paid in settlement of a claim
with the approval of the Board), and any costs or expenses (including counsel fees) incurred by such persons arising out of or
as a result of, any act or omission to act, in connection with the performance of such person’s duties, responsibilities
and obligations under this Plan, other than such liabilities, costs,
and expenses as may arise out of, or result from the bad
faith, willful misconduct or criminal acts of such persons.
25.
GOVERNING
LAW
.
Without regard to the principles of conflicts of laws, the
laws of the State of North Carolina shall govern and control the validity, interpretation, performance, and enforcement of this
Plan.
26.
INSPECTION
OF PLAN
.
A copy of this Plan, and any amendments thereto, shall be
maintained by the Secretary of the Bank and shall be shown to any proper person making inquiry about it.
27.
OTHER
PROVISIONS
.
The Option Agreements authorized under this Plan shall contain
such other provisions not inconsistent with the foregoing, including, without limitation, increased restrictions upon the exercise
of options, as the Committee may deem advisable.
28.
REGULATORY
REQUIREMENT OF EXERCISE OR FORFEITURE.
Notwithstanding any provision to the contrary in this Plan, the Bank’s primary federal regulator can direct the Bank to
require Plan participants to exercise or forfeit their options if the Bank’s capital falls below the minimum regulatory
requirements as determined by the Bank’s primary federal or state regulator. In such event, any options not so exercised
shall terminate and be forfeited.
29.
COMPLIANCE
WITH SECTION 409A
.
It is intended that the Plan meet the requirements of the Section 409A exemption for option plans such that Section 409A
does not apply to the Options issued under the Plan. However, to the extent that the Board determines that any Option granted
under the Plan is subject to Section 409A, the Option Agreement evidencing such Option shall incorporate the terms and conditions
required by Section 409A. To the extent applicable, the Plan and Option Agreements shall be interpreted in accordance with
Section 409A. Notwithstanding any provision of the Plan to the contrary, in the event that, following the Effective Date,
the Board determines that any Option may be subject to Section 409A, the Board may adopt such amendments to the Plan and
the applicable Option Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive
effect), or take any other actions, that the Board determines are necessary or appropriate to (1) exempt the Option from Section 409A
and/or preserve the intended tax treatment of the benefits provided with respect to the Option, or (2) comply with the requirements
of Section 409A.
Carolina Trust Bank 8-K12G3
EXHIBIT
21.01
SUBSIDIARIES
OF REGISTRANT
|
Name
of Subsidiary
|
|
State
of Incorporation
|
|
Carolina
Trust Bank
|
|
North
Carolina
|
Exhibit 99.01
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
Form 10-K
☒ Annual Report Pursuant to Section 13 or 15(d)
of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2015
☐ Transition Report Under Section 13 or
15(d) of the Securities Exchange
Act of 1934
For the transition
period from ____________ to ____________
FDIC Certificate No. 57206
Carolina
Trust Bank
|
|
|
|
|
North Carolina
|
|
56-2197865
|
|
State of Incorporation
|
|
Employer Identification Number
|
901 East Main Street
Lincolnton, North Carolina 28092
Telephone: (704) 735-1104
Securities Registered Pursuant to Section 12(b)
of the Exchange Act:
|
|
|
|
|
Title of each class
|
|
Exchange on which registered
|
|
Common Stock, Par Value $2.50 Per Share
|
|
The NASDAQ Stock Market, LLC
|
Securities registered under Section 12(g) of the
Act: None.
Indicate by check mark whether the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files.) Yes ☐ No ☐
Indicate by check mark if disclosure of delinquent
filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. ☒
Indicate by checkmark whether the registrant is
a larger accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act (Check one):
|
|
Large accelerated filer
|
☐
|
|
Accelerated filer ☐
|
|
|
Non-accelerated filer
|
☐
|
|
Smaller reporting company ☒
|
Indicate by check mark whether the registrant is
a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
The aggregate market value of the registrant’s
Common Stock at June 30, 2015, held by those persons deemed by the registrant to be non-affiliates, was approximately $22,336,000.
As of March 21, 2016 (the most recent practicable
date), the registrant had outstanding 4,649,558 shares of its common stock.
Documents Incorporated By Reference
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|
|
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|
|
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|
Document
|
Where Incorporated
|
|
|
|
|
|
|
|
1.
|
Registrant’s annual report for the fiscal year ended December 31, 2015.
|
Part II
|
|
|
|
|
|
|
|
2.
|
Proxy Statement for the Annual Meeting of Shareholders to be mailed to shareholders within 120 days of December 31, 2015.
|
Part III
|
Form 10-K Table of Contents
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|
|
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|
|
|
Index
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PAGE
|
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|
PART I
|
|
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Item 1.
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Business
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4
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Item 1A.
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Risk Factors
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11
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Item 1B.
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Unresolved Staff Comments
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11
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Item 2.
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Properties
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11
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Item 3.
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Legal Proceedings
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11
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Item 4.
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Mine Safety Disclosures
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11
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PART II
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|
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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12
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Item 6.
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Selected Financial Data
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12
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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12
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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12
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Item 8.
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Financial Statements and Supplementary Data
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12
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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12
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Item 9A
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Controls and Procedures
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13
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Item 9B.
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Other Information
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13
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
|
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14
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Item 11.
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Executive Compensation
|
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14
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
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14
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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14
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Item 14.
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Principal Accounting Fees and Services
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14
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules
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15
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PART I
Item 1 —Business
Corporate history.
Carolina
Trust Bank (the “Bank”) is a North Carolina-chartered commercial bank with its deposits insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to applicable limits. The Bank is not a member of the Federal Reserve System. The
Bank was incorporated on December 5, 2000, and began operations on December 8, 2000. On October 15, 2009, the Bank acquired Carolina
Commerce Bank, Gastonia, North Carolina (“Carolina Commerce”). At December 31, 2015, the Bank had total assets of approximately
$334.2 million, total deposits of approximately $284.8 million, and shareholders’ equity of approximately $30.8 million.
Business of the Bank.
The
primary purpose of the Bank is to serve the banking needs of individuals and businesses in Lincoln, Gaston 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 the Bank. The 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. The Bank uses
the most current technology to satisfy the banking needs of its customers.
Market area and competition.
The Bank’s market area consists primarily of Lincoln, Gaston and Rutherford Counties, North Carolina and includes parts of
Catawba County. The market area is located in the south central Piedmont region of North Carolina. While Lincoln and Rutherford
Counties are largely rural, portions of Gaston County comprise the Charlotte-Gastonia-Rock Hill Metropolitan Statistical Area and
the market area includes the high growth parts of Lincoln County, both in terms of commercial and real estate activity. The only
incorporated city in Lincoln County is Lincolnton, the county seat. The Lincoln County market area is served by US Highway 321
and NC Highways 16, 27, 73, 150, and 182. The primary city in Gaston County is Gastonia and the market is served by US Highways
29, 74 and 321 as well as several NC Highways. Rutherford County is served by US Highways 64, 74 and 221 as well as several NC
Highways. Lincoln and Gaston counties are served by or are in close proximity to US Interstates 40, 85 and 77 and Charlotte Douglas
International Airport is accessible to both counties.
According to the United States
Census Bureau (the “US Census”), in July 2014 Lincoln County had an estimated population of 79,829 and Lincolnton had
an estimated population of 10,732. The NC Office of State Budget and Management (the “OSBM”) projects that Lincoln
County’s population will grow to 83,849 by July 2020. The US Census estimated that Lincoln County’s median household
income in 2014 was $49,676, above the state average of $46,596. In Gaston County, the US Census estimated the July 2014 population
of the County to be 211,127 and Gastonia’s estimated population to be 73,698. The county’s population is projected
to grow to 219,206 by 2020 according to the OSBM. The US Census estimated that Gaston County’s 2014 median household income
was $42,056. In Rutherford County, the US Census estimated the July 2014 population of the County to be 66,600. The county’s
population is projected to grow to 67,046 by 2020 according to the OSBM. The US Census estimated that Rutherford County’s
2014 median household income was $35,629.
According to the US Department
of Labor, in November 2015, the unemployment rate stood at 5.1% in Lincoln County which was lower than the statewide rate of 5.4%.
The unemployment rate was 5.6% in Gaston County and 7.4% in Rutherford County. Lincoln, Gaston and Rutherford Counties have a good
balance in work force opportunities. The US Census estimated that the major employment sectors in Lincoln County during 2013 were
manufacturing (22.4%), retail trade (17.4%), health care and social assistance (14.6%), accommodation and food services (10.3%)
and construction (7.2%). For Gaston County, the US Census estimated that the major employment sectors in 2013 were manufacturing
(22%), health care and social assistance (18.9%), retail trade (14.5%), accommodation and food services (10.1%) and wholesale trade
(6%). For Rutherford County, the US Census estimated that the major employment sectors in 2013 were health care and social assistance
(21.4%), manufacturing (20%), retail trade (16.7%), accommodation and food services (10%) and other services (except public administration)
(6.9%).
Commercial banking in North
Carolina is extremely competitive due to the early adoption of state laws allowing statewide branching. As of June 30, 2015, there
were 23 branches in Lincoln County operated by nine commercial banks, including the Bank, and one savings institution. On that
date, approximately $1 billion in deposits were located in Lincoln County, and deposits of the Bank were approximately $186.3 million,
representing approximately 18.5% of the total deposits in Lincoln County. As of June 30, 2015, there were 53 branches in Gaston
County operated by 13 commercial banks, including the Bank, and one savings institution. On that date, approximately $2.3 billion
in deposits were located in Gaston County, and deposits of the Bank were approximately $77.5 million, representing approximately
3.3% of the total deposits in Gaston County. As of June 30, 2015, there were 19 branches
in
Rutherford County operated by eleven commercial banks. On that date, approximately $667.2 million in deposits were located in
Rutherford County and deposits of the Bank were approximately $9.3 million, representing approximately 1.4% of the total deposits
in Rutherford County. Thus, the Bank has significant competition in its market for deposits and loans from other depository institutions.
Many of its competitors have substantially greater resources, broader geographic markets, and higher lending limits than the Bank
and offer some services the Bank does not provide.
The Bank competes not only
with financial institutions based in North Carolina, but also with out-of-state banks and bank holding companies, and other out-of-state
financial institutions that have an established market presence in both the state as a whole and in Lincoln, Gaston and Rutherford
Counties. 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 the Bank. The Bank competes with the major super-regional bank holding
companies. Because of their greater resources, those institutions are able to perform certain functions for their customers, including
trust and investment banking services, which the Bank is not equipped to offer directly, although it does offer some of those services
through its correspondent banks.
Additionally, with the elimination
of restrictions on interstate banking, the Bank may be required to compete with out-of-state financial institutions not presently
in its market area. 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 the Bank, in attracting deposits
and making loans.
The Bank believes it has sufficient
capital to support its operations. The Bank intends to continue to solicit retail deposits from consumers, principally in the form
of certificates of deposit and money market accounts, and small businesses, principally in the form of demand deposits and money
market accounts. These deposits will be actively sought in order to provide funding for anticipated loan demand. Bank management
is committed to keeping its focus on its stated market plan of developing relationships with small businesses and consumers.
Supervision and Regulation
.
General
. The Bank is
a North Carolina chartered commercial bank and its deposit accounts are insured by the Deposit Insurance Fund (“DIF”)
administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to supervision, examination
and regulation by the North Carolina Office of the Commissioner of Banks (“Commissioner”) and the FDIC and to North
Carolina and federal statutory and regulatory provisions governing such matters as capital standards, mergers, subsidiary investments
and establishment of branch offices. The FDIC also has the authority to conduct special examinations. The Bank is required to file
reports with the Commissioner and the FDIC concerning its activities and financial condition and will be required to obtain regulatory
approval prior to entering into certain transactions, including mergers with, or acquisitions of, other depository institutions.
As a federally insured depository
institution, the Bank is subject to various regulations promulgated by the Board of Governors of the Federal Reserve System (“Federal
Reserve Board” or “FRB”), including Regulation B (Equal Credit Opportunity), Regulation D (Reserve Requirements),
Regulation E (Electronic Fund Transfers), Regulation Z (Truth in Lending), Regulation CC (Availability of Funds and Collection
of Checks) and Regulation DD (Truth in Savings).
The system of regulation and
supervision applicable to the Bank establishes a comprehensive framework for the operations of the Bank, and is intended primarily
for the protection of the FDIC and the depositors of the Bank, rather than shareholders. Changes in the regulatory framework could
have a material effect on the Bank and its security holders. Certain of the legal and regulatory requirements are applicable to
the Bank. This discussion does not purport to be a complete explanation of all such laws and regulations and is qualified in its
entirety by reference to the statutes and regulations involved.
State Law
. The Bank
is subject to extensive supervision and regulation by the Commissioner. The Commissioner oversees state laws that set specific
requirements for bank capital and regulate deposits in, and loans and investments by, banks, including the amounts, types, and
in some cases, rates. The Commissioner supervises and performs periodic examinations of North Carolina-chartered banks to assure
compliance with state banking statutes and regulations, and the Bank is required to make regular reports to the Commissioner describing
in detail its resources, assets, liabilities and financial condition. Among other things, the Commissioner regulates mergers and
consolidations of state-chartered banks, the payment of dividends, loans to officers and directors, record keeping, types and amounts
of loans and investments, and the establishment of branches.
North Carolina Banking
Law Modernization Act
. On October 1, 2012, as a result of the recommendations of
the
Joint Legislative Study Commission on the Modernization of North Carolina Banking Laws, legislation went into effect that comprehensively
modernizes North Carolina’s banking laws for the first time since the Great Depression. As a result of the legislation,
Articles 1 through 10, 12, and 13 of Chapter 53 of the North Carolina General Statutes were repealed, and new Chapter 53C, entitled
“Regulation of Banks,” became law. Major changes enacted by the law include: a comprehensive list of definitions
enhancing the clarity and meaning of the various sections of North Carolina’s banking law, a broader reliance on the North
Carolina Business Corporations Act, and incorporation of modern concepts of capital adequacy and regulatory supervision. In 2013,
a bill was enacted by the North Carolina General Assembly to make certain technical corrections and clarifications to Chapter
53C.
Dodd–Frank Wall Street
Reform and Consumer Protection Act
.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010 (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial
services industry in the United States. The Dodd-Frank Act includes, among other things:
|
|
·
|
the creation of a Financial Stability Oversight
Council to identify emerging systemic risks posed by financial firms, activities and practices, and to improve cooperation between
federal agencies;
|
|
|
·
|
the creation of a Bureau of Consumer Financial
Protection authorized to promulgate and enforce consumer protection regulations relating to financial products, which would affect
both banks and non-bank financial companies;
|
|
|
·
|
the establishment of strengthened capital and
prudential standards for banks and bank holding companies;
|
|
|
·
|
enhanced regulation of financial markets, including
derivatives and securitization markets;
|
|
|
·
|
the elimination of certain trading activities
by banks;
|
|
|
·
|
a permanent increase of the previously implemented
temporary increase of FDIC deposit insurance to $250,000 per account, and an increase in the minimum deposit insurance fund reserve
requirement from 1.15% to 1.35%, with assessments to be based on assets as opposed to deposits;
|
|
|
·
|
amendments to the Truth in Lending Act aimed at
improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards,
and prepayment considerations; and
|
|
|
·
|
disclosure and other requirements relating to
executive compensation and corporate governance.
|
During 2013 and 2014, the
Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the FDIC, the Securities and Exchange
Commission (“SEC”), and the Commodity Futures Trading Commission adopted a final version of the Volcker Rule (the “Rule”).
As in earlier versions, the Rule invokes Federal Reserve Chairman Paul Volcker’s core concept of restricting United States
banks from making certain kinds of speculative investments that do not benefit their customers. The Rule compels banks to sell
prohibited instruments by 2017. The new prohibition could cause a bank financial loss on the eventual sale and could cause the
bank to recognize an estimate of that loss immediately under applicable accounting rules since the prohibited instruments no longer
can be held to maturity. The Bank has not engaged in the types of speculative investments that are covered by the Rule and accordingly
does not expect any impact on its operations.
The Bank believes that certain
aspects of the Dodd-Frank Act, including, without limitation, the additional cost of maintaining higher capital levels along with
monitoring those levels and the costs of compliance with disclosure and reporting requirements and examinations could have a significant
impact on its business, financial condition, and results of operations. Additionally, the Bank cannot predict whether there will
be additional proposed laws or reforms that would affect the U.S. financial system or financial institutions, whether or when such
changes may be adopted, how such changes may be interpreted and enforced, or how such changes may affect the Bank.
Deposit Insurance
.
The Bank’s deposits are insured up to limits set by the DIF of the FDIC. The DIF was formed on March 31, 2006, upon the merger
of the Bank Insurance Fund and the Savings Insurance Fund in accordance with the Federal Deposit Insurance Reform Act of 2005 (the
“Reform Act”). The Reform Act established a range of 1.15% to 1.50% within which the FDIC may set the Designated Reserve
Ratio (the “reserve ratio”). The Dodd-Frank Act gave the FDIC greater discretion to manage the DIF, raised the minimum
DIF reserve ratio to 1.35%, and removed the upper limit of 1.50%. In October 2010, the FDIC adopted a restoration plan to ensure
that the DIF reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. The FDIC also proposed a comprehensive,
long-range plan for management of the DIF. As part of this comprehensive plan, the FDIC has adopted a final rule to set the reserve
ratio at 2.0%.
On October 3, 2008, the Emergency
Economic Stabilization Act of 2008 was enacted and temporarily raised the standard minimum deposit insurance amount (the “SMDIA”)
from $100,000 to $250,000 per depositor. On July 21, 2010, the Dodd-Frank Act permanently increased FDIC insurance coverage to
$250,000 per depositor.
The FDIC imposes a risk-based
deposit insurance premium assessment on member institutions in order to maintain the DIF. This assessment system was amended by
the Reform Act and further amended by the Dodd-Frank Act. Under this system, as amended, the assessment rates for an insured depository
institution vary according to the level of risk incurred in its activities. To arrive at an assessment rate for a banking institution,
the FDIC places it in one of four risk categories determined by reference to its capital levels and supervisory ratings. In addition,
in the case of those institutions in the lowest risk category, the FDIC further determines its assessment rate based on certain
specified financial ratios or, if applicable, its long-term debt ratings. The assessment rate schedule can change from time to
time, at the discretion of the FDIC, subject to certain limits. The Dodd-Frank Act changed the methodology for calculating deposit
insurance assessments from the amount of an insured institution’s domestic deposits to its total assets minus tangible capital.
On February 7, 2011, the FDIC issued a new regulation implementing these revisions to the assessment system. The regulation became
effective on April 1, 2011.
The FDIC has authority to
further increase deposit insurance assessments. A significant increase in insurance premiums would likely have an adverse effect
on the operating expenses and results of operations of the Bank. Management cannot predict what insurance assessment rates will
be in the future.
Insurance of deposits may
be terminated by the FDIC upon a finding that an insured institution has engaged in unsafe or 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. Management of the Bank is not aware of any practice, condition or violation that might lead to termination of the Bank’s
FDIC deposit insurance.
Capital Requirements
.
The federal banking regulators have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy
of a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such
as letters of credit, and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment
percentages which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 150% for assets with
relatively high credit risk, such as high volatility commercial real estate loans.
A banking organization’s
risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and
limited amounts of Tier 2 capital) and Tier 1 capital. “Tier 1,” or core capital, includes common equity, qualifying
noncumulative perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill and
other intangibles, subject to certain exceptions. “Tier 2,” or supplementary capital, includes among other things,
limited-life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the
allowance for loan and lease losses, subject to certain limitations and less required deductions. The inclusion of elements of
Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. In July 2013, U.S. banking
regulators issued final regulatory capital rules that address certain requirements of the Dodd-Frank Act which are designed to
improve the resiliency of the U.S. banking system, increase the quantity and quality of regulatory capital, and enhance risk sensitivity.
A new Common Equity Tier 1 (“CET1”) ratio was introduced and is computed by dividing CET1 by risk weighted assets.
Risk weights for highly volatile commercial real estate loans and for assets on nonaccrual or past due 90 days or more were increased
to 150% under the new rules. CET1 consists of common stock and associated surplus and retained earnings less several adjustments,
such as goodwill, certain deferred tax assets, gains on sale of securitization exposures, and certain investments in other unconsolidated
financial institutions’ capital instruments. The new minimum risk-based capital ratios, effective January 1, 2015, are 4.5%
for CET1, 6% for Tier 1, and 8% for Total Capital. In addition, the new capital regulations provide for the phase-in of a capital
conservation buffer over a four year period requiring the following minimum risk-based capital ratios by January 1, 2019: 7% for
CET1, 8.5% for Tier1 Capital, and 10.50% for Total Capital. The minimum Tier 1 Leverage capital ratio remains at 4%.
As of December 31, 2015, the
Bank was classified as well capitalized with Tier 1 Risk-Based, Tier 1 Leverage, Common Equity Tier 1, and Total Risk-Based Capital
of 9.10%, 8.48%, 8.67%, and 10.30%, respectively.
The federal banking agencies
have adopted regulations specifying that they will include, in their evaluations of
a
bank’s capital adequacy, an assessment of the bank’s interest rate risk exposure. The standards for measuring the
adequacy and effectiveness of a banking organization’s interest rate risk management include a measurement of board of director
and senior management oversight, and a determination of whether a banking organization’s procedures for comprehensive risk
management are appropriate for the circumstances of the specific banking organization.
Failure to meet applicable
capital guidelines could subject a banking organization to a variety of enforcement actions, including limitations on its ability
to pay dividends, the issuance by the applicable regulatory authority of a capital directive to increase capital and, in the case
of depository institutions, the termination of deposit insurance by the FDIC, as well as the measures described under the “Federal
Deposit Insurance Corporation Improvement Act of 1991” below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy.
Such changes could affect the ability of banks to grow and could restrict the amount of profits, if any, available for the payment
of dividends to the shareholders.
Federal Deposit Insurance
Corporation Improvement Act of 1991
. In December 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the “FDIC Improvement Act”), which substantially revised the bank regulatory and funding provisions of
the Federal Deposit Insurance Act and made significant revisions to several other federal banking statutes. The FDIC Improvement
Act provides for, among other things:
|
|
-
|
publicly available annual financial condition
and management reports for certain financial institutions, including audits by independent accountants,
|
|
|
-
|
the establishment of uniform accounting standards by federal
banking agencies,
|
|
|
-
|
the establishment of a “prompt corrective
action” system of regulatory supervision and intervention, based on capitalization levels, with greater scrutiny and restrictions
placed on depository institutions with lower levels of capital,
|
|
|
-
|
additional grounds for the appointment of a conservator
or receiver,
|
|
|
-
|
restrictions or prohibitions on accepting brokered
deposits, except for institutions which significantly exceed minimum capital requirements, and
|
The FDIC Improvement Act also
provides for increased funding of the FDIC insurance funds and the implementation of risk-based premiums.
A central feature of the FDIC
Improvement Act is the requirement that the federal banking agencies take “prompt corrective action” with respect to
depository institutions that do not meet minimum capital requirements. Pursuant to the FDIC Improvement Act, the federal bank regulatory
authorities have adopted regulations setting forth a five-tiered system for measuring the capital adequacy of the depository institutions
that they supervise. Under these regulations, a depository institution is classified in one of the following capital categories:
“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized”
and “critically undercapitalized.” An institution may be deemed by the regulators to be in a capitalization category
that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination
rating with respect to asset quality, management, earnings or liquidity.
The FDIC Improvement Act provides
the federal banking agencies with significantly expanded powers to take enforcement action against institutions which fail to comply
with capital or other standards. Such action may include the termination of deposit insurance by the FDIC or the appointment of
a receiver or conservator for the institution. The FDIC Improvement Act also limits the circumstances under which the FDIC is permitted
to provide financial assistance to an insured institution before appointment of a conservator or receiver.
International Money Laundering
Abatement and Financial Anti-Terrorism Act of 2001
. On October 26, 2001, the USA PATRIOT Act of 2001 was enacted. This act
contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, which sets forth anti-money laundering
measures affecting insured depository institutions, broker-dealers and other financial institutions. The act requires U.S. financial
institutions to adopt new policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority
to establish regulations and to impose requirements and restrictions on the operations of financial institutions.
Office of Foreign Assets
Control (“OFAC”) Regulation
. The United States has imposed economic sanctions that affect transactions with designated
foreign countries, nationals and others. These are typically known as the OFAC rules based on their administration by the U.S.
Treasury’s Office of Foreign Assets Control. The OFAC-administered sanctions targeting countries take many different forms.
Generally, however, they contain one or
more of the following elements: (i) restrictions on trade
with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned
country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or
providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government
or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S.
jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits)
cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure of a financial institution
to comply with these sanctions could result in legal consequences for the institution.
Community Reinvestment
Act
. The Bank is subject to the provisions of the Community Reinvestment Act of 1977, as amended (“CRA”). Under
the terms of the CRA, the appropriate federal bank regulatory agency is required, in connection with the examination of a bank,
to assess such bank’s record in meeting the credit needs of the community served by that bank, including low-and moderate-income
neighborhoods. The regulatory agency’s assessment of our record is made available to the public. Such an assessment is required
of any bank which has made any application for a domestic deposit-taking branch, relocation of a main office, branch or ATM, merger
or consolidation with or acquisition of assets or assumption of liabilities of a federally insured depository institution.
Regulatory agencies will assign
a composite rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial
noncompliance” to the institution using the foregoing ground rules. A bank’s performance need not fit each aspect of
a particular rating profile in order for the bank to receive that rating; exceptionally strong performance with respect to some
aspects may compensate for weak performance in others, and the bank’s overall performance must be consistent with safe and
sound banking practices and generally with the appropriate rating profile. To earn an outstanding rating, a bank first must exceed
some or all of the standards mentioned above. The agencies may assign a “needs to improve” or “substantial noncompliance”
rating depending on the degree to which the bank has failed to meet the standards mentioned above. The regulation further states
that the agencies will take into consideration these CRA ratings when considering any application and that a bank’s record
of performance may be the basis for denying or conditioning the approval of an application.
Reserves
.
Pursuant
to regulations of the FRB, the Bank must maintain average daily reserves equal to 3% on transaction accounts of $15.2 million up
to $110.2 million, plus 10% on the remainder. This percentage is subject to adjustment by the FRB. Because required reserves must
be maintained in the form of vault cash or in a noninterest bearing account at a Federal Reserve Bank, the effect of the reserve
requirement is to reduce the amount of the institution’s interest-earning assets. As of December 31, 2015, the Bank met applicable
legal reserve requirements.
The Bank is also subject to
the reserve requirements of North Carolina commercial banks. North Carolina law requires state nonmember banks to maintain, at
all times, a reserve fund in an amount set by the Commissioner.
Liquidity Requirements
.
FDIC policy requires that banks maintain an average daily balance of liquid assets (cash, certain time deposits, mortgage-backed
securities, loans available for sale and specified United States government, state, or federal agency obligations) in an amount
which it deems adequate to protect the safety and soundness of the bank. The FDIC currently has no specific level which it requires.
The Bank maintains its liquidity position under policy guidelines based on liquid assets in relationship to deposits and short-term
borrowings. Based on its policy calculation guidelines, the Bank’s calculated liquidity ratio was 8.28% of total deposits
and short-term borrowings at December 31, 2015, which management believes is adequate.
Dividend Restrictions
.
Under FDIC regulations, the Bank is prohibited from making any capital distributions if after making the distribution, the Bank
would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or
(iii) a leverage ratio of less than 4.0%. In addition, under North Carolina law, the Bank may declare and pay dividends only out
of retained earnings. The FDIC and the Commissioner have the power to further restrict the payment of dividends by the Bank.
Limits on Loans to One
Borrower
.
The Bank generally is subject to both FDIC regulations and North Carolina law regarding loans to any one borrower,
including related entities. Under applicable law, with certain limited exceptions, loans and extensions of credit by a state chartered
nonmember bank to a person outstanding at one time and not fully secured by collateral having a market value at least equal to
the amount of the loan or
extension
of credit shall not exceed 15% of Total Risk-Based Capital of the Bank. Loans and extensions of credit fully secured by readily
marketable collateral having a market value at least equal to the amount of the loan or extension of credit shall not exceed an
additional 10% of Total Risk-Based Capital of the Bank. Under these limits, the Bank’s loans to one borrower were limited
to approximately$4.8 million at December 31, 2015. At that date, the Bank had no lending relationships in excess of the loans-to-one-borrower
limit.
Transactions with Related
Parties
.
Transactions between a state nonmember bank and any affiliate are governed by Regulation W which implements
Sections 23A and 23B of the Federal Reserve Act. An affiliate of a state nonmember bank is any company or entity which controls,
is controlled by or is under common control with the state nonmember bank. In a holding company context, the parent holding company
of a state nonmember bank and any companies which are controlled by such parent holding company are affiliates of the savings institution
or state nonmember bank. Generally, Sections 23A and 23B (i) limit the extent to which an institution or its subsidiaries may engage
in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock
and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to
the institution or subsidiary as those provided to a non-affiliate. The term “covered transaction” includes the making
of loans, purchase of assets, issuance of a guarantee and similar other types of transactions.
Loans to Directors, Executive
Officers and Principal Stockholders
.
State nonmember banks also are subject to the restrictions contained in Section
22(h) of the Federal Reserve Act and the applicable regulations thereunder on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, executive officer and to a greater than 10% stockholder of a state nonmember
bank and certain affiliated interests of such persons, may not exceed, together with all other outstanding loans to such person
and affiliated interests, the institution’s loans-to-one-borrower limit and all loans to such persons may not exceed the
institution’s unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers and greater than 10% stockholders of a depository institution,
and their respective affiliates, unless such loan is approved in advance by a majority of the board of directors of the institution
with any “interested” director not participating in the voting. Regulation O prescribes the loan amount (which includes
all other outstanding loans to such person) as to which such prior board of director approval is required as being the greater
of $25,000 or 5% of capital and surplus (or any loans aggregating $500,000 or more). Further, Section 22(h) requires that loans
to directors, executive officers and principal stockholders be made in the ordinary course of business and on substantially the
same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related
to the lender. Section 22(h) also generally prohibits a depository institution from paying the overdrafts of any of its executive
officers or directors. Loans made by the Bank were made in the ordinary course of business and on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to the lender.
State nonmember banks also
are subject to the requirements and restrictions of Section 22(g) of the Federal Reserve Act on loans to executive officers. Section
22(g) of the Federal Reserve Act requires approval by the board of directors of a depository institution for such extensions of
credit and imposes reporting requirements for and additional restrictions on the type, amount and terms of credits to such officers.
In addition, Section 106 of the Bank Holding Company Act of 1956, as amended (“BHCA”), prohibits extensions of credit
to executive officers, directors, and greater than 10% stockholders of a depository institution by any other institution which
has a correspondent banking relationship with the institution, unless such extension of credit is on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to the lender.
The Bank is in compliance with this requirement of the BHCA.
Restrictions on Certain
Activities
. State chartered nonmember banks with deposits insured by the FDIC are generally prohibited from engaging in equity
investments that are not permissible for a national bank. The foregoing limitation, however, does not prohibit FDIC-insured state
banks from acquiring or retaining an equity investment in a subsidiary in which the bank is a majority owner. State chartered banks
are also prohibited from engaging as a principal in any type of activity that is not permissible for a national bank and, subject
to certain exceptions, subsidiaries of state chartered FDIC-insured banks may not engage as a principal in any type of activity
that is not permissible for a subsidiary of a national bank, unless in either case, the FDIC determines that the activity would
pose no significant risk to the DIF and the bank is, and continues to be, in compliance with applicable capital standards.
Incentive Compensation
Policies and Restrictions
.
In July 2010, the federal banking agencies issued guidance which applies to all banking organizations
supervised by the agencies. Pursuant to the guidance, to be
consistent
with safety and soundness principles, a banking organization’s incentive compensation arrangements should: (1) provide
employees with incentives that appropriately balance risk and reward; (2) be compatible with effective controls and risk
management; and (3) be supported by strong corporate governance including active and effective oversight by the banking organization’s
board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity
of the organization and its use of incentive compensation.
In addition, in March 2011,
the federal banking agencies, along with the Federal Housing Finance Agency, and the SEC, released a proposed rule intended to
ensure that regulated financial institutions design their incentive compensation arrangements to account for risk. Specifically,
the proposed rule would require compensation practices of the Registrant and the Bank to be consistent with the following principles:
(1) compensation arrangements appropriately balance risk and financial reward; (2) such arrangements are compatible with
effective controls and risk management; and (3) such arrangements are supported by strong corporate governance. In addition,
financial institutions with $1 billion or more in assets would be required to have policies and procedures to ensure compliance
with the rule and would be required to submit annual reports to their primary federal regulator. The comment period has closed
and a final rule has not yet been published.
Future Legislation
The Bank cannot predict what
legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on its operations.
Number of Employees
At December 31, 2015, the Bank had 83 full-time
equivalent employees.
Item 1A. Risk Factors
Not required for smaller reporting companies.
Item 1B. Unresolved Staff Comments
None.
Item 2 —Properties
The Bank’s headquarters
is leased under a long-term lease agreement with an option to buy at any time. The Bank purchased a modular unit and leased the
site for its West Lincolnton branch office on Highway 27 with an option to buy at any time. The Bank also leases facilities in
Forest City, Lincolnton and Vale, North Carolina for branch offices, and a facility in Hickory, North Carolina for a loan production
office. The Bank owns its Denver, North Carolina branch. Through the acquisition of Carolina Commerce, the Bank acquired a branch
office in Gastonia, which the Bank owns. See Note H to the financial statements.
Additional branch offices
may be opened at later dates if deemed appropriate by the Board of Directors and if regulatory approval can then be obtained. The
Board of Directors may acquire property in which a director, directly or indirectly, has an interest. In such event, the acquisition
of such facilities for the Bank shall be approved by a majority of the Board of Directors, excluding any individual who may have
such an interest in the property.
Item 3 — Legal Proceedings
The Bank is not aware of any material legal proceedings
to which it is a party or of which any of its properties is subject.
Item 4 — Mine Safety Disclosures
Not applicable.
PART II
Item 5 — Market for Registrant’s Common Equity and
Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for the Common Stock
of the Bank.
The Bank’s common stock is traded on the Nasdaq Capital Market under the symbol “CART.” As of
March 21, 2016 the Bank had approximately 1,491 shareholders of record. The following table shows the high and low closing prices
for each quarter the Bank’s common stock traded on the Nasdaq Capital Market, and reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions:
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Price
|
|
Year
|
|
Quarterly
Period
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
2014
|
|
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
|
|
$ 4.80
7.23
5.10
5.61
|
|
$ 3.31
4.22
4.40
4.76
|
|
2015
|
|
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
|
|
$ 5.59
5.62
6.21
6.40
|
|
$ 3.31
4.22
4.40
4.76
|
Restrictions on cash dividends.
The Board of Directors anticipates that all or substantially all of the Bank’s earnings in the foreseeable future will be required
for development of its business. The payment of future cash dividends will be determined by the Board of Directors and is dependent
upon the Bank’s earnings, financial condition, business projections, and other pertinent factors. In addition, North Carolina banking
law permits the payment of dividends if the distribution will not reduce the bank’s capital below applicable capital requirements.
Also, under federal banking law, no cash dividend may be paid if the Bank is undercapitalized or insolvent or if payment of the
cash dividend would render the Bank undercapitalized or insolvent, and no cash dividend may be paid by the Bank if it is in default
of any deposit insurance assessment due to the FDIC. As a condition of its consent resolution with the FDIC, the Bank must obtain
the FDIC’s consent to pay a cash dividend on any of its securities, including the common stock. Subject to these restrictions
on the effect on capital, the payment of stock dividends will be considered by the Board of Directors when it is deemed prudent
to do so.
Item 6 — Selected Financial Data
Not required for smaller reporting companies.
Item 7 — Management’s Discussion and Analysis of Financial
Condition and Results of Operation
The information is incorporated by reference to
the Registrant’s annual report to shareholders for the fiscal year ended December 31, 2015, as filed with the FDIC.
Item 7A — Quantitative and Qualitative Disclosures About Market
Risk
Not required for smaller reporting companies.
Item 8 — Financial Statements and Supplementary Data
Omitted, per general instruction
G. The information required by Items 6 through 8 of Part II is incorporated by reference to the Registrant’s annual report
to shareholders for the fiscal year ended December 31, 2015, as filed with the FDIC.
Item 9 — Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A — Controls and Procedures
As of December 31, 2015, the
end of the period covered by this Annual Report on Form 10-K, the Bank’s management, including the Bank’s Chief Executive
Officer and Principal Accounting Officer, evaluated the effectiveness of the Bank’s disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Bank’s Chief Executive
Officer and Principal Accounting Officer each concluded that the Bank’s disclosure controls and procedures were effective
as of December 31, 2015.
Disclosure controls and procedures
are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
The design of any system of
controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design
will succeed in achieving its stated goal under every potential condition, regardless of how remote. In addition, the operation
of any system of controls and procedures is dependent upon the employees responsible for executing it. While we have evaluated
the operation of our disclosure controls and procedures and found them effective, there can be no assurance that they will succeed
in every instance to achieve their objective.
Management’s Annual Report on Internal Control over Financial
Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f)
under the Exchange Act). Our internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our
assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of the inherent limitations
in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even
effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.
Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued
effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies and procedures may decline.
Management conducted an evaluation
of the effectiveness of our system of internal control over financial reporting as of December 31, 2015, based on the framework
set forth in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on its evaluation, management concluded that, as of December 31, 2015, the Bank’s internal control over
financial reporting was effective.
This annual report does not
include an attestation report of the Bank’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Bank’s registered public accounting firm pursuant to a provision
in the Dodd-Frank Act that exempts smaller reporting companies, like the Bank, from the requirement to provide the auditor’s
attestation report.
Changes in Internal Control over Financial Reporting
There were no changes in the
Bank’s internal controls over financial reporting during the fourth fiscal quarter of the fiscal year covered by this report
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B — Other Information
None.
PART III
Item 10 — Directors, Executive Officers and Corporate Governance
Incorporated by reference to the Bank’s definitive
Proxy Statement for the 2016 Annual Meeting of Shareholders, as filed with the FDIC Accounting and Securities Disclosure Section
in April 2016.
The Bank has adopted a Code of Ethics that applies,
among others, to its principal executive officer and principal financial officer. The Bank’s Code of Ethics is available
to any person, without charge, upon written request submitted to Ms. Sue S. Stamey, Corporate Secretary, Carolina Trust Bank, 901
East Main Street, Lincolnton, North Carolina 28092.
Item 11 — Executive Compensation
Incorporated by reference to the Bank’s definitive
Proxy Statement for the 2016 Annual Meeting of Shareholders, as filed with the FDIC Accounting and Securities Disclosure Section
in April 2016.
Item 12 — Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Incorporated by reference to the Bank’s definitive
Proxy Statement for the 2016 Annual Meeting of Shareholders, as filed with the FDIC Accounting and Securities Disclosure Section
in April 2016.
The following table sets forth
equity compensation plan information at December 31, 2015.
Equity Compensation Plan Information
|
Plan Category
|
Number of securities
to be issued
upon exercise of
outstanding options,
warrants
and rights
|
Weighted-average
exercise price of
outstanding options,
warrants
and rights
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column(a))
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation plans approved by security holders
|
192,479
|
$6.88
|
-0-
|
|
Equity compensation plans not approved by security holders
|
-0-
|
-0-
|
-0-
|
|
Total
|
192,479
|
$6.88
|
-0-
|
A description of the Bank’s equity compensation
plans is presented in Note N to the accompanying consolidated financial statements.
Item 13 — Certain Relationships and Related Transactions
Incorporated by reference to the Bank’s definitive
Proxy Statement for the 2016 Annual Meeting of Shareholders, as filed with the FDIC Accounting and Securities Disclosure Section
in April 2016.
Item 14 — Principal Accountant Fees and
Services.
Incorporated by reference to the Bank’s definitive
Proxy Statement for the 2016 Annual Meeting of Shareholders, as filed with the FDIC Accounting and Securities Disclosure Section
in April 2016.
PART IV
Item 15 — Exhibits
|
|
3.1
|
Articles of Incorporation (incorporated by reference from Exhibit 3(i) to Registrant’s
Form 10-Q filed for the Quarterly Period ended September 30, 2010).
|
|
|
3.2
|
Articles of Amendment with respect to Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series
A (incorporated by reference from Exhibit 3.1 to the Registrant’s Form 8-K filed on February 10, 2009 (the “2009 8-K”).
|
|
|
3.3
|
Bylaws (incorporated by reference from Exhibit 3(ii) to the Registration Statement on Form 10-SB
filed April 2001 (the “Registration Statement”)).
|
|
|
4.1
|
Form of Stock Certificate (incorporated by reference to Exhibit 4 from the Registration Statement).
|
|
|
4.2
|
Form of Warrant to Purchase Common Stock dated February
6, 2009 (incorporated by reference from Exhibit 4.1 to the 2009 8-K).
|
|
|
4.3
|
Form of Preferred Stock Certificate dated February 6, 2009 (incorporated by reference from Exhibit
4.1 to the 2009 8-K).
|
|
|
10.1
|
Lease Agreement for main office (incorporated by reference to Exhibit 10A from the Registration
Statement).
|
|
|
10.2
|
2001 Nonstatutory Stock Option Plan (incorporated by reference to Exhibit 10C from the Registration
Statement).
|
|
|
10.3
|
2001 Incentive Stock Option Plan (incorporated by reference to Exhibit 10B from the Registration
Statement).
|
|
|
10.4
|
Employment Agreement with Donald J. Boyer (incorporated by reference to Exhibit 10.5 to the Annual
Report on Form 10KSB for the year ended December 31, 2006).
|
|
|
10.5
|
2005 Nonstatutory Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Annual Report
on Form 10KSB for the year ended December 31, 2005).
|
|
|
10.6
|
2005 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.8 to the Annual Report
on Form 10KSB for the year ended December 31, 2005).
|
|
|
10.7
|
Amendment One to Employment Agreement with Donald J. Boyer (incorporated by reference to Exhibit 10.10 to the Annual Report
on Form 10KSB for the year ended December 31, 2007)
|
|
|
10.8
|
Amendment Two to Employment Agreement with Donald J. Boyer (incorporated by reference from Exhibit 10.12 to the Form 10-K for
the year ended December 31, 2008 (the “2008 10-K”)).
|
|
|
10.9
|
Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.12 to the 2008 10-K).
|
|
|
10.10
|
Employment Agreement with Richard M. Rager (incorporated by reference from Exhibit 10.16 to the Annual Report on Form 10-K
for the year ended December 31, 2012 (the “2012 10-K”)).
|
|
|
10.11
|
Amendment One to Employment Agreement with Richard M. Rager (incorporated by reference from Exhibit 10.17 to the 2012 10-K).
|
|
|
10.12
|
Amendment Two to Employment Agreement with Richard M. Rager (incorporated by reference from Exhibit 10.18 to the 2012 10-K).
|
|
|
10.13
|
Employment Agreement with Jerry L. Ocheltree
|
|
|
10.14
|
Amendment One to Employment Agreement with Jerry L. Ocheltree
|
|
|
10.15
|
Amendment Two to Employment Agreement with Jerry L. Ocheltree
|
|
|
10.16
|
Supplemental Executive Retirement Plan for Jerry L. Ocheltree
|
|
|
10.17
|
Amendment Three to Employment Agreement with Richard M. Rager
|
|
|
10.18
|
Amendment Three to Employment Agreement with Donald J. Boyer
|
|
|
13
|
Annual Report to Security Holders.
|
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification by Chief Executive
Officer
|
|
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification by Principal Accounting
Officer
|
|
|
32
|
Section 1350 Certifications
|
Signatures
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAROLINA TRUST BANK
|
|
|
|
|
|
By:
|
/s/ Jerry L. Ocheltree
|
|
Date: March 23, 2016
|
|
|
Jerry L. Ocheltree
|
|
|
|
|
President and Chief Executive Officer
|
|
|
In accordance with the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
/s/ Jerry L. Ocheltree
|
|
Date: March 23, 2016
|
|
Jerry L. Ocheltree
|
|
|
|
President, Chief Executive Officer, and Director
|
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|
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/s/ Bryan Elliott Beal
|
|
Date: March 23, 2016
|
|
Bryan Elliot Beal
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Director
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Date: March 23, 2016
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Terri Q. Blake
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Director
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/s/ Scott Craig Davis
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Date: March 23, 2016
|
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Scott Craig Davis
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Director
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/s/ Richard Darrell Gettys
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Date: March 23, 2016
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Richard Darrell Gettys
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Director
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/s/ Pamela C. Huskey
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Date: March 23, 2016
|
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Pamela C. Huskey
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Director
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/s/ Jennifer M. Mills
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Date: March 23, 2016
|
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Jennifer M. Mills
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Director
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Date: March 23, 2016
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Nancy B. Paschall
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Director
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/s/ Johnathan L. Rhyne, Jr.
|
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Date: March 23, 2016
|
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Johnathan L. Rhyne, Jr.
|
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Director
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/s/ Joseph M. Rhyne III
|
|
Date: March 23, 2016
|
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Joseph M. Rhyne III
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|
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Director
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/s/ Frederick P. Spach, Jr.
|
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Date: March 23, 2016
|
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Frederick P. Spach, Jr.
|
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|
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Director
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/s/ Jim R. Watson
|
|
Date: March 23, 2016
|
|
Jim R. Watson
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|
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Director
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/s/ Rosalind N. Welder
|
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Date: March 23, 2016
|
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Rosalind N. Welder
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Director
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Exhibit
13
2015 Annual Report
Carolina Trust Bank
TABLE OF CONTENTS
|
|
|
Page No.
|
|
|
|
|
|
Forward-Looking and Cautionary Statements
|
|
1
|
|
|
|
|
|
Report of Management
|
|
2
|
|
|
|
|
|
Selected Financial and Other Data
|
|
3
|
|
|
|
|
|
Management’s Discussion and Analysis
|
|
4
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
26
|
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
27
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
28
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income
|
|
29
|
|
|
|
|
|
Consolidated Statements of Changes in Stockholders’ Equity
|
|
30
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
31
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
32
|
|
|
|
|
|
General Corporate Information
|
|
74
|
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Private Securities Litigation
Reform Act of 1995 (the “1995 Act”) provides a safe harbor for forward-looking statements made by or on our behalf.
These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of our management
and on information available at the time these statements and disclosures were prepared.
This report includes forward-looking statements within
the meaning of the 1995 Act. These statements are included throughout this report and relate to, among other things, projections
of revenues, earnings, earnings per share, cash flows, capital expenditures, or other financial items, expectations regarding acquisitions,
discussions of estimated future revenue enhancements, potential dispositions, and changes in interest rates. These statements also
relate to our business strategy, goals and expectations concerning our market position, future operations, margins, profitability,
liquidity, and capital resources. The words “believe”, “anticipate”, “could”, “estimate”,
“expect”, “intend”, “may”, “plan”, “predict”, “project”,
“will”, and similar terms and phrases identify forward-looking statements in this report.
Although we believe the assumptions upon which these
forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking
statements based on these assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside
of our control, and any one of which, or a combination of which, could materially affect our results of operations and whether
the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from
those suggested or implied by the forward-looking statements depending on a number of factors. Factors that may cause actual results
to differ materially from those expected include the following:
|
|
·
|
General economic conditions may deteriorate and negatively impact the ability of borrowers to
repay loans and depositors to maintain balances;
|
|
|
·
|
General decline in the residential real estate construction and finance market;
|
|
|
·
|
Decline in market value of real estate in the Bank’s markets;
|
|
|
·
|
Changes in interest rates could reduce net interest income and/or the borrower’s ability to repay loans;
|
|
|
·
|
Competitive pressures among financial institutions may reduce yields and profitability;
|
|
|
·
|
Legislative or regulatory changes, including changes in accounting standards, may adversely
affect the businesses that the Bank is engaged in;
|
|
|
·
|
Increased regulatory supervision could limit our ability to grow and could require considerable
time and attention of our management and board of directors;
|
|
|
·
|
New products developed or new methods of delivering products could result in a reduction in
business and income for the Bank;
|
|
|
·
|
The Bank’s ability to continue to improve operating efficiencies;
|
|
|
·
|
Natural events and acts of God such as earthquakes, fires and floods;
|
|
|
·
|
Loss or retirement of key executives; and
|
|
|
·
|
Adverse changes may occur in the securities market.
|
These risks and uncertainties should be considered
in evaluating the forward-looking statements contained herein. We caution readers not to place undue reliance on those statements,
which speak only as of the date of this report.
Carolina Trust Bank
Report
of Management
Dear Shareholders:
Your bank, Carolina Trust Bank (CTB), celebrated its 15-year
anniversary in 2015 and had an exceptional year of growth in both loans and deposits. During the past 15 years, CTB has grown from
a one branch bank in Lincolnton, North Carolina to nine branches located in southwestern North Carolina. We have branches in Lincoln,
Catawba, Gaston and Rutherford counties and a loan production office in Mooresville, North Carolina. We continued our expansion
in 2015 with the opening of a new full service office in Lake Lure and the conversion of our loan production office in Hickory
to a full-service branch.
As mentioned above, 2015 was a year of
exceptional growth. At December 31, 2015, the Company’s total assets were $334,049,000, total loans stood at $292,362,000,
total deposits were $284,794,000 and total shareholder’s equity was $30,464,000. Compared with December 31, 2014:
|
|
Ø
|
Total assets increased $41,008,000 or 14.0%;
|
|
|
Ø
|
Total loans increased $47,716,000 or 19.5%;
|
|
|
Ø
|
Total deposits increased $47,618,000 or 20.1%; and
|
|
|
Ø
|
Total shareholder’s equity increased $657,000 or 2.2%.
|
Additionally, we continue to make significant improvement
in our nonperforming and classified loan categories which allows us to reduce our overall allowance for loan and lease losses.
Our nonperforming assets are at their lowest level since 2008, at $4,158,000 or 1.24% of total assets at December 31, 2015. This
represents an 88 basis point reduction from 2.12% or $6,214,000 at December 31, 2014. Due to the continued credit quality improvement,
the Bank’s allowance for loan losses totaled $3,723,000 or 1.27% of total loans at December 31, 2015, a reduction from $4,002,000
or 1.64% at December 31, 2014.
As a result of our strong loan growth, improving asset quality
and strong net interest margin, the Bank reported net income available to common shareholders totaling $824,000, or $0.18 per diluted
share for the year ending December 31, 2015.
The Bank remains well capitalized with total equity at year-end
2015 of $30.5 million, or 9.12% of total assets. Our tangible common equity-to-assets ratio was 8.30%, our common equity tier 1
capital ratio was 8.67%, and our leverage, Tier 1 and Total Capital ratios were 8.48%, 9.10% and 10.30%, respectively at year end.
As discussed above we have had an outstanding year and this
was the result of the hard work and dedication from your board and the staff at Carolina Trust Bank. The employees at CTB are always
willing to do whatever it takes to get the job done while also looking to provide the best service to the customers who they serve.
I would like to dedicate this report in the memory of Don
Boyer, our former Chief Financial Officer and friend to everyone at the Bank. Don passed away on December 27, 2015, but he will
always be in the heart and minds of his Carolina Trust family. Our wishes and prayers are with his family in these trying times.
I hope that you spend some time reading our Annual Report
as it contains a lot of good and important information. Your comments and questions are most welcomed.
Thank you for your support and investment in Carolina Trust
Bank.
Jerry L. Ocheltree
Carolina Trust Bank
Selected
Financial and Other Data
In thousands, except share and per share
data
|
|
|
At or for the Years Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
14,905
|
|
|
$
|
13,042
|
|
|
$
|
12,815
|
|
|
$
|
13,337
|
|
|
$
|
13,019
|
|
|
Interest
expense
|
|
|
2,311
|
|
|
|
1,951
|
|
|
|
2,140
|
|
|
|
2,876
|
|
|
|
4,055
|
|
|
Net interest income
|
|
|
12,594
|
|
|
|
11,091
|
|
|
|
10,675
|
|
|
|
10,461
|
|
|
|
8,964
|
|
|
Provision
(recovery) for loan losses
|
|
|
(270
|
)
|
|
|
(80
|
)
|
|
|
2,285
|
|
|
|
2,367
|
|
|
|
2,729
|
|
|
Net interest income
after provision for loan losses
|
|
|
12,864
|
|
|
|
11,171
|
|
|
|
8,390
|
|
|
|
8,094
|
|
|
|
6,235
|
|
|
Non-interest income
|
|
|
1,109
|
|
|
|
936
|
|
|
|
1,019
|
|
|
|
1,281
|
|
|
|
1,088
|
|
|
Non-interest
expense
|
|
|
11,751
|
|
|
|
9,789
|
|
|
|
10,857
|
|
|
|
9,158
|
|
|
|
9,433
|
|
|
Income (loss) before
income taxes
|
|
|
2,222
|
|
|
|
2,318
|
|
|
|
(1,448
|
)
|
|
|
217
|
|
|
|
(2,110
|
)
|
|
Provision
(benefit) for income taxes
|
|
|
1,164
|
|
|
|
(4,539
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net
income (loss)
|
|
$
|
1,058
|
|
|
$
|
6,857
|
|
|
$
|
(1,448
|
)
|
|
$
|
217
|
|
|
$
|
(2,110
|
)
|
|
Net
income (loss) available (attributable) to common stockholders
|
|
$
|
824
|
|
|
$
|
6,630
|
|
|
$
|
(1,639
|
)
|
|
$
|
146
|
|
|
$
|
(2,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data and Shares Outstanding Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss)
per common share
|
|
$
|
0.18
|
|
|
$
|
1.43
|
|
|
$
|
(0.35
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.50
|
)
|
|
Diluted net income (loss)
per common share
|
|
|
0.18
|
|
|
|
1.42
|
|
|
|
(0.35
|
)
|
|
|
0.03
|
|
|
|
(0.50
|
)
|
|
Book value per common share at period
end
|
|
|
6.00
|
|
|
|
5.87
|
|
|
|
4.25
|
|
|
|
4.84
|
|
|
|
4.81
|
|
|
Weighted average number of common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,645,408
|
|
|
|
4,635,096
|
|
|
|
4,634,565
|
|
|
|
4,634,379
|
|
|
|
4,619,568
|
|
|
Diluted
|
|
|
4,685,814
|
|
|
|
4,678,108
|
|
|
|
4,634,565
|
|
|
|
4,635,954
|
|
|
|
4,619,568
|
|
|
Shares outstanding at period end
|
|
|
4,646,225
|
|
|
|
4,635,422
|
|
|
|
4,634,702
|
|
|
|
4,634,482
|
|
|
|
4,624,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
334,049
|
|
|
$
|
293,041
|
|
|
$
|
266,435
|
|
|
$
|
271,051
|
|
|
$
|
266,162
|
|
|
Loans receivable
|
|
|
292,362
|
|
|
|
244,646
|
|
|
|
223,891
|
|
|
|
221,480
|
|
|
|
209,900
|
|
|
Allowance for loan losses
|
|
|
3,723
|
|
|
|
4,002
|
|
|
|
4,066
|
|
|
|
4,773
|
|
|
|
4,366
|
|
|
Other interest-earning
assets
|
|
|
25,341
|
|
|
|
29,677
|
|
|
|
28,619
|
|
|
|
30,751
|
|
|
|
38,801
|
|
|
Deposits
|
|
|
284,794
|
|
|
|
237,176
|
|
|
|
228,885
|
|
|
|
233,861
|
|
|
|
224,206
|
|
|
Borrowings
|
|
|
15,681
|
|
|
|
22,373
|
|
|
|
12,152
|
|
|
|
9,457
|
|
|
|
13,495
|
|
|
Stockholders’
equity
|
|
|
30,464
|
|
|
|
29,807
|
|
|
|
22,256
|
|
|
|
24,935
|
|
|
|
26,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.33
|
%
|
|
|
2.53
|
%
|
|
|
(0.54
|
%)
|
|
|
0.08
|
%
|
|
|
(0.77
|
%)
|
|
Return on average equity
|
|
|
3.46
|
%
|
|
|
28.30
|
%
|
|
|
(6.08
|
%)
|
|
|
0.81
|
%
|
|
|
(7.74
|
%)
|
|
Net interest margin
|
|
|
4.20
|
%
|
|
|
4.33
|
%
|
|
|
4.22
|
%
|
|
|
4.10
|
%
|
|
|
3.52
|
%
|
|
Net interest spread
|
|
|
4.06
|
%
|
|
|
4.21
|
%
|
|
|
4.11
|
%
|
|
|
3.98
|
%
|
|
|
3.34
|
%
|
|
Noninterest income to
average assets
|
|
|
0.35
|
%
|
|
|
0.37
|
%
|
|
|
0.38
|
%
|
|
|
0.46
|
%
|
|
|
0.40
|
%
|
|
Noninterest expense
to average assets
|
|
|
3.66
|
%
|
|
|
3.63
|
%
|
|
|
4.02
|
%
|
|
|
3.28
|
%
|
|
|
3.44
|
%
|
|
Efficiency ratio (1)
|
|
|
85.75
|
%
|
|
|
81.48
|
%
|
|
|
92.85
|
%
|
|
|
77.99
|
%
|
|
|
93.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans
to period-end loans
|
|
|
0.74
|
%
|
|
|
1.70
|
%
|
|
|
1.70
|
%
|
|
|
3.83
|
%
|
|
|
3.00
|
%
|
|
Allowance for loan losses
to period-end loans
|
|
|
1.27
|
%
|
|
|
1.64
|
%
|
|
|
1.82
|
%
|
|
|
2.16
|
%
|
|
|
2.08
|
%
|
|
Allowance for loan losses
to nonperforming loans
|
|
|
172.85
|
%
|
|
|
96.09
|
%
|
|
|
106.92
|
%
|
|
|
56.20
|
%
|
|
|
69.21
|
%
|
|
Nonperforming assets
to total assets
|
|
|
1.24
|
%
|
|
|
2.12
|
%
|
|
|
2.70
|
%
|
|
|
4.67
|
%
|
|
|
3.97
|
%
|
|
Net loan charge-offs
(recoveries) to average loans outstanding
|
|
|
0.00
|
%
|
|
|
(0.01
|
%)
|
|
|
1.36
|
%
|
|
|
0.93
|
%
|
|
|
1.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio
|
|
|
8.67
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Total risk-based capital
ratio
|
|
|
10.30
|
%
|
|
|
11.03
|
%
|
|
|
10.80
|
%
|
|
|
11.86
|
%
|
|
|
12.75
|
%
|
|
Tier 1 risk-based capital
ratio
|
|
|
9.10
|
%
|
|
|
9.77
|
%
|
|
|
9.54
|
%
|
|
|
10.60
|
%
|
|
|
11.49
|
%
|
|
Tier 1 Leverage ratio
|
|
|
8.48
|
%
|
|
|
9.02
|
%
|
|
|
8.24
|
%
|
|
|
8.61
|
%
|
|
|
9.32
|
%
|
|
Equity to assets ratio
|
|
|
9.12
|
%
|
|
|
10.17
|
%
|
|
|
8.35
|
%
|
|
|
9.20
|
%
|
|
|
9.79
|
%
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of banking offices
|
|
|
9
|
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
|
Number of full time
equivalent employees
|
|
|
83
|
|
|
|
74
|
|
|
|
61
|
|
|
|
60
|
|
|
|
57
|
|
(1) Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.
Carolina Trust Bank
Management’s Discussion and Analysis
The following is management’s discussion
and analysis of the financial condition and results of operations of Carolina Trust Bank (the “Bank”) as of and for
the years ended December 31, 2015 and 2014. The purpose of this discussion is to focus on important factors affecting our financial
condition and results of operations. The discussion should be read in conjunction with the audited financial statements and related
notes to assist in the evaluation of our 2015 performance.
DESCRIPTION OF BUSINESS
Carolina Trust
Bank is a North Carolina state-chartered bank that commenced operations on December 8, 2000 in Lincolnton, North Carolina. We moved
into our permanent headquarters in June 2001. We opened our first de novo branch in West Lincolnton in September 2002, and purchased
a branch in Vale, ten miles west of Lincolnton, in March 2003. In September 2004, we expanded our market area to Denver, fifteen
miles east of Lincolnton adjacent to Lake Norman, a rapidly growing and upscale commuter corridor for the Charlotte area, by opening
a de novo branch. In 2007, we opened a loan production office in Forest City, NC in Rutherford County and a de novo branch in Boger
City on the east side of Lincolnton. In October 2009, we acquired Carolina Commerce Bank, which had one office in Gastonia, NC.
We merged Carolina Commence Bank with and into our bank and their former headquarters is now operated as a full service branch
of Carolina Trust Bank.
In February of 2012, the Bank opened a loan production office in
Hickory, NC in Catawba County and in August of 2013, the loan production office in Forest City was converted in to a full service
branch. In November 2014 the Bank opened a loan production office in Mooresville, NC. In March of 2015 the Bank opened a de novo
branch in Lake Lure, NC in Rutherford County and converted the loan production office in Hickory into a full service branch.
We are the only independent publicly held
bank, headquartered in Lincoln County, which is adjacent to the Charlotte/Rock Hill/Gastonia Metropolitan Statistical Area. Our
headquarters and Denver (Lake Norman) offices are both approximately twenty-five miles northwest of Charlotte’s Douglas International
Airport.
At December 31, 2015, we had total assets
of $334,049,000, net loans of $288,639,000, deposits of $284,794,000, and stockholders’ equity of $30,464,000. Net income
for the year ended December 31, 2015 was $1,058,000 and after preferred stock dividends, net income available to common shareholders
was $824,000, or $0.18 per diluted share.
Our executive and lending officers and
some of our directors have many years of experience in commercial banking and insurance in the Lincoln County market as well as
Gastonia and Gaston County to the immediate south, Hickory and Catawba County to the immediate north and Cleveland and Rutherford
Counties to the west. Our President and Chief Executive Officer, Jerry L. Ocheltree, was formerly the President and Chief Executive
Officer for First Bank in Southern Pines, North Carolina and also served as chair of the North Carolina’s Bankers Association
for 2012-2013. Richard M. Rager, our Executive Vice President and Chief Credit Officer, has been involved in bank lending since
1981, including service with the Federal Deposit Insurance Corporation in the evaluation of problem loans.
The primary purpose of the Bank is to serve
the banking needs of individuals and businesses in Lincoln County and surrounding areas. We emphasize personalized service, access
to decision makers, and a quick response on lending decisions. We have been, and intend to remain, a community-focused financial
institution offering a full range of financial services to small-to medium-sized businesses, professionals, and individual consumers
in our community. The 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
Management’s Discussion and Analysis
Our website is located at
http://www.carolinatrust.com
.
Carolina Trust Bank is a member of the Federal Home Loan Bank of Atlanta and its deposits are insured up to applicable limits
by the Bank Insurance Fund of the Federal Deposit Insurance Corporation. The address of our headquarters is 901 East Main Street,
Lincolnton, North Carolina 28092, and our telephone number is (704) 735-1104.
CRITICAL ACCOUNTING ESTIMATES
General
The Bank’s financial
statements are prepared in accordance with US GAAP and with general practices within the banking industry. In connection with the
application of those principles, we have made judgments and estimates, which in the case of the determination of our allowance
for loan losses, deferred tax assets, and foreclosed assets have been critical to the determination of our financial position and
results of operations.
Management considers accounting
estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about
matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate
in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have
a material impact on the Company’s financial statements.
Allowance for Loan Losses
The most critical estimate
concerns the Bank’s allowance for loan losses. The Bank records provisions for loan losses based upon known problem loans
and estimated probable losses in the existing loan portfolio. The Bank’s methodology for assessing the appropriations of
the allowance for loan losses consists of two key components, which are a specific allowance for identified problem or impaired
loans and a formula allowance for the remainder of the portfolio.
The Bank considers the allowance
for loan and lease losses of $3,723,000 appropriate to cover losses inherent in the loan and lease portfolio as of December 31,
2015. However, no assurance can be given that the Bank will not in any particular period, sustain loan and lease losses that are
sizable in relation to the amount reserved, or that subsequent evaluations of the loan and lease portfolio, in light of factors
then prevailing, including economic conditions, the Bank’s ongoing credit review process or regulatory requirements, will
not require significant changes in the allowance for loan and lease losses. Among other factors, a prolonged economic slowdown
and/or a decline in commercial or residential real estate values in the Bank’s market may have an adverse impact on the current
adequacy of the allowance for loan and lease losses by increasing credit risk and the risk of potential loss.
The total allowance for loan
and lease losses is generally available to absorb losses from any segment of the portfolio. The allocation of the Bank’s
allowance for loan and lease losses disclosed in the asset quality table is subject to change based on the changes in criteria
used to evaluate the allowance and is not necessarily indicative of the trend or future losses in any particular portfolio.
The discussion and analysis
included in this section contains detailed information regarding the Bank’s allowance for loan and lease losses, net charge-offs,
non-performing assets, past due loans and leases and potential problem loans and leases. Included in this data are numerous portfolio
ratios that must be carefully reviewed in relation to the nature of the underlying loan and lease portfolios before appropriate
conclusions can be reached regarding the Bank or for purposes of making comparisons to other banks. Most of the Bank’s non-performing
assets and past due loans are secured by real estate. Given the nature of these assets and the related mortgage foreclosure and
property sale, it can take 12 months or longer for a loan to migrate from initial delinquency to final disposition. This resolution
process generally takes much longer for loans secured by real estate than for unsecured loans or loans secured by other property
primarily due to state real estate foreclosure laws.
Carolina Trust Bank
Management’s Discussion and Analysis
Deferred Taxes
The Bank uses the asset and
liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. If current available information
raises doubt as to the realization of the deferred tax assets, a valuation allowance may be established. Management considers the
determination of this valuation allowance to be a critical accounting policy due to the need to exercise significant judgment in
evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable
income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation
allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline, or if we
project lower levels of future taxable income. If such a valuation allowance is deemed necessary in the future, it would be established
through a charge to income tax expense that would adversely affect our operating results.
Foreclosed Assets
Foreclosed assets represent
properties and equipment acquired through foreclosure or physical repossession. Appraisals are obtained at the time of foreclosure
and any necessary write-downs to fair value at the time of transfer to foreclosed assets are charged to the allowance for loan
losses. Subsequent to foreclosure, we periodically evaluate the value of foreclosed assets held for sale and record an impairment
charge for any subsequent declines in fair value less selling costs. Subsequent declines in value are charged to operations. Fair
value is based on our assessment of information available to us at the end of a reporting period and depends upon a number of factors,
including our historical loss experience, economic conditions, and issues specific to individual properties. Our evaluation of
these factors involves subjective estimates and judgments that may change.
FINANCIAL CONDITION
At December 31,
2015, the Company’s total assets were $334,049,000, total loans stood at $292,362,000, total investments were $22,933,000,
total deposits were $284,794,000 and total shareholder’s equity was $30,464,000. Compared with December 31, 2014, total assets
increased $41,008,000 or 14.0%, total loans increased $47,716,000 or 19.5%, total investments decreased $2,311,000 or 9.2%, total
deposits increased $47,618,000 or 20.1% and total shareholder’s equity increased $657,000 or 2.2%.
Capital for the
Bank exceeded “well-capitalized” requirements for each of the four primary capital levels monitored by state and federal
regulators. As of December 31, 2015, the Bank’s common equity tier 1 capital ratio was 8.67%; tier 1 risk-based capital ratio
was 9.10%; total risk-based capital ratio was 10.30%; and the tier 1 leverage ratio was 8.48%.
RESULTS OF OPERATIONS
The Bank is reporting
net income available to common shareholders of $824,000, or $0.18 per diluted common share for the year ended December 31, 2015,
a reduction of $5,806,000 and 88% as compared to the year ended December 31, 2014. The Bank’s net income for 2014 included
recognition of an income tax benefit of $5,400,000 in the fourth quarter resulting from the Bank’s reversal of its deferred
tax asset valuation allowance. Pre-tax net income decreased $96,000 or 4% for the year ended December 31, 2015 as compared to the
same prior year period. Before payment of dividends on preferred shares, the Bank earned $1,058,000 for the year ended December
31, 2015. Return on average total assets was 0.33% and return on average shareholder’s equity was 3.46% for the year ended
December 31, 2015.
Carolina Trust Bank
Management’s Discussion and Analysis
Select financial highlights for 2015:
|
|
·
|
2015 pre-tax earnings of $2,222,000, a 4% or $96,000 decrease as compared
to 2014.
|
|
|
·
|
Increase in total loans outstanding of $47,716,000 or 19.5% over the
prior year.
|
|
|
·
|
Increase in total deposits outstanding of $47,618,000 or 20.1%.
|
|
|
·
|
Increase in net interest income of $1,503,000 or 13.6% as compared
to the prior year.
|
|
|
·
|
Total nonperforming assets (“NPAs”) decreased $2,056,000
from $6,214,000 at December 31, 2014 to $4,158,000 at December 31, 2015. This resulted in an 88 basis point reduction in the Bank’s
NPAs as a percentage of total assets, from 2.12% at December 31, 2014 to 1.24% at December 31, 2015.
|
|
|
·
|
The Bank’s Allowance for Loan and Lease Losses (“ALLL”)
to total loans decreased from 1.64% at December 31, 2014 to 1.27% at December 31, 2015 due to continued improved credit quality
as demonstrated by the reduction in NPAs and charge-offs.
|
Net Interest Income
Net interest income was $12,594,000 for
the year ended December 31, 2015, an increase of $1,503,000 or 13.6% as compared to December 31, 2014. Average interest-earning
assets for 2015 were $300,141,000; an increase of $44,015,000 from 2014. For 2015, loans and investment securities represented
90.43% and 8.12% respectively of average total interest earning assets for the year, while for 2014 loans and investment securities
represented 88.47% and 9.73% respectively of average total interest-earning assets for the year. Offsetting the effect of the increase
in interest earning assets on net interest spread and net interest margin was a decrease in accretion to income of discounts associated
with the fair market valuations of the loans acquired in the merger with Carolina Commerce Bank in the fourth quarter of 2009.
The total accretion of loan fair value adjustments for 2015 and 2014 were $10,000 and $11,000, respectively. The average yield
on total interest-earning assets decreased by 12 basis points to 4.97% in 2015 compared to 5.09% for 2014 and the average rate
of interest paid on interest-bearing liabilities increased by 2 basis points to 0.91% in 2015, compared to 0.89% in 2014. For the
year ended December 31, 2015, the net interest spread was 4.06% compared to 4.20% for the year ended December 31, 2014, a decrease
of 14 basis points. The net interest margin was 4.20% for the year ended December 31, 2015 compared to 4.33% for the year ended
December 31, 2014, a decrease of 13 basis points. The decrease in the Bank’s net interest margin year over year was primarily
due to significant pressure on asset yields from the current prolonged low interest rate environment.
Asset Quality
We continue to make improvement in our
nonperforming and classified loan categories which has allowed us to reduce the balance of our overall allowance for loan and lease
losses during the fiscal years ended December 31, 2015 and 2014. The Bank’s ratio of non-performing assets as a percentage
of total assets decreased 88 basis points to 1.24% as compared to the 2.12% reported at December 31, 2014. In comparison to the
prior year, nonaccrual loans decreased $1,944,000 and foreclosed assets decreased $54,000. There were net loan charge-offs of $9,000
in 2015 and net loan recoveries of $16,000 in 2014.
The Bank recorded a negative $270,000 provision
for loan losses in 2015 as compared to the negative $80,000 provision made in 2014. The ratio of allowance for loan and lease losses
as a percentage of total loans decreased from 1.64% at December 31, 2014 to 1.27% at December 31, 2015. At December 31, 2015, the
Bank’s total reserves amounted to $3,723,000; of which $214,000 are specific reserves on impaired loans and $3,509,000 are
general reserves to cover inherent risks in the loan portfolio. Total reserves represented 182% of the non-accrual loan balances
as of December 31, 2015 as compared to 100% reported at December 31, 2014.
Carolina Trust Bank
Management’s Discussion and Analysis
Noninterest Income
Like most financial institutions, the primary
component of earnings for the Bank is net interest income. Net interest income is the difference between interest income, principally
from loan and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Changes
in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar
level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided
by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing
liabilities, as well as by levels of non-interest-bearing liabilities and capital.
For the year ended December 31, 2015, noninterest
income was $1,109,000, a $173,000 or 18.5% increase when compared to the prior year. Overdraft fees increased $76,000 or 24.8%,
interchange fee income increased $55,000 or 17.0% and customer service fees increased $27,000 or 61.4% year over year. The Bank
also recorded a 20.0% or $15,000 increase in mortgage fee income. Management remains focused on business development efforts to
generate additional sources of non-interest income.
Noninterest Expense
Noninterest expense for the year ended
December 31, 2015 totaled $11,751,000, up $1,962,000 or 20% as compared to the $9,789,000 recorded for the year ended December
31, 2014. Specific items to note are as follows:
|
|
·
|
Compensation expense increased $1.5 million in comparison to 2014
as the result of equity and merit increases for all employees and new production oriented positions which contributed to the continued
loan growth for the bank. As a result of the increased number of employees, the bank also saw increases in performance bonuses,
health insurance and 401(K) expense.
|
|
|
|
|
|
|
·
|
Furniture, fixtures and equipment increased $137,000 or 38.3% due
to an improvement and enhancement of our corporate-wide network and telecommunications infrastructure and new software tools.
|
|
|
|
|
|
|
·
|
Data processing expense increased $71,000 or 12.0% due to increased
customer transactions across all business lines.
|
|
|
|
|
|
|
·
|
Professional fees increased $49,000 or 18.0% primarily due to consulting
expenses related to strategic planning, compliance support, compensation, and accounting services.
|
|
|
|
|
|
|
·
|
Marketing expenses increased $82,000 or 132.3% due to advertising
campaigns surrounding mobile banking and new product initiatives.
|
|
|
|
|
|
|
·
|
Foreclosed asset expense decreased year over year by $114,000 or19.5%.
|
Managing noninterest expense is a key area
of focus for senior management as we head into 2016. We have successfully added experienced lenders in key markets and do not anticipate
any significant increases in new personnel for 2016. Additionally, the increased equipment and software costs were critical as
we bring our infrastructure up to date with customer expectations. We are pleased with the overall reduction in foreclosed asset
expense as compared to last year and we anticipate further reductions as we continue to reduce the number of assets in that portfolio.
Provision
for Income Taxes
The
Bank recorded income tax expense of $1,164,000 in 2015 resulting in an effective tax rate of 52%, as compared to an income tax
benefit of $4,539,000 in 2014. The effective tax rate for the year was elevated above normal levels due to the write-off of an
expired NOL relating to the Carolina Commerce Bank acquisition totaling $235,000 as well as an approximate $100,000 reduction in
the deferred tax asset due to the State of North Carolina reducing its corporate tax rate to 4% for 2016. The tax benefit recorded
for 2014 included recognition of a tax benefit of $5,400,000 in the fourth quarter resulting from the Bank’s reversal of
its deferred tax asset valuation allowance.
Carolina Trust Bank
Management’s Discussion and Analysis
NET INTEREST INCOME
Average Balances and Average Rates
Earned and Paid.
The following table sets forth, for the years ended December 31, 2015 and 2014, information with regard
to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets
and interest expense on interest-bearing liabilities, resultant yields or costs, net interest income, net interest spread, net
interest margin and ratio of average interest-earning assets to average interest-bearing liabilities. Non-accrual loans have been
included in determining average loans and did not have a material impact on net interest income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years
Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
Interest
|
|
|
Average
|
|
|
Income/
|
|
|
Interest
|
|
|
Average
|
|
|
Income/
|
|
|
Interest
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(1)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(1)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(1)
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(2)
|
|
$
|
271,404
|
|
|
$
|
13,897
|
|
|
|
5.12
|
%
|
|
$
|
226,607
|
|
|
$
|
12,049
|
|
|
|
5.32
|
%
|
|
$
|
219,762
|
|
|
$
|
11,924
|
|
|
|
5.43
|
%
|
|
Investment
securities available for sale
|
|
|
24,358
|
|
|
|
948
|
|
|
|
3.89
|
%
|
|
|
24,923
|
|
|
|
926
|
|
|
|
3.72
|
%
|
|
|
25,575
|
|
|
|
813
|
|
|
|
3.18
|
%
|
|
Other
interest-earning assets
|
|
|
4,379
|
|
|
|
60
|
|
|
|
1.37
|
%
|
|
|
4,596
|
|
|
|
67
|
|
|
|
1.46
|
%
|
|
|
7,733
|
|
|
|
78
|
|
|
|
1.01
|
%
|
|
Total
interest-earning assets
|
|
|
300,141
|
|
|
|
14,905
|
|
|
|
4.97
|
%
|
|
|
256,126
|
|
|
|
13,042
|
|
|
|
5.09
|
%
|
|
|
253,070
|
|
|
|
12,815
|
|
|
|
5.06
|
%
|
|
Other
assets
|
|
|
20,813
|
|
|
|
|
|
|
|
|
|
|
|
14,890
|
|
|
|
|
|
|
|
|
|
|
|
17,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
320,954
|
|
|
|
|
|
|
|
|
|
|
$
|
271,016
|
|
|
|
|
|
|
|
|
|
|
$
|
270,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money market deposits
|
|
$
|
95,899
|
|
|
$
|
210
|
|
|
|
0.22
|
%
|
|
$
|
88,887
|
|
|
|
208
|
|
|
|
0.23
|
%
|
|
$
|
95,775
|
|
|
|
289
|
|
|
|
0.30
|
%
|
|
Time
deposits $250,000 or more
|
|
|
36,348
|
|
|
|
479
|
|
|
|
1.32
|
%
|
|
|
14,479
|
|
|
|
195
|
|
|
|
1.35
|
%
|
|
|
12,821
|
|
|
|
195
|
|
|
|
1.52
|
%
|
|
Other
time deposits
|
|
|
108,801
|
|
|
|
1,437
|
|
|
|
1.32
|
%
|
|
|
105,367
|
|
|
|
1,330
|
|
|
|
1.26
|
%
|
|
|
106,028
|
|
|
|
1,450
|
|
|
|
1.37
|
%
|
|
Capital
lease obligation
|
|
|
352
|
|
|
|
25
|
|
|
|
7.10
|
%
|
|
|
396
|
|
|
|
28
|
|
|
|
7.07
|
%
|
|
|
438
|
|
|
|
31
|
|
|
|
7.08
|
%
|
|
Other
interest-bearing liabilities
|
|
|
13,958
|
|
|
|
160
|
|
|
|
1.15
|
%
|
|
|
11,208
|
|
|
|
190
|
|
|
|
1.70
|
%
|
|
|
8,320
|
|
|
|
175
|
|
|
|
2.10
|
%
|
|
Total
interest-bearing liabilities
|
|
|
255,358
|
|
|
|
2,311
|
|
|
|
0.91
|
%
|
|
|
220,337
|
|
|
|
1,951
|
|
|
|
0.89
|
%
|
|
|
223,382
|
|
|
|
2,140
|
|
|
|
0.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
30,428
|
|
|
|
|
|
|
|
|
|
|
|
22,953
|
|
|
|
|
|
|
|
|
|
|
|
19,118
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
4,616
|
|
|
|
|
|
|
|
|
|
|
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
4,122
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
30,552
|
|
|
|
|
|
|
|
|
|
|
|
24,233
|
|
|
|
|
|
|
|
|
|
|
|
23,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
320,954
|
|
|
|
|
|
|
|
|
|
|
$
|
271,016
|
|
|
|
|
|
|
|
|
|
|
$
|
270,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and interest rate spread (3)
|
|
|
|
|
|
$
|
12,594
|
|
|
|
4.06
|
%
|
|
|
|
|
|
$
|
11,091
|
|
|
|
4.20
|
%
|
|
|
|
|
|
$
|
10,675
|
|
|
|
4.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
yield on average interest-earning assets (4)
|
|
|
|
|
|
|
|
|
|
|
4.20
|
%
|
|
|
|
|
|
|
|
|
|
|
4.33
|
%
|
|
|
|
|
|
|
|
|
|
|
4.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
117.54
|
%
|
|
|
|
|
|
|
|
|
|
|
116.24
|
%
|
|
|
|
|
|
|
|
|
|
|
113.29
|
%
|
|
|
|
|
|
|
|
|
(1)
All rates/yields are annualized based on average daily balances.
(2)
Interest income on loans and average rates are affected by accretion of fair value discounts in 2015 and 2014.
(3)
Represents the difference between the yield on total average earning assets and the cost of total interest-bearing liabilities.
(4)
Represents the ratio of net interest-earnings to the average balance of interest earning assets.
Carolina Trust Bank
Management’s Discussion and Analysis
RATE/VOLUME ANALYSIS
The following table analyzes the dollar
amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing
liabilities. The table distinguishes between (i) changes attributable to volume (changes in volume multiplied by the prior period’s
rate), (ii) changes attributable to rate (changes in rate multiplied by the prior period’s volume), and (iii) net change
(the sum of the previous columns). The change attributable to both rate and volume (changes in rate multiplied by changes in volume)
has been allocated equally to both the changes attributable to volume and the changes attributable to rate. Interest income on
loans is affected by accretion of fair value discounts in 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31, 2015 vs. 2014
|
|
|
|
Increase (Decrease) Due to
|
|
In thousands
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
2,274
|
|
|
$
|
(426
|
)
|
|
$
|
1,848
|
|
|
Investment securities
|
|
|
(20
|
)
|
|
|
42
|
|
|
|
22
|
|
|
Other interest-earning assets
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,251
|
|
|
|
(388
|
)
|
|
|
1,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market deposits
|
|
|
11
|
|
|
|
(9
|
)
|
|
|
2
|
|
|
Time deposits $250,000 or more
|
|
|
288
|
|
|
|
(5
|
)
|
|
|
283
|
|
|
Other time deposits
|
|
|
41
|
|
|
|
157
|
|
|
|
198
|
|
|
Capital lease obligation
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
Other interest-bearing liabilities
|
|
|
94
|
|
|
|
(124
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
428
|
|
|
|
19
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income increase (decrease)
|
|
$
|
1,823
|
|
|
$
|
(407
|
)
|
|
$
|
1,416
|
|
Carolina Trust Bank
Management’s Discussion and Analysis
Interest
Rate Sensitivity
The Bank’s results of operations
depend substantially on its net interest income. Like most financial institutions, the Bank’s interest income and cost of
funds are affected by general economic conditions and by competition in the marketplace.
The purpose of asset/liability management
is to provide stable net interest income growth by protecting the Bank’s earnings from undue interest rate risk, which arises
from volatile interest rates and changes in the balance sheet mix, and by managing the risk/return relationships between liquidity,
interest rate risk, market risk, and capital adequacy. The Bank maintains, and has complied with, a Board-approved asset/liability
management policy that provides guidelines for controlling exposure to interest rate risk by utilizing the following ratios and
trend analysis: liquidity, equity, volatile-liability dependence, portfolio maturities, maturing assets and maturing liabilities.
The Bank’s policy is to control the exposure of its earnings to changing interest rates by generally endeavoring to maintain
a position within a narrow range around an “earnings neutral position,” which is defined as the mix of assets and liabilities that generate a net interest margin
that is least affected by interest rate changes.
When suitable lending opportunities are
not sufficient to utilize available funds, the Bank has generally invested such funds in securities, primarily securities issued
by governmental agencies and government sponsored agencies. The securities portfolio contributes to the Bank’s profits and
plays an important part in overall interest rate management. However, management of the securities portfolio alone cannot balance
overall interest rate risk. The securities portfolio must be used in combination with other asset/liability techniques to actively
manage the balance sheet. The primary objectives in the overall management of the securities portfolio are safety, liquidity, yield,
asset/liability management (interest rate risk), and investing in securities that can be pledged for public deposits.
In reviewing the needs of the Bank with
regard to proper management of its asset/liability program, the Bank’s management estimates its future needs, taking into
consideration, estimated loan and deposit increases (due to increased demand through marketing) and forecasted interest rate changes.
The analysis of an institution’s
interest rate gap (the difference between the re-pricing of interest-earning assets and interest-bearing liabilities during a given
period of time) is a standard tool for the measurement of exposure to interest rate risk. The following table sets forth the amounts
of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2015 which, are projected to re-price or
mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown which re-price
or mature within a particular period were determined in accordance with the contractual terms of the assets or liabilities. Loans
with adjustable rates are shown as being due at the end of the next upcoming adjustment period. Money market deposit accounts and
negotiable order of withdrawal or other transaction accounts are assumed to be subject to immediate re-pricing and depositor availability
and have been placed in the shortest period. In making the gap computations, none of the assumptions sometimes made regarding prepayment
rates and deposit decay rates have been used for any interest-earning assets or interest-bearing liabilities. In addition, the
table does not reflect scheduled principal payments, which will be received throughout the lives of the Mortgage Backed Investment
Securities. The interest rate sensitivity of the Bank’s assets and liabilities illustrated in the following table would vary
substantially if different assumptions were used or if actual experience differs from that indicated by such assumptions.
Carolina Trust Bank
Management’s Discussion
and Analysis
The
following table presents the Bank’s interest sensitivity gap between interest-earning assets and interest-bearing liabilities
for the period indicated.
|
|
|
Terms
to repricing at December 31, 2015
|
|
|
Dollars in thousands
|
|
Within 3
Months
|
|
|
4
to 12
Months
|
|
|
1
Year to 5
Years
|
|
|
Over
5
Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-EARNING ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable rate
|
|
$
|
119,599
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
119,599
|
|
|
Fixed rate
|
|
|
5,125
|
|
|
|
10,343
|
|
|
|
128,191
|
|
|
|
29,105
|
|
|
|
172,764
|
|
|
Investment securities available for sale
|
|
|
3,203
|
|
|
|
1
|
|
|
|
62
|
|
|
|
19,667
|
|
|
|
22,933
|
|
|
Interest-earning deposits in other banks
|
|
|
—
|
|
|
|
—
|
|
|
|
748
|
|
|
|
750
|
|
|
|
1,498
|
|
|
Federal funds sold
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
Stock in FHLB of Atlanta
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
817
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
127,950
|
|
|
$
|
10,344
|
|
|
$
|
129,001
|
|
|
$
|
50,339
|
|
|
$
|
317,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-BEARING LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market
|
|
$
|
100,458
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,458
|
|
|
Time deposits $250,000 or more
|
|
|
3,207
|
|
|
|
7,145
|
|
|
|
31,509
|
|
|
|
—
|
|
|
|
41,861
|
|
|
Other time deposits
|
|
|
11,413
|
|
|
|
32,910
|
|
|
|
65,590
|
|
|
|
—
|
|
|
|
109,913
|
|
|
Capital lease obligation
|
|
|
14
|
|
|
|
43
|
|
|
|
269
|
|
|
|
—
|
|
|
|
326
|
|
|
Advances from FHLB
|
|
|
5,000
|
|
|
|
6,000
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
120,092
|
|
|
$
|
46,098
|
|
|
$
|
99,368
|
|
|
$
|
—
|
|
|
$
|
265,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest sensitivity gap per period
|
|
$
|
7,858
|
|
|
$
|
(35,754
|
)
|
|
$
|
29,633
|
|
|
$
|
50,339
|
|
|
$
|
52,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest sensitivity gap
|
|
$
|
7,858
|
|
|
$
|
(27,896
|
)
|
|
$
|
1,737
|
|
|
$
|
52,076
|
|
|
$
|
52,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative gap as a percentage
of total interest-earning assets
|
|
|
2.47
|
%
|
|
|
(8.78
|
%)
|
|
|
0.55
|
%
|
|
|
16.39
|
%
|
|
|
16.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-earning assets as a percentage of interest-bearing liabilities
|
|
|
106.54
|
%
|
|
|
83.21
|
%
|
|
|
100.65
|
%
|
|
|
119.61
|
%
|
|
|
119.61
|
%
|
Capital
Resources
Future growth and expansion of the Bank are dictated
by the ability to create capital, which is generated principally by retained earnings. Adequacy of the Bank’s capital is
also monitored to ensure compliance with regulatory requirements. One of management’s primary objectives is to maintain a
strong capital position in order to warrant confidence from customers, investors, bank regulators and stockholders. A measure of
capital position is capital adequacy, defined as the amount of capital needed to maintain future asset growth and absorb unforeseen
losses. Regulators consider a variety of factors in determining an institution’s capital adequacy, including quality and
stability of earnings, asset quality, guidance and expertise and liquidity. Regulatory guidelines place an emphasis on stockholders’
equity in relationship to total assets adjusted for risk.
In July 2013, the Federal Reserve issued final
rules to include technical changes to its market risk capital rules to align them with the Basel III regulatory capital framework
and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Bank to comply with
the following
Carolina Trust Bank
Management’s Discussion
and Analysis
minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier
1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of
8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged
from the prior requirement). These are the initial capital requirements, which will be phased in over a four-year period. When
fully phased in on January 1, 2019, the rules will require the Bank to maintain (i) a minimum ratio of common equity Tier 1 to
risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common
equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted
assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%,
plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively
resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted
assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer
is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage
ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
The capital conservation buffer requirement
will be phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until
fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic
stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation
buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
Management considers the Bank to be well-capitalized and
expects to be able to meet future needs caused by growth and expansion, as well as capital requirements implemented by the regulatory
agencies.
Beginning January 1, 2015,
the Company calculates its regulatory capital under the U.S. Basel III Standardized Approach. The Company calculated regulatory
capital measures for periods prior to 2015 under previous regulatory requirements.
|
|
|
|
At December 31, 2015
|
|
|
|
|
Actual
Ratio
|
|
|
Minimum
Requirement
|
|
|
Well-Capitalized
Requirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio
|
|
|
8.67
|
%
|
|
|
4.50
|
%
|
|
|
6.50
|
%
|
|
Total risk-based capital ratio
|
|
|
10.30
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
|
Tier 1 risk-based capital ratio
|
|
|
9.10
|
%
|
|
|
6.00
|
%
|
|
|
8.00
|
%
|
|
Tier 1 leverage ratio
|
|
|
8.48
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
Troubled Asset Relief Program
In February 2009, in connection with the Troubled
Asset Relief Program (TARP) Capital Purchase Program, established as part of the Emergency Economic Stabilization Act of 2008,
Carolina Trust Bank issued to the U.S. Treasury 4,000 shares of Carolina Trust Bank Fixed Rate Non-Cumulative Perpetual Preferred
Stock for $4,000,000. The Preferred Stock paid non-cumulative dividends at a rate of 5% for the first five years and thereafter
at a rate of 9% per year. The dividend rate changed from 5% to 9% on February 16, 2014. In November 2012, the U.S. Treasury sold
the Bank’s preferred stock to several private investors in a Dutch auction process. The Bank had designated a third party
bidder to act on its behalf pursuant to the rules of the Dutch auction. In December 2012, pursuant to its agreement with the third
party bidder, the Bank in turn repurchased 35% of the preferred stock or $1.4 million at a discount of 14.7% or $1,194,000 from
one of the investors, the same price at which the bidder had purchased the preferred stock
Carolina Trust Bank
Management’s Discussion
and Analysis
from the U.S. Treasury. All scheduled
dividends have been paid for 2014 and 2015. As part of its purchase of the Preferred Stock, the Treasury Department received a
warrant to purchase 86,957 shares of Carolina Trust Bank’s common stock at an initial per share exercise price of $6.90.
In June of 2013, the U.S. Treasury Department sold the warrants to private investors in a Dutch auction process.
Liquidity
The Bank’s liquidity is a measure of
its ability to fund loans, withdrawals and maturities of deposits, and other cash outflows in a cost effective manner. The Bank’s
principal sources of liquidity are deposits, scheduled payments and prepayments of loan principal, maturities of investment securities,
access to liquid assets, and funds provided by operations. While scheduled loan payments and maturing investments are relatively
predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions
and competition. Liquid assets, which consist of cash and due from banks, interest-earning deposits with banks, certificates of
deposits with banks, federal funds sold and investment securities classified as available for sale, comprised 8.75% and 11.78%
of total assets at December 31, 2015 and December 31, 2014, respectively.
Should the need arise; management believes
the Bank would have the capability to sell securities classified as available for sale or to borrow funds as necessary. The Bank
has established credit lines with other financial institutions to purchase up to $11.4 million in federal funds, with $2.4 million
outstanding against these credit lines at December 31, 2015 and no borrowings outstanding at December 31, 2014. The Bank has also
established a credit line with the Federal Home Loan Bank of Atlanta. The credit line is secured by a portion of the Bank’s
loan portfolio that qualifies under FHLB guidelines as eligible collateral. Total availability, based on collateral pledged at
December 31, 2015 was $58.8 million, of which $13.0 million was advanced.
Total deposits were $284,794,000 and $237,176,000
at December 31, 2015 and December 31, 2014 respectively. Time deposits, which are the only deposit accounts that have stated maturity
dates, are generally considered to be rate sensitive. Time deposits represented 53.29% and 53.06% of total deposits at December
31, 2015 and December 31, 2014 respectively. Time deposits of $250,000 or more represented 14.70% and 8.55% of the Bank’s
total deposits at December 31, 2015 and December 31, 2014, respectively. At December 31, 2015 and December 31, 2014 the Bank had
brokered time deposits of $27,330,000 and $7,644,000 respectively. Management does accept time deposits from outside the Bank’s
local market area when such funding sources are necessary to fund growth and the rates paid are comparable to rates offered to
retail customers or lower. Management believes most time deposits are relationship-oriented.
While
the Bank will need to pay competitive rates to retain these deposits at their maturities, there are other subjective factors that
will determine their continued retention. Based upon prior experience, the Bank anticipates that a substantial portion of outstanding
certificates of deposit will renew upon maturity.
Management believes that the Bank’s current
sources of funds provide adequate liquidity for its current cash flow needs.
ASSET QUALITY
Summary of Allowance for Loan and Lease Losses
The allowance for loan and lease losses represents
management’s estimate of an amount adequate to provide for probable losses inherent in the loan portfolio. Management determines
the allowance for loan losses based on a number of factors, including a review and evaluation of the Bank’s loan portfolio
and current and projected economic conditions locally and nationally. The allowance is monitored and analyzed in conjunction with
the Bank’s loan analysis and grading program and provisions for loan losses are made to maintain the balance of the allowance
for loan losses at a level that is appropriate in light of
Carolina Trust
Bank
Management’s Discussion and Analysis
the risk inherent in the Bank’s loan portfolio. The allowance
for loan losses is created by direct charges to operations. Losses on loans are charged against the allowance for loan losses in
the accounting period in which they are determined by management to be uncollectible. Recoveries during the period are credited
to the allowance. The provision for loan losses is the amount necessary to adjust the allowance for loan losses to the amount that
management has determined to be adequate to provide for potential losses inherent in the loan portfolio.
The Bank recorded negative loan loss provisions
totaling $270,000 and $80,000 for the years ended December 31, 2015 and December 31, 2014, respectively, based upon improving credit
quality trends, including lower nonperforming assets, lower charge-off levels and lower classified asset levels. Management realizes
that general economic trends greatly affect loan losses, and no assurances can be made that future charges to the loan loss allowance
may not be significant in relation to the amount provided during a particular period, or that future evaluations of the loan portfolio
based on conditions then prevailing will not require sizable additions to the allowance, thus necessitating similarly sizable charges
to income. Based on its best judgment, evaluation, and analysis of the loan portfolio, management believes the level of the allowance
for loan losses to be appropriate in light of the risk inherent in the Bank’s loan portfolio for the reporting periods.
The following table represents the Company’s
activity in its allowance for loan losses:
Analysis Of The Allowance For Loan Losses
|
Dollars in thousands
|
|
2015
|
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
Balance at January 1
|
|
$
|
4,002
|
|
|
$
|
4,066
|
|
|
$
|
4,773
|
|
|
$
|
4,366
|
|
|
$
|
3,850
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
141
|
|
|
|
276
|
|
|
|
112
|
|
|
|
50
|
|
|
|
35
|
|
|
Commercial
|
|
|
95
|
|
|
|
23
|
|
|
|
43
|
|
|
|
8
|
|
|
|
6
|
|
|
Residential mortgage
|
|
|
—
|
|
|
|
1
|
|
|
|
34
|
|
|
|
37
|
|
|
|
43
|
|
|
Consumer
|
|
|
12
|
|
|
|
6
|
|
|
|
8
|
|
|
|
6
|
|
|
|
6
|
|
|
Total Recoveries
|
|
|
248
|
|
|
|
306
|
|
|
|
197
|
|
|
|
101
|
|
|
|
90
|
|
|
Charged-off loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
(108
|
)
|
|
|
(226
|
)
|
|
|
(1,331
|
)
|
|
|
(1,377
|
)
|
|
|
(1,650
|
)
|
|
Commercial
|
|
|
—
|
|
|
|
(18
|
)
|
|
|
(1,546
|
)
|
|
|
(11
|
)
|
|
|
(171
|
)
|
|
Residential mortgage
|
|
|
(132
|
)
|
|
|
—
|
|
|
|
(62
|
)
|
|
|
(415
|
)
|
|
|
(299
|
)
|
|
Consumer
|
|
|
(17
|
)
|
|
|
(46
|
)
|
|
|
(250
|
)
|
|
|
(258
|
)
|
|
|
(183
|
)
|
|
Total Charge-offs
|
|
|
(257
|
)
|
|
|
(290
|
)
|
|
|
(3,189
|
)
|
|
|
(2,061
|
)
|
|
|
(2,303
|
)
|
|
Net charge-offs
|
|
|
(9
|
)
|
|
|
16
|
|
|
|
(2,992
|
)
|
|
|
(1,960
|
)
|
|
|
(2,213
|
)
|
|
Provision for loan losses
|
|
|
(270
|
)
|
|
|
(80
|
)
|
|
|
2,285
|
|
|
|
2,367
|
|
|
|
2,729
|
|
|
Balance at December 31
|
|
$
|
3,723
|
|
|
$
|
4,002
|
|
|
$
|
4,066
|
|
|
$
|
4,773
|
|
|
$
|
4,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance to total loans outstanding at end of year
|
|
|
1.27
|
%
|
|
|
1.64
|
%
|
|
|
1,82
|
%
|
|
|
2.16
|
%
|
|
|
2.08
|
%
|
|
Ratio of net charge-offs to average loans outstanding during the period
|
|
|
0.00
|
%
|
|
|
(0.01
|
%)
|
|
|
1.36
|
%
|
|
|
0.93
|
%
|
|
|
1.13
|
%
|
The balance in the allowance and the allowance
as a percentage of loans decreased during 2015 when compared to 2014 due to the following:
|
|
·
|
61% reduction in the specific reserve
for total impaired loans.
|
|
|
·
|
Downward trend in classified loans, non-accrual
loans, past due loans and loan losses.
|
|
|
·
|
Decrease in the loan loss history ratio
due to the factors listed above.
|
Potential problem loans consist of loans that
are performing in accordance with contractual terms, but for which management has concerns about the ability of an obligor to continue
to comply with repayment terms, because of the obligor’s potential operating or financial difficulties. Management monitors
these
Carolina Trust
Bank
Management’s Discussion and Analysis
loans closely and reviews their performance on a regular basis. These loans do not meet the standards for, and are therefore
not included in, non-performing assets. A summary of potential problem loans follows:
|
Potential
Problem Loans
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
Category
|
|
|
Number
|
|
|
Balance
|
|
|
|
Number
|
|
|
Balance
|
|
|
Commercial real estate
|
|
|
14
|
|
|
$
|
3,145,000
|
|
|
|
13
|
|
|
$
|
2,190,000
|
|
|
Home equity lines
|
|
|
10
|
|
|
|
1,699,000
|
|
|
|
10
|
|
|
|
1,157,000
|
|
|
Residential mortgage
|
|
|
20
|
|
|
|
3,669,000
|
|
|
|
20
|
|
|
|
2,748,000
|
|
|
Commercial & Industrial
|
|
|
6
|
|
|
|
1,629,000
|
|
|
|
4
|
|
|
|
571,000
|
|
|
Consumer
|
|
|
5
|
|
|
|
195,000
|
|
|
|
3
|
|
|
|
34,000
|
|
|
Construction/land development
|
|
|
1
|
|
|
|
516,000
|
|
|
|
3
|
|
|
|
605,000
|
|
|
Total
|
|
|
56
|
|
|
$
|
10,853,000
|
|
|
|
53
|
|
|
$
|
7,305,000
|
|
The following table summarizes the allocation
for loan losses for the past five years ended December 31. The percentage in the table below refers to the percent of loans outstanding
in each category to total loans at the years ended.
|
Dollars in thousands
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
2,302
|
|
|
|
56.57
|
|
|
|
2,456
|
|
|
|
53.07
|
|
|
|
2,498
|
|
|
|
51.09
|
|
|
|
2,994
|
|
|
|
51.21
|
|
|
|
3,155
|
|
|
|
47.91
|
|
|
Commercial
|
|
|
570
|
|
|
|
14.93
|
|
|
|
705
|
|
|
|
15.32
|
|
|
|
516
|
|
|
|
14.20
|
|
|
|
1,028
|
|
|
|
14.05
|
|
|
|
495
|
|
|
|
14.36
|
|
|
Residential mortgage
|
|
|
505
|
|
|
|
16.18
|
|
|
|
464
|
|
|
|
18.46
|
|
|
|
547
|
|
|
|
20.25
|
|
|
|
504
|
|
|
|
19.50
|
|
|
|
383
|
|
|
|
20.70
|
|
|
Home equity lines
|
|
|
336
|
|
|
|
10.95
|
|
|
|
361
|
|
|
|
11.69
|
|
|
|
501
|
|
|
|
12.60
|
|
|
|
242
|
|
|
|
13.32
|
|
|
|
308
|
|
|
|
14.94
|
|
|
Consumer - other
|
|
|
10
|
|
|
|
1.37
|
|
|
|
16
|
|
|
|
1.46
|
|
|
|
4
|
|
|
|
1.86
|
|
|
|
5
|
|
|
|
1.92
|
|
|
|
25
|
|
|
|
2.09
|
|
|
Balance at December 31
|
|
|
3,723
|
|
|
|
100.00
|
|
|
|
4,002
|
|
|
|
100.00
|
|
|
|
4,066
|
|
|
|
100.00
|
|
|
|
4,773
|
|
|
|
100.00
|
|
|
|
4,366
|
|
|
|
100.00
|
|
Non-Performing Assets (“NPAs”)
Non-performing assets include non-accrual
loans, loans past due 90 days or more and still accruing, and foreclosed assets. A loan will be placed on nonaccrual status when
collection of all principal or interest is deemed unlikely. A loan will be placed on nonaccrual status automatically when principal
or interest is past due 90 days or more, unless the loan is both well secured and in the process of being collected. In this case,
the loan will continue to accrue interest despite its past due status.
Foreclosed assets represent properties
and equipment acquired through foreclosure or physical possession. Appraisals are obtained at the time of foreclosure and any necessary
write-downs to fair value at the time of transfer to foreclosed assets are charged to the allowance for loan losses.
Based on generally accepted accounting
standards for receivables, a loan is impaired when, based on current information and events, it is likely that a creditor will
be unable to collect all amounts, including both principal and interest, due according to the contractual terms of the loan agreement.
The Company’s ratio of NPAs to
total assets decreased 88 basis points to 1.24% as compared to 2.12% reported at December 31, 2014. In comparison to the prior
year, nonaccrual loans decreased $1,944,000, loans past due 90 days or more and still accruing interest decreased $58,000 and foreclosed
assets decreased $54,000.
Carolina Trust
Bank
Management’s Discussion and Analysis
Non-performing assets for the five years ended December
31, 2015 are detailed as follows:
|
Dollars in thousands
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
Nonaccrual loans
|
|
$
|
2,047
|
|
|
$
|
3,991
|
|
|
$
|
3,286
|
|
|
$
|
8,494
|
|
|
$
|
6,297
|
|
|
Past due 90 days and accruing interest
|
|
|
117
|
|
|
|
175
|
|
|
|
517
|
|
|
|
—
|
|
|
|
2
|
|
|
Total nonperforming loans
|
|
$
|
2,164
|
|
|
$
|
4,166
|
|
|
$
|
3,803
|
|
|
$
|
8,494
|
|
|
$
|
6,299
|
|
|
Foreclosed properties
|
|
|
1,994
|
|
|
|
2,048
|
|
|
|
3,908
|
|
|
|
4,169
|
|
|
|
4,271
|
|
|
Total nonperforming assets
|
|
$
|
4,158
|
|
|
$
|
6,214
|
|
|
$
|
7,711
|
|
|
$
|
12,662
|
|
|
$
|
10,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets
|
|
|
1.24
|
%
|
|
|
2.12
|
%
|
|
|
2.89
|
%
|
|
|
4.67
|
%
|
|
|
3.97
|
%
|
Troubled Debt Restructurings
A restructured loan is a loan in which the
original contract terms have been modified due to a borrower’s financial condition or there has been a transfer of assets
in full or partial satisfaction of the loan. A modification of original contractual terms is generally a concession to a borrower
that a lending institution would not normally consider. One troubled debt restructuring in the amount of $128,000 is included in
the loans on nonaccrual status for 2015 and two troubled debt restructurings totaling $629,000 are included in the loans on nonaccrual
status for 2014.
Accruing troubled debt restructurings for the
five years ending December 31, 2015 are as follows:
|
Dollars in thousands
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
Accruing troubled debt restructurings
|
|
$
|
4,725
|
|
|
$
|
4,242
|
|
|
$
|
2,840
|
|
|
$
|
2,438
|
|
|
$
|
2,984
|
|
Loan Portfolio
Our total gross loans were $292,362,000 at
December 31, 2015, an increase of $47,716,000 or 19.5% from the $244,646,000 reported one year earlier. The loan portfolio primarily
consists of real estate (including real estate term loans, construction loans and other loans secured by real estate), commercial,
and loans to individuals for household, family and other consumer purposes. We adjust the mix of lending and the terms of our loan
programs according to economic and market conditions, asset/liability management considerations and other factors. Loans typically
are made to businesses and individuals within our primary market area, most of whom maintain deposit accounts with the Bank. There
is no concentration of loans exceeding 10% of total loans that is not disclosed in the Financial Statements and the Notes to the
Financial Statements or discussed below.
Carolina Trust Bank
Management’s
Discussion and Analysis
The following table summarizes the loan portfolio
by category for the five years ended December 31, 2015:
|
|
|
December 31,
|
|
|
Dollars in thousands
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
13,084
|
|
|
$
|
13,391
|
|
|
$
|
11,066
|
|
|
$
|
14,020
|
|
|
$
|
19,766
|
|
|
Commercial
|
|
|
79,144
|
|
|
|
47,025
|
|
|
|
39,212
|
|
|
|
37,452
|
|
|
|
26,510
|
|
|
Residential 1-4 family
|
|
|
47,072
|
|
|
|
44,777
|
|
|
|
47,208
|
|
|
|
47,183
|
|
|
|
44,036
|
|
|
Home equity lines of credit
|
|
|
31,694
|
|
|
|
28,218
|
|
|
|
27,815
|
|
|
|
28,590
|
|
|
|
29,764
|
|
|
Total real estate loans
|
|
|
170,994
|
|
|
|
133,411
|
|
|
|
125,301
|
|
|
|
127,245
|
|
|
|
120,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
117,043
|
|
|
|
106,799
|
|
|
|
93,642
|
|
|
|
88,895
|
|
|
|
83,883
|
|
|
Loans to individuals
|
|
|
4,828
|
|
|
|
4,754
|
|
|
|
5,211
|
|
|
|
5,572
|
|
|
|
6,076
|
|
|
Total other loans
|
|
|
121,871
|
|
|
|
111,553
|
|
|
|
98,853
|
|
|
|
94,467
|
|
|
|
89,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292,865
|
|
|
|
244,964
|
|
|
|
224,154
|
|
|
|
221,712
|
|
|
|
210,035
|
|
|
Deferred loan origination fees, net
|
|
|
(503
|
)
|
|
|
(318
|
)
|
|
|
(263
|
)
|
|
|
(232
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
292,362
|
|
|
$
|
244,646
|
|
|
$
|
223,891
|
|
|
$
|
221,480
|
|
|
$
|
209,900
|
|
The following table presents maturity information
(based upon interest rate repricing dates) on the loan portfolio based upon scheduled repayments at December 31, 2015.
|
Dollars in thousands
|
|
Due within
one year
|
|
|
Due one to five years
|
|
|
Due after
five years
|
|
|
Total
|
|
|
Commercial real estate
|
|
$
|
58,921
|
|
|
$
|
82,823
|
|
|
$
|
23,918
|
|
|
$
|
165,662
|
|
|
Commercial
|
|
|
21,720
|
|
|
|
18,452
|
|
|
|
3,035
|
|
|
|
43,207
|
|
|
Residential real estate
|
|
|
20,734
|
|
|
|
24,531
|
|
|
|
2,123
|
|
|
|
47,388
|
|
|
Home equity lines of credit
|
|
|
31,754
|
|
|
|
329
|
|
|
|
—
|
|
|
|
32,083
|
|
|
Consumer - other
|
|
|
1,937
|
|
|
|
2,056
|
|
|
|
29
|
|
|
|
4,022
|
|
|
Total
|
|
$
|
135,066
|
|
|
$
|
128,191
|
|
|
$
|
29,105
|
|
|
$
|
292,362
|
|
The following table presents maturity information based upon contractual
terms and scheduled repayments at December 31, 2015.
|
Dollars in thousands
|
|
Due within
one year
|
|
|
Due one to
five years
|
|
|
Due after
five years
|
|
|
Total
|
|
|
Fixed
|
|
$
|
15,467
|
|
|
$
|
128,191
|
|
|
$
|
29,105
|
|
|
$
|
172,763
|
|
|
Variable
|
|
|
28,653
|
|
|
|
43,201
|
|
|
|
47,745
|
|
|
|
119,599
|
|
|
Total
|
|
$
|
44,120
|
|
|
$
|
171,392
|
|
|
$
|
76,850
|
|
|
$
|
292,362
|
|
Carolina Trust Bank
Management’s
Discussion and Analysis
The following table sets forth information
with respect to the asset quality of our loan portfolio.
Asset Quality – Loan Portfolio Analysis
|
|
|
As of December 31, 2015
|
|
|
|
|
|
Loans
Outstanding
|
|
|
|
Nonaccrual
Loans
|
|
|
|
Nonaccrual
Loans to
Loans
Outstanding
|
|
|
|
Allowance
for Loan
Losses
|
|
|
|
ALLL to
Loans
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
2,625
|
|
|
$
|
—
|
|
|
|
0.00
|
%
|
|
$
|
95
|
|
|
|
3.62
|
%
|
|
Commercial ADC
|
|
|
18,735
|
|
|
|
1,063
|
|
|
|
5.67
|
%
|
|
|
678
|
|
|
|
3.62
|
%
|
|
Farmland
|
|
|
2,615
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
0.00
|
%
|
|
Multifamily
|
|
|
11,475
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
17
|
|
|
|
0.15
|
%
|
|
Owner occupied
|
|
|
71,968
|
|
|
|
459
|
|
|
|
0.64
|
%
|
|
|
846
|
|
|
|
1.18
|
%
|
|
Non-owner occupied
|
|
|
58,244
|
|
|
|
45
|
|
|
|
0.08
|
%
|
|
|
666
|
|
|
|
1.14
|
%
|
|
Total commercial real estate
|
|
|
165,662
|
|
|
|
1,567
|
|
|
|
0.95
|
%
|
|
|
2,302
|
|
|
|
1.39
|
%
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
43,072
|
|
|
|
46
|
|
|
|
0.11
|
%
|
|
|
570
|
|
|
|
1.32
|
%
|
|
Agriculture
|
|
|
83
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
0.00
|
%
|
|
Other
|
|
|
52
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
0.00
|
%
|
|
Total commercial
|
|
|
43,207
|
|
|
|
46
|
|
|
|
0.11
|
%
|
|
|
570
|
|
|
|
1.32
|
%
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
46,148
|
|
|
|
382
|
|
|
|
0.83
|
%
|
|
|
499
|
|
|
|
1.08
|
%
|
|
Junior lien, closed-end
|
|
|
1,240
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
|
6
|
|
|
|
0.50
|
%
|
|
Total residential mortgage
|
|
|
47,388
|
|
|
|
382
|
|
|
|
0.81
|
%
|
|
|
505
|
|
|
|
1.07
|
%
|
|
Home equity lines
|
|
|
32,083
|
|
|
|
9
|
|
|
|
0.03
|
%
|
|
|
336
|
|
|
|
1.05
|
%
|
|
Consumer – other
|
|
|
4,022
|
|
|
|
43
|
|
|
|
1.07
|
%
|
|
|
10
|
|
|
|
0.25
|
%
|
|
Total gross loans
|
|
$
|
292,362
|
|
|
$
|
2,047
|
|
|
|
0.70
|
%
|
|
$
|
3,723
|
|
|
|
1.27
|
%
|
The following table summarizes the activity
in foreclosed assets for the years ended December 31, 2015 and 2014:
|
In thousands
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
Balance, beginning of period
|
|
$
|
2,048
|
|
|
$
|
3,902
|
|
|
Additions
|
|
|
957
|
|
|
|
—
|
|
|
Proceeds from sales
|
|
|
(576
|
)
|
|
|
(1,317
|
)
|
|
Valuation adjustments
|
|
|
(285
|
)
|
|
|
(251
|
)
|
|
Gains (losses) from sales
|
|
|
(150
|
)
|
|
|
(286
|
)
|
|
Balance, end of period
|
|
$
|
1,994
|
|
|
$
|
2,048
|
|
OFF-BALANCE SHEET ARRANGEMENTS
The Bank is a party to financial instruments
with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Carolina Trust Bank
Management’s
Discussion and Analysis
Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates
each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank,
upon extension of credit is based on management’s credit evaluation of the borrower. Collateral obtained varies but may include
real estate, stocks, bonds, and certificates of deposit.
A summary of the contract amount of the Bank’s
exposure to off-balance sheet credit risk for the periods indicated is as follows:
Financial instruments whose contract amounts
represent credit risk:
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
Undisbursed lines of credit
|
|
$
|
43,121
|
|
|
$
|
30,743
|
|
|
Commercial letters of credit
|
|
|
303
|
|
|
|
284
|
|
|
Capital South Partnership – Fund III Investment Commitment
|
|
|
—
|
|
|
|
110
|
|
|
Total
|
|
$
|
43,424
|
|
|
$
|
31,137
|
|
The Bank does not have any outstanding commitments
to any classified borrowers.
INVESTMENT ACTIVITIES
The Bank’s portfolio of investment securities,
all of which are available for sale, consists of U.S. Government sponsored agency, mortgage-backed securities, corporate debt and
equity securities.
Securities to be held for indefinite
periods of time and not intended to be held to maturity are classified as available for sale and carried at fair value with any
unrealized gains or losses reflected as an adjustment to stockholders’ equity. Securities held for indefinite periods of
time include securities that management intends to use as part of its asset/liability management strategy and that may be sold
in response to changes in interest rates and/or significant prepayment risks.
Carolina Trust Bank
Management’s
Discussion and Analysis
The following table summarizes the amortized costs, gross
unrealized gains and losses and the resulting market value of investment securities:
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
15,935
|
|
|
$
|
17
|
|
|
$
|
(409
|
)
|
|
$
|
15,543
|
|
|
Government-sponsored enterprises *
|
|
|
5,391
|
|
|
|
212
|
|
|
|
(1
|
)
|
|
|
5,602
|
|
|
Corporate debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity securities
|
|
|
1,204
|
|
|
|
—
|
|
|
|
(166
|
)
|
|
|
1,038
|
|
|
|
|
$
|
23,280
|
|
|
$
|
229
|
|
|
$
|
(576
|
)
|
|
$
|
22,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
16,093
|
|
|
$
|
27
|
|
|
$
|
(381
|
)
|
|
$
|
15,739
|
|
|
Government-sponsored enterprises *
|
|
|
6,893
|
|
|
|
321
|
|
|
|
—
|
|
|
|
7,214
|
|
|
States and political subdivisions
|
|
|
115
|
|
|
|
2
|
|
|
|
—
|
|
|
|
117
|
|
|
Corporate debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
(112
|
)
|
|
|
638
|
|
|
Equity securities
|
|
|
1,204
|
|
|
|
333
|
|
|
|
(1
|
)
|
|
|
1,536
|
|
|
|
|
$
|
25,055
|
|
|
$
|
683
|
|
|
$
|
(494
|
)
|
|
$
|
25,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
|
15,661
|
|
|
|
21
|
|
|
|
(1,727
|
)
|
|
|
13,955
|
|
|
Government-sponsored enterprises *
|
|
|
8,460
|
|
|
|
201
|
|
|
|
(9
|
)
|
|
|
8,652
|
|
|
States and political subdivisions
|
|
|
226
|
|
|
|
6
|
|
|
|
—
|
|
|
|
232
|
|
|
Corporate debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
(135
|
)
|
|
|
615
|
|
|
Equity securities
|
|
|
704
|
|
|
|
480
|
|
|
|
—
|
|
|
|
1,184
|
|
|
|
|
$
|
25,801
|
|
|
$
|
708
|
|
|
$
|
(1,871
|
)
|
|
$
|
24,638
|
|
* Such as FNMA, FHLMC and FHLB
Carolina Trust Bank
Management’s
Discussion and Analysis
The following table summarizes the amortized cost and recorded market
values of investment securities (excluding marketable equity securities) at December 31, 2015, by contractual maturity groups:
|
|
|
|
Amortized
Cost
|
|
|
|
Fair
Value
|
|
|
|
Book
Yield
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Sponsored
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Due after one but within five years
|
|
|
63
|
|
|
|
64
|
|
|
|
2.57
|
%
|
|
Due after five but within ten years
|
|
|
1,107
|
|
|
|
1,144
|
|
|
|
2.86
|
%
|
|
Due after ten years
|
|
|
4,221
|
|
|
|
4,394
|
|
|
|
3.97
|
%
|
|
|
|
|
5,391
|
|
|
|
5,602
|
|
|
|
3.73
|
%
|
|
U.S. Government Sponsored
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Due after one but within five years
|
|
|
499
|
|
|
|
485
|
|
|
|
2.69
|
%
|
|
Due after five but within ten years
|
|
|
5,224
|
|
|
|
5,156
|
|
|
|
2.37
|
%
|
|
Due after ten years
|
|
|
10,212
|
|
|
|
9,902
|
|
|
|
3.09
|
%
|
|
|
|
|
15,935
|
|
|
|
15,543
|
|
|
|
2.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Due after one but within five years
|
|
|
750
|
|
|
|
750
|
|
|
|
4.27
|
%
|
|
Due after five but within ten years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Due after ten years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
750
|
|
|
|
750
|
|
|
|
4.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Due after one but within five years
|
|
|
1,312
|
|
|
|
1,299
|
|
|
|
3.59
|
%
|
|
Due after five but within ten years
|
|
|
6,330
|
|
|
|
6,301
|
|
|
|
2.45
|
%
|
|
Due after ten years
|
|
|
14,434
|
|
|
|
14,296
|
|
|
|
3.35
|
%
|
|
|
|
$
|
22,076
|
|
|
$
|
21,895
|
|
|
|
3.10
|
%
|
Carolina Trust Bank
Management’s Discussion and Analysis
DEPOSIT ACTIVITIES
The Bank provides a range of deposit
services, including non-interest bearing checking accounts, interest bearing checking and savings accounts, money market accounts
and certificates of deposit. These accounts generally earn interest at rates established by management based on competitive market
factors and the desire to increase or decrease certain types or maturities of deposits.
The Bank periodically uses brokered
deposits consistent with asset and liability management policies. At December 31, 2015 the Bank had $31,983,000 in brokered deposits.
Brokered deposits are available to banks that are well capitalized under regulatory guidelines. We rarely bid on political funds
for municipalities as such deposits are extremely rate sensitive and due to fiduciary pressures on government officials, not as
stable as regular corporate and individual customers.
The Bank offers a variety of deposit programs to individuals
and to small-to-medium size businesses and other organizations at interest rates generally competitive with local market conditions.
The following table sets forth the average balances and rates for each of the deposit categories for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
Average
Balance
|
|
|
Average
Interest
Rate
|
|
|
Average
Balance
|
|
|
Average
Interest
Rate
|
|
|
Average
Balance
|
|
|
Average
Interest
Rate
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market deposits
|
|
$
|
95,899
|
|
|
|
0.22
|
%
|
|
$
|
88,887
|
|
|
|
0.23
|
%
|
|
$
|
95,775
|
|
|
|
0.30
|
%
|
|
Time deposits $250,000 or
more
|
|
|
36,348
|
|
|
|
1.32
|
%
|
|
|
14,479
|
|
|
|
1.35
|
%
|
|
|
12,821
|
|
|
|
1.52
|
%
|
|
Other time deposits
|
|
|
108,801
|
|
|
|
1.32
|
%
|
|
|
105,367
|
|
|
|
1.26
|
%
|
|
|
106,028
|
|
|
|
1.37
|
%
|
|
Total interest bearing deposits
|
|
|
241,048
|
|
|
|
0.88
|
%
|
|
|
208,733
|
|
|
|
0.83
|
%
|
|
|
214,624
|
|
|
|
0.90
|
%
|
|
Demand and other non-interest bearing deposits
|
|
|
30,428
|
|
|
|
—
|
|
|
|
22,953
|
|
|
|
—
|
|
|
|
19,118
|
|
|
|
—
|
|
|
Total average deposits
|
|
$
|
271,476
|
|
|
|
0.78
|
%
|
|
$
|
231,686
|
|
|
|
0.75
|
%
|
|
$
|
233,742
|
|
|
|
0.83
|
%
|
The following table indicates the amount of the Bank’s certificates
of deposit by interest rate and by time remaining until maturity as of December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months
or less
|
|
|
More than
three months
to six months
|
|
|
More than
six months
to one year
|
|
|
More than
one year
|
|
|
Total
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of $250,000 or greater
|
|
$
|
3,207
|
|
|
0.78
|
%
|
|
$
|
4,529
|
|
|
0.66
|
%
|
|
$
|
2,616
|
|
|
1.48
|
%
|
|
$
|
31,509
|
|
|
1.42
|
%
|
|
$
|
41,861
|
|
|
1.29
|
%
|
|
Certificates of less than $250,000
|
|
|
11,413
|
|
|
0.88
|
%
|
|
|
12,565
|
|
|
1.17
|
%
|
|
|
20,345
|
|
|
1.13
|
%
|
|
|
65,590
|
|
|
1.49
|
%
|
|
|
109,913
|
|
|
1.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,620
|
|
|
0.86
|
%
|
|
$
|
17,094
|
|
|
1.03
|
%
|
|
$
|
22,961
|
|
|
1.17
|
%
|
|
$
|
97,099
|
|
|
1.47
|
%
|
|
$
|
151,774
|
|
|
1.25
|
%
|
Carolina Trust Bank
Management’s Discussion and Analysis
BORROWINGS
Borrowed funds consist of advances from the Federal Home
Loan Bank of Atlanta (“FHLB”), federal funds purchased and obligations under a capitalized lease for the Bank’s
main office facility. The following table summarizes balance and rate information for borrowed funds as of the dates and for the
periods indicated.
|
|
|
At or for the Year Ended
December 31,
|
|
|
|
|
|
2015
|
|
|
|
2014
|
|
|
|
2013
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS OUTSTANDING AT END OF PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the FHLB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
13,000
|
|
|
$
|
22,000
|
|
|
$
|
11,500
|
|
|
Weighted average rate
|
|
|
0.67
|
%
|
|
|
0.71
|
%
|
|
|
1.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
2,335
|
|
|
|
—
|
|
|
|
235
|
|
|
Weighted average rate
|
|
|
1.25
|
%
|
|
|
—
|
|
|
|
1.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
326
|
|
|
|
373
|
|
|
|
417
|
|
|
Weighted average rate
|
|
|
7.66
|
%
|
|
|
7.54
|
%
|
|
|
7.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAXIMUM AMOUNT OUTSTANDING AT ANY MONTH-END:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the FHLB
|
|
|
23,000
|
|
|
|
22,000
|
|
|
|
11,500
|
|
|
Federal Funds Purchased
|
|
|
2,355
|
|
|
|
410
|
|
|
|
235
|
|
|
Capitalized lease obligation
|
|
|
369
|
|
|
|
413
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGES DURING THE PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the FHLB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance
|
|
|
13,757
|
|
|
|
10,956
|
|
|
|
8,078
|
|
|
Weighted average rate
|
|
|
1.15
|
%
|
|
|
1.72
|
%
|
|
|
2.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance
|
|
|
201
|
|
|
|
103
|
|
|
|
49
|
|
|
Weighted average rate
|
|
|
0.93
|
%
|
|
|
0.77
|
%
|
|
|
0.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized lease obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance
|
|
|
351
|
|
|
|
396
|
|
|
|
438
|
|
|
Weighted average rate
|
|
|
7.10
|
%
|
|
|
7.09
|
%
|
|
|
7.09
|
%
|
Pursuant to collateral agreements with the
FHLB, advances are secured by all of the Bank’s FHLB stock and a blanket lien on qualifying loans. This agreement with the
FHLB provides for a line of credit up to 15% of the Bank’s assets. The unused portion of this line of credit is $36.9 million
as of December 31, 2015.
The Bank also has unused lines of credit totaling
$9.0 million from correspondent banks at December 31, 2015.
Carolina Trust Bank
Management’s Discussion and Analysis
CONTRACTUAL OBLIGATIONS
The following table reflects the contractual
obligations of the Company outstanding as of December 31, 2015.
|
|
|
Payments due by period
|
|
|
In thousands
|
|
On demand
or less
than 1 Year
|
|
|
1 - 3 Years
|
|
|
4 - 5 Years
|
|
|
After
5 Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from FHLB
|
|
$
|
11,000
|
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,000
|
|
|
Capital lease obligation
|
|
|
57
|
|
|
|
128
|
|
|
|
141
|
|
|
|
—
|
|
|
|
326
|
|
|
Operating leases
|
|
|
281
|
|
|
|
250
|
|
|
|
37
|
|
|
|
—
|
|
|
|
568
|
|
|
Total contractual obligations,
Excluding, deposits
|
|
|
11,338
|
|
|
|
2,378
|
|
|
|
178
|
|
|
|
—
|
|
|
|
13,894
|
|
|
Deposits
|
|
|
187,695
|
|
|
|
69,358
|
|
|
|
27,741
|
|
|
|
—
|
|
|
|
284,794
|
|
|
Total
contractual obligations, including deposits
|
|
$
|
199,033
|
|
|
$
|
71,736
|
|
|
$
|
27,919
|
|
|
$
|
—
|
|
|
$
|
298,688
|
|
It has been the experience of Carolina
Trust Bank that deposit withdrawals are generally replaced with new deposits, thus not requiring any material long-term net cash
outflow. Based on that assumption, management believes that it can meet its contractual cash obligations from normal operations.
Regulatory
Matters
The Bank is a federally insured, North Carolina
state-chartered bank. The deposits of the Bank are insured up to applicable limits under the Deposit Insurance Fund, or DIF, of
the FDIC, and the Bank is subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC
and North Carolina Banking Commissioner of Banks (“Commissioner”). The FDIC and the Commissioner are the Bank’s
primary federal and state banking regulators, respectively. The Bank is not a member of the Federal Reserve System.
Recent
Accounting Pronouncements
See Note B to the consolidated financial statements
for a full description of recent accounting pronouncements including the respective expected dates of adoption and effects on results
of operations and financial condition.
Report
of Independent Registered public accounting firm
To the Stockholders and the Board of Directors
Carolina Trust Bank
Lincolnton, North Carolina
We have audited the accompanying consolidated
balance sheets of Carolina Trust Bank (the “Company”) as of December 31, 2015 and 2014, and the related consolidated
statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows, for each of the years then
ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Carolina Trust Bank as of December
31, 2015 and 2014 and the results of its operations and its cash flows for each of the years then ended in conformity with accounting
principles generally accepted in the United States of America.
Charlotte, North Carolina
March 23, 2016
CAROLINA TRUST BANK
CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
(In thousands, except share and per share data)
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,720
|
|
|
$
|
6,076
|
|
|
Interest-earning deposits with banks
|
|
|
70
|
|
|
|
184
|
|
|
Federal funds sold
|
|
|
23
|
|
|
|
23
|
|
|
Cash and cash equivalents
|
|
|
4,813
|
|
|
|
6,283
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposits with banks
|
|
|
1,498
|
|
|
|
2,996
|
|
|
Investment securities available for sale, at fair value (amortized cost $23,280 and $25,055)
|
|
|
22,933
|
|
|
|
25,244
|
|
|
Federal Home Loan Bank stock, at cost
|
|
|
817
|
|
|
|
1,230
|
|
|
Loans
|
|
|
292,362
|
|
|
|
244,646
|
|
|
Less: Allowance for loan and lease losses
|
|
|
(3,723
|
)
|
|
|
(4,002
|
)
|
|
Net Loans
|
|
|
288,639
|
|
|
|
240,644
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance
|
|
|
1,445
|
|
|
|
1,395
|
|
|
Accrued interest receivable
|
|
|
986
|
|
|
|
861
|
|
|
Bank premises, equipment and software
|
|
|
5,710
|
|
|
|
6,208
|
|
|
Foreclosed assets
|
|
|
1,994
|
|
|
|
2,048
|
|
|
Core deposit intangible, net of accumulated amortization of $611 and $542
|
|
|
174
|
|
|
|
242
|
|
|
Other assets
|
|
|
5,040
|
|
|
|
5,890
|
|
|
Total Assets
|
|
$
|
334,049
|
|
|
$
|
293,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Non-interest-earning demand deposits
|
|
$
|
32,562
|
|
|
$
|
23,960
|
|
|
Interest-earning demand deposits
|
|
|
79,132
|
|
|
|
67,298
|
|
|
Savings
|
|
|
21,326
|
|
|
|
20,067
|
|
|
Time deposits
|
|
|
151,774
|
|
|
|
125,851
|
|
|
Total deposits
|
|
|
284,794
|
|
|
|
237,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation
|
|
|
326
|
|
|
|
373
|
|
|
Federal funds purchased
|
|
|
2,355
|
|
|
|
—
|
|
|
Federal Home Loan Bank advances
|
|
|
13,000
|
|
|
|
22,000
|
|
|
Accrued interest payable
|
|
|
58
|
|
|
|
95
|
|
|
Other liabilities
|
|
|
3,052
|
|
|
|
3,590
|
|
|
Total liabilities
|
|
|
303,585
|
|
|
|
263,224
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, unstated par value; 1,000,000 shares authorized; 2,600 shares issued and outstanding
|
|
|
2,580
|
|
|
|
2,580
|
|
|
Common stock warrant
|
|
|
426
|
|
|
|
426
|
|
|
Common stock, $2.50 par value; 10,000,000 shares authorized; 4,646,225 and 4,635,422 shares issued and outstanding
|
|
|
11,616
|
|
|
|
11,589
|
|
|
Additional paid-in capital
|
|
|
12,936
|
|
|
|
12,796
|
|
|
Retained earnings
|
|
|
3,122
|
|
|
|
2,298
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(216
|
)
|
|
|
118
|
|
|
Total stockholders’ equity
|
|
|
30,464
|
|
|
|
29,807
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
334,049
|
|
|
$
|
293,041
|
|
See accompanying notes to the financial statements.
CAROLINA TRUST BANK
CONSOLIDATED STATEMENTS
OF OPERATIONS
Years Ended December 31, 2015 and 2014
(In thousands, except share and per share data)
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
Interest on investment securities and cash
|
|
$
|
1,008
|
|
|
$
|
993
|
|
|
Interest and fees on loans
|
|
|
13,897
|
|
|
|
12,049
|
|
|
Total interest income
|
|
|
14,905
|
|
|
|
13,042
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
Interest expense non-maturity deposits
|
|
|
210
|
|
|
|
208
|
|
|
Interest expense time deposits
|
|
|
1,916
|
|
|
|
1,525
|
|
|
Interest expense borrowed funds
|
|
|
160
|
|
|
|
190
|
|
|
Interest expense capital lease
|
|
|
25
|
|
|
|
28
|
|
|
Total interest expense
|
|
|
2,311
|
|
|
|
1,951
|
|
|
Net interest income
|
|
$
|
12,594
|
|
|
$
|
11,091
|
|
|
Loan loss provision/(recovery)
|
|
|
(270
|
)
|
|
|
(80
|
)
|
|
Net interest income after loan loss provision/(recovery)
|
|
$
|
12,864
|
|
|
$
|
11,171
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
Overdraft fees on deposits
|
|
$
|
382
|
|
|
$
|
306
|
|
|
Interchange fee income
|
|
|
379
|
|
|
|
324
|
|
|
Service charges on deposits
|
|
|
57
|
|
|
|
59
|
|
|
Mortgage fee income
|
|
|
90
|
|
|
|
75
|
|
|
Customer service fees
|
|
|
71
|
|
|
|
44
|
|
|
ATM income
|
|
|
24
|
|
|
|
16
|
|
|
Other income
|
|
|
106
|
|
|
|
112
|
|
|
Total noninterest income
|
|
|
1,109
|
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
Salaries & benefits expense
|
|
$
|
6,682
|
|
|
|
5,207
|
|
|
Occupancy expense
|
|
|
872
|
|
|
|
821
|
|
|
Furniture, fixture & equipment expense
|
|
|
495
|
|
|
|
358
|
|
|
Data processing expense
|
|
|
664
|
|
|
|
593
|
|
|
Office supplies expense
|
|
|
89
|
|
|
|
82
|
|
|
Professional fees
|
|
|
321
|
|
|
|
272
|
|
|
Advertising and Marketing
|
|
|
144
|
|
|
|
62
|
|
|
Insurance
|
|
|
391
|
|
|
|
356
|
|
|
Foreclosed asset expense, net
|
|
|
472
|
|
|
|
586
|
|
|
Check card expense
|
|
|
401
|
|
|
|
339
|
|
|
Loan expense
|
|
|
203
|
|
|
|
130
|
|
|
Stockholder expense
|
|
|
92
|
|
|
|
89
|
|
|
Directors fees
|
|
|
183
|
|
|
|
150
|
|
|
Telephone expense
|
|
|
251
|
|
|
|
325
|
|
|
Core deposit intangible amortization expense
|
|
|
68
|
|
|
|
80
|
|
|
Other operating expense
|
|
|
423
|
|
|
|
339
|
|
|
Total noninterest expense
|
|
|
11,751
|
|
|
|
9,789
|
|
|
Pre-tax income
|
|
$
|
2,222
|
|
|
$
|
2,318
|
|
|
Income tax expense (benefit)
|
|
|
1,164
|
|
|
|
(4,539
|
)
|
|
Net income
|
|
$
|
1,058
|
|
|
$
|
6,857
|
|
|
Preferred dividends and accretion of discount on warrants
|
|
|
234
|
|
|
|
227
|
|
|
Net income available to common stockholders
|
|
$
|
824
|
|
|
$
|
6,630
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.18
|
|
|
$
|
1.43
|
|
|
Diluted earnings per common share
|
|
$
|
0.18
|
|
|
$
|
1.42
|
|
|
Weighted average common shares outstanding
|
|
|
4,645,408
|
|
|
|
4,635,096
|
|
|
Diluted average common shares outstanding
|
|
|
4,685,814
|
|
|
|
4,678,108
|
|
See accompanying notes to the financial statements.
CAROLINA TRUST BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2015 and 2014
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,058
|
|
|
$
|
6,857
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities:
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period
|
|
|
(531
|
)
|
|
|
1,351
|
|
|
Tax related to unrealized gains (losses)
|
|
|
197
|
|
|
|
(504
|
)
|
|
Total other comprehensive income (loss)
|
|
|
(334
|
)
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
724
|
|
|
$
|
7,704
|
|
See accompanying notes to the financial statements.
CAROLINA TRUST BANK
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
Years Ended December 31, 2015 and 2014
(Dollars In thousands)
|
|
|
2015
Shares outstanding
|
|
|
December 31, 2015
|
|
|
2014
Shares outstanding
|
|
|
December 31, 2014
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
2,600
|
|
|
$
|
2,580
|
|
|
|
2,600
|
|
|
$
|
2,575
|
|
|
Preferred stock discount accretion
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
Balance, end of year
|
|
|
2,600
|
|
|
$
|
2,580
|
|
|
|
2,600
|
|
|
$
|
2,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant
|
|
|
|
|
|
$
|
426
|
|
|
|
|
|
|
$
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $2.50 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
4,635,422
|
|
|
$
|
11,589
|
|
|
|
4,634,702
|
|
|
$
|
11,587
|
|
|
Exercise of stock options
|
|
|
7,470
|
|
|
|
19
|
|
|
|
720
|
|
|
|
2
|
|
|
Restricted stock vesting
|
|
|
3,333
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance, end of year
|
|
|
4,646,225
|
|
|
$
|
11,616
|
|
|
|
4,635,422
|
|
|
$
|
11,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
|
|
|
$
|
12,796
|
|
|
|
|
|
|
$
|
12,730
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
66
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
—
|
|
|
Restricted stock vesting
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
—
|
|
|
Balance, end of year
|
|
|
|
|
|
$
|
12,936
|
|
|
|
|
|
|
$
|
12,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
|
|
|
$
|
2,298
|
|
|
|
|
|
|
$
|
(4,333
|
)
|
|
Net income
|
|
|
|
|
|
|
1,058
|
|
|
|
|
|
|
|
6,857
|
|
|
Preferred stock discount accretion
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
(5
|
)
|
|
Dividends declared on preferred stock
|
|
|
|
|
|
|
(234
|
)
|
|
|
|
|
|
|
(221
|
)
|
|
Balance, end of year
|
|
|
|
|
|
$
|
3,122
|
|
|
|
|
|
|
$
|
2,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
|
|
|
$
|
118
|
|
|
|
|
|
|
$
|
(729
|
)
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
(334
|
)
|
|
|
|
|
|
|
847
|
|
|
Balance, end of year
|
|
|
|
|
|
$
|
(216
|
)
|
|
|
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
|
|
|
$
|
30,464
|
|
|
|
|
|
|
$
|
29,807
|
|
See accompanying notes to the financial statements.
CAROLINA TRUST BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015 and 2014
(in thousands)
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,058
|
|
|
$
|
6,857
|
|
|
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Recovery of loan losses
|
|
|
(270
|
)
|
|
|
(80
|
)
|
|
Depreciation and amortization of bank premises, equipment and software
|
|
|
385
|
|
|
|
370
|
|
|
Accretion of loan fair value adjustments related to acquisition
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
Net amortization of bond premiums/discounts
|
|
|
28
|
|
|
|
39
|
|
|
Amortization of core deposit intangible
|
|
|
68
|
|
|
|
80
|
|
|
Stock compensation expense
|
|
|
147
|
|
|
|
66
|
|
|
Increase in value of life insurance contracts
|
|
|
(50
|
)
|
|
|
(48
|
)
|
|
Net losses and impairment write-downs on foreclosed assets
|
|
|
435
|
|
|
|
543
|
|
|
Deferred tax provision (benefit)
|
|
|
1,144
|
|
|
|
(4,539
|
)
|
|
Increase in other assets
|
|
|
(91
|
)
|
|
|
(325
|
)
|
|
Increase (decrease) in accrued interest receivable
|
|
|
(125
|
)
|
|
|
41
|
|
|
(Increase) decrease in accrued interest payable
|
|
|
(37
|
)
|
|
|
49
|
|
|
(Decrease) increase in other liabilities
|
|
|
(538
|
)
|
|
|
593
|
|
|
Net cash and cash equivalents provided by operating activities
|
|
$
|
2,144
|
|
|
$
|
3,537
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Net increase in loans
|
|
$
|
(48,673
|
)
|
|
$
|
(20,737
|
)
|
|
Decrease in certificate of deposits with banks
|
|
|
1,498
|
|
|
|
—
|
|
|
Proceeds from sale of foreclosed assets
|
|
|
576
|
|
|
|
1,327
|
|
|
Net (purchases) disposal proceeds of bank premises, equipment and software
|
|
|
113
|
|
|
|
(402
|
)
|
|
Purchase of available-for-sale securities
|
|
|
—
|
|
|
|
(997
|
)
|
|
Proceeds from maturities, calls and pay-downs of available for sale securities
|
|
|
1,747
|
|
|
|
1,704
|
|
|
Repurchase (purchase) of Federal Home Loan Bank stock
|
|
|
413
|
|
|
|
(387
|
)
|
|
Net cash and cash equivalents used in investing activities
|
|
$
|
(44,326
|
)
|
|
$
|
(19,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Increase in deposits
|
|
$
|
47,618
|
|
|
$
|
8,291
|
|
|
Increase (decrease) in Federal Home Loan Bank advances
|
|
|
(9,000
|
)
|
|
|
10,500
|
|
|
Payment of capital lease obligation
|
|
|
(47
|
)
|
|
|
(44
|
)
|
|
Increase (decrease) in federal funds purchased
|
|
|
2,355
|
|
|
|
(235
|
)
|
|
Dividends paid on preferred stock
|
|
|
(234
|
)
|
|
|
(221
|
)
|
|
Net proceeds from issuance of common stock
|
|
|
20
|
|
|
|
2
|
|
|
Net cash and cash equivalents provided by financing activities
|
|
$
|
40,712
|
|
|
$
|
18,293
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(1,470
|
)
|
|
$
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning
|
|
$
|
6,283
|
|
|
$
|
3,945
|
|
|
Cash and cash equivalents, ending
|
|
$
|
4,813
|
|
|
$
|
6,283
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
2,348
|
|
|
$
|
2,000
|
|
|
Cash paid during the period for taxes
|
|
$
|
1,238
|
|
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash financing and investing activities
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities available-for-sale, net
|
|
$
|
(334
|
)
|
|
$
|
847
|
|
|
Transfer of loans to foreclosed assets
|
|
$
|
951
|
|
|
$
|
10
|
|
See accompanying notes to the financial statements.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE A - ORGANIZATION AND OPERATIONS
Carolina Trust Bank (the “Bank”)
was incorporated November 27, 2000 and began banking operations on December 8, 2000. The Bank is engaged in general commercial
and retail banking in Lincoln County, North Carolina and surrounding areas, operating under the banking laws of North Carolina
and the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank
undergoes periodic examinations by those regulatory authorities.
The consolidated financial statements include
the accounts of the Bank and its wholly-owned subsidiary, Western Carolina Holdings, LLC, which owns certain Bank assets. All significant
intercompany balances and transactions have been eliminated in consolidation.
NOTE B - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination
of the allowance for loan losses, the valuation of other real estate owned, and the realization of deferred tax assets.
Cash and Cash Equivalents
For the purpose of presentation in the
statement of cash flows, cash and cash equivalents include cash and due from banks, interest-earning deposits with banks and federal
funds sold.
Interest-Earning Deposits with
Banks
Certificates of deposit with banks total
$1,498,000 at December 31, 2015 and $2,996,000 at December 31, 2014. These certificates typically have an original maturity of
ten years or less and currently bear interest at rates ranging from 2.45% to 3.00% with an overall weighted average rate of 2.66%.
There are also non-maturity deposits included in this category that total $70,000 at December 31, 2015 and $184,000 at December
31, 2014.
Investment Securities Available-for-Sale
Investment securities available for sale
are reported at fair value and consist of debt instruments that are not classified as either trading securities or as held to maturity
securities. Unrealized holding gains and losses, net of deferred income tax, on available for sale securities are reported as a
net amount in other comprehensive income. Gains and losses on the sale of investment securities available for sale are determined
using the specific-identification method and are recognized on a trade-date basis. Declines in the fair value of individual investment
securities available for sale below their cost that are other than temporary would result in write-downs of the individual securities
to their fair value.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Stock in Federal Home Loan Bank
of Atlanta
As a requirement for membership, the Bank
invests in stock of the Federal Home Loan Bank of Atlanta (“FHLB”). This investment is carried at cost. Because of
the redemption provisions of the FHLB, the Bank estimates that fair value equals cost for this investment and that it was not impaired
at December 31, 2015.
Loans
Loans in the Bank’s portfolio are
grouped into classes and segments. Classes are generally disaggregations of a segment. The Bank’s segments are: commercial
real estate, commercial, residential mortgage, home equity lines, and other consumer loans. The classes within the commercial real
estate segment are: residential ADC (acquisition, development and construction), commercial ADC, farmland, multifamily, owner occupied
and non-owner occupied. The classes within the commercial segment are: commercial and industrial, agriculture, and other commercial.
The classes within the residential mortgage segment are: first-lien and junior-lien loans. The home equity lines and other consumer
loan segments are not further segregated into classes.
Loans that management has the intent and
ability to hold for the foreseeable future or until maturity are reported at their outstanding principal, adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield of the related loan. The accrual of interest on
loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due or when
the loan is 90 days delinquent on a contractual basis. When interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are received. In all cases, loans are placed on non-accrual
or charged off at an earlier date if collection of principal or interest is considered doubtful.
Nonaccrual and Past due Loans
–
All loan classes are considered past due when the contractual amounts due with respect to principal and interest are not received
within 30 days of the contractual due date. When the Bank cannot reasonably expect full and timely repayment of its loan or when
the principal or interest is in default for 90 days or more the loan is placed on nonaccrual status. Under certain circumstances
there is sufficient documentation to conclude that the loan is well secured and in the process of collection and, therefore, the
loan is not placed on non-accrual status. A debt is “well-secured” if collateralized by liens on or pledges of real or
personal property, including securities that have a realizable value sufficient to discharge the debt in full; or by the guarantee
of a financially responsible party. A debt is “in process of collection” if collection is proceeding in due course either
through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not
involving legal action which are reasonably expected to result in repayment of the debt or its restoration to a current status.
The Bank may calculate forgone interest on a monthly basis, but does not recognize the income.
Loans that are less delinquent may also
be placed on nonaccrual due to deterioration in the financial condition of the borrower that increases the possibility of less
than full repayment.
For all loan classes, a nonaccrual loan
may be returned to accrual status when the Bank can reasonably expect continued timely payments until payment in full. The loan
can still be returned to accrual status if the following conditions are met: (1) All principal and interest amounts contractually
due (including arrearage) are reasonably assured of repayment within a reasonable period; and (2) there is a sustained
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued
)
period of repayment performance (generally
a minimum of six months) by the borrower, in accordance with the contractual terms involving payments of cash or cash equivalents.
At the time a loan is placed on non-accrual,
all accrued, unpaid interest is charged-off, unless it is documented that repayment of all principal and presently accrued but
unpaid interest is probable. Charge-offs of accrued and unpaid interest are made against the current year’s interest
income. For all classes within all loan segments, cash receipts on non-accrual loans are applied entirely against principal until
the loan or lease has been collected in full, after which time any additional cash receipts are recognized as interest income.
Charge-off of Uncollectable Loans
- For all loan classes,
as soon as any loan becomes uncollectable, the loan will be charged down or charged off as follows:
|
|
·
|
If unsecured, the loan must be charged off in full.
|
|
|
·
|
If secured, the outstanding principal balance of the loan should be
charged down to the net liquidation value of the collateral.
|
Loans should be considered uncollectable when:
|
|
·
|
No regularly scheduled payment has been made within four months, or
|
|
|
·
|
The loan is unsecured, the borrower files for bankruptcy protection
and there is no other (guarantor, etc.) support from an entity outside of the bankruptcy proceedings.
|
Based on a variety of credit, collateral
and documentation issues, loans with lesser degrees of delinquency or obvious loss may also be deemed uncollectable.
Impaired Loans
- An impaired loan
is one for which the Bank will not be repaid all principal and interest due per the terms of the original contract or within reasonably
modified contracted terms. If the loan has been modified to provide a concession to a borrower experiencing financial difficulty,
the loan is deemed to be a troubled debt restructuring and is considered impaired. All loans meeting the definition of doubtful should
be considered impaired.
When a loan in any class has been determined
to be impaired, the amount of the impairment is measured using the present value of expected future cash flows discounted at the
loan’s effective interest rate or, as a practical expedient, the observable market price of the loan, or the fair value of
the collateral if the loan is collateral dependent. When the present value of expected future cash flows is used, the effective
interest rate is the original contractual interest rate of the loan adjusted for any premium or discount. When the contractual
interest rate is variable, the effective interest rate of the loan changes over time. The Bank uses the rate of the loan at the
time it first became impaired as the discount rate. A specific reserve is established as a component of the Allowance for Loan
Losses when a loan has been determined to be impaired. Subsequent to the initial measurement of impairment, if there is a significant
change to the impaired loan’s expected future cash flows, or if actual cash flows are significantly different from the cash
flows previously estimated, the Bank recalculates the impairment and appropriately adjusts the specific reserve. Similarly, if
the Bank measures impairment based on the observable market price of an impaired loan or the fair value of the collateral of an
impaired collateral-dependent loan, the Bank will adjust the specific reserve if there is a significant change in either of those
bases.
If receipt of principal and interest is
in doubt when contractually due, interest income is not recognized for any class of impaired loans. Cash receipts received on non-accruing
impaired loans within any class are generally applied entirely against principal until the loan has been collected in full, after
which time any additional cash receipts are recognized as interest income. Cash receipts received on accruing impaired loans within
any class are applied in the same manner as accruing loans that are not considered impaired.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
The Bank accounts for impaired loans acquired
in a purchase at fair value, which is the net present value of all cash flows expected to be collected over the life of the loan.
These cash flows are determined on the date of purchase.
Allowance for Loan Losses (“ALLL”)
The allowance for loan losses (ALLL), which
is utilized to absorb actual losses in the loan portfolio, is maintained at a level consistent with management’s best estimate
of probable loan losses incurred as of the balance sheet date. The Bank’s allowance for loan losses is assessed quarterly
by management. This assessment includes a methodology that separates the total loan portfolio into homogeneous loan groups for
purposes of evaluating risk. Management also analyzes the loan portfolio on an ongoing basis to evaluate current risk levels, and
individual loan risk grades are adjusted accordingly. While management uses the best information available to make evaluations,
future adjustments may be necessary, if economic or other conditions differ substantially from the assumptions used.
The methodology to analyze the ALLL includes
the following:
|
|
·
|
identification of impaired loans;
|
|
|
·
|
calculation of a specific reserve - where
required - for each impaired loan based on collateral and other objective and quantifiable evidence;
|
|
|
·
|
determination of an appropriate historical
loss period for analysis;
|
|
|
·
|
identification of homogenous loan groups,
further segmented by risk grade, and reduced by the impaired loans;
|
|
|
·
|
calculation of historical loss percentages
based on the identified historical loss period;
|
|
|
·
|
identification of internal and external
factors which might affect the current application of the historical loss percentages, and assessment of any impact;
|
|
|
·
|
adjustment of the historical loss percentages
based on the factor assessment;
|
|
|
·
|
application of historical loss percentages
to loan groups to determine the allowance allocation; and
|
|
|
·
|
determination of the need for any unallocated
reserve
|
The ALLL is divided into three allocation
segments:
|
|
1.
|
Individual Reserves
. These are calculated against loans evaluated individually and
identified as impaired. Management determines which loans will be considered for potential impairment review. This
does not mean that an individual reserve will necessarily be calculated for each loan considered for impairment, only for those
impaired loans identified during this process as having an estimated loss. Loans to be considered include:
|
|
|
·
|
All commercial loans classified substandard
or worse
|
|
|
·
|
Any other loan in a non-accrual status
|
|
|
·
|
Any loan, consumer or commercial, which
has already been modified such that it meets the definition of Troubled Debt Restructure (“TDR”)
|
The individual reserve must
be verified at least quarterly, and recalculated whenever additional relevant information becomes available. All information related
to the calculation of the individual reserve, including internal or external collateral valuations, assumptions, discounts, etc.
must be documented.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Individual reserve amounts
may not be carried indefinitely.
|
|
·
|
When the amount of the actual loss becomes
reasonably quantifiable, the amount of the loss is charged off against the ALLL, whether or not all liquidation and recovery efforts
have been completed.
|
|
|
·
|
If the total amount of the individual
reserve that will eventually be charged-off cannot yet be determined, but some portion of the individual reserve can be viewed
as an imminent loss, that smaller portion is charged off against the ALLL and the individual reserve is reduced by a corresponding
amount.
|
|
|
2.
|
Formula Reserves
. These are held against performing loans evaluated collectively. The total
performing loan portfolio is divided into homogeneous loan groups. Loss estimates are based on historical loss rates for
each respective loan group, adjusted for appropriate environmental factors established by the Bank.
|
Formula reserves represent the
Bank’s best estimate of losses that may be inherent, or embedded, within that group of performing loans, even if it is not apparent
at this time which loans within any group represent those embedded losses.
Historical Loss Percentages:
Historical loss data has been catalogued by the Bank for each loan group. Historical loss recoveries are similarly entered
and applied against the non-classified loan group according to the Call Report designations of the loans originally charged. The
Bank uses a 3-year trailing average of net charge-offs to determine the historical loss percentages.
Qualitative Loss Factors:
The methodology incorporates various internal and external qualitative and environmental factors as described in the Interagency
Policy Statement on the Allowance for Loan and Lease Losses dated December 2006. Input for these factors is determined on
the basis of management observation, judgment, and experience. The factors identified by the Bank to be evaluated for all
homogenous loan groups are as follows:
|
|
a)
|
Volume of loans – Accounts for historical growth characteristics of the loan group over the
identified loss period.
|
|
|
b)
|
Trends in Delinquency – Reflects increased risk derived from higher delinquency rates.
|
|
|
c)
|
Trends in Nonaccrual and Classified loans – Compares the current portfolio to the levels
and trends over the historical loss period
|
|
|
d)
|
Levels of Actual Losses – Evaluates the current losses and the trends and averages over the
two year loss period
|
|
|
e)
|
Concentration of Credit – Measures increased risk derived from concentration of credit exposure
in particular loan segments or classes.
|
|
|
f)
|
Economic – Assesses the impact of general and local economic factors, including changes in
collateral values, primarily real estate.
|
|
|
g)
|
Watch list growth – measures increased risk in particular loan segments or classes that meet
certain requirements including negative trends and increased levels in the watch or special mention rating.
|
These factors are evaluated
and assigned a rating ranging from “significant negative impact to significant positive impact.” The rating translates
to an adjustment to the historical loss percentage.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Calculation and Summary:
A general reserve amount for each homogenous performing loan group is calculated by applying the adjusted historical loss percentage
to the loan group outstanding balances, net of impaired loans.
|
|
3.
|
Unallocated Reserves
. This segment is utilized to provide for losses which are expected
but cannot be tied to any specific loan or group of loans, based on the judgment of management.
|
Reserve for Unfunded Commitments
The Reserve for unfunded commitments
is calculated by determining the type of commitment and the remaining unfunded commitment for each loan. Based on the
type of commitment, a utilization rate is established considering the funded balance of the loan. The utilization rate is
multiplied by the credit conversion factor of 10% which is then multiplied by the unfunded reserve amount based on the
historical losses and qualitative factors for each loan class as defined in the regular ALLL calculation to determine the
appropriate level of reserve. The reserve for unfunded commitments was approximately $20,000 and $19,000 at December 31, 2015
and 2014, respectively.
Fees from Pre-sold Mortgages
The Bank originates single family, residential
first mortgage loans on a pre-sold basis. The Bank recognizes certain origination and service release fees, which are included
in non-interest income on the statements of income under the caption “Mortgage fee income”.
Foreclosed Assets
Assets acquired through, or in lieu of,
loan foreclosure are to be sold and are initially recorded at fair value less anticipated cost to sell at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the asset is carried
at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in foreclosed asset expense.
Purchased Impaired Loans
Loans acquired in the Carolina Commerce
Bank acquisition are recorded at estimated fair value on the date of acquisition without the carryover of the related allowance
for loan losses. Purchased impaired loans are loans that have evidence of credit deterioration since origination or it is probable
at the date of acquisition that the Bank will not collect all contractually required principal and interest payments. Evidence
of credit quality deterioration as of the date of acquisition may include statistics such as past due and nonaccrual status. Purchased
impaired loans generally meet the Bank’s definition for nonaccrual status. The difference between contractually required
payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference
and reduces the carrying amount of the loans. Subsequent decreases to the expected cash flows will generally result in a provision
for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior
charges, or a reclassification of the nonaccretable difference to accretable yield. The excess of cash flows expected at acquisition
over the estimated fair value of the loan is referred to as the accretable yield and is recognized into interest income over the
remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Purchased Performing Loans
The Bank accounts for performing loans
acquired in business combinations using the contractual cash flows method of recognizing discount accretion based on the acquired
loans’ contractual cash flows.
Purchased performing loans are recorded
at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives
of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans in the Carolina
Commerce Bank acquisition. A provision for loan losses is recorded for any further deterioration in these loans subsequent to the
acquisition.
Other Intangibles
Intangible assets include core deposits.
Intangible assets are subject to impairment testing whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Core deposit intangibles are amortized on the sum-of-years digits method over a period not to exceed 14
years.
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
Carrying
Amount
|
|
|
Accumulated Amortization
|
|
|
Carrying
Amount
|
|
|
Accumulated Amortization
|
|
|
Amortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible
|
|
$
|
173,828
|
|
|
$
|
(610,777
|
)
|
|
$
|
242,156
|
|
|
$
|
(542,449
|
)
|
The Bank’s projected amortization
expense for the core deposit intangible for the years ending December 31:
|
2016
|
|
$
|
56,386
|
|
|
2017
|
|
|
44,444
|
|
|
2018
|
|
|
32,501
|
|
|
2019
|
|
|
20,572
|
|
|
2020
|
|
|
9,833
|
|
|
Thereafter
|
|
|
10,092
|
|
|
Total
|
|
$
|
173,828
|
|
The remaining weighted average amortization
period is 1.54 years.
Bank Premises and Equipment
Bank premises and equipment are stated
at cost less accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of
the assets. Estimated useful lives are 20 to 31.5 years for buildings, leasehold improvements are amortized over the terms of the
respective leases or the estimated useful lives of the improvements, whichever is shorter, 5 to 10 years for furniture and equipment
and 3 to 5 years for computer equipment. Repairs and maintenance costs are charged to income as incurred and additions and improvements
to premises and equipment are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are removed from
the accounts and any gains or losses are reflected in current income.
Advertising Costs
The company expenses all advertising and
business promotion costs as incurred.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income Taxes
Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are also recognized for
operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
year in which the temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a
valuation allowance if it is more likely than not that the tax benefits will not be realized.
The Bank did not recognize any
interest or penalties related to income tax during the years ended December 31, 2015 and 2014, and did not accrue any interest
or penalties as of December 31, 2015 or 2014. The Bank did not have an accrual for uncertain tax positions as deductions taken
and benefits accrued are based on widely understood administrative practices and procedures, and are based on clear and unambiguous
tax law. Tax returns, for years 2013 and thereafter are subject to possible future examinations by tax authorities.
Comprehensive Income/(Loss)
The Bank reports as comprehensive income/(loss)
all changes in stockholders’ equity during the year from sources other than stockholders. Other comprehensive income/(loss) refers
to all components (revenues, expenses, gains, and losses) of comprehensive income/(loss) that are excluded from net income/(loss).
The Bank’s only component of other comprehensive income/(loss) is unrealized gains and losses, net of income taxes, on investment
securities available for sale.
Basic Earnings per Common Share
Basic earnings per common
share is computed by dividing net income to common shareholders by the weighted average number of common shares outstanding during
the period, after giving retroactive effect to stock splits and dividends.
Diluted Earnings per Common Share
The computation of diluted
earnings per common share is similar to the computation of basic earnings per common share except that the denominator is increased
to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been
issued. These additional common shares would include employee equity share options, nonvested shares and similar equity instruments
granted to employees, as well as the shares associated with the common stock warrants issued to the U.S. Treasury Department as
part of the preferred stock transaction completed in February 2009. Diluted earnings per common share are based upon the actual
number of options or shares granted and not yet forfeited unless doing so would be antidilutive. The numerator is adjusted for
any changes in income or loss that would result from the assumed conversion of those potential common shares.
Reclassifications
Certain reclassifications
have been made to the financial statements of the prior year to place them on a comparable basis with the current year. Net income
and shareholders’ equity were not affected by these reclassifications.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Recent Accounting Pronouncements
In January 2016, the FASB issued ASU 2016-1,
Financial Instruments - Overall, Subtopic 825-10
(“ASU 2016-1”). to address certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. The Bank will apply the guidance by means of a cumulative-effect
adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities
without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption
of the amendments. The Bank is currently evaluating the impact of this guidance.
In August
2015, the FASB deferred the effective date of ASU 2014-09,
Revenue from Contracts with Customers, Topic 606
(“ASU
2014-09”).
The new standard’s core principle is that a company will recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange
for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under existing
guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration
to include in the transaction price and allocating the transaction price to each separate performance obligation. As a result of
the deferral, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods
within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with
the cumulative effect of initially applying this new guidance recognized at the date of initial application. The Bank is currently
evaluating the impact of adopting the new guidance on the consolidated financial statements, but the Bank does not expect it to
have a material impact.
In
June 2014, the FASB issued ASU 2014-12,
Compensation—Stock
Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could
Be Achieved after the Requisite Service Period, a consensus of the FASB Emerging Issues Task Force
(“ASU 2014-12”).
ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. ASU 2014-12 is effective for annual periods and interim periods within those annual periods,
beginning after December 15, 2015. An entity may apply the standards (1) prospectively to all share-based payment awards that
are granted or modified on or after the effective date, or (2) retrospectively to all awards with performance targets that are
outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified
awards thereafter. Earlier application is permitted.
The adoption of ASU 2014-12 is not expected
to have a material impact on the Bank’s financial statements.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
In January
2014, the FASB issued ASU 2014-04,
Receivables
—
Troubled Debt Restructurings
by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,
a consensus of the FASB Emerging Issues Task Force
(“ASU 2014-04”). ASU 2014-04
clarifies that an in-substance foreclosure occurs, and a creditor is considered to have received physical possession of residential
real estate property collateralizing a consumer mortgage loan, upon either (i) the creditor obtaining legal title to the residential
real estate property upon completion of a foreclosure or (ii) the borrower conveying all interest in the residential real estate
property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. ASU
2014-04 also requires disclosure of both the amount of foreclosed residential real estate property held by the creditor and the
recorded investment in loans collateralized by residential real estate property that are in the process of foreclosure. ASU 2014-04
is effective for public companies for interim and annual periods beginning after December 15, 2014, with early adoption permitted.
Once adopted, an entity can elect either (i) a modified retrospective transition method or (ii) a prospective transition method.
The modified retrospective transition method is applied by means of a cumulative-effect adjustment to residential mortgage loans
and foreclosed residential real estate properties existing as of the beginning of the period for which the amendments of ASU 2014-04
are effective, with real estate reclassified to loans measured at the carrying value of the real estate at the date of adoption
and loans reclassified to real estate measured at the lower of net carrying value of the loan or the fair value of the real estate
less costs to sell at the date of adoption. The prospective transition method is applied by means of applying the amendments of
ASU 2014-04 to all instances of receiving physical possession of residential real estate properties that occur after the date of
adoption. The adoption of ASU 2014-04 did not have a material impact on the Bank’s financial statements, but new disclosures
are included in these financial statements.
Other accounting standards that have been
issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s
financial position, results of operations or cash flows.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December
31, 2015 and 2014
NOTE C - INVESTMENT SECURITIES
The amortized cost and fair value of securities
available for sale, with gross unrealized gains and losses, is as follows:
|
In thousands
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
15,935
|
|
|
$
|
17
|
|
|
$
|
(409
|
)
|
|
$
|
15,543
|
|
|
Government-sponsored enterprises *
|
|
|
5,391
|
|
|
|
212
|
|
|
|
(1
|
)
|
|
|
5,602
|
|
|
Corporate debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity securities
|
|
|
1,204
|
|
|
|
—
|
|
|
|
(166
|
)
|
|
|
1,038
|
|
|
|
|
$
|
23,280
|
|
|
$
|
229
|
|
|
$
|
(576
|
)
|
|
$
|
22,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
16,093
|
|
|
$
|
27
|
|
|
$
|
(381
|
)
|
|
$
|
15,739
|
|
|
Government-sponsored enterprises *
|
|
|
6,893
|
|
|
|
321
|
|
|
|
—
|
|
|
|
7,214
|
|
|
States and political subdivisions
|
|
|
115
|
|
|
|
2
|
|
|
|
—
|
|
|
|
117
|
|
|
Corporate debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
(112
|
)
|
|
|
638
|
|
|
Equity securities
|
|
|
1,204
|
|
|
|
333
|
|
|
|
(1
|
)
|
|
|
1,536
|
|
|
|
|
$
|
25,055
|
|
|
$
|
683
|
|
|
$
|
(494
|
)
|
|
$
|
25,244
|
|
|
* Such as FNMA, FHLMC and FHLB
|
|
|
|
|
|
|
The amortized cost and fair values of securities
available for sale (excluding marketable equity securities) at December 31, 2015 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
|
Dollars in thousands
|
|
|
|
|
|
Due within one year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Due after one but within five years
|
|
|
1,312
|
|
|
|
1,299
|
|
|
Due after five but within ten years
|
|
|
6,330
|
|
|
|
6,301
|
|
|
Due after ten years
|
|
|
14,434
|
|
|
|
14,296
|
|
|
|
|
$
|
22,076
|
|
|
$
|
21,895
|
|
The following tables detail unrealized losses
and related fair values in the Bank’s available-for-sale investment security portfolio. This information is aggregated by
the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 and December
31, 2014, respectively.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December
31, 2015 and 2014
NOTE C - INVESTMENT SECURITIES (continued)
|
|
|
Temporarily Impaired Securities in AFS Portfolio
|
|
|
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
5,374
|
|
|
$
|
(105
|
)
|
|
$
|
8,696
|
|
|
$
|
(304
|
)
|
|
$
|
14,070
|
|
|
$
|
(409
|
)
|
|
Government-sponsored enterprises *
|
|
|
237
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
240
|
|
|
|
(1
|
)
|
|
Equity securities
|
|
|
1,203
|
|
|
|
(165
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1,204
|
|
|
|
(166
|
)
|
|
Total temporarily impaired securities
|
|
$
|
6,814
|
|
|
$
|
(271
|
)
|
|
$
|
8,700
|
|
|
$
|
(305
|
)
|
|
$
|
15,514
|
|
|
$
|
(576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
490
|
|
|
$
|
(8
|
)
|
|
$
|
12,612
|
|
|
$
|
(373
|
)
|
|
$
|
13,102
|
|
|
$
|
(381
|
)
|
|
Government-sponsored enterprises *
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
—
|
|
|
|
|
|
|
|
750
|
|
|
|
(112
|
)
|
|
|
750
|
|
|
|
(112
|
)
|
|
Equity securities
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
Total temporarily impaired securities
|
|
$
|
491
|
|
|
$
|
(9
|
)
|
|
$
|
13,362
|
|
|
$
|
(485
|
)
|
|
$
|
13,853
|
|
|
$
|
(494
|
)
|
|
* Such as FNMA, FHLMC and FHLB.
|
|
|
|
|
|
|
|
|
|
|
Management considers the nature of the investment,
the underlying causes of the decline in the market value and the severity and duration of the decline in market value in determining
if impairment is other than temporary. Consideration is given to (1) the length of time and the extent to which the fair value
has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the
Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
As of December 31, 2015, management believes that it is more likely than not that the Bank will not have to sell any such securities
before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available
at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity
date or repricing date or if market yields for such investments decline.
Management does not believe such securities
are other-than-temporarily impaired due to reasons of credit quality. Accordingly, as of December 31, 2015, management believes
the impairments detailed in the table above are temporary and no impairment loss has been realized in the Bank’s net income.
Securities
with a fair value of $2.9 million at December 31, 2015 were pledged to secure public funds. The Bank had no sales of securities
in 2015 or 2014.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December
31, 2015 and 2014
NOTE D - LOANS
Following is a summary of loans at December
31, 2015 and December 31, 2014:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
Amount
|
|
Percent of
Total
|
|
Amount
|
|
Percent of
Total
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
2,625
|
|
|
|
0.90
|
%
|
|
$
|
1,308
|
|
|
|
0.53
|
%
|
|
Commercial ADC
|
|
|
18,735
|
|
|
|
6.41
|
%
|
|
|
19,686
|
|
|
|
8.04
|
%
|
|
Farmland
|
|
|
2,615
|
|
|
|
0.89
|
%
|
|
|
2,456
|
|
|
|
1.00
|
%
|
|
Multifamily
|
|
|
11,475
|
|
|
|
3.93
|
%
|
|
|
5,885
|
|
|
|
2.40
|
%
|
|
Owner occupied
|
|
|
71,968
|
|
|
|
24.62
|
%
|
|
|
60,405
|
|
|
|
24.66
|
%
|
|
Non-owner occupied
|
|
|
58,244
|
|
|
|
19.92
|
%
|
|
|
40,275
|
|
|
|
16.44
|
%
|
|
Total commercial real estate
|
|
|
165,662
|
|
|
|
56.57
|
%
|
|
|
130,015
|
|
|
|
53.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
43,575
|
|
|
|
14.88
|
%
|
|
|
37,355
|
|
|
|
15.25
|
%
|
|
Agriculture
|
|
|
83
|
|
|
|
0.03
|
%
|
|
|
121
|
|
|
|
0.05
|
%
|
|
Other
|
|
|
52
|
|
|
|
0.02
|
%
|
|
|
44
|
|
|
|
0.02
|
%
|
|
Total commercial
|
|
|
43,710
|
|
|
|
14.93
|
%
|
|
|
37,520
|
|
|
|
15.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
46,148
|
|
|
|
15.76
|
%
|
|
|
44,397
|
|
|
|
18.12
|
%
|
|
Junior lien, closed-end
|
|
|
1,240
|
|
|
|
0.42
|
%
|
|
|
820
|
|
|
|
0.34
|
%
|
|
Total residential mortgage
|
|
|
47,388
|
|
|
|
16.18
|
%
|
|
|
45,217
|
|
|
|
18.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
32,083
|
|
|
|
10.95
|
%
|
|
|
28,632
|
|
|
|
11.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
4,022
|
|
|
|
1.37
|
%
|
|
|
3,580
|
|
|
|
1.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans
|
|
$
|
292,865
|
|
|
|
100.00
|
%
|
|
$
|
224,964
|
|
|
|
100.00
|
%
|
|
Deferred loan origination fees, net
|
|
|
(503
|
)
|
|
|
|
|
|
|
(318
|
)
|
|
|
|
|
|
Total loans
|
|
$
|
292,362
|
|
|
|
|
|
|
$
|
244,646
|
|
|
|
|
|
Loans are primarily originated for customers
residing in Lincoln, Gaston, Rutherford and Catawba Counties in North Carolina. Real estate loans can be affected by the condition
of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December
31, 2015 and 2014
NOTE D – LOANS (Continued)
Non-Accrual and Past Due Loans
Non-accrual loans, segregated by category,
were as follows:
|
|
|
December 31,
2015
|
|
December 31,
2014
|
|
Dollars in thousands
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
1,063
|
|
|
$
|
1,292
|
|
|
Owner occupied
|
|
|
459
|
|
|
|
1,282
|
|
|
Non-owner occupied
|
|
|
45
|
|
|
|
436
|
|
|
Total commercial real estate
|
|
|
1,567
|
|
|
|
3,010
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
46
|
|
|
|
507
|
|
|
Total commercial
|
|
|
46
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
382
|
|
|
|
461
|
|
|
Total residential mortgage
|
|
|
382
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
9
|
|
|
|
—
|
|
|
Consumer – other
|
|
|
43
|
|
|
|
13
|
|
|
Total non-accrual loans
|
|
$
|
2,047
|
|
|
$
|
3,991
|
|
Interest foregone on non-accrual loans was approximately $93,000
and $214,000 for the years ended December 31, 2015 and 2014, respectively.
An analysis of past due loans segregated by class, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Loans
30-89
Days
Past Due
|
|
|
Loans
90 or more
Days
Past Due
|
|
|
Total
Past
Due Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
Accruing
Loans 90
or More
Days
Past Due
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,625
|
|
|
$
|
2,625
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
—
|
|
|
|
1,063
|
|
|
|
1,063
|
|
|
|
17,672
|
|
|
|
18,735
|
|
|
|
—
|
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,615
|
|
|
|
2,615
|
|
|
|
—
|
|
|
Multifamily
|
|
|
171
|
|
|
|
—
|
|
|
|
171
|
|
|
|
11,304
|
|
|
|
11,475
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
468
|
|
|
|
—
|
|
|
|
468
|
|
|
|
71,500
|
|
|
|
71,968
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
69
|
|
|
|
—
|
|
|
|
69
|
|
|
|
58,175
|
|
|
|
58,244
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
708
|
|
|
|
1,063
|
|
|
|
1,771
|
|
|
|
163,891
|
|
|
|
165,662
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
15
|
|
|
|
44
|
|
|
|
59
|
|
|
|
43,013
|
|
|
|
43,072
|
|
|
|
—
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
|
|
83
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
|
Total commercial
|
|
|
15
|
|
|
|
44
|
|
|
|
59
|
|
|
|
43,148
|
|
|
|
43,207
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
53
|
|
|
|
258
|
|
|
|
311
|
|
|
|
45,837
|
|
|
|
46,148
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,240
|
|
|
|
1,240
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
53
|
|
|
|
258
|
|
|
|
311
|
|
|
|
47,077
|
|
|
|
47,388
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
274
|
|
|
|
126
|
|
|
|
400
|
|
|
|
31,683
|
|
|
|
32,083
|
|
|
|
117
|
|
|
Consumer – other
|
|
|
91
|
|
|
|
42
|
|
|
|
133
|
|
|
|
3,889
|
|
|
|
4,022
|
|
|
|
—
|
|
|
Total loans
|
|
$
|
1,141
|
|
|
$
|
1,533
|
|
|
$
|
2,674
|
|
|
$
|
289,688
|
|
|
$
|
292,362
|
|
|
$
|
117
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December
31, 2015 and 2014
NOTE D – LOANS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Loans
30-89
Days
Past Due
|
|
|
Loans
90 or more
Days
Past Due
|
|
|
Total Past
Due Loans
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
Accruing
Loans 90
or More
Days
Past Due
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,308
|
|
|
$
|
1,308
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
1,416
|
|
|
|
1,292
|
|
|
|
2,708
|
|
|
|
16,978
|
|
|
|
19,686
|
|
|
|
—
|
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,456
|
|
|
|
2,456
|
|
|
|
—
|
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,885
|
|
|
|
5,885
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
1,736
|
|
|
|
34
|
|
|
|
1,770
|
|
|
|
58,635
|
|
|
|
60,405
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
408
|
|
|
|
408
|
|
|
|
39,867
|
|
|
|
40,275
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
3,152
|
|
|
|
1,734
|
|
|
|
4,886
|
|
|
|
125,129
|
|
|
|
130,015
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
380
|
|
|
|
40
|
|
|
|
420
|
|
|
|
36,617
|
|
|
|
37,037
|
|
|
|
—
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
121
|
|
|
|
121
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44
|
|
|
|
44
|
|
|
|
—
|
|
|
Total commercial
|
|
|
380
|
|
|
|
40
|
|
|
|
420
|
|
|
|
36,782
|
|
|
|
37,202
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
696
|
|
|
|
374
|
|
|
|
1,070
|
|
|
|
43,327
|
|
|
|
44,397
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
13
|
|
|
|
—
|
|
|
|
13
|
|
|
|
807
|
|
|
|
820
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
709
|
|
|
|
374
|
|
|
|
1,083
|
|
|
|
44,134
|
|
|
|
45,217
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
10
|
|
|
|
174
|
|
|
|
184
|
|
|
|
28,448
|
|
|
|
28,632
|
|
|
|
174
|
|
|
Consumer – other
|
|
|
4
|
|
|
|
2
|
|
|
|
6
|
|
|
|
3,574
|
|
|
|
3,580
|
|
|
|
1
|
|
|
Total loans
|
|
$
|
4,255
|
|
|
$
|
2,324
|
|
|
$
|
6,579
|
|
|
$
|
238,067
|
|
|
$
|
244,646
|
|
|
$
|
175
|
|
Impaired loans
Impaired loans as of December 31, 2015 and
December 31, 2014 are set forth in the following tables.
|
Loans without an allowance at December 31, 2015
|
|
In thousands
|
|
Unpaid
Contractual Principal
Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income
Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
3,017
|
|
|
$
|
2,351
|
|
|
$
|
—
|
|
|
$
|
2,353
|
|
|
$
|
85
|
|
|
Owner occupied
|
|
|
2,135
|
|
|
|
2,135
|
|
|
|
—
|
|
|
|
2,338
|
|
|
|
79
|
|
|
Non-owner occupied
|
|
|
45
|
|
|
|
45
|
|
|
|
—
|
|
|
|
134
|
|
|
|
2
|
|
|
Total commercial real estate
|
|
|
5,197
|
|
|
|
4,531
|
|
|
|
—
|
|
|
|
4,825
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
551
|
|
|
|
546
|
|
|
|
—
|
|
|
|
578
|
|
|
|
36
|
|
|
Total commercial
|
|
|
551
|
|
|
|
546
|
|
|
|
—
|
|
|
|
578
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
500
|
|
|
|
433
|
|
|
|
—
|
|
|
|
480
|
|
|
|
8
|
|
|
Total residential mortgage
|
|
|
500
|
|
|
|
433
|
|
|
|
—
|
|
|
|
480
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
289
|
|
|
|
289
|
|
|
|
—
|
|
|
|
286
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
114
|
|
|
|
114
|
|
|
|
—
|
|
|
|
13
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
6,651
|
|
|
$
|
5,913
|
|
|
$
|
—
|
|
|
$
|
6,182
|
|
|
$
|
221
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December
31, 2015 and 2014
NOTE D – LOANS (Continued)
|
Loans with a related allowance at December 31, 2015
|
|
In thousands
|
|
Unpaid
Contractual Principal
Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income
Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
Owner occupied
|
|
|
318
|
|
|
|
318
|
|
|
$
|
23
|
|
|
$
|
186
|
|
|
$
|
25
|
|
|
Total commercial real estate
|
|
|
318
|
|
|
|
318
|
|
|
|
23
|
|
|
|
289
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
455
|
|
|
|
455
|
|
|
|
80
|
|
|
|
451
|
|
|
|
31
|
|
|
Total commercial
|
|
|
455
|
|
|
|
455
|
|
|
|
80
|
|
|
|
451
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
846
|
|
|
|
846
|
|
|
|
102
|
|
|
|
967
|
|
|
|
49
|
|
|
Total residential mortgage
|
|
|
846
|
|
|
|
846
|
|
|
|
102
|
|
|
|
967
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer - other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,628
|
|
|
$
|
1,628
|
|
|
$
|
214
|
|
|
$
|
1,709
|
|
|
$
|
105
|
|
|
Total Impaired Loans at December 31, 2015
|
|
In thousands
|
|
Unpaid
Contractual Principal
Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income
Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
3,017
|
|
|
$
|
2,351
|
|
|
$
|
—
|
|
|
$
|
2,456
|
|
|
$
|
85
|
|
|
Owner occupied
|
|
|
2,453
|
|
|
|
2,453
|
|
|
|
23
|
|
|
|
2,524
|
|
|
|
104
|
|
|
Non-owner occupied
|
|
|
45
|
|
|
|
45
|
|
|
|
—
|
|
|
|
134
|
|
|
|
2
|
|
|
Total commercial real estate
|
|
|
5,515
|
|
|
|
4,849
|
|
|
|
23
|
|
|
|
5,114
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,005
|
|
|
|
1,001
|
|
|
|
80
|
|
|
|
1,029
|
|
|
|
67
|
|
|
Total commercial
|
|
|
1,005
|
|
|
|
1,001
|
|
|
|
80
|
|
|
|
1,029
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
1,346
|
|
|
|
1,279
|
|
|
|
102
|
|
|
|
1,447
|
|
|
|
57
|
|
|
Total residential mortgage
|
|
|
1,346
|
|
|
|
1,279
|
|
|
|
102
|
|
|
|
1,447
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
299
|
|
|
|
298
|
|
|
|
9
|
|
|
|
287
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
114
|
|
|
|
114
|
|
|
|
—
|
|
|
|
14
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
8,279
|
|
|
$
|
7,541
|
|
|
$
|
214
|
|
|
$
|
7,891
|
|
|
$
|
326
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December
31, 2015 and 2014
NOTE D – LOANS (Continued)
|
Loans without an allowance at December 31, 2014
|
|
In thousands
|
|
Unpaid
Contractual Principal
Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income
Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
1,647
|
|
|
$
|
1,535
|
|
|
$
|
—
|
|
|
$
|
1,807
|
|
|
$
|
52
|
|
|
Owner occupied
|
|
|
1,774
|
|
|
|
1,722
|
|
|
|
—
|
|
|
|
778
|
|
|
|
80
|
|
|
Non-owner occupied
|
|
|
493
|
|
|
|
411
|
|
|
|
—
|
|
|
|
262
|
|
|
|
13
|
|
|
Total commercial real estate
|
|
|
3,914
|
|
|
|
3,668
|
|
|
|
—
|
|
|
|
2,847
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
628
|
|
|
|
624
|
|
|
|
—
|
|
|
|
624
|
|
|
|
47
|
|
|
Total commercial
|
|
|
628
|
|
|
|
624
|
|
|
|
—
|
|
|
|
624
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
619
|
|
|
|
546
|
|
|
|
—
|
|
|
|
607
|
|
|
|
23
|
|
|
Junior lien, closed-end
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
619
|
|
|
|
546
|
|
|
|
—
|
|
|
|
613
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
284
|
|
|
|
284
|
|
|
|
—
|
|
|
|
42
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
34
|
|
|
|
12
|
|
|
|
—
|
|
|
|
9
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
5,479
|
|
|
|
5,134
|
|
|
$
|
—
|
|
|
$
|
4,135
|
|
|
$
|
230
|
|
|
Loans with a related allowance at December 31, 2014
|
|
In thousands
|
|
Unpaid
Contractual Principal
Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income
Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
1,771
|
|
|
$
|
1,105
|
|
|
$
|
156
|
|
|
$
|
1,137
|
|
|
$
|
—
|
|
|
Owner occupied
|
|
|
756
|
|
|
|
756
|
|
|
|
2
|
|
|
|
767
|
|
|
|
32
|
|
|
Total commercial real estate
|
|
|
2,527
|
|
|
|
1,861
|
|
|
|
158
|
|
|
|
1,904
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
467
|
|
|
|
467
|
|
|
|
245
|
|
|
|
498
|
|
|
|
40
|
|
|
Total commercial
|
|
|
467
|
|
|
|
467
|
|
|
|
245
|
|
|
|
498
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
1,125
|
|
|
|
1,125
|
|
|
|
151
|
|
|
|
1,098
|
|
|
|
59
|
|
|
Total residential mortgage
|
|
|
1,125
|
|
|
|
1,125
|
|
|
|
151
|
|
|
|
1,098
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
4,120
|
|
|
$
|
3,454
|
|
|
$
|
555
|
|
|
$
|
3,501
|
|
|
$
|
131
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
|
Total Impaired Loans at December 31, 2014
|
|
In thousands
|
|
Unpaid Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
3,418
|
|
|
$
|
2,640
|
|
|
$
|
156
|
|
|
$
|
2,944
|
|
|
$
|
52
|
|
|
Owner occupied
|
|
|
2,530
|
|
|
|
2,478
|
|
|
|
2
|
|
|
|
1,545
|
|
|
|
112
|
|
|
Non-owner occupied
|
|
|
493
|
|
|
|
411
|
|
|
|
—
|
|
|
|
262
|
|
|
|
13
|
|
|
Total commercial real estate
|
|
|
6,441
|
|
|
|
5,529
|
|
|
|
158
|
|
|
|
4,751
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,095
|
|
|
|
1,091
|
|
|
|
245
|
|
|
|
1,122
|
|
|
|
87
|
|
|
Total commercial
|
|
|
1,095
|
|
|
|
1,091
|
|
|
|
245
|
|
|
|
1,122
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
1,744
|
|
|
|
1,671
|
|
|
|
151
|
|
|
|
1,705
|
|
|
|
82
|
|
|
Junior lien, closed-end
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
1,744
|
|
|
|
1,671
|
|
|
|
151
|
|
|
|
1,711
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
284
|
|
|
|
284
|
|
|
|
—
|
|
|
|
42
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
35
|
|
|
|
13
|
|
|
|
1
|
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
9,599
|
|
|
$
|
8,588
|
|
|
$
|
555
|
|
|
$
|
7,636
|
|
|
$
|
361
|
|
At December 31, 2015 there was one loan totaling
$117,000 past due 90 days or more, which was still accruing interest. There were three loans totaling $175,000 past due 90 days
or more and still accruing interest at December 31, 2014.
Troubled Debt Restructures
As of December 31, 2015, ten loans totaling
$4,853,000 were identified as troubled debt restructurings and considered impaired, none of which had unfunded commitments. Eleven
loans totaling $4,871,000 were identified as troubled debt restructurings and considered impaired at December 31, 2014, none of
which had unfunded commitments. Of the ten loans identified as troubled debt restructurings at December 31, 2015, nine loans totaling
$4,725,000 were accruing interest and of the eleven loans identified as troubled debt restructurings at December 31, 2014, nine
loans totaling $4,242,000 were accruing interest.
For the years ended December 31, 2015 and 2014,
the following tables present a breakdown of the types of concessions made by loan class. The type labeled other includes concessions
made to capitalize interest and extend interest only periods.
|
|
|
|
Year ended December 31, 2015
|
|
|
Dollars in thousands
|
|
|
Number of
loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2
|
|
|
$
|
971
|
|
|
$
|
971
|
|
|
Total
commercial real estate
|
|
|
2
|
|
|
|
971
|
|
|
|
971
|
|
|
Total
|
|
|
2
|
|
|
$
|
971
|
|
|
$
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
2
|
|
|
$
|
971
|
|
|
$
|
971
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2014
|
|
|
Dollars in thousands
|
|
|
Number of
loans
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
|
1
|
|
|
$
|
1,348
|
|
|
$
|
1,348
|
|
|
Total
commercial real estate
|
|
|
1
|
|
|
|
1,348
|
|
|
|
1,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
|
1
|
|
|
$
|
467
|
|
|
$
|
467
|
|
|
Total commercial
|
|
|
1
|
|
|
|
467
|
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
1,815
|
|
|
$
|
1,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
2
|
|
|
$
|
1,815
|
|
|
$
|
1,815
|
|
Qualitative factors are calculated for each
segment of the loan portfolio. Factors include economic, concentrations, trends in terms of volume and mix, interest rate movement,
and delinquency. If a restructured loan is delinquent, it is addressed in the delinquency factor for that segment. Because the
number and dollar amounts of restructured loans represent a relatively small percentage (2%) of the total loan balances there is
no specific qualitative factor tied to restructured loans.
There were no loans that were modified as troubled
debt restructurings within the previous 12 months for which there was a payment default during the years ended December 31, 2015
or 2014.
If a restructured loan defaults after being
restructured, the loan is liquidated or charged off. Defaults of restructured loans are addressed in the qualitative factor of
the delinquency component.
The following tables present the successes
and failures of the types of modifications within the previous 12 months as of December 31, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in full
|
|
Paying as restructured
|
|
Converted to non-accrual
|
|
Foreclosure/Default
|
|
|
|
|
Number of
loans
|
|
Recorded
Investment
|
|
Number of
loans
|
|
Recorded
Investment
|
|
Number of
loans
|
|
Recorded
Investment
|
|
Number of
loans
|
|
Recorded
Investment
|
|
|
December 31, 2015
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
—
|
|
$
|
—
|
|
|
2
|
|
$
|
971
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
|
Total
|
|
|
—
|
|
$
|
—
|
|
|
2
|
|
$
|
971
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in full
|
|
Paying as restructured
|
|
Converted to non-accrual
|
|
Foreclosure/Default
|
|
|
|
|
Number of
loans
|
|
Recorded
Investment
|
|
Number of
loans
|
|
Recorded
Investment
|
|
Number of
loans
|
|
Recorded
Investment
|
|
Number of
loans
|
|
Recorded
Investment
|
|
|
December 31, 2014
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
—
|
|
$
|
—
|
|
|
2
|
|
$
|
1,815
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
|
Total
|
|
|
—
|
|
$
|
—
|
|
|
2
|
|
$
|
1,815
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
The Bank has two foreclosed residential real
estate properties held totaling $59,000 as of December 31, 2015.
The recorded investment of consumer mortgage
loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $185,000 for
December 31, 2015.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
Credit Quality Indicators
As part of the on-going monitoring of credit
quality of the Bank’s loan portfolio, management tracks certain credit quality indicators including trends related to (i)
the local, state and national economic outlook, (ii) concentrations of credit, (iii) interest rate movements, (iv) volume, mix
and size of loans and (v) delinquencies. The Bank also has an internal Loan Review Officer that monitors risk grades on an on-going
basis. Furthermore, the Bank employs a third party contractor to perform an annual loan review. The scope of the review is typically
50 - 60% of the loan portfolio.
The Bank utilizes a risk-grading matrix to
assign a risk grade to each of its Commercial and Consumer loans. Loans are graded on a scale of 1-9. Risk grades 1-5 represent
pass rated loans. The general characteristics of the 9 risk grades are broken down into commercial and consumer and described below:
Loan Portfolio Risk Grades
|
|
|
Pass credits are grades 1-5 and represent credits with above average risk characteristics that are
in accordance with loan policy guidelines regarding repayment ability, loan to value, and credit history. These type of credits
have very few exceptions to policy.
|
|
|
|
Grade 6 –
Watch List or Special Mention. The loans in this category include the following
characteristics:
|
|
|
·
|
Loans with one or more major exceptions
with no mitigating factors.
|
|
|
·
|
Extending loans that are currently performing
satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s
position at some future date. Potential weaknesses are the result of deviations from prudent lending practice.
|
|
|
·
|
Loans where adverse economic conditions
that develop subsequent to the loan origination that don’t jeopardize liquidation of the debt but do substantially increase
the level of risk may also warrant this rating.
|
|
|
|
Grade 7
– Substandard.
A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral
pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation
of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies
are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category
are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. The
weaknesses may include, but are not limited to (i) high debt to worth ratios, (ii) declining or negative earnings trends, (iii)
declining or inadequate liquidity, (iv) improper loan structure, (v) questionable repayment sources, (vi) lack of well-defined
secondary repayment source, and (vii) unfavorable competitive comparisons.
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
|
|
|
Grade 8 –
Doubtful. Loans classified Doubtful have all
the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans
are not yet rated as loss because certain events may occur which would salvage the debt. Among these events are injection of capital,
alternative financing and liquidation of assets or the pledging of additional collateral. The ability of the borrower to service
the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment
schedule exists. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy.
Once the loss position is determined, the amount is charged off.
|
|
|
|
Grade 9 –
Loss.
Loans classified Loss are considered uncollectable and of such little value that their continuance
as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value,
but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be effected in
the future.
Probable Loss portions of Doubtful assets should be charged against the
Reserve for Loan Losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier
of thirty (30) days or calendar quarter-end.
|
The following table presents the credit
risk profile by internally assigned risk grades.
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
2,625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
15,868
|
|
|
|
516
|
|
|
|
2,351
|
|
|
|
—
|
|
|
|
—
|
|
|
Farmland
|
|
|
2,615
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Multifamily
|
|
|
11,475
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
67,727
|
|
|
|
2,392
|
|
|
|
1,849
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
56,842
|
|
|
|
1,357
|
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
157,152
|
|
|
|
4,265
|
|
|
|
4,245
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
40,443
|
|
|
|
2,146
|
|
|
|
483
|
|
|
|
—
|
|
|
|
—
|
|
|
Agriculture
|
|
|
83
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial
|
|
|
40,578
|
|
|
|
2,146
|
|
|
|
483
|
|
|
|
—
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
42,560
|
|
|
|
3,113
|
|
|
|
475
|
|
|
|
—
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
725
|
|
|
|
476
|
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
43,285
|
|
|
|
3,589
|
|
|
|
514
|
|
|
|
—
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
30,086
|
|
|
|
1,680
|
|
|
|
317
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer – other
|
|
|
3,713
|
|
|
|
309
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
274,814
|
|
|
$
|
11,989
|
|
|
$
|
5,559
|
|
|
$
|
—
|
|
|
$
|
—
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
1,308
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
16,441
|
|
|
|
537
|
|
|
|
2,708
|
|
|
|
—
|
|
|
|
—
|
|
|
Farmland
|
|
|
2,456
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Multifamily
|
|
|
5,885
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
55,763
|
|
|
|
2,727
|
|
|
|
1,915
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
39,839
|
|
|
|
—
|
|
|
|
436
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
121,692
|
|
|
|
3,264
|
|
|
|
5,059
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
35,376
|
|
|
|
201
|
|
|
|
1,460
|
|
|
|
—
|
|
|
|
—
|
|
|
Agriculture
|
|
|
121
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial
|
|
|
35,541
|
|
|
|
201
|
|
|
|
1,460
|
|
|
|
—
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
41,004
|
|
|
|
2,832
|
|
|
|
561
|
|
|
|
—
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
663
|
|
|
|
113
|
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
41,667
|
|
|
|
2,945
|
|
|
|
605
|
|
|
|
—
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
27,191
|
|
|
|
1,104
|
|
|
|
337
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer – other
|
|
|
3,533
|
|
|
|
34
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
229,624
|
|
|
$
|
7,548
|
|
|
$
|
7,474
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Allowance for Loan Losses
The allowance for loan losses represents
management’s estimate of an amount adequate to provide for probable losses inherent in the loan portfolio. Management determines
the allowance for loan losses based on a number of factors, including a review and evaluation of the Bank’s loan portfolio and
current and projected economic conditions locally and nationally. The allowance is monitored and analyzed in conjunction with the
Bank’s loan analysis and grading program. In the first quarter of 2015, the allowance methodology used in the analysis was modified
by a change to expand the look back period for average loss rates to a twelve quarter period instead of the eight quarter period
used previously. The impact of this change was a $519,000 increase to the allowance. Based on this methodology, provisions for
loan losses are made to maintain an adequate allowance for loan losses. The allowance for loan losses is created by direct charges
to operations. Losses on loans are charged against the allowance for loan losses in the accounting period in which they are determined
by management to be uncollectible. Recoveries during the period are credited to the allowance. The provision for loan losses is
the amount necessary to adjust the allowance for loan losses to the amount that management has determined to be adequate to provide
for probable losses inherent in the loan portfolio. The Bank recorded negative loan loss provisions of ($270,000) and ($80,000)
for the years ended December 31, 2015 and December 31, 2014 respectively. Management realizes that general economic trends greatly
affect loan losses, and no assurances can be made that future charges to the allowance for loan losses may not be significant in
relation to the amount provided during a particular period, or that future evaluations of the loan portfolio based on conditions
then prevailing will not require sizable additions to the allowance, thus necessitating similarly sizable charges to income.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
Based on its best judgment, evaluation,
and analysis of the loan portfolio, management considers the allowance for loan losses to be appropriate in light of the risk inherent
in the Bank’s loan portfolio for the reporting periods.
The following table details activity in
the allowance for loan losses by portfolio segment for the years ended December 31, 2015 and 2014:
|
|
|
Beginning
Balance
|
|
|
Provision
for
(Recovery)
of Loan
Losses
|
|
|
Charge-
offs
|
|
|
Recoveries
|
|
|
Ending
Balance
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,456
|
|
|
$
|
(187
|
)
|
|
$
|
(108
|
)
|
|
$
|
141
|
|
|
|
2,302
|
|
|
Commercial and industrial
|
|
|
705
|
|
|
|
(230
|
)
|
|
|
—
|
|
|
|
95
|
|
|
|
570
|
|
|
Residential mortgage
|
|
|
464
|
|
|
|
173
|
|
|
|
(132
|
)
|
|
|
—
|
|
|
|
505
|
|
|
Consumer
|
|
|
377
|
|
|
|
(26
|
)
|
|
|
(17
|
)
|
|
|
12
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,002
|
|
|
$
|
(270
|
)
|
|
$
|
(257
|
)
|
|
$
|
248
|
|
|
$
|
3,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,498
|
|
|
$
|
(92
|
)
|
|
$
|
(226
|
)
|
|
$
|
276
|
|
|
$
|
2,456
|
|
|
Commercial and industrial
|
|
|
517
|
|
|
|
183
|
|
|
|
(18
|
)
|
|
|
23
|
|
|
|
705
|
|
|
Residential mortgage
|
|
|
546
|
|
|
|
(83
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
464
|
|
|
Consumer
|
|
|
505
|
|
|
|
(88
|
)
|
|
|
(46
|
)
|
|
|
6
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,066
|
|
|
$
|
(80
|
)
|
|
$
|
(290
|
)
|
|
$
|
306
|
|
|
$
|
4,002
|
|
|
Year End Amount Allocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
individually evaluated for impairment
|
|
|
Loans
Collectively Evaluated for Impairment
|
|
|
Total
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
23
|
|
|
$
|
2,279
|
|
|
$
|
2,302
|
|
|
Commercial and industrial
|
|
|
80
|
|
|
|
490
|
|
|
|
570
|
|
|
Residential mortgage
|
|
|
102
|
|
|
|
403
|
|
|
|
505
|
|
|
Consumer
|
|
|
9
|
|
|
|
337
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
214
|
|
|
$
|
3,509
|
|
|
$
|
3,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
158
|
|
|
$
|
2,298
|
|
|
$
|
2,456
|
|
|
Commercial and industrial
|
|
|
245
|
|
|
|
460
|
|
|
|
705
|
|
|
Residential mortgage
|
|
|
151
|
|
|
|
313
|
|
|
|
464
|
|
|
Consumer
|
|
|
1
|
|
|
|
376
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
555
|
|
|
$
|
3,447
|
|
|
$
|
4,002
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
The Bank’s recorded investment in
loans as of December 31, 2015 and December 31, 2014 related to each balance in the allowance for loan losses by portfolio segment
and disaggregated on the Bank’s impairment methodology was as follows:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
Loans individually Evaluated for Impairment
|
|
|
Loans Collectively Evaluated for Impairment
|
|
|
Loans individually Evaluated for Impairment
|
|
|
Loans Collectively Evaluated for Impairment
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
4,849
|
|
|
$
|
160,813
|
|
|
$
|
5,528
|
|
|
$
|
124,487
|
|
|
Commercial and industrial
|
|
|
1,001
|
|
|
|
42,710
|
|
|
|
1,091
|
|
|
|
36,429
|
|
|
Residential mortgage
|
|
|
1,279
|
|
|
|
46,109
|
|
|
|
1,671
|
|
|
|
43,546
|
|
|
Consumer
|
|
|
412
|
|
|
|
35,692
|
|
|
|
297
|
|
|
|
31,915
|
|
|
Unearned Discounts
|
|
|
—
|
|
|
|
(503
|
)
|
|
|
—
|
|
|
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,541
|
|
|
$
|
284,821
|
|
|
$
|
8,587
|
|
|
$
|
236,059
|
|
At December 31, 2015 the Bank had pre-approved
but unused lines of credit totaling $43.4 million. In management’s opinion these unused lines of credit represent no more
than normal lending risk to the Bank and will be funded from normal sources of liquidity.
The Bank has entered loan transactions
with its directors and executive officers. Such loans were made in the ordinary course of business and on substantially the same
terms and collateral as those for comparable transactions prevailing at the time and did not involve more than the normal risk
of collectability or present other unfavorable features.
A summary of related party loan activity as of December 31,
2015 and 2014 is as follows:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,123
|
|
|
$
|
1,157
|
|
|
Loan disbursements
|
|
|
1,751
|
|
|
|
623
|
|
|
Loan repayments
|
|
|
(527
|
)
|
|
|
(657
|
)
|
|
Changes in related parties
|
|
|
—
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
2,347
|
|
|
$
|
1,123
|
|
At December 31, 2015 and 2014 the Bank
had pre-approved but unused lines of credit totaling $289,000 and $1,028,000, respectively, to executive officers, directors and
their related interests. Related party deposits totaled $1,966,000 and $4,982,000 at December 31, 2015 and 2014, respectively.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE D – LOANS (Continued)
The following table presents the purchased
impaired loans receivable at December 31, 2015 and 2014. The Bank has initially applied the cost recovery method to all impaired
loans purchased at the acquisition date due to uncertainty as to the timing of expected cash flows as reflected in the following
table:
Purchased Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
Carrying value, beginning of year
|
|
$
|
215
|
|
|
$
|
309
|
|
|
Changes due to payments received, transfers or charge-offs
|
|
|
(215
|
)
|
|
|
(94
|
)
|
|
Carrying value, end of year
|
|
$
|
—
|
|
|
$
|
215
|
|
The following table shows the changes in the accretable yield
for the years ended December 31, 2015 and 2014:
Accretable Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
Total, beginning of year
|
|
$
|
43
|
|
|
$
|
55
|
|
|
Accretion
|
|
|
(10
|
)
|
|
|
(12
|
)
|
|
Total, end of year
|
|
$
|
33
|
|
|
$
|
43
|
|
NOTE E – FORECLOSED ASSETS
The following table summarizes the activity in foreclosed assets
for the years ended December 31, 2015 and 2014:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
2,048
|
|
|
$
|
3,902
|
|
|
Additions
|
|
|
957
|
|
|
|
—
|
|
|
Proceeds from sale
|
|
|
(576
|
)
|
|
|
(1,317
|
)
|
|
Valuation adjustments
|
|
|
(285
|
)
|
|
|
(251
|
)
|
|
Gains (losses) on sales
|
|
|
(150
|
)
|
|
|
(286
|
)
|
|
Balance, end of year
|
|
$
|
1,994
|
|
|
$
|
2,048
|
|
The Bank has two foreclosed residential real
estate properties held totaling $59,000 as of December 31, 2015.
The recorded investment of consumer mortgage
loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $185,000 for
December 31, 2015.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE F – EARNINGS PER SHARE
Basic earnings per share are based upon the weighted average
number of common shares outstanding during the period. The weighted average common shares outstanding for the diluted earnings
per share computations were adjusted to reflect the assumed conversion of shares available under stock options. The following tables
summarize earnings per share and the shares utilized in the computations for the twelve months ended December 31, 2015 and 2014,
respectively:
|
|
|
Net
income
available to
common
shareholders
|
|
Weighted
Average
Common
Shares
|
|
Per
Share
Amount
|
|
Dollars in thousands, except per share data
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
824
|
|
|
|
4,645,408
|
|
|
$
|
0.18
|
|
|
Effect of dilutive stock options
|
|
|
—
|
|
|
|
40,406
|
|
|
|
|
|
|
Effect of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
824
|
|
|
|
4,685,814
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
6,630
|
|
|
|
4,635,096
|
|
|
$
|
1.43
|
|
|
Effect of dilutive stock options
|
|
|
—
|
|
|
|
43,012
|
|
|
|
|
|
|
Effect of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
6,630
|
|
|
|
4,678,108
|
|
|
$
|
1.42
|
|
NOTE G - BANK PREMISES AND EQUIPMENT
Following is a summary of bank premises
and equipment at December 31, 2015 and 2014:
|
|
|
December 31,
2015
|
|
December
31,
2014
|
|
Dollars in thousands
|
|
|
|
|
|
Land, buildings and leasehold improvements
|
|
$
|
7,403
|
|
|
$
|
7,905
|
|
|
Computer equipment
|
|
|
951
|
|
|
|
1,079
|
|
|
Furniture and equipment
|
|
|
1,205
|
|
|
|
1,091
|
|
|
Total
|
|
|
9,559
|
|
|
|
10,075
|
|
|
Less accumulated depreciation
|
|
|
(3,849
|
)
|
|
|
(3,867
|
)
|
|
Total
|
|
$
|
5,710
|
|
|
$
|
6,208
|
|
Depreciation and amortization amounting
to $385,000 and $370,000 for the years ended December 31, 2015 and 2014, respectively, is included in occupancy and equipment expense.
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE H - LEASES
Capital Lease Obligation
The Bank leases its main office facility under
a lease with an initial term of twenty years. The portion of the lease applicable to the building is being accounted for as a capitalized
lease. Leases that meet the criteria for capitalization are recorded as bank premises and equipment and the related obligations
are reflected as capital lease obligations on the accompanying balance sheets. Amortization of property under the capital lease
is included in depreciation expense. Included in bank premises and equipment at December 31, 2015 and 2014 is $187,000 and $225,000
respectively, as the amortized cost of the Bank’s main office.
At December 31, 2015, aggregate future minimum lease payments due
under this capital lease obligation are as follows:
|
|
|
|
|
|
|
|
Future Minimum Lease Payments
|
|
|
|
|
|
|
December
31, 2015
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
2016
|
|
|
$
|
79
|
|
|
2017
|
|
|
|
79
|
|
|
2018
|
|
|
|
79
|
|
|
2019
|
|
|
|
79
|
|
|
2020
|
|
|
|
72
|
|
|
Thereafter
|
|
|
|
—
|
|
|
Total minimum lease payments
|
|
|
|
388
|
|
|
Less amount representing interest
|
|
|
|
(62
|
)
|
|
Present value of net minimum lease payments
|
|
|
$
|
326
|
|
The Bank funded the construction of the Boger
City branch facility and at completion sold the building to an unrelated third party. The sale price was $1,100,000 of which the
purchaser paid $250,000 as a down payment, with the remaining $850,000 financed by the Bank. The Bank then leased the building
from the third party for use as a branch facility. The lease is accounted for as an operating lease and is included in the discussion
below. The loan on this building was paid off by the third party during 2015.
The land portion of the Bank’s main office
facility lease is being accounted for as an operating lease with a twenty-year term. In addition, the Bank has entered into three-year
leases at its Lincolnton, West, Forest City and Lake Lure branch facilities and five-year leases for its Vale and Boger City branch
facilities, a one year lease for its Hickory office and a three-year lease for its Mooresville office. Generally, operating leases
contain renewal options on substantially the same basis as current rental terms. The operating lease for the West branch facility
has five renewal options, each for a three-year term; the operating lease for the Vale branch has two renewal options each for
a five-year term; the operating lease for the Boger City branch has three renewal options each for a five-year term; the operating
lease for the Forest City branch has four renewal options each for a three-year term; the operating lease for the Hickory office
has one renewal option for a one-year term; the operating lease for the Mooresville office has no renewal options; and the Lake
Lure branch has two renewal options each with a three-year term. All of the operating leases are accounted for on a straight line
basis, including renewal terms.
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE H – LEASES (continued)
Future rental payments under these leases
are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
2016
|
|
|
$
|
281
|
|
|
2017
|
|
|
|
192
|
|
|
2018
|
|
|
|
58
|
|
|
2019
|
|
|
|
19
|
|
|
2020
|
|
|
|
18
|
|
|
Thereafter
|
|
|
|
—
|
|
|
|
|
|
$
|
568
|
|
Total rent expense under operating leases was approximately $324,000
and $284,000 for the years ended December 31, 2015 and 2014, respectively.
NOTE I - DEPOSITS
The aggregate amount of time deposits in denominations
of $250,000 or more at December 31, 2015 and 2014 was $41.8 million and $20.2 million, respectively. Interest expense on such
deposits aggregated $479,000 and $195,000 in 2015 and 2014, respectively. At December 31, 2015, the scheduled maturities of certificates
of deposit are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
Less than $250,000
|
|
|
$250,000 or
more
|
|
|
Total
|
|
|
2016
|
|
|
$
|
44,323
|
|
|
$
|
10,352
|
|
|
$
|
54,675
|
|
|
2017
|
|
|
|
34,796
|
|
|
|
9,780
|
|
|
|
44,576
|
|
|
2018
|
|
|
|
15,823
|
|
|
|
8,959
|
|
|
|
24,782
|
|
|
2019
|
|
|
|
9,405
|
|
|
|
8,515
|
|
|
|
17,920
|
|
|
2020
|
|
|
|
5,566
|
|
|
|
4,255
|
|
|
|
9,821
|
|
|
Total
|
|
|
$
|
109,913
|
|
|
$
|
41,861
|
|
|
|
151,774
|
|
The Bank periodically uses brokered
deposits consistent with asset and liability management policies. At December 31, 2015 and 2014 the Bank had $31,983,000
and $11,233,000, respectively, in brokered deposits. The Bank reclassifies overdrafts on deposit accounts to loan balances. For
the years ended December 31, 2015 and 2014, the reclassified amounts were $44,000 and $29,000 respectively.
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE J - LINES OF CREDIT AND FHLB
ADVANCES
At December 31, 2015, the Bank had available
three unsecured federal funds lines of credit totaling $11,400,000 borrowing capacity on a short term basis. There was $2,355,000
outstanding against these credit lines at December 31, 2015 and no borrowings outstanding at December 31, 2014. These lines are
subject to annual renewals and have varying interest rates. The Bank also has available with The Federal Home Loan Bank of Atlanta
(“FHLB”), a line of credit equal to 15% of the Bank’s total assets. This credit line is secured by loans secured
by real estate and Federal Home Loan Bank stock. Rates and terms may be fixed or variable and are determined at the time advances
on the credit line are made. At December 31, 2015 and December 31, 2014 the Bank had outstanding advances of $13,000,000 and $22,000,000
respectively. Pursuant to collateral agreements with the Federal Home Loan Bank at December 31, 2015 advances are secured by loans
with a carrying amount of approximately $73,211,000. Some advances have call features, which may be exercised on specific dates
at the discretion of the FHLB.
At December 31, the scheduled maturities of
advances from the Federal Home Loan Bank are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Maturity Date
|
|
|
|
Interest Rates
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
6/24/2015
|
|
|
|
3.71%
|
|
|
$
|
|
|
|
$
|
2,000
|
|
|
11/19/2015
|
|
|
|
0.37%
|
|
|
|
—
|
|
|
|
14,000
|
|
|
12/14/2015
|
|
|
|
4.50%
|
|
|
|
—
|
|
|
|
1,000
|
|
|
1/21/2016
|
|
|
|
0.54%
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
1/29/2016
|
|
|
|
0.38%
|
|
|
|
3,000
|
|
|
|
—
|
|
|
7/29/2016
|
|
|
|
0.87%
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
11/19/2016
|
|
|
|
0.49%
|
|
|
|
5,000
|
|
|
|
—
|
|
|
3/29/2018
|
|
|
|
1.88%
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
Total
|
|
|
$
|
13,000
|
|
|
$
|
22,000
|
|
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE K - INCOME TAXES
The approximate amount of significant components
of the provision for income taxes for the years ended December 31, 2015 and 2014 are as follows:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
Current tax provision (benefit)
|
|
$
|
20
|
|
|
$
|
42
|
|
|
Deferred tax provision
|
|
|
1,144
|
|
|
|
811
|
|
|
Provision for income tax before adjustment to deferred tax asset valuation allowance
|
|
|
1,164
|
|
|
|
853
|
|
|
Increase (decrease) in valuation allowance
|
|
|
—
|
|
|
|
(5,392
|
)
|
|
Net provision (benefit) for income taxes
|
|
$
|
1,164
|
|
|
$
|
(4,539
|
)
|
The difference between the provision for income
taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized
below:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
Tax computed at the statutory rate
|
|
$
|
755
|
|
|
$
|
788
|
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax effect
|
|
|
162
|
|
|
|
79
|
|
|
Adjustment to deferred tax asset valuation allowance
|
|
|
—
|
|
|
|
(5,392
|
)
|
|
Other permanent differences
|
|
|
247
|
|
|
|
(14
|
)
|
|
Provision (benefit) for income taxes
|
|
$
|
1,164
|
|
|
$
|
(4,539
|
)
|
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of deferred taxes at December 31, 2015 and 2014 are as follows:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
Deferred tax assets relating to:
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
650
|
|
|
$
|
762
|
|
|
Stock options
|
|
|
26
|
|
|
|
27
|
|
|
Amortization of intangibles
|
|
|
13
|
|
|
|
19
|
|
|
Foreclosed asset basis differences
|
|
|
359
|
|
|
|
684
|
|
|
Unrealized loss on AFS securities
|
|
|
127
|
|
|
|
—
|
|
|
SERP liability
|
|
|
861
|
|
|
|
852
|
|
|
Nonaccrual loan interest
|
|
|
124
|
|
|
|
20
|
|
|
Net operating/economic loss carryforwards
|
|
|
2,538
|
|
|
|
2,989
|
|
|
Other
|
|
|
277
|
|
|
|
295
|
|
|
Total deferred tax assets
|
|
|
4,975
|
|
|
|
5,648
|
|
|
Less valuation allowance
|
|
|
—
|
|
|
|
—
|
|
|
Net deferred tax assets
|
|
$
|
4,975
|
|
|
$
|
5,648
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities relating to:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
(113
|
)
|
|
$
|
(77
|
)
|
|
Fixed assets
|
|
|
(437
|
)
|
|
|
(99
|
)
|
|
Fair value acquisition adjustments, net
|
|
|
(335
|
)
|
|
|
(365
|
)
|
|
Unrealized gain on available-for-sale securities
|
|
|
—
|
|
|
|
(70
|
)
|
|
Total deferred tax liabilities
|
|
|
(885
|
)
|
|
|
(611
|
)
|
|
Net recorded deferred tax asset
|
|
$
|
4,090
|
|
|
$
|
5,037
|
|
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE K - INCOME TAXES
(continued)
The Bank
had income tax expense of $1,164,000 in 2015. The Bank had an income tax benefit of $4,539,000 in 2014 due to the reversal of the
valuation allowance based on positive trends in earnings and credit quality. Additionally, the Bank evaluated the realization of
the remaining deferred asset of $4.0 million and determined that it was more likely than not that the Bank could recognize that
asset in the future.
As of
December 31, 2015, the Bank had a total Net Operating Loss (NOL) carryforward of $6,789,000. The NOL originated in 2009 and can
be carried forward for 20 years. It will begin expiring in 2029. As of December 31, 2015, the Bank had a total Net Economic Loss
(NEL) carryforward of $8,699,000. The NEL originated in 2009 and can be carried forward for 15 years. It will begin expiring in
2024.
NOTE L - REGULATORY MATTERS
The Bank, as a North Carolina banking corporation,
may pay cash dividends
only if the distribution will not reduce the Bank’s capital below applicable capital requirements.
However, regulatory authorities may limit payment of dividends by any bank when it is determined that such limitation is in the
public interest and is necessary to ensure the bank’s financial soundness.
The Bank is subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory - and possibly additional, discretionary - actions by regulators that, if undertaken, could have a direct material
effect on the Bank’s financial statements. Based on the most recent notification from its regulators, the Bank is well capitalized
under the framework for prompt corrective action. There are no conditions or events since that notification that management believes
have changed the Bank’s category. Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications
are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation
to ensure capital adequacy require the Bank to maintain minimum amounts and ratios, as prescribed by regulations, of total common
equity Tier I and Tier I capital to risk-weighted assets and of Tier 1 capital to average assets.
Management believes, as of December
31, 2015 and 2014 that the Bank meets all capital adequacy requirements to which it is subject.
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE L - REGULATORY MATTERS (continued)
The Bank’s capital amounts and ratios
are presented in the following table at December 31, 2015 and 2014:
|
|
|
Actual
|
|
|
Minimum
required for capital adequacy purposes
|
|
|
Required
in Order to Be Well Capitalized Under PCA
|
|
|
Dollars in thousands
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital to risk weighted assets
|
|
$
|
26,999
|
|
|
|
8.67
|
%
|
|
$
|
14,018
|
|
|
|
4.50
|
%
|
|
$
|
20,248
|
|
|
|
6.50
|
%
|
|
Total capital to risk weighted assets
|
|
|
32,086
|
|
|
|
10.30
|
%
|
|
|
24,920
|
|
|
|
8.00
|
%
|
|
|
31,150
|
|
|
|
10.00
|
%
|
|
Tier 1 capital to risk weighted assets
|
|
|
28,344
|
|
|
|
9.10
|
%
|
|
|
18,690
|
|
|
|
6.00
|
%
|
|
|
24,920
|
|
|
|
8.00
|
%
|
|
Tier 1 capital to average assets
|
|
|
28,344
|
|
|
|
8.48
|
%
|
|
|
13,364
|
|
|
|
4.00
|
%
|
|
|
16,706
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
27,959
|
|
|
|
11.03
|
%
|
|
$
|
20,287
|
|
|
|
8.00
|
%
|
|
$
|
23,358
|
|
|
|
10.00
|
%
|
|
Tier 1 capital to risk weighted assets
|
|
|
24,779
|
|
|
|
9.77
|
%
|
|
|
10,143
|
|
|
|
4.00
|
%
|
|
|
15,215
|
|
|
|
6.00
|
%
|
|
Tier 1 capital to average assets
|
|
|
24,779
|
|
|
|
9.02
|
%
|
|
|
10,988
|
|
|
|
4.00
|
%
|
|
|
13,734
|
|
|
|
5.00
|
%
|
NOTE M - OFF-BALANCE SHEET RISK AND COMMITMENTS
The Bank is a party to financial instruments
with off-balance sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts
of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank uses
the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates
each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank,
upon extension of credit is based on management’s credit evaluation of the borrower. Collateral obtained varies but may include
real estate, stocks, bonds, and certificates of deposit.
A summary of the contract amount of the Bank’s
exposure to off-balance sheet credit risk as of December 31, 2015 is as follows:
|
Financial instruments
whose contract represents credit risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Dollars in thousands
|
|
|
|
|
|
Undisbursed lines of credit
|
|
$
|
43,121
|
|
|
Letters of credit
|
|
|
303
|
|
|
|
|
$
|
43,424
|
|
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE N - FAIR VALUE MEASUREMENTS
The Bank is required to disclose the estimated
fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate
fair value. These fair value estimates are made at December 31, based on relevant market information and information about the
financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price a liability
could be settled for. However, given there is no active market or observable market transactions for many of Carolina Trust Bank’s
financial instruments, the Bank has made estimates of many of these fair values which are subjective in nature, involve uncertainties
and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly
affect the estimated values. The methodologies for financial assets and financial liabilities are discussed below:
Cash and Due from Banks, Interest-Earning
Deposits with Banks, Certificates of Deposit with Banks and Federal Funds Sold
The carrying amounts for cash and
due from banks, interest-earning deposits with banks, certificates of deposit with banks and federal funds sold approximate fair
value because of the short maturities of those instruments.
Investment Securities
Fair value for investment securities
equals quoted market price if such information is available. If a quoted market price is not available, fair value is estimated
using independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted
for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.
Loans
The fair value of loans is estimated
based on discounted expected cash flows. These cash flows include assumptions for prepayment estimates over the loans’ remaining
life, considerations for the current interest rate environment compared to the weighted average rate of each portfolio and a credit
risk component based on the historical and expected performance of each portfolio. The calculation does not include an estimate
for illiquidity in the market.
Accrued
Interest
The carrying amount is
a reasonable estimate of fair value.
Deposits
The fair value of demand deposits,
savings, money market and NOW accounts is the amount payable on demand at the reporting date. The fair value of time deposits is
estimated by discounting expected cash flows using the rates currently offered for instruments of similar remaining maturities.
Federal Funds Purchased
Federal funds purchased approximate
fair value because of the short maturity.
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE N - FAIR VALUE MEASUREMENTS (Continued)
Capital Lease Obligation and Advances
from the Federal Home Loan Bank
The fair value of borrowings is based
upon discounted expected cash flows using current rates at which borrowings of similar maturity could be obtained.
Financial Instruments with Off-Balance
Sheet Risk
With
regard to commitments to extend credit discussed in Note M, it is not practicable to estimate the fair value of future financing
commitments.
The carrying amounts and estimated
fair values of the Bank’s financial instruments, none of which are held for trading purposes, are as follows at December
31, 2015 and December 31 2014:
|
|
|
|
|
|
Fair
Value Measurements at December 31, 2015 using
|
|
|
|
|
|
|
|
Quoted
Prices in
Active Markets for
Identical Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Total
Fair
Value
|
|
|
Dollars in
thousands
|
|
Carrying
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Balance
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,720
|
|
|
$
|
4,720
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,720
|
|
Interest earning deposits with
banks
|
|
|
70
|
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
|
Certificate of deposits with banks
|
|
|
1,498
|
|
|
|
1,498
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,498
|
|
|
Federal funds sold
|
|
|
23
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
Securities available for sale
|
|
|
22,933
|
|
|
|
1,038
|
|
|
|
21,145
|
|
|
|
750
|
|
|
|
22,933
|
|
|
Net loans
|
|
|
288,639
|
|
|
|
—
|
|
|
|
—
|
|
|
|
292,345
|
|
|
|
292,345
|
|
|
Accrued interest receivable
|
|
|
986
|
|
|
|
—
|
|
|
|
986
|
|
|
|
—
|
|
|
|
986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
284,794
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
277,308
|
|
|
$
|
277,308
|
|
|
Capital lease obligation
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
Federal funds purchased
|
|
|
2,355
|
|
|
|
2,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,355
|
|
|
FHLB Advances
|
|
|
13,000
|
|
|
|
—
|
|
|
|
13,031
|
|
|
|
—
|
|
|
|
13,031
|
|
|
Accrued interest payable
|
|
|
58
|
|
|
|
—
|
|
|
|
58
|
|
|
|
—
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements at December 31, 2014 using
|
|
|
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
|
|
Significant
Other Observable Inputs
|
|
|
|
Significant
Unobservable Inputs
|
|
|
|
Total
Fair Value
|
|
|
Dollars in thousands
|
|
|
Carrying
Value
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
Balance
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
6,076
|
|
|
$
|
6,076
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,076
|
|
|
Interest earning deposits with banks
|
|
|
184
|
|
|
|
184
|
|
|
|
—
|
|
|
|
—
|
|
|
|
184
|
|
|
Certificate of deposits with banks
|
|
|
2,996
|
|
|
|
2,996
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,996
|
|
|
Federal funds sold
|
|
|
23
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
Securities available for sale
|
|
|
25,244
|
|
|
|
1,536
|
|
|
|
23,070
|
|
|
|
638
|
|
|
|
25,244
|
|
|
Net loans
|
|
|
240,644
|
|
|
|
—
|
|
|
|
—
|
|
|
|
241,722
|
|
|
|
241,722
|
|
|
Accrued interest receivable
|
|
|
861
|
|
|
|
—
|
|
|
|
861
|
|
|
|
—
|
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
237,176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
237,153
|
|
|
|
237,153
|
|
|
Capital lease obligation
|
|
|
373
|
|
|
|
—
|
|
|
|
373
|
|
|
|
—
|
|
|
|
373
|
|
|
FHLB Advances
|
|
|
22,000
|
|
|
|
—
|
|
|
|
22,123
|
|
|
|
—
|
|
|
|
22,123
|
|
|
Accrued interest payable
|
|
|
95
|
|
|
|
—
|
|
|
|
95
|
|
|
|
—
|
|
|
|
95
|
|
|
CAROLINA TRUST BANK
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years Ended December 31, 2015 and 2014
|
|
|
NOTE N - FAIR VALUE MEASUREMENTS (Continued)
The Bank utilizes fair value measurements to
record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale
are recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record at fair value
other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost
or market accounting or write-downs of individual assets.
Fair Value Hierarchy
The Bank groups assets and liabilities at fair
value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value.
Level 1 Valuation is based upon
quoted prices for identical instruments traded in active markets.
Level 2 Valuation is based upon
quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are
not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 Valuation is generated from
model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions
reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques included
use of option pricing models, discounted cash flow models and similar techniques. Following is a description of valuation methodologies
used for assets and liabilities recorded at fair value.
Investment Securities Available-for-Sale
Investment securities available-for-sale,
are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices
are not available, fair values are measured using independent pricing modes or other model-based valuation techniques such as present
value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit
loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury
securities that are traded by dealers or brokers in an active over-the-counter market. Level 2 securities include U.S. government
agencies securities, mortgage-backed securities issued by government-sponsored entities and municipal bonds. Securities classified
as Level 3 includes a corporate debt security and a common stock in a less liquid market. The value of the corporate debt security
is determined via the going rate of a similar debt security if it were to enter the market at period end. The derived market value
requires significant management judgment and is further substantiated by discounted cash flow methodologies. There have been no
changes in valuation techniques for the year ended December 31, 2015. Valuation techniques are consistent with techniques used
in prior periods.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE N - FAIR VALUE MEASUREMENTS (Continued)
Assets and Liabilities Recorded at Fair
Value on a Recurring Basis
The table below presents the recorded amount
of assets and liabilities measured on a recurring basis.
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal
agency
|
|
$
|
15,543
|
|
|
$
|
—
|
|
|
$
|
15,543
|
|
|
$
|
—
|
|
|
Government sponsored enterprises *
|
|
|
5,602
|
|
|
|
—
|
|
|
|
5,602
|
|
|
|
—
|
|
|
Corporate debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity securities
|
|
|
1,038
|
|
|
|
1,038
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
22,933
|
|
|
$
|
1,038
|
|
|
$
|
21,145
|
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
15,739
|
|
|
$
|
—
|
|
|
$
|
15,739
|
|
|
$
|
—
|
|
|
Government sponsored enterprises *
|
|
|
7,214
|
|
|
|
—
|
|
|
|
7,214
|
|
|
|
—
|
|
|
States and political subdivisions
|
|
|
117
|
|
|
|
—
|
|
|
|
117
|
|
|
|
—
|
|
|
Corporate debt securities
|
|
|
638
|
|
|
|
—
|
|
|
|
—
|
|
|
|
638
|
|
|
Equity securities
|
|
|
1,536
|
|
|
|
1,536
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
25,244
|
|
|
$
|
1,536
|
|
|
$
|
23,070
|
|
|
$
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Such as FNMA, FHLMC and FHLB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank did not have any transfers between Levels 1, 2, or 3 during
the years ended December 31, 2015 or 2014.
The tables below present the changes during the years ended December
31, 2015 and December 31, 2014 in the amount of Level 3 assets measured on a recurring basis.
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
Balance, beginning of year
|
$
|
638
|
|
|
$
|
616
|
|
|
Additions
|
|
—
|
|
|
|
—
|
|
|
Change in valuation recognized in OCI
|
|
112
|
|
|
|
22
|
|
|
Balance, end of year
|
$
|
750
|
|
|
$
|
638
|
|
Impaired Loans
The Bank does not record loans at fair value
on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established.
Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms
of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures it for impairment.
The fair value of impaired loans is estimated using one of several methods, including collateral value, a loan’s observable
market price and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value
exceeds the recorded investments in such loans. At December 31, 2015 the discounted cash flows method was used in determining the
fair value of eight loans totaling $3.1 million and the fair value of the collateral method was used in the other forty-one loans
totaling $4.2 million. At December 31, 2014 the discounted cash flows method was used in determining the fair value of six loans
totaling $2.4 million and the fair value of the collateral method was used in the other forty-one loans totaling $5.6 million.
Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value
hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Bank
records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value
of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records impaired
loans as nonrecurring
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE N - FAIR VALUE MEASUREMENTS (Continued)
Level 3. When the discounted cash flows method
is used, the Bank records the impaired loan as nonrecurring Level 3. There have been no changes in valuation techniques for the
year ended December 31, 2015. Valuation techniques are consistent with techniques used in prior periods.
The following table presents impaired loans that were re-measured
and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses based upon the fair
value of the underlying collateral or discounted cash flows at December 31, 2015 and December 31, 2014.
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
Level 2
|
|
Level 3
|
|
Level 2
|
|
Level 3
|
|
Carrying value of impaired loans before allocations
|
|
$
|
—
|
|
|
$
|
1,628
|
|
|
$
|
—
|
|
|
$
|
3,454
|
|
|
Specific valuation allowance allocations
|
|
|
—
|
|
|
|
(214
|
)
|
|
|
—
|
|
|
|
(555
|
)
|
|
Carrying value of impaired loans after allocations
|
|
$
|
—
|
|
|
$
|
1,414
|
|
|
$
|
—
|
|
|
$
|
2,899
|
|
Foreclosed Assets
Other real estate owned (“OREO”) is adjusted
to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair
value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value
of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the
Bank records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the
fair value of the collateral is further impaired below the appraised value and there is not observable market price, the Bank records
the OREO as nonrecurring Level 3. There have been no changes in valuation techniques for the year ended December 31, 2015. Valuation
techniques are consistent with techniques used in prior periods.
The following table presents foreclosed
assets that were re-measured and reported at fair value:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
|
Foreclosed assets re-measured at initial recognition:
|
|
|
|
|
|
|
|
|
|
Carrying value of foreclosed assets prior to re-measurement
|
|
$
|
725
|
|
|
$
|
—
|
|
|
Charge-offs recognized in the allowance for loan losses
|
|
|
(16
|
)
|
|
|
—
|
|
|
Fair value
|
|
$
|
709
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets re-measured subsequent to initial recognition:
|
|
|
|
|
|
|
|
|
|
Carrying value of foreclosed assets prior to re-measurement
|
|
$
|
1,570
|
|
|
$
|
2,334
|
|
|
Write-downs included in foreclosed asset expense, net
|
|
|
(285
|
)
|
|
|
(286
|
)
|
|
Fair value
|
|
$
|
1,285
|
|
|
$
|
2,048
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE N - FAIR VALUE MEASUREMENTS (Continued)
Assets measured at fair value on a nonrecurring
basis are included in the table below.
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets
|
|
$
|
1,994
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,994
|
|
|
Impaired loans
|
|
|
1,414
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,414
|
|
|
Total
|
|
$
|
3,408
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets
|
|
$
|
2,048
|
|
|
$
|
—
|
|
|
$
|
|
|
|
$
|
2,048
|
|
|
Impaired loans
|
|
|
2,899
|
|
|
|
—
|
|
|
|
222
|
|
|
|
2,677
|
|
|
Total
|
|
$
|
4,947
|
|
|
$
|
—
|
|
|
$
|
222
|
|
|
$
|
4,725
|
|
Quantitative Information About Level 3 Fair Value Measurements:
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
|
|
Weighted Average
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
168
|
|
|
Discounted appraisals
|
|
Appraisal adjustments
|
|
|
15.00%
|
|
|
|
15.00
|
%
|
|
Impaired loans
|
|
|
1,246
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
|
5.75 – 8.50%
|
|
|
|
7.24
|
%
|
|
Foreclosed assets
|
|
|
1,994
|
|
|
Discounted appraisals
|
|
Appraisal adjustments
|
|
|
6.00% - 57.32%
|
|
|
|
17.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
1,743
|
|
|
Discounted appraisals
|
|
Appraisal adjustments
|
|
|
6.00% - 15.00%
|
|
|
|
10.10
|
%
|
|
Impaired loans
|
|
|
934
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
|
7.50%-8.50%
|
|
|
|
7.85
|
%
|
|
Foreclosed assets
|
|
|
2,048
|
|
|
Discounted appraisals
|
|
Appraisal adjustments
|
|
|
6.00%-16.84%
|
|
|
|
12.38
|
%
|
NOTE O - EMPLOYEE AND DIRECTOR BENEFITS
Employment Contracts
The Bank has entered into employment agreements
with certain of the Bank’s executive officers to ensure a stable and competent management base. The agreements provide for
a term of two years, but the agreements may be extended. The agreements provide for benefits as specified in the contracts and
cannot be terminated by the Board of Directors, except for cause, without prejudicing the officer’s rights to receive certain
vested rights, including compensation. In the event of a change in control of the Bank and in certain other events, as defined
in the agreements, the Bank or any successor to the Bank will be bound to the terms of the contracts.
Supplemental Executive Retirement Plan
(SERP Plan)
In August of 2007 the Board of Directors adopted
a SERP Plan for the purpose of retaining the employment of certain senior officers. In January of 2014 the Board of Directors adopted
a SERP Plan for the purpose of retaining the employment of the Bank’s President and CEO. Participants in the SERP Plans and
their level of participation, is determined by the Board of Directors. The SERP Plans provide for benefits as specified in the
plans and cannot be terminated by the Board of Directors, except for cause, without prejudicing the officer’s rights to receive
certain vested rights, including compensation. Benefits of the 2007 plan vest over a ten year period and benefits of the 2014 plan
vest over a five year period
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE O - EMPLOYEE AND DIRECTOR BENEFITS
(Continued)
beginning on the participants’ date
of employment and are deferred until separation from employment by the participant. In the event of a change in control of the
Bank and in certain other events, as defined in the SERP Plans, the Bank or any successor to the Bank will be bound to the terms
of the SERP Plans. At December 31, 2015 and December 31, 2014 respectively, the Bank had an accrued liability of $2,349,000 and
$2,286,000 for participants vested benefits.
401(k) Plan
The Bank has a 401(k) Plan whereby substantially
all employees participate in the Plan. The Bank makes matching contributions equal to 100 percent of the first four percent of
an employee’s compensation contributed to the Plan, with matching contributions vesting under an established vesting plan.
For the years ended December 31, 2015 and 2014, expense attributable to the Plan amounted to approximately $159,000 and $111,000
respectively.
Stock Option Plans
The Bank has six share-based compensation plans
in effect at December 31, 2015 and at December 31, 2014. The compensation cost charged against income for those plans was approximately
$147,000 and $66,000 respectively for the years ended December 31, 2015 and December 31, 2014.
During 2001 the Bank adopted, with shareholder
approval, an Incentive Stock Option Plan (the “2001 Employee Plan”) and a Non-statutory Stock Option Plan (the “2001
Director Plan”). Each plan makes available options to purchase 100,771 shares of the Bank’s common stock, for an aggregate
number of common shares reserved for options under these plans of 201,542. The exercise price of all options granted to date under
these plans is $3.14.
The options granted in 2006 through 2011 under
the 2001 Director Plan and the 2001 Employee Plan vest over a four-year period. The options granted in 2005 under the 2001 Director
Plan and the 2001 Employee Plan vest over a three-year period. All unexercised options expire ten years after the year of the grant
or earlier in certain circumstances. The fair market value of each option award is estimated on the date of grant using the Black-Scholes
option-pricing model. The 2001 Employee Plan and the 2001 Director Plan expired in 2011 in accordance with their terms and no further
options may be granted under these plans.
During 2005 the Bank adopted, with shareholder
approval, an Incentive Stock Option Plan (the “2005 Employee Plan”) and a Non-statutory Stock Option Plan (the “2005
Director Plan”). The 2005 Employee Plan makes available options to purchase 72,389 shares of the Bank’s common
stock and the 2005 Director Plan makes available 73,527 shares of the Bank’s common stock, for an aggregate number of common
shares reserved under these plans of 145,916. The exercise price of all options granted to date under these plans range from $2.13
to $16.21.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE O - EMPLOYEE AND DIRECTOR BENEFITS
(Continued)
The options granted in 2005 under the 2005
Director Plan and the 2005 Employee Plan vest over a three-year period. The options granted in 2006 through 2015 under the 2005
Employee Plan vest over a four-year period. All unexercised options expire ten years after the date of grant. The fair market value
of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Bank did not grant any
options under the 2005 Director Plan for the years ended December 31, 2015 and December 31, 2014. The Bank granted 8,496 and 17,000
stock options under the 2005 Employee Plan for the years ended December 31, 2015 and December 31, 2014 with fair market values
ranging from $2.86 to $2.88 and $2.56 to $2.62 per option, respectively. Additionally, the Bank granted 10,000 shares of restricted
stock under the 2005 Employee Plan for the year ended December 31, 2014. The shares vest over a 3-year period. No restricted stock
grants were made for the year ended December 31, 2015.
As a result of the merger with Carolina Commerce
Bank, Carolina Trust Bank assumed all outstanding options of Carolina Commerce under the existing terms and at the conversion rate
of 0.625 shares of Carolina Trust stock for each share of Carolina Commerce stock. All options assumed became fully vested at the
merger date. As of December 31, 2015, there were 73,500 options outstanding from the converted plans with exercise prices ranging
from $3.31 to $5.15. The Bank did not grant any options for the year ended December 31, 2015 under this plan and granted 73,500
options for the year ended December 31, 2014 with fair market values ranging from $1.77 to $2.79 per option.
The following table illustrates the assumptions
for the Black-Scholes model used in determining the fair value of options granted in the years ended December 31, 2015 and December
31, 2014. The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life
of the option grant. Expected volatility is based upon the historical volatility of the Bank’s stock. The expected term
of the options is based upon the average life of previously issued stock options. The expected dividend yield is based upon current
yield on the date of the grant. No post-vesting restrictions exist for these options.
|
|
|
|
|
|
|
Year ended
|
|
Year ended
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
0.00%
|
|
|
|
0.00%
|
|
|
Risk-free interest rate
|
|
1.84 – 1.92%
|
|
|
|
2.30 - 3.00%
|
|
|
Volatility
|
|
40.79%
|
|
|
|
38.10 – 41.01%
|
|
|
Expected life
|
|
7 years
|
|
|
|
7 years
|
|
Total stock-based compensation recognized as compensation
expense on our consolidated statement of income is as follows:
|
|
December 31, 2015
|
|
December 31, 2014
|
|
Dollars in thousands
|
|
|
|
|
Option Grants
|
$
|
136
|
|
|
$
|
54
|
|
|
Restricted Stock Grants
|
|
11
|
|
|
|
11
|
|
|
Total Compensation Expense
|
$
|
147
|
|
|
$
|
66
|
|
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE O - EMPLOYEE AND DIRECTOR BENEFITS
(Continued)
A summary of option activity under the stock
option plans as of December 31, 2015 and changes during the year ended December 31, 2015 is presented below:
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding,
December 31, 2014
|
|
|
|
334,370
|
|
|
$
|
8.78
|
|
|
|
4.3
years
|
|
|
|
|
|
|
Exercised
|
|
|
|
(7,470
|
)
|
|
$
|
2.62
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
(131,267
|
)
|
|
$
|
12.60
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
(11,655
|
)
|
|
$
|
8.93
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
8,496
|
|
|
$
|
5.40
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December
31, 2015
|
|
|
|
192,479
|
|
|
$
|
6.88
|
|
|
|
5.35
years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December
31, 2015
|
|
|
|
138,859
|
|
|
$
|
7.88
|
|
|
|
|
|
|
$
|
—
|
|
The approximate fair value of options vested
over the years ended December 31, 2015 and 2014, respectively was $134,000 and $84,000. The approximate weighted average fair value
per share of options granted over the year ended December 31, 2015, was $2.86 and for the year ended December 31, 2014 was $2.30.
The approximate fair value of options granted over the years ended December 31, 2015 and 2014, respectively was $24,000 and $208,000.
A summary of restricted stock activity during
the twelve months ended December 31, 2015 and 2014 is presented below:
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
Non-Vested
Restricted Stock
Outstanding
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Non-Vested
Restricted Stock Outstanding
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Beginning balance outstanding
|
|
|
10,000
|
|
|
$
|
3.31
|
|
|
|
—
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
3.31
|
|
|
Vested
|
|
|
(3,333
|
)
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Ending balance outstanding
|
|
|
6,667
|
|
|
$
|
3.31
|
|
|
|
10,000
|
|
|
$
|
3.31
|
|
As of December 31, 2015 there was $84,000 of
unrecognized compensation cost related to non-vested options granted under all of the Bank’s stock benefit plans. That cost
is expected to be recognized over a weighted average period of 3 years. At December 31, 2015 there was $11,000 of unrecognized
compensation cost related to non-vested restricted stock grants under all of the Bank’s stock benefit plans. This cost is
expected to be recognized during 2016.
Upon exercise of the options, the Bank issues
shares from authorized but unissued shares. The Bank does not typically purchase shares to fulfill obligations of the stock benefit
plans.
CAROLINA TRUST BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
NOTE P – PREFERRED STOCK
On February 6, 2009, the Bank issued $4,000,000
of Senior Preferred Shares to the U.S. Department of Treasury (the “Treasury”), consisting of 4,000 shares, with a
liquidation preference of $1,000 per share. In addition, on February 6, 2009, the Bank issued a warrant to the Treasury to purchase
86,957 common shares at an initial exercise price of $6.90 per share. These preferred shares and related warrant are considered
permanent equity for accounting purposes. Generally accepted accounting principles require management to allocate the net proceeds
from the issuance of the preferred stock between the preferred stock and related warrant based upon a relative fair value method.
The terms of the preferred shares require management to pay a non-cumulative dividend at the rate of 5 percent per annum for the
first five years and 9 percent thereafter. The dividend rate changed from 5 percent to 9 percent on February 16, 2014. Management
has determined that the 5 percent dividend rate is below market value, therefore, the fair value of the preferred shares would
be less than the $4,000,000 in proceeds. Management determined that a reasonable market rate is 14 percent for the fair value of
the preferred shares. Management used the Black-Scholes model for calculating the fair value of the warrant (and related common
shares). The allocation between the preferred shares and warrant at February 6, 2009, the date of issuance, net of issuance costs
of $22,000 was $3,552,000 and $426,000, respectively. The discount on the preferred of $426,000 was accreted through retained earnings
over a 60 month period.
In November 2012, the U.S. Treasury sold the
preferred stock to several investors in a Dutch auction process. The Bank had designated a third party bidder to act on its behalf
pursuant to the rules of the Dutch auction. In, December 2012, pursuant to its agreement with the third party bidder, the Bank
in turn repurchased 35% of the preferred stock or $1.4 million at a price of 85.3% of par or $1,194,000 from one of the investors,
the same price at which the bidder had purchased the preferred stock from the U.S. Treasury. The gain from the redemption below
par totaling $206,000 increased surplus and reduced the amount reported as dividends to preferred shareholders for the year ended
December 31, 2012.
In June 2013, the U.S. Treasury sold the warrants
related to the preferred stock, to private investors, in a Dutch auction process.
Carolina
Trust Bank
General Corporate Information
Office Locations
|
Vale Branch
|
Main
|
West Branch
|
|
9584 Hwy 10 West
|
901 East Main Street
|
799 Hwy 27 West
|
|
Vale, North Carolina 28168
|
Lincolnton, North Carolina 28092
|
Lincolnton, North Carolina 28092
|
|
|
|
|
|
Triangle Branch
|
Boger City Branch
|
New Hope Branch
|
|
1293 North Hwy 16
|
2740 NC Hwy 27 East
|
534 South New Hope Road
|
|
Denver, North Carolina 28037
|
Lincolnton, North Carolina 28092
|
Gastonia, North Carolina 28054
|
|
|
|
|
|
Forest City Branch
|
Hickory Branch
|
Lake Lure Branch
|
|
142 North Watkins Drive
|
1430 2
nd
Street NE
|
103 Arcade Street
|
|
Forest City, North Carolina, 28043
|
Hickory, North Carolina, 28601
|
Lake Lure, North Carolina 28746
|
|
|
|
|
|
|
Mooresville Office
|
|
|
|
125 East Trade Court
|
|
|
|
Mooresville, North Carolina 28117
|
|
Common Stock
The Bank had 4,646,225 shares of Common Stock
outstanding which were held by approximately 1,502 holders of record (excluding shares held in street name) as of December 31,
2015. To date, the Bank has not paid any cash dividends on common stock. The Bank can only pay dividends if the distribution will
not reduce the Bank’s capital below required amounts.
Market for Common Stock
The Bank’s common stock is traded on
the NASDAQ under the symbol CART. Certain sales have been facilitated by the Bank in 2015 and 2014. Stock prices for 2015 and
2014 are presented below.
Stock Transfer Agent
Broadridge Corporate
Issuer Services Inc.
P.O. Box 1342
Brentwood, NY
11717
Regulatory and Securities Counsel
Wyrick Robbins
Yates &Ponton LLP
4101 Lake Boone
Trail, Suite 300
Raleigh, North
Carolina 27607
(919) 781-4000
Telephone
(919) 781-4865
Facsimile
Independent Auditors
Dixon Hughes
Goodman LLP
4350 Congress
Street, Suite 900
Charlotte, North
Carolina 28209
|
|
|
|
|
|
|
|
|
|
|
The table below presents the high and low sales prices for the Bank’s stock for 2015 and 2014, as reported on Nasdaq:
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
5.59
|
|
|
$
|
4.72
|
|
|
Second quarter
|
|
|
5.62
|
|
|
|
5.31
|
|
|
Third quarter
|
|
|
6.21
|
|
|
|
5.50
|
|
|
Fourth quarter
|
|
|
6.40
|
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
4.80
|
|
|
$
|
3.31
|
|
|
Second quarter
|
|
|
7.23
|
|
|
|
4.22
|
|
|
Third quarter
|
|
|
5.10
|
|
|
|
4.40
|
|
|
Fourth quarter
|
|
|
5.61
|
|
|
|
4.76
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Shareholders Meeting
The Annual Meeting of the shareholders
of Carolina Trust Bank will be held at 10:00 am, on May 10, 2016 at the Lincoln Cultural Center, 403 East Main Street, Lincolnton,
NC 28092.
Annual
Report on Form 10-K
A copy of Carolina Trust Bank’s 2015
Annual Report on Form 10-K, as filed with the Federal Deposit Insurance Corporation, is available without charge to stockholders
upon written request to Jerry L. Ocheltree, President and Chief Executive Officer, Carolina Trust Bank, 901 East Main Street, P.O.
Box 308, Lincolnton, NC 28093-0308.
This Annual Report serves as the annual
financial disclosure statement furnished pursuant to the Federal Deposit Insurance Corporation’s rules and regulations.
This statement has not been reviewed or confirmed for accuracy or relevance by the Federal Deposit Insurance Corporation
.
Exhibit
31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 13a-14(d)/15d-14(d)
I, Jerry L. Ocheltree, certify that:
|
|
(1)
|
I have reviewed this annual report on Form 10-K of Carolina
Trust Bank, a North Carolina bank (the “registrant”);
|
|
|
(2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
|
|
|
(3)
|
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
|
|
|
(4)
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
(a)
|
Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
|
|
|
(b)
|
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
|
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
|
|
|
(d)
|
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
|
|
|
(5)
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors:
|
|
|
(a)
|
All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
|
|
|
(b)
|
Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
|
Date: March 23, 2016
|
By:
|
/s/ Jerry L. Ocheltree
|
|
|
|
|
Jerry L. Ocheltree
|
|
|
|
|
President and Chief Executive Officer
|
|
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Rule 13a-14(d)/15d-14(d)
I, Lindsey B. Huffman, certify that:
|
|
(1)
|
I have reviewed this annual report on Form 10-K of Carolina Trust Bank, a North Carolina bank (the
“registrant”);
|
|
|
(2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
|
|
|
(3)
|
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
|
|
|
(4)
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
(a)
|
Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
|
|
|
(b)
|
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
|
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
|
|
|
(d)
|
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
|
|
|
(5)
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors:
|
|
|
(a)
|
All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
|
|
|
(b)
|
Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
|
Date: March 23, 2016
|
By:
|
/s/ Lindsey B. Huffman
|
|
|
|
|
Lindsey B. Huffman
|
|
|
|
|
Principal Accounting Officer
|
|
Exhibit 32
Section 1350 Certifications
Each of the undersigned hereby certifies that,
to his knowledge, (i) the Form 10-K (the “Report”) filed by Carolina Trust Bank (the “Issuer”) for the year
ended December 31, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Issuer on the dates and for the periods presented therein.
|
|
|
|
|
|
|
CAROLINA TRUST BANK
|
|
|
|
|
|
Date: March 23, 2016
|
By:
|
/s/ Jerry L. Ocheltree
|
|
|
|
Jerry L. Ocheltree
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: March 23, 2016
|
By:
|
/s/ Lindsey B.
Huffman
|
|
|
|
Lindsey B. Huffman
|
|
|
|
Principal Accounting Officer
|
EXHIBIT 99.02
FEDERAL
DEPOSIT INSURANCE CORPORATION
WASHINGTON,
DC 20429
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
FOR
THE QUARTER ENDED MARCH 31, 2016
FDIC
CERTIFICATE NO.
57026
CAROLINA
TRUST BANK
(Exact
name of bank as specified in its charter)
NORTH
CAROLINA
(State
of Incorporation)
56-2197865
(IRS
Employer Identification Number)
901
EAST MAIN STREET
LINCOLNTON,
NORTH CAROLINA 28092
(Address
of Principal Office)
(704)
735-1104
(Registrant’s
Telephone Number, Including Area Code)
Securities
Registered Pursuant
to
Section 12(g) of the Act:
COMMON
STOCK, $2.50 PAR VALUE
Indicate
by check mark whether the bank (1) has filed all reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Bank was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (Section 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
|
☐ Large
accelerated filer
|
☐ Accelerated
filer
|
☐ Non-accelerated
filer
|
☒ Smaller
Reporting Company
|
Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No
☒
The
number of shares of the registrant’s common stock outstanding as of May 10, 2016 was 4,649,558.
Part
I.
Financial Information
Item
1 – Condensed Consolidated Financial Statements
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share and per share data)
|
|
|
March
31,
2016
|
|
December
31,
2015
|
|
Assets
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
4,942
|
|
|
$
|
4,720
|
|
|
Interest-earning
deposits with banks
|
|
|
76
|
|
|
|
70
|
|
|
Federal
funds sold
|
|
|
23,360
|
|
|
|
23
|
|
|
Cash
and cash equivalents
|
|
|
28,378
|
|
|
|
4,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposits with banks
|
|
|
1,498
|
|
|
|
1,498
|
|
|
Investment
securities available for sale, at fair value (amortized cost $32,861 and $23,280)
|
|
|
32,853
|
|
|
|
22,933
|
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
1,066
|
|
|
|
817
|
|
|
Loans
|
|
|
297,746
|
|
|
|
292,362
|
|
|
Less:
Allowance for loan and lease losses
|
|
|
(3,521
|
)
|
|
|
(3,723
|
)
|
|
Net
Loans
|
|
|
294,225
|
|
|
|
288,639
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
owned life insurance
|
|
|
1,458
|
|
|
|
1,445
|
|
|
Accrued
interest receivable
|
|
|
963
|
|
|
|
986
|
|
|
Bank
premises, equipment and software
|
|
|
5,649
|
|
|
|
5,710
|
|
|
Foreclosed
assets
|
|
|
1,800
|
|
|
|
1,994
|
|
|
Core
deposit intangible, net of accumulated amortization of $626 and $611
|
|
|
159
|
|
|
|
174
|
|
|
Other
assets
|
|
|
4,697
|
|
|
|
5,040
|
|
|
Total
Assets
|
|
$
|
372,746
|
|
|
$
|
334,049
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Non-interest-earning
demand deposits
|
|
$
|
37,971
|
|
|
$
|
32,562
|
|
|
Interest-earning
demand deposits
|
|
|
86,915
|
|
|
|
79,132
|
|
|
Savings
|
|
|
21,850
|
|
|
|
21,326
|
|
|
Time
deposits
|
|
|
173,953
|
|
|
|
151,774
|
|
|
Total
deposits
|
|
|
320,689
|
|
|
|
284,794
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligation
|
|
|
312
|
|
|
|
326
|
|
|
Federal
funds purchased
|
|
|
—
|
|
|
|
2,355
|
|
|
Federal
Home Loan Bank advances
|
|
|
18,000
|
|
|
|
13,000
|
|
|
Accrued
interest payable
|
|
|
86
|
|
|
|
58
|
|
|
Other
liabilities
|
|
|
2,616
|
|
|
|
3,052
|
|
|
Total
liabilities
|
|
|
341,703
|
|
|
|
303,585
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, unstated par value; 1,000,000 shares authorized; 2,600 shares issued and outstanding
|
|
|
2,580
|
|
|
|
2,580
|
|
|
Common
stock warrant
|
|
|
426
|
|
|
|
426
|
|
|
Common
stock, $2.50 par value; 10,000,000 shares authorized; 4,646,225 and 4,635,422 shares issued and outstanding
|
|
|
11,624
|
|
|
|
11,616
|
|
|
Additional
paid-in capital
|
|
|
12,938
|
|
|
|
12,936
|
|
|
Retained
earnings
|
|
|
3,480
|
|
|
|
3,122
|
|
|
Accumulated
other comprehensive losses
|
|
|
(5
|
)
|
|
|
(216
|
)
|
|
Total
stockholders’ equity
|
|
|
31,043
|
|
|
|
30,464
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
372,746
|
|
|
$
|
334,049
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars
in thousands, except share and per share data)
|
|
|
Three
months
ended
March 31, 2016
|
|
Three
months
ended
March 31, 2015
|
|
Interest
Income
|
|
|
|
|
|
Interest
on investment securities and cash
|
|
$
|
280
|
|
|
$
|
255
|
|
|
Interest
and fees on loans
|
|
|
3,747
|
|
|
|
3,156
|
|
|
Total
interest income
|
|
|
4,027
|
|
|
|
3,411
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Interest
expense non-maturity deposits
|
|
|
54
|
|
|
|
46
|
|
|
Interest
expense time deposits
|
|
|
537
|
|
|
|
429
|
|
|
Interest
expense borrowed funds
|
|
|
41
|
|
|
|
53
|
|
|
Interest
expense capital lease
|
|
|
6
|
|
|
|
7
|
|
|
Total
interest expense
|
|
|
638
|
|
|
|
535
|
|
|
Net
interest income
|
|
$
|
3,389
|
|
|
$
|
2,876
|
|
|
Loan
loss provision/(recovery)
|
|
|
(80
|
)
|
|
|
—
|
|
|
Net
interest income after loan loss provision/(recovery)
|
|
$
|
3,469
|
|
|
$
|
2,876
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income
|
|
|
|
|
|
|
|
|
|
Overdraft
fees on deposits
|
|
$
|
105
|
|
|
$
|
74
|
|
|
Interchange
fee income
|
|
|
105
|
|
|
|
81
|
|
|
Service
charges on deposits
|
|
|
14
|
|
|
|
13
|
|
|
Mortgage
fee income
|
|
|
22
|
|
|
|
17
|
|
|
Customer
service fees
|
|
|
14
|
|
|
|
18
|
|
|
ATM
income
|
|
|
5
|
|
|
|
4
|
|
|
Other
income
|
|
|
21
|
|
|
|
21
|
|
|
Total
noninterest income
|
|
|
286
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
|
Salaries
& benefits expense
|
|
$
|
1,717
|
|
|
|
1,589
|
|
|
Occupancy
expense
|
|
|
217
|
|
|
|
216
|
|
|
Furniture,
fixture & equipment expense
|
|
|
119
|
|
|
|
114
|
|
|
Data
processing expense
|
|
|
175
|
|
|
|
162
|
|
|
Office
supplies expense
|
|
|
15
|
|
|
|
34
|
|
|
Professional
fees
|
|
|
219
|
|
|
|
58
|
|
|
Advertising
and marketing
|
|
|
38
|
|
|
|
20
|
|
|
Insurance
|
|
|
81
|
|
|
|
84
|
|
|
Foreclosed
asset expense, net
|
|
|
128
|
|
|
|
82
|
|
|
Check
card expense
|
|
|
91
|
|
|
|
87
|
|
|
Loan
expense
|
|
|
32
|
|
|
|
107
|
|
|
Stockholder
expense
|
|
|
19
|
|
|
|
21
|
|
|
Directors
fees
|
|
|
55
|
|
|
|
42
|
|
|
Telephone
expense
|
|
|
52
|
|
|
|
71
|
|
|
Core
deposit intangible amortization expense
|
|
|
15
|
|
|
|
17
|
|
|
Other
operating expense
|
|
|
132
|
|
|
|
100
|
|
|
Total
noninterest expense
|
|
|
3,105
|
|
|
|
2,804
|
|
|
Pre-tax
income
|
|
$
|
650
|
|
|
$
|
300
|
|
|
Income
tax expense
|
|
|
233
|
|
|
|
125
|
|
|
Net
income
|
|
$
|
417
|
|
|
$
|
175
|
|
|
Preferred
dividends and accretion of discount on warrants
|
|
|
59
|
|
|
|
58
|
|
|
Net
income available to common stockholders
|
|
$
|
358
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
Diluted
earnings per common share
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
Weighted
average common shares outstanding
|
|
|
4,649,558
|
|
|
|
4,643,666
|
|
|
Diluted
average common shares outstanding
|
|
|
4,697,539
|
|
|
|
4,680,116
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars
in thousands)
|
|
|
March
31,
2016
|
|
March
31,
2015
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
417
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investment securities:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
338
|
|
|
|
344
|
|
|
Tax
related to unrealized gains (losses)
|
|
|
127
|
|
|
|
128
|
|
|
Total
other comprehensive income
|
|
|
211
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
628
|
|
|
$
|
391
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
|
|
|
March
31,
2016
|
|
March
31,
2015
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
417
|
|
|
$
|
175
|
|
|
Adjustments
to reconcile net income to cash and cash equivalents provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Recovery
of loan losses
|
|
|
(80
|
)
|
|
|
—
|
|
|
Depreciation
and amortization of bank premises, equipment and software
|
|
|
88
|
|
|
|
92
|
|
|
Accretion
of loan fair value adjustments related to acquisition
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
Net
(accretion) amortization of bond premiums/discounts
|
|
|
(3
|
)
|
|
|
6
|
|
|
Amortization
of core deposit intangible
|
|
|
15
|
|
|
|
17
|
|
|
Stock
compensation expense
|
|
|
10
|
|
|
|
31
|
|
|
Increase
in value of life insurance contracts
|
|
|
(13
|
)
|
|
|
(12
|
)
|
|
Net
losses and impairment write-downs on foreclosed assets
|
|
|
113
|
|
|
|
69
|
|
|
Deferred
tax provision
|
|
|
230
|
|
|
|
8
|
|
|
Decrease
(increase) in other assets
|
|
|
71
|
|
|
|
(226
|
)
|
|
Decrease
(increase) in accrued interest receivable
|
|
|
23
|
|
|
|
(56
|
)
|
|
Increase
(decrease) in accrued interest payable
|
|
|
28
|
|
|
|
(68
|
)
|
|
(Decrease)
increase in other liabilities
|
|
|
(522
|
)
|
|
|
66
|
|
|
Net
cash and cash equivalents provided by operating activities
|
|
$
|
374
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Net
increase in loans
|
|
$
|
(5,503
|
)
|
|
$
|
(13,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of foreclosed assets
|
|
|
81
|
|
|
|
190
|
|
|
Net
purchases of bank premises, equipment and software
|
|
|
(27
|
)
|
|
|
(102
|
)
|
|
Purchase
of available-for-sale securities
|
|
|
(16,808
|
)
|
|
|
—
|
|
|
Proceeds
from maturities, calls and pay-downs of available for sale securities
|
|
|
7,229
|
|
|
|
381
|
|
|
(Purchase)
repurchase of Federal Home Loan Bank stock
|
|
|
(249
|
)
|
|
|
473
|
|
|
Net
cash and cash equivalents used in investing activities
|
|
$
|
(15,277
|
)
|
|
$
|
(12,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Increase
in deposits
|
|
$
|
35,895
|
|
|
$
|
22,535
|
|
|
Increase
(decrease) in Federal Home Loan Bank advances
|
|
|
5,000
|
|
|
|
(10,400
|
)
|
|
Payment
of capital lease obligation
|
|
|
(14
|
)
|
|
|
(11
|
)
|
|
Decrease
in federal funds purchased
|
|
|
(2,355
|
)
|
|
|
—
|
|
|
Dividends
paid on preferred stock
|
|
|
(58
|
)
|
|
|
(58
|
)
|
|
Net
proceeds from issuance of common stock
|
|
|
—
|
|
|
|
18
|
|
|
Net
cash and cash equivalents provided by financing activities
|
|
$
|
38,468
|
|
|
$
|
12,084
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
23,565
|
|
|
$
|
(732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning
|
|
$
|
4,813
|
|
|
$
|
6,283
|
|
|
Cash
and cash equivalents, ending
|
|
$
|
28,378
|
|
|
$
|
5,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
610
|
|
|
$
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
financing and investing activities
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on investment securities available-for-sale, net
|
|
$
|
211
|
|
|
$
|
216
|
|
|
Transfer
of loans to foreclosed assets
|
|
$
|
—
|
|
|
$
|
539
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
Notes
to Condensed Consolidated Financial Statements
|
(1)
|
Presentation
of Financial Statements
|
In
management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal
recurring adjustments) necessary for fair presentation of the financial information as of March 31, 2016 and for the three-month
periods ended March 31, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America.
Operating results for the three-month period ended March 31, 2016 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2016.
The
organization and business of Carolina Trust Bank (the “Bank”), accounting policies followed by the Bank and other
information are contained in the notes to the consolidated financial statements filed as part of the Bank’s 2015 Annual
Report on Form 10-K. This quarterly report should be read in conjunction with the Annual Report.
|
(2)
|
Recent
Accounting Pronouncements
|
In
January 2016, the FASB issued ASU 2016-1,
Financial Instruments - Overall, Subtopic 825-10
(“ASU 2016-1”) to
address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will
be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Bank
will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year
of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively
to equity investments that exist as of the date of adoption of the amendments. The Bank is currently evaluating the impact of
this guidance.
In
August 2015, the FASB deferred the effective date of ASU 2014-09,
Revenue from Contracts with Customers, Topic 606
(“ASU
2014-09”).
The new standard’s core
principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies
will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance
obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating
the transaction price to each separate performance obligation. As a result of the deferral, ASU 2014-09 is effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can
be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying
this new guidance recognized at the date of initial application. The Bank is currently evaluating the impact of adopting the new
guidance on the consolidated financial statements, but the Bank does not expect it to have a material impact.
In
June 2014, the FASB issued ASU 2014-12,
Compensation—Stock
Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could
Be Achieved after the Requisite Service Period, a consensus of the
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
FASB
Emerging Issues Task Force
(“ASU 2014-12”). ASU 2014-12 requires that a performance target that affects vesting
and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective
for annual periods and interim periods within those annual periods, beginning after December 15, 2015. An entity may apply the
standards (1) prospectively to all share-based payment awards that are granted or modified on or after the effective date, or
(2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period
presented in the financial statements and to all new or modified awards thereafter. Earlier application is permitted.
The adoption of ASU 2014-12 did not have a material impact on the Bank’s financial statements.
In
February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition,
measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that
implementation of the new standard will have on its financial position, results of operations, and cash flows.
Other
accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact
on the Company’s financial position, results of operations or cash flows.
Basic
Earnings per Common Share
Basic
earnings per common share is computed by dividing net income to common stockholders by the weighted average number of common shares
outstanding during the period, after giving retroactive effect to stock splits and dividends.
Diluted
Earnings per Common Share
The
computation of diluted earnings per common share is similar to the computation of basic earnings per common share except that
the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential
common shares had been issued. These additional common shares would include employee equity share options, nonvested shares and
similar equity instruments granted to employees, as well as the shares associated with the common stock warrants issued to the
U.S. Treasury Department as part of the preferred stock transaction completed in February 2009. Diluted earnings per common share
are based upon the actual number of options or shares granted and not yet forfeited unless doing so would be antidilutive. The
numerator is adjusted for any changes in income or loss that would result from the assumed conversion of those potential common
shares.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
(4)
|
Fair
Value Measurements
|
The
Bank is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance
sheet, for which it is practicable to estimate fair value. These fair value estimates are made at each balance sheet date, based
on relevant market information and information about the financial instruments. Fair value estimates are intended to represent
the price an asset could be sold at or the price a liability could be settled for. However, given there is no active market or
observable market transactions for many of the Bank’s financial instruments, the Bank has made estimates of many of these
fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the estimated values. The methodologies for financial
assets and financial liabilities are discussed below:
Cash
and Due from Banks, Interest-Earning Deposits with Banks, Certificates of Deposits with Banks and Federal Funds Sold
The
carrying amounts for cash and due from banks, interest-earning deposits with banks, certificates of deposits with banks and federal
funds sold approximate fair value because of the short maturities of those instruments.
Investment
Securities
Fair
value for investment securities equals quoted market price if such information is available. If a quoted market price is not available,
fair value is estimated using independent pricing models
or
other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating,
prepayment assumptions and other factors such as credit loss assumptions.
Loans
The
fair value of loans is estimated based on discounted expected cash flows. These cash flows include assumptions for prepayment
estimates over the loans’ remaining life, considerations for the current interest rate environment compared to the weighted
average rate of each portfolio and a credit risk component based on the historical and expected performance of each portfolio.
The calculation does not include an estimate for illiquidity in the market.
Accrued
Interest
The
carrying amount is a reasonable estimate of fair value.
Deposits
The
fair value of demand deposits, savings, money market and NOW accounts is the amount payable on demand at the reporting date. The
fair value of time deposits is estimated by discounting expected cash flows using the rates currently offered for instruments
of similar remaining maturities.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
Federal
Funds Purchased
Federal
funds purchased approximate fair value because of their short maturity.
Capital
Lease Obligation and Advances from the Federal Home Loan Bank
The
fair value of borrowings is based upon discounted expected cash flows using current rates at which borrowings of similar maturity
could be obtained.
The
carrying amounts and estimated fair values of the Bank’s financial instruments, none of which are held for trading purposes,
are as follows at March 31, 2016 and December 31 2015:
|
|
|
|
|
Fair
Value Measurements at March 31, 2016 using
|
|
|
|
Carrying
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
Significant
Other Observable Inputs
|
|
Significant
Unobservable Inputs
|
|
Total
Fair Value
|
|
Dollars
in thousands
|
|
Value
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Balance
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
4,942
|
|
|
$
|
4,942
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,942
|
|
|
Interest
earning deposits with banks
|
|
|
76
|
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
76
|
|
|
Certificate
of deposits with banks
|
|
|
1,498
|
|
|
|
1,498
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,498
|
|
|
Federal
funds sold
|
|
|
23,360
|
|
|
|
23,360
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,360
|
|
|
Securities
available for sale
|
|
|
32,853
|
|
|
|
1,032
|
|
|
|
31,071
|
|
|
|
750
|
|
|
|
32,853
|
|
|
Net
loans
|
|
|
294,225
|
|
|
|
—
|
|
|
|
—
|
|
|
|
295,855
|
|
|
|
295,855
|
|
|
Accrued
interest receivable
|
|
|
963
|
|
|
|
—
|
|
|
|
963
|
|
|
|
—
|
|
|
|
963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
320,689
|
|
|
$
|
—
|
|
|
$
|
319,081
|
|
|
$
|
—
|
|
|
$
|
319,081
|
|
|
Capital
lease obligation
|
|
|
312
|
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
FHLB
Advances
|
|
|
18,000
|
|
|
|
—
|
|
|
|
18,040
|
|
|
|
—
|
|
|
|
18,040
|
|
|
Accrued
interest payable
|
|
|
86
|
|
|
|
—
|
|
|
|
86
|
|
|
|
—
|
|
|
|
86
|
|
|
|
|
|
|
Fair
Value Measurements at December 31, 2015 using
|
|
|
|
Carrying
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
Significant
Other Observable Inputs
|
|
Significant
Unobservable Inputs
|
|
Total
Fair Value
|
|
Dollars
in thousands
|
|
Value
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Balance
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
4,720
|
|
|
$
|
4,720
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,720
|
|
|
Interest
earning deposits with banks
|
|
|
70
|
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
|
Certificate
of deposits with banks
|
|
|
1,498
|
|
|
|
1,498
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,498
|
|
|
Federal
funds sold
|
|
|
23
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
Securities
available for sale
|
|
|
22,933
|
|
|
|
1,038
|
|
|
|
21,145
|
|
|
|
750
|
|
|
|
22,933
|
|
|
Net
loans
|
|
|
288,639
|
|
|
|
—
|
|
|
|
—
|
|
|
|
292,345
|
|
|
|
292,345
|
|
|
Accrued
interest receivable
|
|
|
986
|
|
|
|
—
|
|
|
|
986
|
|
|
|
—
|
|
|
|
986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
284,794
|
|
|
$
|
—
|
|
|
$
|
277,308
|
|
|
$
|
—
|
|
|
$
|
277,308
|
|
|
Capital
lease obligation
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
Federal
funds purchased
|
|
|
2,355
|
|
|
|
2,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,355
|
|
|
FHLB
Advances
|
|
|
13,000
|
|
|
|
—
|
|
|
|
13,031
|
|
|
|
—
|
|
|
|
13,031
|
|
|
Accrued
interest payable
|
|
|
58
|
|
|
|
—
|
|
|
|
58
|
|
|
|
—
|
|
|
|
58
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
During
the first quarter of 2016, management reevaluated its fair value leveling methodology and the inputs utilized in determining the
valuation of deposits for the current and prior periods. Management concluded that due to the significant reliance on observable
inputs, the fair values of its deposits should be classified as level 2 rather than level 3 as previously disclosed. Therefore
deposits with a carrying value of $320,689 and a fair value of $319,081 as of 3/31/16 were classified as level 2 and deposits
with a carrying value of $284,794 and a fair value of $277,308 as of 12/31/15 were reclassified from level 3 to level 2.
The
Bank utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair
value disclosures. Securities available-for-sale, are recorded at fair value on a recurring basis. Additionally, from time to
time, the Bank may be required to record at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments
typically involve application of lower of cost or market accounting or write-downs of individual assets.
Fair
Value Hierarchy
The
Bank groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are
traded and the reliability of the assumptions used to determine fair value.
|
|
Level
1
|
Valuation
based upon quoted prices for identical instruments traded in active markets.
|
|
|
|
|
|
|
Level
2
|
Valuation
is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in
the market.
|
|
|
|
|
|
|
Level
3
|
Valuation
is generated from model-based techniques that use at least one significant assumption not observable in the market. These
unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.
Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
|
Following
is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Investment
Securities Available-for-Sale
Investment
securities available-for-sale, are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices,
if available. If quoted prices are not available, fair values are measured using independent pricing modes or other model-based
valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions
and other factors such as credit loss assumptions. Level 1 securities included those traded on an active exchange, such as the
New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in an active over-the-counter markets
and money market funds. Level 2 securities included US government agencies securities,
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
mortgage-backed
securities (MBS) issued by government-sponsored entities, and municipal bonds. Securities classified as Level 3 includes a corporate
debt security and a common stock in a less liquid market. The value of the corporate debt security is determined via the going
rate of a similar debt security if it were to enter the market at period end. The derived market value requires significant management
judgment and is further substantiated by discounted cash flow methodologies. There have been no changes in valuation techniques
for the quarter ended March 31, 2016. Valuation techniques are consistent with techniques used in prior periods.
Assets
and Liabilities Recorded at Fair Value on a Recurring Basis
The
table below presents the recorded amount of assets and liabilities measured on a recurring basis.
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
8,943
|
|
|
$
|
—
|
|
|
$
|
8,943
|
|
|
$
|
—
|
|
|
Government
sponsored enterprises *
|
|
|
22,128
|
|
|
|
—
|
|
|
|
22,128
|
|
|
|
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,032
|
|
|
|
1,032
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
32,853
|
|
|
$
|
1,032
|
|
|
$
|
31,071
|
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
15,543
|
|
|
$
|
—
|
|
|
$
|
15,543
|
|
|
$
|
—
|
|
|
Government
sponsored enterprises *
|
|
|
5,602
|
|
|
|
—
|
|
|
|
5,602
|
|
|
|
—
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,038
|
|
|
|
1,038
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
22,933
|
|
|
$
|
1,038
|
|
|
$
|
21,145
|
|
|
$
|
750
|
|
*
Such as FNMA, FHLMC and FHLB
The
Bank did not have any transfers between Levels 1 and 2 during the periods ended March 31, 2016 and December 31, 2015.
The
tables below present the changes during the three months ended March 31, 2016 and the three months ended March 31, 2015 in the
amount of Level 3 assets measured on a recurring basis.
|
|
|
March
31, 2016
|
|
March
31, 2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
750
|
|
|
$
|
638
|
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
Change
in valuation recognized in OCI
|
|
|
—
|
|
|
|
75
|
|
|
Balance,
end of period
|
|
$
|
750
|
|
|
$
|
713
|
|
Impaired
Loans
The
Bank does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an
allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made
in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
individually
impaired, management measures it for impairment. The fair value of impaired loans is estimated using one of several methods, including
collateral value, a loan’s observable market price and discounted cash flows. Those impaired loans not requiring an allowance
represent loans for which the fair value exceeds the recorded investments in such loans. At March 31, 2016 the discounted cash
flows method was used in determining the fair value of eight loans totaling $3.2 million and the fair value of the collateral
method was used in the other thirty-seven loans totaling $4.1 million. At December 31, 2015, the discounted cash flows method
was used in determining the fair value of eight loans totaling $3.2 million and the fair value of the collateral method was used
in the other forty-one loans totaling $4.3 million. Impaired loans where an allowance is established based on the fair value of
collateral and also when written down with the discounted cash flow method require classification in the fair value hierarchy.
When the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the
impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the
collateral is further impaired below the appraised value and there is no observable market price, the Bank records the impaired
loan as nonrecurring Level 3. When the discounted cash flows method is used, the Bank records the impaired loan as nonrecurring
Level 3. There have been no changes in valuation techniques for the quarter ended March 31, 2016. Valuation techniques are consistent
with techniques used in prior periods.
The
following table presents impaired loans that were re-measured and reported at fair value through a specific valuation allowance
allocation of the allowance for loan losses based upon the fair value of the underlying collateral or discounted cash flows during
the three months ended March 31, 2016 and 2015.
|
|
|
March
31, 2016
|
|
March
31, 2015
|
|
Dollars
in thousands
|
|
Level
2
|
|
Level
3
|
|
Level
2
|
|
Level
3
|
|
Carrying
value of impaired loans before allocations
|
|
$
|
—
|
|
|
$
|
1,398
|
|
|
$
|
—
|
|
|
$
|
1,572
|
|
|
Specific
valuation allowance allocations
|
|
|
—
|
|
|
|
(160
|
)
|
|
|
—
|
|
|
|
(229
|
)
|
|
Carrying
value of impaired loans after allocations
|
|
$
|
—
|
|
|
$
|
1,238
|
|
|
$
|
—
|
|
|
$
|
1,343
|
|
Other
real estate owned
Other
real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried
at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral
or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable
market price or a current appraised value, the Bank records the foreclosed asset as nonrecurring Level 2. When an appraised value
is not available or management determines the fair value of the collateral is further impaired below the appraised value and there
is not observable market price, the Bank records the OREO as nonrecurring Level 3. There have been no changes in valuation techniques
for the quarter ended March 31, 2016. Valuation techniques are consistent with techniques used in prior periods.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
following table presents foreclosed assets that were re-measured and reported at fair value during the three months ended March
31, 2016 and 2015:
|
|
|
March
31,
2016
|
|
March
31,
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Foreclosed
assets re-measured at initial recognition:
|
|
|
|
|
|
Carrying
value of foreclosed assets prior to re-measurement
|
|
$
|
—
|
|
|
$
|
554
|
|
|
Charge-offs
recognized in the allowance for loan losses
|
|
|
—
|
|
|
|
(15
|
)
|
|
Fair
value
|
|
$
|
—
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets re-measured subsequent to initial recognition:
|
|
|
|
|
|
|
|
|
|
Carrying
value of foreclosed assets prior to re-measurement
|
|
$
|
1,904
|
|
|
$
|
2,343
|
|
|
Write-downs
included in foreclosed asset expense, net
|
|
|
(104
|
)
|
|
|
(15
|
)
|
|
Fair
value
|
|
$
|
1,800
|
|
|
$
|
2,328
|
|
Assets
measured at fair value on a nonrecurring basis are included in the table below.
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets
|
|
$
|
1,800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,800
|
|
|
Impaired
loans
|
|
|
1,238
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,238
|
|
|
Total
|
|
$
|
3,038
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets
|
|
$
|
1,994
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,994
|
|
|
Impaired
loans
|
|
|
1,414
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,414
|
|
|
Total
|
|
$
|
3,408
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,408
|
|
Quantitative
Information About Level 3 Fair Value Measurements:
|
|
|
Fair
Value
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
|
|
Weighted
Average
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
1,238
|
|
|
Discounted
cash flows
|
|
Discount
rate
|
|
|
5.75%
- 8.50
|
%
|
|
|
7.25
|
%
|
|
Foreclosed
assets
|
|
|
1,800
|
|
|
Discounted
appraisals
|
|
Appraisal
adjustments
|
|
|
6.00%
- 57.32
|
%
|
|
|
20.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
168
|
|
|
Discounted
appraisals
|
|
Appraisal
adjustments
|
|
|
15.00
|
%
|
|
|
15.00
|
%
|
|
Impaired
loans
|
|
|
1,246
|
|
|
Discounted
cash flows
|
|
Discount
rate
|
|
|
5.75%
– 8.50
|
%
|
|
|
7.24
|
%
|
|
Foreclosed
assets
|
|
|
1,994
|
|
|
Discounted
appraisals
|
|
Appraisal
adjustments
|
|
|
6.00%
- 57.32
|
%
|
|
|
17.32
|
%
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
(5)
|
Investment
Securities
|
The
amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, is as follows:
|
In
thousands
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
8,943
|
|
|
$
|
48
|
|
|
$
|
(48
|
)
|
|
$
|
8,943
|
|
|
Government-sponsored
enterprises *
|
|
|
21,964
|
|
|
|
238
|
|
|
|
(74
|
)
|
|
|
22,128
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,204
|
|
|
|
—
|
|
|
|
(172
|
)
|
|
|
1,032
|
|
|
|
|
$
|
32,861
|
|
|
$
|
286
|
|
|
$
|
(294
|
)
|
|
$
|
32,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
15,935
|
|
|
$
|
17
|
|
|
$
|
(409
|
)
|
|
$
|
15,543
|
|
|
Government-sponsored
enterprises *
|
|
|
5,391
|
|
|
|
212
|
|
|
|
(1
|
)
|
|
|
5,602
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,204
|
|
|
|
—
|
|
|
|
(166
|
)
|
|
|
1,038
|
|
|
|
|
$
|
23,280
|
|
|
$
|
229
|
|
|
$
|
(576
|
)
|
|
$
|
22,933
|
|
*
Such as FNMA, FHLMC and FHLB
The
amortized cost and fair values of securities available for sale (excluding marketable equity securities) at March 31, 2016 by
contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Due
after one but within five years
|
|
|
1,304
|
|
|
|
1,306
|
|
|
|
|
|
|
|
|
|
|
Due
after five but within ten years
|
|
|
5,267
|
|
|
|
5,332
|
|
|
|
|
|
|
|
|
|
|
Due
after ten years
|
|
|
25,086
|
|
|
|
25,183
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,657
|
|
|
$
|
31,821
|
|
|
|
|
|
|
|
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
following tables detail unrealized losses and related fair values in the Bank’s available-for-sale investment security portfolio.
This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position
as of March 31, 2016 and December 31, 2015, respectively.
|
|
|
Temporarily
Impaired Securities in AFS Portfolio
|
|
|
|
Less
than 12 months
|
|
Greater
than 12 months
|
|
Total
|
|
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
3,190
|
|
|
$
|
(23
|
)
|
|
$
|
1,975
|
|
|
$
|
(25
|
)
|
|
$
|
5,165
|
|
|
$
|
(48
|
)
|
|
Government-sponsored
enterprises *
|
|
|
15,082
|
|
|
|
(74
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
15,082
|
|
|
|
(74
|
)
|
|
Equity
securities
|
|
|
1,203
|
|
|
|
(171
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1,204
|
|
|
|
(172
|
)
|
|
Total
temporarily impaired securities
|
|
$
|
19,475
|
|
|
$
|
(268
|
)
|
|
$
|
1,976
|
|
|
$
|
(26
|
)
|
|
$
|
21,451
|
|
|
$
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
5,374
|
|
|
$
|
(105
|
)
|
|
$
|
8,696
|
|
|
$
|
(304
|
)
|
|
$
|
14,070
|
|
|
$
|
(409
|
)
|
|
Government-sponsored
enterprises *
|
|
|
237
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
237
|
|
|
|
(1
|
)
|
|
Equity
securities
|
|
|
1,203
|
|
|
|
(165
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1,204
|
|
|
|
(166
|
)
|
|
Total
temporarily impaired securities
|
|
$
|
6,814
|
|
|
$
|
(271
|
)
|
|
$
|
8,697
|
|
|
$
|
(305
|
)
|
|
$
|
15,511
|
|
|
$
|
(576
|
)
|
*
Such as FNMA, FHLMC and FHLB.
Management
considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration
of the decline in market value in determining if impairment is other than temporary. Consideration is given to (1) the length
of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of
the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient
to allow for any anticipated recovery in fair value. As of March 31, 2016, management believes that it is more likely than not
that the Bank will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases
in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected
to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.
Management
does not believe such securities are other-than-temporarily impaired due to reasons of credit quality. Accordingly, as of March
31, 2016, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized
in the Bank’s net income.
Securities
with a fair value of $4.0 million at March 31, 2016 were pledged to secure public funds. The Bank had no sales of securities during
the periods ended March 31, 2016 or 2015.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
following table presents the changes in the Bank’s accumulated other comprehensive income, net of tax, by component for
the periods indicated:
|
|
|
Unrealized
gains
(losses) on
available-for-
sale securities
|
|
(Dollars
in thousands)
|
|
|
|
Beginning
balance, January 1, 2016
|
|
$
|
(216
|
)
|
|
Other
comprehensive income before reclassifications
|
|
|
211
|
|
|
Amounts
reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
Net
current period other comprehensive income
|
|
|
211
|
|
|
Ending
balance, March 31, 2016
|
|
$
|
(5
|
)
|
|
|
|
Unrealized
gains
(losses) on
available-for-
sale securities
|
|
(Dollars
in thousands)
|
|
|
|
Beginning
balance, January 1, 2015
|
|
$
|
118
|
|
|
Other
comprehensive income before reclassifications
|
|
|
216
|
|
|
Amounts
reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
Net
current period other comprehensive income
|
|
|
216
|
|
|
Ending
balance, March 31, 2015
|
|
$
|
334
|
|
The
Bank did not have any reclassifications out of accumulated other comprehensive income for the three-month periods ended March
31, 2016 or 2015.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
Following
is a summary of loans at March 31, 2016 and December 31, 2015:
|
|
|
March
31, 2016
|
|
December
31, 2015
|
|
Dollars
in thousands
|
|
Amount
|
|
Percent
of Total
|
|
Amount
|
|
Percent
of Total
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
Residential
ADC
|
|
$
|
4,994
|
|
|
|
1.68
|
%
|
|
$
|
2,625
|
|
|
|
0.90
|
%
|
|
Commercial
ADC
|
|
|
18,304
|
|
|
|
6.14
|
%
|
|
|
18,735
|
|
|
|
6.41
|
%
|
|
Farmland
|
|
|
3,858
|
|
|
|
1.29
|
%
|
|
|
2,615
|
|
|
|
0.89
|
%
|
|
Multifamily
|
|
|
11,345
|
|
|
|
3.80
|
%
|
|
|
11,475
|
|
|
|
3.93
|
%
|
|
Owner
occupied
|
|
|
72,719
|
|
|
|
24.38
|
%
|
|
|
71,968
|
|
|
|
24.62
|
%
|
|
Non-owner
occupied
|
|
|
59,058
|
|
|
|
19.80
|
%
|
|
|
58,244
|
|
|
|
19.92
|
%
|
|
Total
commercial real estate
|
|
|
170,278
|
|
|
|
57.09
|
%
|
|
|
165,662
|
|
|
|
56.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
41,846
|
|
|
|
14.03
|
%
|
|
|
43,575
|
|
|
|
14.88
|
%
|
|
Agriculture
|
|
|
352
|
|
|
|
0.12
|
%
|
|
|
83
|
|
|
|
0.03
|
%
|
|
Other
|
|
|
126
|
|
|
|
0.04
|
%
|
|
|
52
|
|
|
|
0.02
|
%
|
|
Total
commercial
|
|
|
42,324
|
|
|
|
14.19
|
%
|
|
|
43,710
|
|
|
|
14.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
46,875
|
|
|
|
15.72
|
%
|
|
|
46,148
|
|
|
|
15.76
|
%
|
|
Junior
lien, closed-end
|
|
|
1,238
|
|
|
|
0.41
|
%
|
|
|
1,240
|
|
|
|
0.42
|
%
|
|
Total
residential mortgage
|
|
|
48,113
|
|
|
|
16.13
|
%
|
|
|
47,388
|
|
|
|
16.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
33,757
|
|
|
|
11.32
|
%
|
|
|
32,083
|
|
|
|
10.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
– other
|
|
|
3,785
|
|
|
|
1.27
|
%
|
|
|
4,022
|
|
|
|
1.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gross loans
|
|
$
|
298,257
|
|
|
|
100.00
|
%
|
|
$
|
292,865
|
|
|
|
100.00
|
%
|
|
Deferred
loan origination fees, net
|
|
|
(511
|
)
|
|
|
|
|
|
|
(503
|
)
|
|
|
|
|
|
Total
loans
|
|
$
|
297,746
|
|
|
|
|
|
|
$
|
292,362
|
|
|
|
|
|
Loans
are primarily originated for customers residing in Lincoln, Gaston, Catawba, Rutherford and Iredell Counties in North Carolina.
Real estate loans can be affected by the condition of the local real estate market. Commercial and industrial loans can be affected
by the local economic conditions.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
Non-Accrual
and Past Due Loans
Non-accrual
loans, segregated by category, were as follows:
|
|
|
March
31,
2016
|
|
December
31,
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Commercial
real estate
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
1,071
|
|
|
$
|
1,063
|
|
|
Owner
occupied
|
|
|
521
|
|
|
|
459
|
|
|
Non-owner
occupied
|
|
|
43
|
|
|
|
45
|
|
|
Total
commercial real estate
|
|
|
1,635
|
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
27
|
|
|
|
46
|
|
|
Total
commercial
|
|
|
27
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
372
|
|
|
|
382
|
|
|
Total
residential mortgage
|
|
|
372
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
—
|
|
|
|
9
|
|
|
Consumer
– other
|
|
|
66
|
|
|
|
43
|
|
|
Total
non-accrual loans
|
|
$
|
2,100
|
|
|
$
|
2,047
|
|
Interest
foregone on non-accrual loans was approximately $35,000 and $87,000 for the three months ended March 31, 2016 and 2015, respectively.
An
analysis of past due loans, segregated by class, was as follows:
|
In thousands
|
|
Loans 30-89 Days Past Due
|
|
Loans 90 or more Days Past Due
|
|
Total Past Due Loans
|
|
Current Loans
|
|
Total Loans
|
|
Accruing Loans 90 or More Days Past Due
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,994
|
|
|
$
|
4,994
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
5
|
|
|
|
1,052
|
|
|
|
1,057
|
|
|
|
17,247
|
|
|
|
18,304
|
|
|
|
—
|
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,858
|
|
|
|
3,858
|
|
|
|
—
|
|
|
Multifamily
|
|
|
169
|
|
|
|
—
|
|
|
|
169
|
|
|
|
11,176
|
|
|
|
11,345
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
26
|
|
|
|
370
|
|
|
|
396
|
|
|
|
72,323
|
|
|
|
72,719
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
|
|
59,040
|
|
|
|
59,058
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
218
|
|
|
|
1,422
|
|
|
|
1,640
|
|
|
|
168,638
|
|
|
|
170,278
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
83
|
|
|
|
26
|
|
|
|
109
|
|
|
|
41,226
|
|
|
|
41,335
|
|
|
|
—
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
352
|
|
|
|
352
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
|
|
126
|
|
|
|
—
|
|
|
Total commercial
|
|
|
83
|
|
|
|
26
|
|
|
|
109
|
|
|
|
41,704
|
|
|
|
41,813
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
57
|
|
|
|
304
|
|
|
|
361
|
|
|
|
46,514
|
|
|
|
46,875
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,238
|
|
|
|
1,238
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
57
|
|
|
|
304
|
|
|
|
361
|
|
|
|
47,752
|
|
|
|
48,113
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
195
|
|
|
|
—
|
|
|
|
195
|
|
|
|
33,562
|
|
|
|
33,757
|
|
|
|
—
|
|
|
Consumer – other
|
|
|
35
|
|
|
|
—
|
|
|
|
35
|
|
|
|
3,750
|
|
|
|
3,785
|
|
|
|
—
|
|
|
Total loans
|
|
$
|
588
|
|
|
$
|
1,752
|
|
|
$
|
2,340
|
|
|
$
|
295,406
|
|
|
$
|
297,746
|
|
|
$
|
—
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
In thousands
|
|
Loans 30-89 Days Past Due
|
|
Loans 90 or more Days Past Due
|
|
Total Past Due Loans
|
|
Current Loans
|
|
Total Loans
|
|
Accruing Loans 90 or More Days Past Due
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,625
|
|
|
$
|
2,625
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
—
|
|
|
|
1,063
|
|
|
|
1,063
|
|
|
|
17,672
|
|
|
|
18,735
|
|
|
|
—
|
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,615
|
|
|
|
2,615
|
|
|
|
—
|
|
|
Multifamily
|
|
|
171
|
|
|
|
—
|
|
|
|
171
|
|
|
|
11,304
|
|
|
|
11,475
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
468
|
|
|
|
—
|
|
|
|
468
|
|
|
|
71,500
|
|
|
|
71,968
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
69
|
|
|
|
—
|
|
|
|
69
|
|
|
|
58,175
|
|
|
|
58,244
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
708
|
|
|
|
1,063
|
|
|
|
1,771
|
|
|
|
163,891
|
|
|
|
165,662
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
15
|
|
|
|
44
|
|
|
|
59
|
|
|
|
43,013
|
|
|
|
43,072
|
|
|
|
—
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
|
|
83
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
|
Total commercial
|
|
|
15
|
|
|
|
44
|
|
|
|
59
|
|
|
|
43,148
|
|
|
|
43,207
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
53
|
|
|
|
258
|
|
|
|
311
|
|
|
|
45,837
|
|
|
|
46,148
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,240
|
|
|
|
1,240
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
53
|
|
|
|
258
|
|
|
|
311
|
|
|
|
47,077
|
|
|
|
47,388
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
274
|
|
|
|
126
|
|
|
|
400
|
|
|
|
31,683
|
|
|
|
32,083
|
|
|
|
117
|
|
|
Consumer – other
|
|
|
91
|
|
|
|
42
|
|
|
|
133
|
|
|
|
3,889
|
|
|
|
4,022
|
|
|
|
—
|
|
|
Total loans
|
|
$
|
1,141
|
|
|
$
|
1,533
|
|
|
$
|
2,674
|
|
|
$
|
289,688
|
|
|
$
|
292,362
|
|
|
$
|
117
|
|
Impaired
loans
Impaired
loans are set forth in the following tables.
|
Loans
without an allowance at March 31, 2016
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
3,014
|
|
|
$
|
2,348
|
|
|
$
|
—
|
|
|
$
|
2,354
|
|
|
$
|
16
|
|
|
Owner
occupied
|
|
|
2,306
|
|
|
|
2,236
|
|
|
|
—
|
|
|
|
2,162
|
|
|
|
25
|
|
|
Non-owner
occupied
|
|
|
43
|
|
|
|
43
|
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
Total
commercial real estate
|
|
|
5,363
|
|
|
|
4,627
|
|
|
|
—
|
|
|
|
4,560
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
523
|
|
|
|
518
|
|
|
|
—
|
|
|
|
541
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
489
|
|
|
|
422
|
|
|
|
—
|
|
|
|
426
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
282
|
|
|
|
282
|
|
|
|
—
|
|
|
|
287
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
– other
|
|
|
66
|
|
|
|
66
|
|
|
|
—
|
|
|
|
85
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
6,723
|
|
|
$
|
5,915
|
|
|
$
|
—
|
|
|
$
|
5,899
|
|
|
$
|
64
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
Loans
with a related allowance at March 31, 2016
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Owner
occupied
|
|
$
|
126
|
|
|
$
|
126
|
|
|
$
|
2
|
|
|
$
|
253
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
433
|
|
|
|
433
|
|
|
|
59
|
|
|
|
439
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
839
|
|
|
|
839
|
|
|
|
99
|
|
|
|
842
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
- other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
1,398
|
|
|
$
|
1,398
|
|
|
$
|
160
|
|
|
$
|
1,537
|
|
|
$
|
20
|
|
|
Total Impaired Loans at March 31, 2016
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income
Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
3,014
|
|
|
$
|
2,348
|
|
|
$
|
—
|
|
|
$
|
2,354
|
|
|
$
|
16
|
|
|
Owner
occupied
|
|
|
2,432
|
|
|
|
2,362
|
|
|
|
2
|
|
|
|
2,415
|
|
|
|
25
|
|
|
Non-owner
occupied
|
|
|
43
|
|
|
|
43
|
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
Total
commercial real estate
|
|
|
5,489
|
|
|
|
4,753
|
|
|
|
2
|
|
|
|
4,813
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
956
|
|
|
|
951
|
|
|
|
59
|
|
|
|
980
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
1,328
|
|
|
|
1,261
|
|
|
|
99
|
|
|
|
1,268
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
282
|
|
|
|
282
|
|
|
|
—
|
|
|
|
290
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
– other
|
|
|
66
|
|
|
|
66
|
|
|
|
—
|
|
|
|
85
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
8,121
|
|
|
$
|
7,313
|
|
|
$
|
160
|
|
|
$
|
7,436
|
|
|
$
|
84
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
Loans
without an allowance at December 31, 2015
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
3,017
|
|
|
$
|
2,351
|
|
|
$
|
—
|
|
|
$
|
2,353
|
|
|
$
|
85
|
|
|
Owner
occupied
|
|
|
2,135
|
|
|
|
2,135
|
|
|
|
—
|
|
|
|
2,338
|
|
|
|
79
|
|
|
Non-owner
occupied
|
|
|
45
|
|
|
|
45
|
|
|
|
—
|
|
|
|
134
|
|
|
|
2
|
|
|
Total
commercial real estate
|
|
|
5,197
|
|
|
|
4,531
|
|
|
|
—
|
|
|
|
4,825
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
551
|
|
|
|
546
|
|
|
|
—
|
|
|
|
578
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
500
|
|
|
|
433
|
|
|
|
—
|
|
|
|
480
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
289
|
|
|
|
289
|
|
|
|
—
|
|
|
|
286
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
– other
|
|
|
114
|
|
|
|
114
|
|
|
|
—
|
|
|
|
13
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
6,651
|
|
|
$
|
5,913
|
|
|
$
|
—
|
|
|
$
|
6,182
|
|
|
$
|
221
|
|
|
Loans
with a related allowance at December 31, 2015
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
Owner
occupied
|
|
|
318
|
|
|
|
318
|
|
|
$
|
23
|
|
|
$
|
186
|
|
|
$
|
25
|
|
|
Total
commercial real estate
|
|
|
318
|
|
|
|
318
|
|
|
|
23
|
|
|
|
289
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
455
|
|
|
|
455
|
|
|
|
80
|
|
|
|
451
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
846
|
|
|
|
846
|
|
|
|
102
|
|
|
|
967
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
- other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
1,628
|
|
|
$
|
1,628
|
|
|
$
|
214
|
|
|
$
|
1,709
|
|
|
$
|
105
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
Total
Impaired Loans at December 31, 2015
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
3,017
|
|
|
$
|
2,351
|
|
|
$
|
—
|
|
|
$
|
2,456
|
|
|
$
|
85
|
|
|
Owner
occupied
|
|
|
2,453
|
|
|
|
2,453
|
|
|
|
23
|
|
|
|
2,524
|
|
|
|
104
|
|
|
Non-owner
occupied
|
|
|
45
|
|
|
|
45
|
|
|
|
—
|
|
|
|
134
|
|
|
|
2
|
|
|
Total
commercial real estate
|
|
|
5,515
|
|
|
|
4,849
|
|
|
|
23
|
|
|
|
5,114
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
1,005
|
|
|
|
1,001
|
|
|
|
80
|
|
|
|
1,029
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
1,346
|
|
|
|
1,279
|
|
|
|
102
|
|
|
|
1,447
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
299
|
|
|
|
298
|
|
|
|
9
|
|
|
|
287
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
– other
|
|
|
114
|
|
|
|
114
|
|
|
|
—
|
|
|
|
14
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
8,279
|
|
|
$
|
7,541
|
|
|
$
|
214
|
|
|
$
|
7,891
|
|
|
$
|
326
|
|
At
March 31, 2016 there were no loans past due 90 days or more, which were still accruing interest and at December 31, 2015 there
was one loan totaling $117,000 past due 90 days or more, which was still accruing interest.
Troubled
Debt Restructures
As
of March 31, 2016, ten loans totaling $4,807,000 were identified as troubled debt restructurings and considered impaired, none
of which had unfunded commitments. Ten loans totaling $4,853,000 were identified as troubled debt restructurings and considered
impaired at December 31, 2015, none of which had unfunded commitments.
For
the three months ended March 31, 2016 and March 31, 2015, there were no concessions made.
There
were no loans that were modified as troubled debt restructurings within the previous 12 months for which there was a payment default
during the three months ended March 31, 2016 and March 31, 2015.
If
a restructured loan defaults after being restructured, the loan is liquidated or charged off. Defaults of restructured loans are
addressed in the qualitative factor of the delinquency component.
The
following table presents the successes and failures of the types of modifications within the previous 12 months as of March 31,
2016 and 2015.
|
|
|
Paid in full
|
|
Paying as restructured
|
|
Converted to non-accrual
|
|
Foreclosure/Default
|
|
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
March 31, 2016
|
|
(Dollars in thousands)
|
|
Extended payment terms
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2
|
|
|
$
|
961
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2
|
|
|
$
|
961
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
|
|
Paid in full
|
|
Paying as restructured
|
|
Converted to non-accrual
|
|
Foreclosure/Default
|
|
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
March 31, 2015
|
|
(Dollars in thousands)
|
|
Extended payment terms
|
|
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
456
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
456
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Credit
Quality Indicators
As
part of the on-going monitoring of credit quality of the Bank’s loan portfolio, management tracks certain credit quality
indicators including trends related to (i) the local, state and national economic outlook, (ii) concentrations of credit, (iii)
interest rate movements, (iv) volume, mix and size of loans and (v) delinquencies.
The
Bank utilizes a risk-grading matrix to assign a risk grade to each of its commercial and consumer loans. Loans are graded on a
scale of 1-9. Risk grades 1-5 represent pass rated loans. The general characteristics of the 9 risk grades are broken down into
commercial and consumer and described below:
Loan
Portfolio Risk Grades
|
|
Pass
credits are grades 1-5 and represent credits with above average risk characteristics that are in accordance with loan policy guidelines
regarding repayment ability, loan to value, and credit history. These types of credits have very few exceptions to policy.
|
|
|
Grade
6 –
Watch List or Special Mention. The loans in this category include the following characteristics:
|
*
Loans
with one or more major exceptions with no mitigating factors.
*Extending
loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset
or inadequately protect the Bank’s position at some future date. Potential weaknesses are the result of deviations from
prudent lending practice.
*Loans
where adverse economic conditions that develop subsequent to the loan origination that don’t jeopardize liquidation of the
debt but do substantially increase the level of risk may also warrant this rating.
Grade
7
– Substandard. A substandard loan is inadequately protected by the current sound
net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have
a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct
possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting
the repayment schedule should be downgraded to substandard. Loans in this category are characterized by
deterioration in quality exhibited by
any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to (i)
high debt to worth ratios, (ii) declining or negative earnings trends, (iii) declining or inadequate liquidity, (iv) improper
loan structure, (v)
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
questionable
repayment sources, (vi) lack of well-defined secondary repayment source, and (vii) unfavorable competitive comparisons.
Grade
8 –
Doubtful. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added
characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions,
and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur
which would salvage the debt. Among these events are injection of capital, alternative financing and liquidation of assets or
the pledging of additional collateral. The ability of the borrower to service the debt is extremely weak, overdue status is constant,
the debt has been placed on non-accrual status, and no definite repayment schedule exists. Doubtful is a temporary grade where
a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount
is charged off.
Grade
9 –
Loss.
Loans classified Loss are considered uncollectable and of such little value that
their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery
or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial
recovery may be affected in the future.
Probable loss portions of Doubtful assets should be charged against the Reserve
for Loan Losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier of
thirty (30) days or calendar quarter-end.
The
following table presents the credit risk profile by internally assigned risk grades.
March 31, 2016
|
Dollars in thousands
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
4,994
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
15,445
|
|
|
|
530
|
|
|
|
2,329
|
|
|
|
—
|
|
|
|
—
|
|
|
Farmland
|
|
|
3,858
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Multifamily
|
|
|
11,345
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
68,601
|
|
|
|
2,364
|
|
|
|
1,754
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
57,681
|
|
|
|
1,334
|
|
|
|
43
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
161,924
|
|
|
|
4,228
|
|
|
|
4,126
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
38,826
|
|
|
|
2,049
|
|
|
|
460
|
|
|
|
—
|
|
|
|
—
|
|
|
Agriculture
|
|
|
352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial
|
|
|
39,304
|
|
|
|
2,049
|
|
|
|
460
|
|
|
|
—
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
43,416
|
|
|
|
2,994
|
|
|
|
465
|
|
|
|
—
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
729
|
|
|
|
471
|
|
|
|
38
|
|
|
|
—
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
44,145
|
|
|
|
3,465
|
|
|
|
503
|
|
|
|
—
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
31,777
|
|
|
|
1,679
|
|
|
|
301
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer – other
|
|
|
3,547
|
|
|
|
238
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
280,697
|
|
|
$
|
11,659
|
|
|
$
|
5,390
|
|
|
$
|
—
|
|
|
$
|
—
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
December 31, 2015
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
2,625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
15,868
|
|
|
|
516
|
|
|
|
2,351
|
|
|
|
—
|
|
|
|
—
|
|
|
Farmland
|
|
|
2,615
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Multifamily
|
|
|
11,475
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
67,727
|
|
|
|
2,392
|
|
|
|
1,849
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
56,842
|
|
|
|
1,357
|
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
157,152
|
|
|
|
4,265
|
|
|
|
4,245
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
40,443
|
|
|
|
2,146
|
|
|
|
483
|
|
|
|
—
|
|
|
|
—
|
|
|
Agriculture
|
|
|
83
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial
|
|
|
40,578
|
|
|
|
2,146
|
|
|
|
483
|
|
|
|
—
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
42,560
|
|
|
|
3,113
|
|
|
|
475
|
|
|
|
—
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
725
|
|
|
|
476
|
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
43,285
|
|
|
|
3,589
|
|
|
|
514
|
|
|
|
—
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
30,086
|
|
|
|
1,680
|
|
|
|
317
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer – other
|
|
|
3,713
|
|
|
|
309
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
274,814
|
|
|
$
|
11,989
|
|
|
$
|
5,559
|
|
|
$
|
—
|
|
|
$
|
—
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
Allowance
for Loan Losses
The
allowance for loan losses represents management’s estimate of an amount adequate to provide for probable losses inherent
in the loan portfolio. Management determines the allowance for loan losses based on a number of factors, including a review and
evaluation of the Bank’s loan portfolio and current and projected economic conditions locally and nationally. The allowance
is monitored and analyzed in conjunction with the Bank’s loan analysis and grading program and provisions for loan losses
are made to maintain an adequate allowance for loan losses. The allowance for loan losses is created by direct charges to operations.
Losses on loans are charged against the allowance for loan losses in the accounting period in which they are determined by management
to be uncollectible. Recoveries during the period are credited to the allowance. The provision for loan losses is the amount necessary
to adjust the allowance for loan losses to the amount that management has determined to be adequate to provide for potential losses
inherent in the loan portfolio. Certain changes in factors may cause increases or decreases to the allowance for loan losses.
The Bank recorded a negative $80,000 provision for loan losses for the quarter ended March 31, 2016 and made no provisions for
loan losses for the quarter ended March 31, 2015. Management realizes that general economic trends greatly affect loan losses,
and no assurances can be made that future charges to the loan loss allowance may not be significant in relation to the amount
provided during a particular period, or that future evaluations of the loan portfolio based on conditions then prevailing will
not require sizable additions to the allowance, thus necessitating similarly sizable charges to income. Based on its best judgment,
evaluation, and analysis of the loan portfolio, management considers the allowance for loan losses to be adequate for the reporting
periods.
The
following table details activity in the allowance for loan losses by portfolio segment for the quarters ended March 31, 2016 and
2015.
|
|
|
Beginning
Balance
|
|
Provision
for
(Recovery) of Loan Losses
|
|
Charge-offs
|
|
Recoveries
|
|
Ending
Balance
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,302
|
|
|
$
|
45
|
|
|
$
|
(70
|
)
|
|
$
|
3
|
|
|
|
2,280
|
|
|
Commercial
and industrial
|
|
|
570
|
|
|
|
(71
|
)
|
|
|
(58
|
)
|
|
|
17
|
|
|
|
458
|
|
|
Residential
mortgage
|
|
|
505
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
496
|
|
|
Consumer
|
|
|
346
|
|
|
|
(45
|
)
|
|
|
(17
|
)
|
|
|
3
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,723
|
|
|
$
|
(80
|
)
|
|
$
|
(145
|
)
|
|
$
|
23
|
|
|
$
|
3,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,456
|
|
|
$
|
163
|
|
|
$
|
(50
|
)
|
|
$
|
4
|
|
|
$
|
2,573
|
|
|
Commercial
and industrial
|
|
|
705
|
|
|
|
(217
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
489
|
|
|
Residential
mortgage
|
|
|
464
|
|
|
|
15
|
|
|
|
—
|
|
|
|
1
|
|
|
|
480
|
|
|
Consumer
|
|
|
377
|
|
|
|
39
|
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,002
|
|
|
$
|
—
|
|
|
$
|
(56
|
)
|
|
$
|
8
|
|
|
$
|
3,954
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
allocation of the allowance for loan losses for March 31, 2016 and December 31, 2015 is presented in the tables below.
|
|
|
Loans
Individually Evaluated
for Impairment
|
|
Loans
Collectively Evaluated for Impairment
|
|
Total
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2
|
|
|
$
|
2,278
|
|
|
$
|
2,280
|
|
|
Commercial
and industrial
|
|
|
59
|
|
|
|
399
|
|
|
|
458
|
|
|
Residential
mortgage
|
|
|
99
|
|
|
|
397
|
|
|
|
496
|
|
|
Consumer
|
|
|
—
|
|
|
|
287
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
160
|
|
|
$
|
3,361
|
|
|
$
|
3,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
23
|
|
|
$
|
2,279
|
|
|
$
|
2,302
|
|
|
Commercial
and industrial
|
|
|
80
|
|
|
|
490
|
|
|
|
570
|
|
|
Residential
mortgage
|
|
|
102
|
|
|
|
403
|
|
|
|
505
|
|
|
Consumer
|
|
|
9
|
|
|
|
337
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
214
|
|
|
$
|
3,509
|
|
|
$
|
3,723
|
|
The
Bank’s recorded investment in loans as of March 31, 2016 and December 31, 2015 related to each balance in the allowance
for loan losses by portfolio segment and disaggregated on the Bank’s impairment methodology was as follows:
|
|
|
March
31, 2016
|
|
December
31, 2015
|
|
|
|
Loans
Individually Evaluated for Impairment
|
|
Loans
Collectively Evaluated for Impairment
|
|
Loans
Individually Evaluated for Impairment
|
|
Loans
Collectively Evaluated for Impairment
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
4,752
|
|
|
$
|
165,526
|
|
|
$
|
4,849
|
|
|
$
|
160,813
|
|
|
Commercial
and industrial
|
|
|
951
|
|
|
|
41,373
|
|
|
|
1,001
|
|
|
|
42,710
|
|
|
Residential
mortgage
|
|
|
1,262
|
|
|
|
46,851
|
|
|
|
1,279
|
|
|
|
46,109
|
|
|
Consumer
|
|
|
348
|
|
|
|
37,194
|
|
|
|
412
|
|
|
|
35,692
|
|
|
Unearned
Discounts
|
|
|
—
|
|
|
|
(511
|
)
|
|
|
—
|
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,313
|
|
|
$
|
290,433
|
|
|
$
|
7,541
|
|
|
$
|
284,821
|
|
At
March 31, 2016 the Bank had pre-approved but unused lines of credit totaling $47.6 million. In management’s opinion these
unused lines of credit represent no more than normal lending risk to the Bank and will be funded from normal sources of liquidity.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
Bank has entered loan transactions with its directors and executive officers. Such loans were made in the ordinary course of business
and on substantially the same terms and collateral as those for comparable transactions prevailing at the time and did not involve
more than the normal risk of collectability or present other unfavorable features.
A
summary of related party loan transactions as of March 31, 2016 and 2015 is as follows:
|
|
|
2016
|
|
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
2,347
|
|
|
$
|
1,123
|
|
|
Loan
disbursements
|
|
|
564
|
|
|
|
131
|
|
|
Loan
repayments
|
|
|
(246
|
)
|
|
|
(93
|
)
|
|
Changes
in related parties
|
|
|
—
|
|
|
|
—
|
|
|
Balance,
March 31
|
|
$
|
2,665
|
|
|
$
|
1,161
|
|
At
March 31, 2016 and 2015 the Bank had pre-approved but unused lines of credit totaling $311,000 and $930,000, respectively, to
executive officers, directors and their related interests. Related party deposits totaled $869,000 and $4,698,000 at March 31,
2016 and 2015, respectively.
The
following table summarizes the activity in foreclosed assets for the periods ended March 31, 2016 and 2015:
|
|
|
March
31,
2016
|
|
March
31,
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
1,994
|
|
|
$
|
2,048
|
|
|
Additions
|
|
|
—
|
|
|
|
539
|
|
|
Proceeds
from sale
|
|
|
(81
|
)
|
|
|
(190
|
)
|
|
Valuation
adjustments
|
|
|
(105
|
)
|
|
|
(15
|
)
|
|
Gains
(losses) on sales
|
|
|
(8
|
)
|
|
|
(54
|
)
|
|
Balance,
end of quarter
|
|
$
|
1,800
|
|
|
$
|
2,328
|
|
The
Bank has two foreclosed residential real estate properties held totaling $59,000 as of March 31, 2016.
The
recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings
are in process totaled $177,000 for March 31, 2016.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
Basic
earnings per share are based upon the weighted average number of common shares outstanding during the period. The weighted average
common shares outstanding for the diluted earnings per share computations were adjusted to reflect the assumed conversion of shares
available under stock options. The following tables summarize earnings per share and the shares utilized in the computations for
the three months ended March 31, 2016 and 2015, respectively:
|
|
|
Net
Income Available to Common Shareholders
|
|
Weighted
Average Common Shares
|
|
Per
Share
Amount
|
|
Dollars
in thousands, except per share data
|
|
|
|
|
|
|
|
March
31, 2016
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
358
|
|
|
|
4,649,558
|
|
|
$
|
0.08
|
|
|
Effect
of dilutive stock options
|
|
|
—
|
|
|
|
47,981
|
|
|
|
—
|
|
|
Effect
of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Diluted
earnings per common share
|
|
$
|
358
|
|
|
|
4,697,539
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
117
|
|
|
|
4,643,666
|
|
|
$
|
0.03
|
|
|
Effect
of dilutive stock options
|
|
|
—
|
|
|
|
36,450
|
|
|
|
—
|
|
|
Effect
of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Diluted
earnings per common share
|
|
$
|
117
|
|
|
|
4,680,116
|
|
|
$
|
0.03
|
|
Certain
reclassifications have been made to the financial statements of the prior year to place them on a comparable basis with the current
year. Net income and shareholders’ equity were not affected by these reclassifications.
Item
2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s
discussion and analysis is intended to assist readers in the understanding and evaluation of the financial condition and results
of operations of Carolina Trust Bank (the “Bank”). This report to shareholders may contain certain forward-looking
statements consisting of estimates with respect to the financial condition, results of operations and other business of Carolina
Trust Bank that are subject to various factors which could cause actual results to differ materially from those estimates. Factors,
which could influence the estimates, include changes in national, regional and local market conditions, legislative and regulatory
conditions, and the interest rate environment.
Discussion
of Financial Condition at March 31, 2016
During
the period from December 31, 2015 to March 31, 2016, total assets increased by approximately $38.7 million, or 11.58%. The increase,
reflected primarily in federal funds sold, investment securities available for sale, and loans, was funded by an increase in deposits
and Federal Home Loan Bank
advances. Interest-earning deposits with banks, federal funds sold, securities available for sale and
Federal Home Loan Bank (FHLB) stock at March 31, 2016 totaled $57.4 million compared to $23.8 million at December 31, 2015.
At
March 31, 2016, the net loans constituted 78.93% of the Bank’s total assets. Loans increased by $5.4 million from December
31, 2015 to March 31, 2016. Management’s continued goal is to grow the loan portfolio to provide maximum income proportionate
with acceptable risks. At March 31, 2016 and December 31, 2015 impaired loans, which consisted primarily of troubled debt restructures
and non-accrual loans, were $7.3 million and $7.5 million respectively. Impaired loans of $1.4 million and $1.6 million had related
allowances for loan losses aggregating $160,000 and $214,000 at March 31, 2016 and December 31, 2015, respectively. There were
$5.9 million of impaired loans without an allowance at both March 31, 2016 and December 31, 2015. Impaired loans at March 31,
2016 and December 31, 2015 consisted primarily of commercial ADC, commercial real estate, residential mortgage and commercial
and industrial loans. At March 31, 2016 the Bank identified ten loans amounting to approximately $4.8 million, which were restructured
to facilitate the borrowers’ ability to repay the outstanding balance. Of these ten loans, nine loans totaling $4.7 million
were accruing interest at March 31, 2016. At December 31, 2015, there were ten loans totaling $4.9 million which were restructured
to facilitate the borrowers’ ability to repay the outstanding balance and of these ten loans, nine loans totaling $4.7 million
were accruing interest. These ten loans, which are included in the $7.3 million of impaired loans, are considered troubled debt
restructurings and have specific reserves amounting to approximately $160,000 at March 31, 2016. Reserves for loans not considered
impaired were approximately $3.4 million and $3.5 million at March 31, 2016 and December 31, 2015, respectively. The allowance
for loans losses at March 31, 2016 and December 31, 2015 is 1.18% and 1.27% respectively of gross loans outstanding.
The
Bank records provisions for loan losses based upon known problem loans and estimated probable losses in the existing loan portfolio.
The Bank’s methodology for assessing the appropriations of the allowance for loan losses consists of two key components,
which are a specific allowance for identified problem or impaired loans and a model estimating probable losses for the remainder
of the portfolio.
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 Bank 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
decreased to $17.1 million at March 31, 2016 compared to $17.5 million at December 31, 2015. At March 31, 2016 foreclosed assets
consisted of twelve properties valued at $1.8 million.
Deposits
increased by approximately $35.9 million during the three months ended March 31, 2016. The increase is primarily due to the increase
in institutional deposits of $22.5 million. Non-interest bearing demand deposits, money market and NOW deposits, savings deposits
and time deposits increased by approximately $5.4 million, $7.8 million, $0.5 million and $22.2 million respectively.
Stockholders’
equity amounted to $31.0 million, or 8.33% of total assets at March 31, 2016, compared to $30.5 million, or 9.12% of total assets
at December 31, 2015.
In
February 2009, in connection with the Troubled Asset Relief Program (TARP) Capital Purchase Program, established as part of the
Emergency Economic Stabilization Act of 2008, Carolina Trust Bank issued to the U.S. Treasury 4,000 shares of Carolina Trust Bank
Fixed Rate Noncumulative Perpetual Preferred Stock for $4,000,000. The Preferred Stock paid noncumulative dividends at a rate
of 5% for the first five years and thereafter at a rate of 9% per year. The dividend rate changed from 5 percent to 9 percent
on February 16, 2014. In November 2012, the U.S. Treasury sold the Bank’s preferred stock to several private investors in
a Dutch auction process. The Bank had designated a third party bidder to act on its behalf pursuant to the rules of the Dutch
auction. In December 2012, pursuant to its agreement with the third party bidder, the Bank in turn repurchased 35% of the preferred
stock, or $1,400,000 par, at a price of 85.3% of par, or $1,194,000, which was the same price that the bidder had paid the U.S.
Treasury for the preferred stock. The Preferred Stock is noncumulative, and, therefore, the holders are not entitled to receive
missed or omitted dividend payments at a future date. As part of its purchase of the Preferred Stock, the Treasury Department
received a warrant to purchase 86,957 shares of Carolina Trust Bank’s common stock at an initial per share exercise price
of $6.90. In June 2013, the U.S. Treasury sold the warrants related to the preferred stock, to private investors, in a Dutch auction
process.
Discussion
of Results of Operations
For
the three months ended March 31, 2016 and 2015
Net
income for the three months ended March 31, 2016 was $417,000 compared to $175,000 for the first quarter of 2015, an increase
of $242,000. Net income available to common shareholders (which includes the effect of preferred stock dividends) was $358,
000
for the first quarter of 2016 compared to $117,000 for the three months ended March 31, 2015. Preferred stock dividends, pertaining
to the $2.6 million of preferred stock outstanding, were $59,000 for the first quarter of 2016 and $58,000 for the first quarter
of 2015. The net income available to common shareholders for the first quarter of 2016 is an increase of $241,000 when compared
to the first quarter of 2015. Net income per common share was $0.08 for the three months ended March 31, 2016 compared to $0.03
for the first quarter of 2015.
Net
interest income for the quarter ended March 31, 2016, totaled $3,389,000 compared to $2,876,000 for the quarter ended March 31,
2015. The Bank’s net interest spread was approximately 3.97% and 4.06% for the quarters ended March 31, 2016 and 2015, respectively.
Net interest margin on average interest earning
assets was 4.11% and 4.19% for the quarters ended March 31, 2016 and 2015, respectively. Net interest spread decreased by 9 basis
points, and net interest margin decreased by 8 basis points.
The
Bank recorded a recovery of provision for loans losses of $80,000 for the quarter ended March 31, 2016 and did not record any
provision for loan losses for the quarter ended March 31, 2015. This change is the provision for loan losses is due to continued
improved credit quality as non-performing assets decreased. The ratio of allowance for loan and lease losses as a percentage of
total loans decreased from 1.53% at March 31, 2015 to 1.18% at March 31, 2016. 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.
|
|
|
Loans
Outstanding
|
|
Non-
Performing
Assets
|
|
Net
Charge-offs
(recoveries)
|
|
Allowance
for Loan
Losses
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
March 31, 2016
|
|
$
|
297,746
|
|
|
$
|
3,900
|
|
|
$
|
122
|
|
|
$
|
3,521
|
|
|
December 31, 2015
|
|
|
292,362
|
|
|
|
4,158
|
|
|
|
2
|
|
|
|
3,723
|
|
|
September 30, 2015
|
|
|
286,469
|
|
|
|
4,247
|
|
|
|
(109
|
)
|
|
|
3,825
|
|
|
June 30, 2015
|
|
|
278,305
|
|
|
|
5,671
|
|
|
|
68
|
|
|
|
3,886
|
|
|
March 31, 2015
|
|
|
257,919
|
|
|
|
5,890
|
|
|
|
48
|
|
|
|
3,954
|
|
|
December 31, 2014
|
|
|
244,646
|
|
|
|
6,213
|
|
|
|
162
|
|
|
|
4,002
|
|
|
September 30, 2014
|
|
|
227,933
|
|
|
|
5,343
|
|
|
|
(22
|
)
|
|
|
4,165
|
|
|
June 30, 2014
|
|
|
222,529
|
|
|
|
5,049
|
|
|
|
(102
|
)
|
|
|
4,143
|
|
|
March 31, 2014
|
|
|
221,887
|
|
|
|
6,838
|
|
|
|
(54
|
)
|
|
|
4,165
|
|
|
December 31, 2013
|
|
|
223,891
|
|
|
|
7,211
|
|
|
|
557
|
|
|
|
4,066
|
|
|
September 30, 2013
|
|
|
222,594
|
|
|
|
8,106
|
|
|
|
474
|
|
|
|
3,985
|
|
|
June 30, 2013
|
|
|
216,054
|
|
|
|
8,702
|
|
|
|
1,609
|
|
|
|
4,060
|
|
|
March 31, 2013
|
|
|
215,984
|
|
|
|
12,649
|
|
|
|
350
|
|
|
|
4,836
|
|
Non-interest
income for the March 31, 2016 and 2015 quarters totaled $286,000 and $228,000, respectively. Overdraft fees increased $31,000
or 41.9% and interchange fee income increased $24,000 or 29.6% due to the increase in the number of deposit accounts. The bank
also recorded a 29.4% or $5,000 increase in mortgage fee income.
Non-interest
expenses for the March 31, 2016 and 2015 quarters totaled $3,105,000 and $2,804,000, respectively. The $301,000 increase was due
in part to a $128,000 or 8.1% increase in salaries and employee benefits as a result of merit increases and performance bonus
increases. There was also an increase of $161,000 in professional fees due to consulting expenses related to accounting services,
audit fees, compliance support, and strategic planning.
The
bank recorded income tax expense of $233,000 for the period ended March 31, 2016 resulting in an effective tax rate of 36%. For
the same period in 2015, the bank recorded income tax expense of $125,000 with an effective tax rate of 42%. The decrease in the
effective tax rate is due primarily to the reduction of the North Carolina corporate tax rate to 4% for 2016.
Item
3. – Quantitative and Qualitative Disclosures About Market Risk
We
have no material changes in our quantitative and qualitative disclosures about market risk as of March 31, 2016 from that presented
in the Annual Report on Form 10-K for the year ended December 31, 2015.
Item
4. – Controls and Procedures
As
of the end of the period covered by this report, the Bank carried out an evaluation, under the supervision and with the participation
of the Bank’s management, including the Bank’s Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the Bank’s disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Bank’s Chief Executive Officer and Chief Financial Officer have concluded that the Bank’s
disclosure controls and procedures are effective. No change in the Bank’s internal control over financial reporting occurred
during the Bank’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Bank’s
internal control over financial reporting.
Part
II. OTHER INFORMATION
Item
6. Exhibits
|
Exhibit
#
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a)
|
|
|
|
|
|
31.2
|
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a)
|
|
|
|
|
|
32
|
|
Section
1350 Certification
|
SIGNATURES
Under
the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
CAROLINA
TRUST BANK
|
|
|
|
|
|
Date:
May 11, 2016
|
By:
|
/s/ Jerry
L. Ocheltree
|
|
|
|
Jerry
L. Ocheltree
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Date:
May 11, 2016
|
By:
|
/s/ Edwin
E. Laws
|
|
|
|
Edwin
E. Laws
|
|
|
|
Executive
Vice President and Chief Financial Officer
|
EXHIBIT
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
Pursuant
to Rule 13a-14(a)
I,
Jerry L. Ocheltree, certify that:
|
|
1.
|
I
have reviewed this report on Form 10-Q of Carolina Trust Bank;
|
|
|
|
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the
period covered by this report;
|
|
|
|
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report.
|
|
|
|
|
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a - 15(e) and 15d – 15(e) and internal control over financial reporting (as defined
in Exchange Act Rules 13a – 15(f) and 15d – 15(f) for the registrant and have:
|
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant is made known to us by others within the entity, particularly during
the period in which this report is being prepared;
|
|
|
|
|
|
|
b)
|
Designed
such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
|
|
|
|
|
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
|
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and audit committee of the registrant’s board of directors:
|
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information;
and
|
|
|
|
|
|
|
b)
|
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
|
Date:
May 11, 2016
|
|
|
|
|
|
|
By:
|
/s/ Jerry
L. Ocheltree
|
|
|
|
President
and Chief Executive Officer
|
|
EXHIBIT
31.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER
Pursuant
to Rule 13a-14(a)
I,
Edwin E. Laws, certify that:
|
|
1.
|
I
have reviewed this report on Form 10-Q of Carolina Trust Bank;
|
|
|
|
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the
period covered by this report;
|
|
|
|
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report.
|
|
|
|
|
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a - 15(e) and 15d – 15(e) and internal control over financial reporting (as defined
in Exchange Act Rules 13a – 15(f) and 15d – 15(f) for the registrant and have:
|
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant is made known to us by others within the entity, particularly during
the period in which this report is being prepared;
|
|
|
|
|
|
|
b)
|
Designed
such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
|
|
|
|
|
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
|
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and audit committee of the registrant’s board of directors:
|
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information;
and
|
|
|
|
|
|
|
b)
|
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
|
Date:
May 11, 2016
|
|
|
|
|
|
|
By:
|
/s/
Edwin E. Laws
|
|
|
|
Executive
Vice President and Chief Financial Officer
|
|
Exhibit
32
Section
1350 Certification
The
undersigned hereby certifies that, to his or her knowledge,
(i)
the Form 10-Q filed by Carolina Trust Bank (the “Issuer”)
for the quarter ended March 31, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and
(ii)
the information contained in that report fairly presents, in all material respects, the financial
condition and results of operations of the Issuer on the dates and for the periods presented therein.
|
|
CAROLINA
TRUST BANK
|
|
|
|
|
|
Date:
May 11, 2016
|
By:
|
/s/ Jerry
L. Ocheltree
|
|
|
|
Jerry
L. Ocheltree
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Date:
May 11, 2016
|
By:
|
/s/ Edwin
E. Laws
|
|
|
|
Edwin
E. Laws
|
|
|
|
Executive
Vice President and Chief Financial Officer
|
EXHIBIT 99.03
FEDERAL
DEPOSIT INSURANCE CORPORATION
WASHINGTON,
DC 20429
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
FOR
THE QUARTER ENDED JUNE 30, 2016
FDIC
CERTIFICATE NO.
57026
CAROLINA
TRUST BANK
(Exact
name of bank as specified in its charter)
NORTH
CAROLINA
(State
of Incorporation)
56-2197865
(IRS
Employer Identification Number)
901
EAST MAIN STREET
LINCOLNTON,
NORTH CAROLINA 28092
(Address
of Principal Office)
(704)
735-1104
(Registrant’s
Telephone Number, Including Area Code)
Securities
Registered Pursuant
to
Section 12(g) of the Act:
COMMON
STOCK, $2.50 PAR VALUE
Indicate
by check mark whether the bank (1) has filed all reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Bank was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
|
☐ Large
accelerated filer
|
☐ Accelerated
filer
|
☐ Non-accelerated
filer
|
☒ Smaller
Reporting Company
|
Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
number of shares of the registrant’s common stock outstanding as of August 10, 2016 was 4,650,558.
Part
I.
Financial Information
Item
1 - Condensed Consolidated Financial Statements
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars
in thousands, except share and per share data)
|
|
|
June
30,
2016
|
|
December
31,
2015*
|
|
Assets
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
5,509
|
|
|
$
|
4,720
|
|
|
Interest-earning
deposits with banks
|
|
|
35,618
|
|
|
|
70
|
|
|
Federal
funds sold
|
|
|
—
|
|
|
|
23
|
|
|
Cash
and cash equivalents
|
|
|
41,127
|
|
|
|
4,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposits with banks
|
|
|
1,498
|
|
|
|
1,498
|
|
|
Investment
securities available for sale, at fair value (amortized cost $26,493 and $23,280)
|
|
|
26,954
|
|
|
|
22,933
|
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
943
|
|
|
|
817
|
|
|
Loans
|
|
|
293,157
|
|
|
|
292,362
|
|
|
Less:
Allowance for loan and lease losses
|
|
|
(3,541
|
)
|
|
|
(3,723
|
)
|
|
Net
Loans
|
|
|
289,616
|
|
|
|
288,639
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
owned life insurance
|
|
|
1,471
|
|
|
|
1,445
|
|
|
Accrued
interest receivable
|
|
|
951
|
|
|
|
986
|
|
|
Bank
premises, equipment and software
|
|
|
5,639
|
|
|
|
5,710
|
|
|
Foreclosed
assets
|
|
|
1,234
|
|
|
|
1,994
|
|
|
Core
deposit intangible, net of accumulated amortization of $640 and $611
|
|
|
145
|
|
|
|
174
|
|
|
Other
assets
|
|
|
4,377
|
|
|
|
5,040
|
|
|
Total
Assets
|
|
$
|
373,955
|
|
|
$
|
334,049
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Non-interest-earning
demand deposits
|
|
$
|
39,619
|
|
|
$
|
32,562
|
|
|
Interest-earning
demand deposits
|
|
|
91,762
|
|
|
|
79,132
|
|
|
Savings
|
|
|
21,932
|
|
|
|
21,326
|
|
|
Time
deposits
|
|
|
170,105
|
|
|
|
151,774
|
|
|
Total
deposits
|
|
|
323,418
|
|
|
|
284,794
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligation
|
|
|
298
|
|
|
|
326
|
|
|
Federal
funds purchased
|
|
|
240
|
|
|
|
2,355
|
|
|
Federal
Home Loan Bank advances
|
|
|
15,100
|
|
|
|
13,000
|
|
|
Accrued
interest payable
|
|
|
115
|
|
|
|
58
|
|
|
Other
liabilities
|
|
|
3,016
|
|
|
|
3,052
|
|
|
Total
liabilities
|
|
|
342,187
|
|
|
|
303,585
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, unstated par value; 1,000,000 shares authorized; 2,600 shares issued and outstanding
|
|
|
2,580
|
|
|
|
2,580
|
|
|
Common
stock warrant
|
|
|
426
|
|
|
|
426
|
|
|
Common
stock, $2.50 par value; 10,000,000 shares authorized; 4,649,558 and 4,646,225 shares issued and outstanding
|
|
|
11,624
|
|
|
|
11,616
|
|
|
Additional
paid-in capital
|
|
|
12,970
|
|
|
|
12,936
|
|
|
Retained
earnings
|
|
|
3,879
|
|
|
|
3,122
|
|
|
Accumulated
other comprehensive income (loss)
|
|
|
289
|
|
|
|
(216
|
)
|
|
Total
stockholders’ equity
|
|
|
31,768
|
|
|
|
30,464
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
373,955
|
|
|
$
|
334,049
|
|
*Derived
from audited financial statements included in the Company’s 2015 Annual Report on Form 10-K
.
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars
in thousands, except share and per share data)
|
|
|
Three
months ended
June 30,
2016
|
|
Three
months ended
June 30,
2015
|
|
Interest
Income
|
|
|
|
|
|
Interest
on investment securities and cash
|
|
$
|
271
|
|
|
$
|
255
|
|
|
Interest
and fees on loans
|
|
|
3,812
|
|
|
|
3,392
|
|
|
Total
interest income
|
|
|
4,083
|
|
|
|
3,647
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Interest
expense non-maturity deposits
|
|
|
70
|
|
|
|
53
|
|
|
Interest
expense time deposits
|
|
|
581
|
|
|
|
469
|
|
|
Interest
expense borrowed funds
|
|
|
48
|
|
|
|
48
|
|
|
Interest
expense capital lease
|
|
|
5
|
|
|
|
6
|
|
|
Total
interest expense
|
|
|
704
|
|
|
|
576
|
|
|
Net
interest income
|
|
$
|
3,379
|
|
|
$
|
3,071
|
|
|
Loan
loss provision/(recovery)
|
|
|
—
|
|
|
|
—
|
|
|
Net
interest income after loan loss provision/(recovery)
|
|
$
|
3,379
|
|
|
$
|
3,071
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income
|
|
|
|
|
|
|
|
|
|
Overdraft
fees on deposits
|
|
$
|
96
|
|
|
$
|
91
|
|
|
Interchange
fee income
|
|
|
113
|
|
|
|
94
|
|
|
Service
charges on deposits
|
|
|
14
|
|
|
|
14
|
|
|
Mortgage
fee income
|
|
|
28
|
|
|
|
32
|
|
|
Customer
service fees
|
|
|
13
|
|
|
|
17
|
|
|
ATM
income
|
|
|
7
|
|
|
|
7
|
|
|
Other
income
|
|
|
41
|
|
|
|
38
|
|
|
Total
noninterest income
|
|
|
312
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
|
Salaries
& benefits expense
|
|
$
|
1,697
|
|
|
|
1,607
|
|
|
Occupancy
expense
|
|
|
210
|
|
|
|
209
|
|
|
Furniture,
fixture & equipment expense
|
|
|
139
|
|
|
|
128
|
|
|
Data
processing expense
|
|
|
166
|
|
|
|
154
|
|
|
Office
supplies expense
|
|
|
15
|
|
|
|
24
|
|
|
Professional
fees
|
|
|
100
|
|
|
|
59
|
|
|
Advertising
and marketing
|
|
|
36
|
|
|
|
38
|
|
|
Insurance
|
|
|
80
|
|
|
|
91
|
|
|
Foreclosed
asset expense, net
|
|
|
103
|
|
|
|
50
|
|
|
Check
card expense
|
|
|
88
|
|
|
|
99
|
|
|
Loan
expense
|
|
|
34
|
|
|
|
38
|
|
|
Stockholder
expense
|
|
|
21
|
|
|
|
22
|
|
|
Directors
fees
|
|
|
53
|
|
|
|
45
|
|
|
Telephone
expense
|
|
|
67
|
|
|
|
68
|
|
|
Core
deposit intangible amortization expense
|
|
|
15
|
|
|
|
18
|
|
|
Other
operating expense
|
|
|
144
|
|
|
|
97
|
|
|
Total
noninterest expense
|
|
|
2,968
|
|
|
|
2,747
|
|
|
Pre-tax
income
|
|
$
|
723
|
|
|
$
|
617
|
|
|
Income
tax expense
|
|
|
266
|
|
|
|
256
|
|
|
Net
income
|
|
$
|
457
|
|
|
$
|
361
|
|
|
Preferred
dividends and accretion of discount on warrants
|
|
|
58
|
|
|
|
59
|
|
|
Net
income available to common stockholders
|
|
$
|
399
|
|
|
$
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
Diluted
earnings per common share
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
Weighted
average common shares outstanding
|
|
|
4,649,558
|
|
|
|
4,645,963
|
|
|
Diluted
average common shares outstanding
|
|
|
4,696,133
|
|
|
|
4,685,122
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars
in thousands, except share and per share data)
|
|
|
Six
months ended
June 30,
2016
|
|
Six
months ended
June 30,
2015
|
|
Interest
Income
|
|
|
|
|
|
Interest
on investment securities and cash
|
|
$
|
551
|
|
|
$
|
510
|
|
|
Interest
and fees on loans
|
|
|
7,559
|
|
|
|
6,548
|
|
|
Total
interest income
|
|
|
8,110
|
|
|
|
7,058
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Interest
expense non-maturity deposits
|
|
|
124
|
|
|
|
99
|
|
|
Interest
expense time deposits
|
|
|
1,118
|
|
|
|
898
|
|
|
Interest
expense borrowed funds
|
|
|
89
|
|
|
|
101
|
|
|
Interest
expense capital lease
|
|
|
11
|
|
|
|
13
|
|
|
Total
interest expense
|
|
|
1,342
|
|
|
|
1,111
|
|
|
Net
interest income
|
|
$
|
6,768
|
|
|
$
|
5,947
|
|
|
Loan
loss provision/(recovery)
|
|
|
(80
|
)
|
|
|
—
|
|
|
Net
interest income after loan loss provision/(recovery)
|
|
$
|
6,848
|
|
|
$
|
5,947
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income
|
|
|
|
|
|
|
|
|
|
Overdraft
fees on deposits
|
|
$
|
201
|
|
|
$
|
165
|
|
|
Interchange
fee income
|
|
|
218
|
|
|
|
175
|
|
|
Service
charges on deposits
|
|
|
28
|
|
|
|
27
|
|
|
Mortgage
fee income
|
|
|
50
|
|
|
|
49
|
|
|
Customer
service fees
|
|
|
27
|
|
|
|
34
|
|
|
ATM
income
|
|
|
12
|
|
|
|
11
|
|
|
Other
income
|
|
|
62
|
|
|
|
61
|
|
|
Total
noninterest income
|
|
|
598
|
|
|
|
522
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
|
Salaries
& benefits expense
|
|
$
|
3,414
|
|
|
|
3,196
|
|
|
Occupancy
expense
|
|
|
427
|
|
|
|
426
|
|
|
Furniture,
fixture & equipment expense
|
|
|
259
|
|
|
|
242
|
|
|
Data
processing expense
|
|
|
341
|
|
|
|
316
|
|
|
Office
supplies expense
|
|
|
30
|
|
|
|
58
|
|
|
Professional
fees
|
|
|
319
|
|
|
|
117
|
|
|
Advertising
and marketing
|
|
|
74
|
|
|
|
58
|
|
|
Insurance
|
|
|
161
|
|
|
|
175
|
|
|
Foreclosed
asset expense, net
|
|
|
231
|
|
|
|
132
|
|
|
Check
card expense
|
|
|
179
|
|
|
|
186
|
|
|
Loan
expense
|
|
|
66
|
|
|
|
145
|
|
|
Stockholder
expense
|
|
|
40
|
|
|
|
43
|
|
|
Directors
fees
|
|
|
108
|
|
|
|
87
|
|
|
Telephone
expense
|
|
|
119
|
|
|
|
139
|
|
|
Core
deposit intangible amortization expense
|
|
|
29
|
|
|
|
35
|
|
|
Other
operating expense
|
|
|
276
|
|
|
|
197
|
|
|
Total
noninterest expense
|
|
|
6,073
|
|
|
|
5,552
|
|
|
Pre-tax
income
|
|
$
|
1,373
|
|
|
$
|
917
|
|
|
Income
tax expense
|
|
|
499
|
|
|
|
381
|
|
|
Net
income
|
|
$
|
874
|
|
|
$
|
536
|
|
|
Preferred
dividends and accretion of discount on warrants
|
|
|
117
|
|
|
|
117
|
|
|
Net
income available to common stockholders
|
|
$
|
757
|
|
|
$
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
Diluted
earnings per common share
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
Weighted
average common shares outstanding
|
|
|
4,649,558
|
|
|
|
4,644,821
|
|
|
Diluted
average common shares outstanding
|
|
|
4,695,622
|
|
|
|
4,736,865
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars
in thousands)
|
|
|
Three
months ended
June 30,
2016
|
|
Three
months ended
June 30,
2015
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
457
|
|
|
$
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investment securities:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
469
|
|
|
|
(659
|
)
|
|
Tax
related to unrealized gains (losses)
|
|
|
175
|
|
|
|
(246
|
)
|
|
Total
other comprehensive income
|
|
|
294
|
|
|
|
(413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
751
|
|
|
$
|
(52
|
)
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars
in thousands)
|
|
|
Six
months
ended
June 30,
2016
|
|
Six
months
ended
June 30,
2015
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
874
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investment securities:
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
807
|
|
|
|
(315
|
)
|
|
Tax
related to unrealized gains (losses)
|
|
|
302
|
|
|
|
(118
|
)
|
|
Total
other comprehensive income
|
|
|
505
|
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
1,379
|
|
|
$
|
339
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars
in thousands)
|
|
|
Six
months ended June 30
|
|
|
|
2016
|
|
2015
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
874
|
|
|
$
|
536
|
|
|
Adjustments
to reconcile net income to cash and cash equivalents provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Recovery
of loan losses
|
|
|
(80
|
)
|
|
|
—
|
|
|
Depreciation
and amortization of bank premises, equipment and software
|
|
|
176
|
|
|
|
188
|
|
|
Accretion
of loan fair value adjustments related to acquisition
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
Net
amortization of bond premiums
|
|
|
41
|
|
|
|
16
|
|
|
Amortization
of core deposit intangible
|
|
|
29
|
|
|
|
35
|
|
|
Stock
compensation expense
|
|
|
42
|
|
|
|
64
|
|
|
Increase
in value of life insurance contracts
|
|
|
(26
|
)
|
|
|
(25
|
)
|
|
Net
losses and impairment write-downs on foreclosed assets
|
|
|
189
|
|
|
|
112
|
|
|
Deferred
tax provision
|
|
|
475
|
|
|
|
—
|
|
|
Decrease
(increase) in other assets
|
|
|
188
|
|
|
|
(447
|
)
|
|
Decrease
(increase) in accrued interest receivable
|
|
|
35
|
|
|
|
(55
|
)
|
|
Increase
(decrease) in accrued interest payable
|
|
|
57
|
|
|
|
(67
|
)
|
|
(Decrease)
increase in other liabilities
|
|
|
(338
|
)
|
|
|
150
|
|
|
Net
cash and cash equivalents provided by operating activities
|
|
$
|
1,657
|
|
|
$
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Net
increase in loans
|
|
$
|
(1,261
|
)
|
|
$
|
(34,402
|
)
|
|
Proceeds
from sale of foreclosed assets
|
|
|
940
|
|
|
|
233
|
|
|
Net
purchases of bank premises, equipment and software
|
|
|
(105
|
)
|
|
|
(148
|
)
|
|
Purchase
of available-for-sale securities
|
|
|
(16,808
|
)
|
|
|
—
|
|
|
Proceeds
from maturities, calls and pay-downs of available for sale securities
|
|
|
13,553
|
|
|
|
957
|
|
|
Decrease
in certificates of deposit with banks
|
|
|
—
|
|
|
|
499
|
|
|
Repurchase
of Federal Home Loan Bank stock
|
|
|
(126
|
)
|
|
|
(97
|
)
|
|
Net
cash and cash equivalents used in investing activities
|
|
$
|
(3,807
|
)
|
|
$
|
(32,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Increase
in deposits
|
|
$
|
38,624
|
|
|
$
|
39,007
|
|
|
Increase
in Federal Home Loan Bank advances
|
|
|
2,100
|
|
|
|
1,000
|
|
|
Payment
of capital lease obligation
|
|
|
(28
|
)
|
|
|
(23
|
)
|
|
Decrease
in federal funds purchased
|
|
|
(2,115
|
)
|
|
|
—
|
|
|
Dividends
paid on preferred stock
|
|
|
(117
|
)
|
|
|
(117
|
)
|
|
Net
proceeds from issuance of common stock
|
|
|
—
|
|
|
|
19
|
|
|
Net
cash and cash equivalents provided by financing activities
|
|
$
|
38,464
|
|
|
$
|
39,886
|
|
|
Net
increase in cash and cash equivalents
|
|
$
|
36,314
|
|
|
$
|
7,430
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning
|
|
$
|
4,813
|
|
|
$
|
6,283
|
|
|
Cash
and cash equivalents, ending
|
|
$
|
41,127
|
|
|
$
|
13,713
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
1,285
|
|
|
$
|
1,178
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
financing and investing activities
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investment securities available-for-sale, net of taxes
|
|
$
|
505
|
|
|
$
|
(197
|
)
|
|
Transfer
of loans to foreclosed assets
|
|
$
|
369
|
|
|
$
|
627
|
|
See
accompanying notes to Condensed Consolidated Financial Statements.
CAROLINA
TRUST BANK
Notes
to Condensed Consolidated Financial Statements
(1)
Presentation
of Financial Statements
In
management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal
recurring adjustments) necessary for fair presentation of the financial information as of June 30, 2016 and for the three and
six-month periods then ended, in conformity with accounting principles generally accepted in the United States of America. Operating
results for the three and six-month periods ended June 30, 2016 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2016.
The
organization and business of Carolina Trust Bank (the “Bank”), accounting policies followed by the Bank and other
information are contained in the notes to the consolidated financial statements filed as part of the Bank’s 2015 Annual
Report on Form 10-K. This quarterly report should be read in conjunction with the Annual Report.
(2)
Recent
Accounting Pronouncements
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall, Subtopic 825-10
(“ASU 2016-1”)
to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments
will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The
Bank will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal
year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively
to equity investments that exist as of the date of adoption of the amendments. The Bank is currently evaluating the impact of
this guidance.
In
August 2015, the FASB deferred the effective date of ASU 2014-09,
Revenue from Contracts with Customers, Topic 606
(“ASU
2014-09”).
The new standard’s core
principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies
will need to use more judgment and make more estimates than under existing guidance. These may include identifying performance
obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating
the transaction price to each separate performance obligation. As a result of the deferral, ASU 2014-09 is effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments can
be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying
this new guidance recognized at the date of initial application. The Bank is currently evaluating the impact of adopting the new
guidance on the consolidated financial statements, but the Bank does not expect it to have a material impact.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
In
February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition,
measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that
implementation of the new standard will have on its financial position, results of operations, and cash flows.
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to Stock Compensation. The
new guidance eliminates the concept of APIC pools for stock-based awards and requires that the related excess tax benefits and
tax deficiencies be classified as an operating activity in the statement of cash flows. The new guidance also allows entities
to make a one-time policy election to account for forfeitures when they occur, instead of accruing compensation cost based on
the number of awards expected to vest. Additionally, the new guidance changes the requirement for an award to qualify for equity
classification by permitting tax withholding up to the maximum statutory tax rate instead of the minimum statutory tax rate. Cash
paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity
in the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2016 and interim periods
within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated financial statements.
In
June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
. The new standard introduces
an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the
impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial
assets with credit deterioration since their origination. ASU 2016-13 is effective for annual periods and interim periods within
those annual periods, beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. The Company
is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations,
and cash flows.
Other
accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact
on the Company’s financial position, results of operations or cash flows.
(3)
Earnings
Per Share
Basic
Earnings per Common Share
Basic
earnings per common share is computed by dividing net income to common stockholders by the weighted average number of common shares
outstanding during the period, after giving retroactive effect to stock splits and dividends.
Diluted
Earnings per Common Share
The
computation of diluted earnings per common share is similar to the computation of basic earnings per common share except that
the denominator is increased to include the number of
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
additional
common shares that would have been outstanding if dilutive potential common shares had been issued. These additional common shares
would include employee equity share options, nonvested shares and similar equity instruments granted to employees, as well as
the shares associated with the common stock warrants issued to the U.S. Treasury Department as
part of the preferred stock transaction completed in February 2009. Diluted
earnings per common share are based upon the actual number of options or shares granted and not yet forfeited unless doing so
would be antidilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion
of those potential common shares.
(4)
Fair
Value Measurements
The
Bank is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance
sheet, for which it is practicable to estimate fair value. These fair value estimates are made at each balance sheet date, based
on relevant market information and information about the financial instruments. Fair value estimates are intended to represent
the price an asset could be sold at or the price a liability could be settled for. However, given there is no active market or
observable market transactions for many of the Bank’s financial instruments, the Bank has made estimates of many of these
fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the estimated values. The methodologies for financial
assets and financial liabilities are discussed below:
Cash
and Due from Banks, Interest-Earning Deposits with Banks, Certificates of Deposits with Banks and Federal Funds Sold
The
carrying amounts for cash and due from banks, interest-earning deposits with banks, certificates of deposits with banks and federal
funds sold approximate fair value because of the short maturities of those instruments.
Investment
Securities
Fair
value for investment securities equals quoted market price if such information is available. If a quoted market price is not available,
fair value is estimated using independent pricing models
or
other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating,
prepayment assumptions and other factors such as credit loss assumptions.
Loans
The
fair value of loans is estimated based on discounted expected cash flows. These cash flows include assumptions for prepayment
estimates over the loans’ remaining life, considerations for the current interest rate environment compared to the weighted
average rate of each portfolio and a credit risk component based on the historical and expected performance of each portfolio.
The calculation does not include an estimate for illiquidity in the market.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
Accrued
Interest
The
carrying amount is a reasonable estimate of fair value.
Deposits
The
fair value of demand deposits, savings, money market and NOW accounts is the amount payable on demand at the reporting date. The
fair value of time deposits is estimated by discounting expected cash flows using the rates currently offered for instruments
of similar remaining maturities.
Federal
Funds Purchased
Federal
funds purchased approximate fair value because of their short maturity.
Capital
Lease Obligation and Advances from the Federal Home Loan Bank
The
fair value of borrowings is based upon discounted expected cash flows using current rates at which borrowings of similar maturity
could be obtained.
The
carrying amounts and estimated fair values of the Bank’s financial instruments, none of which are held for trading purposes,
are as follows at June 30, 2016 and December 31 2015:
|
|
|
|
|
Fair
Value Measurements at June 30, 2016 using
|
|
|
|
Carrying
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
Significant
Other Observable Inputs
|
|
Significant
Unobservable Inputs
|
|
Total
Fair Value
|
|
Dollars
in thousands
|
|
Value
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Balance
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
5,509
|
|
|
$
|
5,509
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,509
|
|
|
Interest
earning deposits with banks
|
|
|
35,618
|
|
|
|
35,618
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,618
|
|
|
Certificate
of deposits with banks
|
|
|
1,498
|
|
|
|
1,498
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,498
|
|
|
Federal
Home Loan Bank Stock
|
|
|
943
|
|
|
|
943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
943
|
|
|
Securities
available for sale
|
|
|
26,954
|
|
|
|
1,203
|
|
|
|
25,001
|
|
|
|
750
|
|
|
|
26,954
|
|
|
Net
loans
|
|
|
289,616
|
|
|
|
—
|
|
|
|
—
|
|
|
|
291,223
|
|
|
|
291,223
|
|
|
Accrued
interest receivable
|
|
|
951
|
|
|
|
—
|
|
|
|
951
|
|
|
|
—
|
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
323,418
|
|
|
$
|
—
|
|
|
$
|
326,878
|
|
|
$
|
—
|
|
|
$
|
326,878
|
|
|
Capital
lease obligation
|
|
|
298
|
|
|
|
—
|
|
|
|
298
|
|
|
|
—
|
|
|
|
298
|
|
|
FHLB
Advances
|
|
|
15,100
|
|
|
|
—
|
|
|
|
15,139
|
|
|
|
—
|
|
|
|
15,139
|
|
|
Accrued
interest payable
|
|
|
115
|
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
|
|
115
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
|
|
|
|
Fair
Value Measurements at December 31, 2015 using
|
|
|
|
Carrying
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
Significant
Other Observable Inputs
|
|
Significant
Unobservable Inputs
|
|
Total
Fair Value
|
|
Dollars
in thousands
|
|
Value
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Balance
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
4,720
|
|
|
$
|
4,720
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,720
|
|
|
Interest
earning deposits with banks
|
|
|
70
|
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
|
Certificate
of deposits with banks
|
|
|
1,498
|
|
|
|
1,498
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,498
|
|
|
Federal
funds sold
|
|
|
23
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
Securities
available for sale
|
|
|
22,933
|
|
|
|
1,038
|
|
|
|
21,145
|
|
|
|
750
|
|
|
|
22,933
|
|
|
Net
loans
|
|
|
288,639
|
|
|
|
—
|
|
|
|
—
|
|
|
|
292,345
|
|
|
|
292,345
|
|
|
Accrued
interest receivable
|
|
|
986
|
|
|
|
—
|
|
|
|
986
|
|
|
|
—
|
|
|
|
986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
284,794
|
|
|
$
|
—
|
|
|
$
|
277,308
|
|
|
$
|
—
|
|
|
$
|
277,308
|
|
|
Capital
lease obligation
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
Federal
funds purchased
|
|
|
2,355
|
|
|
|
2,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,355
|
|
|
FHLB
Advances
|
|
|
13,000
|
|
|
|
—
|
|
|
|
13,031
|
|
|
|
—
|
|
|
|
13,031
|
|
|
Accrued
interest payable
|
|
|
58
|
|
|
|
—
|
|
|
|
58
|
|
|
|
—
|
|
|
|
58
|
|
During
the first quarter of 2016, management reevaluated its fair value leveling methodology and the inputs utilized in determining the
valuation of deposits for the current and prior periods. Management concluded that due to the significant reliance on observable
inputs, the fair values of its deposits should be classified as level 2 rather than level 3 as previously disclosed. Therefore
deposits with a carrying value of $284,794 and a fair value of $277,308 as of 12/31/15 were reclassified from level 3 to level
2.
The
Bank utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair
value disclosures. Securities available-for-sale, are recorded at fair value on a recurring basis. Additionally, from time to
time, the Bank may be required to record at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments
typically involve application of lower of cost or market accounting or write-downs of individual assets.
Fair
Value Hierarchy
The
Bank groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are
traded and the reliability of the assumptions used to determine fair value.
|
|
Level
1
|
Valuation
based upon quoted prices for identical instruments traded in active markets.
|
|
|
|
|
|
|
Level
2
|
Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques
for which all significant assumptions are observable in the market.
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
|
Level
3
|
Valuation is generated from model-based techniques that use
at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions
that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models,
discounted cash flow models and similar techniques.
|
Following
is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Investment
Securities Available-for-Sale
Investment
securities available-for-sale, are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices,
if available. If quoted prices are not available, fair values are measured using independent pricing modes or other model-based
valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions
and other factors such as credit loss assumptions. Level 1 securities included those traded on an active exchange, such as the
New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in an active over-the-counter markets
and money market funds. Level 2 securities included US government agencies securities, mortgage-backed securities (MBS) issued
by government-sponsored entities, and municipal bonds. Securities classified as Level 3 includes a corporate debt security and
a common stock in a less liquid market. The value of the corporate debt security is determined via the going rate of a similar
debt security if it were to enter the market at period end. The derived market value requires significant management judgment
and is further substantiated by discounted cash flow methodologies. There have been no changes in valuation techniques for the
quarter ended June 30, 2016. Valuation techniques are consistent with techniques used in prior periods.
Assets
and Liabilities Recorded at Fair Value on a Recurring Basis
The
table below presents the recorded amount of assets and liabilities measured on a recurring basis.
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
3,816
|
|
|
$
|
—
|
|
|
$
|
3,816
|
|
|
$
|
—
|
|
|
Government
sponsored enterprises *
|
|
|
21,185
|
|
|
|
—
|
|
|
|
21,185
|
|
|
|
—
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,203
|
|
|
|
1,203
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
26,954
|
|
|
$
|
1,203
|
|
|
$
|
25,001
|
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
15,543
|
|
|
$
|
—
|
|
|
$
|
15,543
|
|
|
$
|
—
|
|
|
Government
sponsored enterprises *
|
|
|
5,602
|
|
|
|
—
|
|
|
|
5,602
|
|
|
|
—
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,038
|
|
|
|
1,038
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
22,933
|
|
|
$
|
1,038
|
|
|
$
|
21,145
|
|
|
$
|
750
|
|
*
Such as FNMA, FHLMC and FHLB.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
Bank did not have any transfers between Levels 1 and 2 during the periods ended June 30, 2016 and December 31, 2015.
The
tables below present the changes during the three and six months ended June 30, 2016 and June 30, 2015 in the amount of Level
3 assets measured on a recurring basis.
|
|
|
Three
months
ended
June 30,
2016
|
|
Three
months
ended
June 30,
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
750
|
|
|
$
|
713
|
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
Change
in valuation recognized in OCI
|
|
|
—
|
|
|
|
—
|
|
|
Balance,
end of period
|
|
$
|
750
|
|
|
$
|
713
|
|
|
|
|
Six
months
ended
June 30,
2016
|
|
Six
months
ended
June 30,
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
750
|
|
|
$
|
638
|
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
Change
in valuation recognized in OCI
|
|
|
—
|
|
|
|
75
|
|
|
Balance,
end of period
|
|
$
|
750
|
|
|
$
|
713
|
|
Impaired
Loans
The
Bank does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an
allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made
in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually
impaired, management measures it for impairment. The fair value of impaired loans is estimated using one of several methods, including
collateral value, a loan’s observable market price and discounted cash flows. Those impaired loans not requiring an allowance
represent loans for which the fair value exceeds the recorded investments in such loans. At June 30, 2016 the discounted cash
flows method was used in determining the fair value of eight loans totaling $3.2 million and the fair value of the collateral
method was used in the other twenty-seven loans totaling $3.5 million. At December 31, 2015, the discounted cash flows method
was used in determining the fair value of eight loans totaling $3.2 million and the fair value of the collateral method was used
in the other forty-one loans totaling $4.3 million. Impaired loans where an allowance is established based on the fair value of
collateral and also when written down with the discounted cash flow method require classification in the fair value hierarchy.
When the fair value of the collateral is based on an observable market price or a current appraised value of an identical property,
the Bank records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines
the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank
records the impaired loan as nonrecurring Level 3. When the discounted cash flows method is used, the Bank records the impaired
loan as nonrecurring Level 3. There have been no changes in
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
valuation
techniques for the quarter ended June 30, 2016. Valuation techniques are consistent with techniques used in prior periods.
The
following table presents impaired loans that were re-measured and reported at fair value through a specific valuation allowance
allocation of the allowance for loan losses based upon the fair value of the underlying collateral or discounted cash flows during
the six months ended June 30, 2016 and 2015.
|
|
|
June
30, 2016
|
|
June
30, 2015
|
|
Dollars
in thousands
|
|
Level
2
|
|
Level
3
|
|
Level
2
|
|
Level
3
|
|
Carrying
value of impaired loans before allocations
|
|
$
|
—
|
|
|
$
|
1,378
|
|
|
$
|
—
|
|
|
$
|
1,700
|
|
|
Specific
valuation allowance allocations
|
|
|
—
|
|
|
|
(181
|
)
|
|
|
—
|
|
|
|
(212
|
)
|
|
Carrying
value of impaired loans after allocations
|
|
$
|
—
|
|
|
$
|
1,197
|
|
|
$
|
—
|
|
|
$
|
1,488
|
|
Other
real estate owned
Other
real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried
at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral
or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable
market price or a current appraised value for an identical property, the Bank records the foreclosed asset as nonrecurring Level
2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below
the appraised value and there is not observable market price, the Bank records the OREO as nonrecurring Level 3. There have been
no changes in valuation techniques for the quarter ended June 30, 2016. Valuation techniques are consistent with techniques used
in prior periods.
The
following table presents foreclosed assets that were re-measured and reported at fair value during the three months ended June
30, 2016 and 2015:
|
|
|
June
30,
2016
|
|
June
30,
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Foreclosed
assets re-measured at initial recognition:
|
|
|
|
|
|
Carrying
value of foreclosed assets prior to re-measurement
|
|
$
|
100
|
|
|
$
|
90
|
|
|
Charge-offs
recognized in the allowance for loan losses
|
|
|
—
|
|
|
|
(1
|
)
|
|
Fair
value
|
|
$
|
100
|
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets re-measured subsequent to initial recognition:
|
|
|
|
|
|
|
|
|
|
Carrying
value of foreclosed assets prior to re-measurement
|
|
$
|
1,190
|
|
|
$
|
2,242
|
|
|
Write-downs
included in foreclosed asset expense, net
|
|
|
(56
|
)
|
|
|
—
|
|
|
Fair
value
|
|
$
|
1,134
|
|
|
$
|
2,242
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
following table presents foreclosed assets that were re-measured and reported at fair value during the six months ended June 30,
2016 and 2015:
|
|
|
June
30,
2016
|
|
June
30,
2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Foreclosed
assets re-measured at initial recognition:
|
|
|
|
|
|
Carrying
value of foreclosed assets prior to re-measurement
|
|
$
|
100
|
|
|
$
|
643
|
|
|
Charge-offs
recognized in the allowance for loan losses
|
|
|
—
|
|
|
|
(16
|
)
|
|
Fair
value
|
|
$
|
100
|
|
|
$
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets re-measured subsequent to initial recognition:
|
|
|
|
|
|
|
|
|
|
Carrying
value of foreclosed assets prior to re-measurement
|
|
$
|
1,294
|
|
|
$
|
1,719
|
|
|
Write-downs
included in foreclosed asset expense, net
|
|
|
(160
|
)
|
|
|
(15
|
)
|
|
Fair
value
|
|
$
|
1,134
|
|
|
$
|
1,704
|
|
Assets
measured at fair value on a nonrecurring basis are included in the table below.
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets
|
|
$
|
1,234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,234
|
|
|
Impaired
loans
|
|
|
1,197
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,197
|
|
|
Total
|
|
$
|
2,431
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets
|
|
$
|
1,994
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,994
|
|
|
Impaired
loans
|
|
|
1,414
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,414
|
|
|
Total
|
|
$
|
3,408
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,408
|
|
Quantitative
Information About Level 3 Fair Value Measurements:
|
|
|
Fair
Value
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
|
|
Weighted
Average
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
1,197
|
|
|
Discounted
cash flows
|
|
Discount
rate
|
|
|
5.50%
-6.00
|
%
|
|
|
5.82
|
%
|
|
Foreclosed
assets
|
|
|
1,234
|
|
|
Discounted
appraisals
|
|
Appraisal
adjustments
|
|
|
6.00%
- 60.47
|
%
|
|
|
20.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
168
|
|
|
Discounted
appraisals
|
|
Appraisal
adjustments
|
|
|
15.00
|
%
|
|
|
15.00
|
%
|
|
Impaired
loans
|
|
|
1,246
|
|
|
Discounted cash flows
|
|
Discount
rate
|
|
|
5.75%-
8.50
|
%
|
|
|
7.24
|
%
|
|
Foreclosed
assets
|
|
|
1,994
|
|
|
Discounted
appraisals
|
|
Appraisal
adjustments
|
|
|
6.00%
- 57.32
|
%
|
|
|
17.32
|
%
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
(5)
Investment
Securities
The
amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, is as follows:
|
In
thousands
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
3,709
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
3,816
|
|
|
Government-sponsored
enterprises *
|
|
|
20,830
|
|
|
|
356
|
|
|
|
(1
|
)
|
|
|
21,185
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,204
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
1,203
|
|
|
|
|
$
|
26,493
|
|
|
$
|
463
|
|
|
$
|
(2
|
)
|
|
$
|
26,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
15,935
|
|
|
$
|
17
|
|
|
$
|
(409
|
)
|
|
$
|
15,543
|
|
|
Government-sponsored
enterprises *
|
|
|
5,391
|
|
|
|
212
|
|
|
|
(1
|
)
|
|
|
5,602
|
|
|
Corporate
debt securities
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Equity
securities
|
|
|
1,204
|
|
|
|
—
|
|
|
|
(166
|
)
|
|
|
1,038
|
|
|
|
|
$
|
23,280
|
|
|
$
|
229
|
|
|
$
|
(576
|
)
|
|
$
|
22,933
|
|
*
Such as FNMA, FHLMC and FHLB.
The
amortized cost and fair values of securities available for sale (excluding marketable equity securities) at June 30, 2016 by contractual
maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$
|
499
|
|
|
$
|
502
|
|
|
|
|
|
|
|
|
|
|
Due
after one but within five years
|
|
|
1,462
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
Due
after five but within ten years
|
|
|
4,151
|
|
|
|
4,271
|
|
|
|
|
|
|
|
|
|
|
Due
after ten years
|
|
|
19,177
|
|
|
|
19,475
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,289
|
|
|
$
|
25,751
|
|
|
|
|
|
|
|
|
|
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
following tables detail unrealized losses and related fair values in the Bank’s available-for-sale investment security portfolio.
This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position
as of June 30, 2016 and December 31, 2015, respectively.
|
|
|
Temporarily
Impaired Securities in AFS Portfolio
|
|
|
|
Less
than 12 months
|
|
Greater
than
12 months
|
|
Total
|
|
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Government-sponsored
enterprises *
|
|
|
236
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
236
|
|
|
|
(1
|
)
|
|
Equity
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
Total
temporarily impaired securities
|
|
$
|
236
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
237
|
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and federal agency
|
|
$
|
5,374
|
|
|
$
|
(105
|
)
|
|
$
|
8,696
|
|
|
$
|
(304
|
)
|
|
$
|
14,070
|
|
|
$
|
(409
|
)
|
|
Government-sponsored
enterprises *
|
|
|
237
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
237
|
|
|
|
(1
|
)
|
|
Equity
securities
|
|
|
1,203
|
|
|
|
(165
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1,204
|
|
|
|
(166
|
)
|
|
Total
temporarily impaired securities
|
|
$
|
6,814
|
|
|
$
|
(271
|
)
|
|
$
|
8,697
|
|
|
$
|
(305
|
)
|
|
$
|
15,511
|
|
|
$
|
(576
|
)
|
*
Such as FNMA, FHLMC and FHLB.
Management
considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration
of the decline in market value in determining if impairment is other than temporary. Consideration is given to (1) the length
of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of
the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient
to allow for any anticipated recovery in fair value. As of June 30, 2016, management believes that it is more likely than not
that the Bank will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases
in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected
to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.
Management
does not believe such securities are other-than-temporarily impaired due to reasons of credit quality. Accordingly, as of June
30, 2016, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized
in the Bank’s net income.
Securities
with a fair value of $3.5 million at June 30, 2016 were pledged to secure public funds. The Bank had no sales of securities during
the periods ended June 30, 2016 or 2015.
CAROLINA
TRUST BANK
Notes to Condensed Consolidated Financial Statements
The
following table presents the changes in the Bank’s accumulated other comprehensive income, net of tax, by component for
the periods indicated:
|
|
|
2016
Unrealized gains
(losses) on
available-for-
sale securities
|
|
2015
Unrealized gains
(losses) on
available-for-
sale securities
|
|
(Dollars
in thousands)
|
|
|
|
|
|
Beginning
balance, April 1
|
|
$
|
(5
|
)
|
|
$
|
334
|
|
|
Other
comprehensive income (loss) before reclassifications
|
|
|
294
|
|
|
|
(413
|
)
|
|
Amounts
reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
Net
current period other comprehensive income (loss)
|
|
|
294
|
|
|
|
(413
|
)
|
|
Ending
balance, June 30
|
|
$
|
289
|
|
|
$
|
(79
|
)
|
|
|
|
2016
Unrealized gains
(losses) on
available-for-
sale securities
|
|
2015
Unrealized gains
(losses) on
available-for-
sale securities
|
|
(Dollars
in thousands)
|
|
|
|
|
|
Beginning
balance, January 1
|
|
$
|
(216
|
)
|
|
$
|
118
|
|
|
Other
comprehensive loss before reclassifications
|
|
|
505
|
|
|
|
(197
|
)
|
|
Amounts
reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
Net
current period other comprehensive Income (loss)
|
|
|
505
|
|
|
|
(197
|
)
|
|
Ending
balance, June 30
|
|
$
|
289
|
|
|
$
|
(19
|
)
|
The
Bank did not have any reclassifications out of accumulated other comprehensive income for the three-month periods ended June 30,
2016 or 2015.
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
(6)
Loans
Following is a summary of loans at June 30,
2016 and December 31, 2015:
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Dollars in thousands
|
|
Amount
|
|
Percent of Total
|
|
Amount
|
|
Percent of Total
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
3,506
|
|
|
|
1.19
|
%
|
|
$
|
2,625
|
|
|
|
0.90
|
%
|
|
Commercial ADC
|
|
|
20,189
|
|
|
|
6.88
|
%
|
|
|
18,735
|
|
|
|
6.41
|
%
|
|
Farmland
|
|
|
3,747
|
|
|
|
1.28
|
%
|
|
|
2,615
|
|
|
|
0.89
|
%
|
|
Multifamily
|
|
|
11,975
|
|
|
|
4.08
|
%
|
|
|
11,475
|
|
|
|
3.93
|
%
|
|
Owner occupied
|
|
|
67,908
|
|
|
|
23.12
|
%
|
|
|
71,968
|
|
|
|
24.62
|
%
|
|
Non-owner occupied
|
|
|
60,823
|
|
|
|
20.71
|
%
|
|
|
58,244
|
|
|
|
19.92
|
%
|
|
Total commercial real estate
|
|
|
168,148
|
|
|
|
57.26
|
%
|
|
|
165,662
|
|
|
|
56.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
40,034
|
|
|
|
13.63
|
%
|
|
|
43,575
|
|
|
|
14.88
|
%
|
|
Agriculture
|
|
|
293
|
|
|
|
0.10
|
%
|
|
|
83
|
|
|
|
0.03
|
%
|
|
Other
|
|
|
417
|
|
|
|
0.14
|
%
|
|
|
52
|
|
|
|
0.02
|
%
|
|
Total commercial
|
|
|
40,744
|
|
|
|
13.87
|
%
|
|
|
43,710
|
|
|
|
14.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
44,873
|
|
|
|
15.28
|
%
|
|
|
46,148
|
|
|
|
15.76
|
%
|
|
Junior lien, closed-end
|
|
|
1,213
|
|
|
|
0.41
|
%
|
|
|
1,240
|
|
|
|
0.42
|
%
|
|
Total residential mortgage
|
|
|
46,086
|
|
|
|
15.69
|
%
|
|
|
47,388
|
|
|
|
16.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
34,767
|
|
|
|
11.84
|
%
|
|
|
32,083
|
|
|
|
10.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
3,938
|
|
|
|
1.34
|
%
|
|
|
4,022
|
|
|
|
1.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans
|
|
$
|
293,683
|
|
|
|
100.00
|
%
|
|
$
|
292,865
|
|
|
|
100.00
|
%
|
|
Deferred loan origination fees, net
|
|
|
(526
|
)
|
|
|
|
|
|
|
(503
|
)
|
|
|
|
|
|
Total loans
|
|
$
|
293,157
|
|
|
|
|
|
|
$
|
292,362
|
|
|
|
|
|
Loans are primarily originated for customers
residing in Lincoln, Gaston, Catawba, Rutherford and Iredell Counties in North Carolina. Real estate loans can be affected by the
condition of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions.
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
Non-Accrual and Past Due Loans
Non-accrual loans, segregated by category,
were as follows:
|
|
|
June
30,
2016
|
|
December
31, 2015
|
|
Dollars
in thousands
|
|
|
|
|
|
Commercial
real estate
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
1,047
|
|
|
$
|
1,063
|
|
|
Multifamily
|
|
|
160
|
|
|
|
—
|
|
|
Owner
occupied
|
|
|
147
|
|
|
|
459
|
|
|
Non-owner
occupied
|
|
|
41
|
|
|
|
45
|
|
|
Total
commercial real estate
|
|
|
1,395
|
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
26
|
|
|
|
46
|
|
|
Total
commercial
|
|
|
26
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
First
lien, closed-end
|
|
|
307
|
|
|
|
382
|
|
|
Total
residential mortgage
|
|
|
307
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
—
|
|
|
|
9
|
|
|
Consumer
– other
|
|
|
11
|
|
|
|
43
|
|
|
Total
non-accrual loans
|
|
$
|
1,739
|
|
|
$
|
2,047
|
|
Interest foregone on non-accrual loans was
approximately $29,000 and $54,000 for the three and six months ended June 30, 2016 and $47,000 and $114,000 for the three and six
months ended June 30, 2015.
An analysis of past due loans, segregated by
class, was as follows:
|
In thousands
|
|
Loans 30-89 Days Past Due
|
|
Loans 90 or more Days Past Due
|
|
Total Past Due Loans
|
|
Current Loans
|
|
Total Loans
|
|
Accruing Loans 90 or More Days Past Due
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,506
|
|
|
$
|
3,506
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
—
|
|
|
|
1,041
|
|
|
|
1,041
|
|
|
|
19,148
|
|
|
|
20,189
|
|
|
|
—
|
|
|
Farmland
|
|
|
49
|
|
|
|
—
|
|
|
|
49
|
|
|
|
3,698
|
|
|
|
3,747
|
|
|
|
—
|
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,975
|
|
|
|
11,975
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
250
|
|
|
|
—
|
|
|
|
250
|
|
|
|
67,658
|
|
|
|
67,908
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
17
|
|
|
|
—
|
|
|
|
17
|
|
|
|
60,806
|
|
|
|
60,823
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
316
|
|
|
|
1,041
|
|
|
|
1,357
|
|
|
|
166,791
|
|
|
|
168,148
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
475
|
|
|
|
26
|
|
|
|
501
|
|
|
|
39,007
|
|
|
|
39,508
|
|
|
|
—
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
293
|
|
|
|
293
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
417
|
|
|
|
417
|
|
|
|
—
|
|
|
Total commercial
|
|
|
475
|
|
|
|
26
|
|
|
|
501
|
|
|
|
39,717
|
|
|
|
40,218
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
161
|
|
|
|
248
|
|
|
|
409
|
|
|
|
44,464
|
|
|
|
44,873
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,213
|
|
|
|
1,213
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
161
|
|
|
|
248
|
|
|
|
409
|
|
|
|
45,677
|
|
|
|
46,086
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
487
|
|
|
|
—
|
|
|
|
487
|
|
|
|
34,280
|
|
|
|
34,767
|
|
|
|
—
|
|
|
Consumer – other
|
|
|
10
|
|
|
|
11
|
|
|
|
21
|
|
|
|
3,917
|
|
|
|
3,938
|
|
|
|
—
|
|
|
Total loans
|
|
$
|
1,449
|
|
|
$
|
1,326
|
|
|
$
|
2,775
|
|
|
$
|
290,382
|
|
|
$
|
293,157
|
|
|
$
|
—
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
In thousands
|
|
Loans 30-89 Days Past Due
|
|
Loans 90 or more Days Past Due
|
|
Total Past Due Loans
|
|
Current Loans
|
|
Total Loans
|
|
Accruing Loans 90 or More Days Past Due
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,625
|
|
|
$
|
2,625
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
—
|
|
|
|
1,063
|
|
|
|
1,063
|
|
|
|
17,672
|
|
|
|
18,735
|
|
|
|
—
|
|
|
Farmland
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,615
|
|
|
|
2,615
|
|
|
|
—
|
|
|
Multifamily
|
|
|
171
|
|
|
|
—
|
|
|
|
171
|
|
|
|
11,304
|
|
|
|
11,475
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
468
|
|
|
|
—
|
|
|
|
468
|
|
|
|
71,500
|
|
|
|
71,968
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
69
|
|
|
|
—
|
|
|
|
69
|
|
|
|
58,175
|
|
|
|
58,244
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
708
|
|
|
|
1,063
|
|
|
|
1,771
|
|
|
|
163,891
|
|
|
|
165,662
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
15
|
|
|
|
44
|
|
|
|
59
|
|
|
|
43,013
|
|
|
|
43,072
|
|
|
|
—
|
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
|
|
83
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
|
Total commercial
|
|
|
15
|
|
|
|
44
|
|
|
|
59
|
|
|
|
43,148
|
|
|
|
43,207
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed end
|
|
|
53
|
|
|
|
258
|
|
|
|
311
|
|
|
|
45,837
|
|
|
|
46,148
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,240
|
|
|
|
1,240
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
53
|
|
|
|
258
|
|
|
|
311
|
|
|
|
47,077
|
|
|
|
47,388
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
274
|
|
|
|
126
|
|
|
|
400
|
|
|
|
31,683
|
|
|
|
32,083
|
|
|
|
117
|
|
|
Consumer – other
|
|
|
91
|
|
|
|
42
|
|
|
|
133
|
|
|
|
3,889
|
|
|
|
4,022
|
|
|
|
—
|
|
|
Total loans
|
|
$
|
1,141
|
|
|
$
|
1,533
|
|
|
$
|
2,674
|
|
|
$
|
289,688
|
|
|
$
|
292,362
|
|
|
$
|
117
|
|
Impaired loans
Impaired loans are set forth in the following
tables.
|
Loans without an allowance at June 30, 2016
|
|
|
|
|
|
|
|
|
|
This quarter
|
|
Year to date
|
|
In thousands
|
|
Unpaid Contractual Principal Balance
|
|
Total Recorded Investment
|
|
Related Allowance
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
2,973
|
|
|
$
|
2,307
|
|
|
$
|
—
|
|
|
$
|
2,326
|
|
|
$
|
11
|
|
|
$
|
2,340
|
|
|
$
|
27
|
|
|
Multifamily
|
|
|
160
|
|
|
|
160
|
|
|
|
—
|
|
|
|
162
|
|
|
|
—
|
|
|
|
81
|
|
|
|
1
|
|
|
Owner occupied
|
|
|
1,848
|
|
|
|
1,848
|
|
|
|
|
|
|
|
1,888
|
|
|
|
25
|
|
|
|
2,025
|
|
|
|
50
|
|
|
Non-owner occupied
|
|
|
41
|
|
|
|
41
|
|
|
|
—
|
|
|
|
42
|
|
|
|
—
|
|
|
|
43
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
5,022
|
|
|
|
4,356
|
|
|
|
—
|
|
|
|
4,418
|
|
|
|
36
|
|
|
|
4,489
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Commercial and industrial
|
|
|
502
|
|
|
|
497
|
|
|
|
—
|
|
|
|
509
|
|
|
|
8
|
|
|
|
525
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
First lien, closed-end
|
|
|
423
|
|
|
|
356
|
|
|
|
—
|
|
|
|
378
|
|
|
|
1
|
|
|
|
402
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
103
|
|
|
|
103
|
|
|
|
—
|
|
|
|
219
|
|
|
|
1
|
|
|
|
253
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
18
|
|
|
|
11
|
|
|
|
—
|
|
|
|
54
|
|
|
|
—
|
|
|
|
70
|
|
|
|
—
|
|
|
Total loans
|
|
$
|
6,068
|
|
|
$
|
5,323
|
|
|
$
|
—
|
|
|
$
|
5,578
|
|
|
$
|
46
|
|
|
$
|
5,739
|
|
|
$
|
110
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
Loans with an allowance at June 30, 2016
|
|
|
|
|
|
|
|
|
|
This
quarter
|
|
Year
to date
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner
occupied
|
|
$
|
123
|
|
|
$
|
123
|
|
|
$
|
1
|
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
188
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
426
|
|
|
|
426
|
|
|
|
128
|
|
|
|
429
|
|
|
|
11
|
|
|
|
434
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage First lien, closed-end
|
|
|
830
|
|
|
|
830
|
|
|
|
52
|
|
|
|
833
|
|
|
|
16
|
|
|
|
838
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
– other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
1,379
|
|
|
$
|
1,379
|
|
|
$
|
181
|
|
|
$
|
1,386
|
|
|
$
|
27
|
|
|
$
|
1,461
|
|
|
$
|
4
6
|
|
|
Total
Impaired Loans at June 30, 2016
|
|
|
|
|
|
|
|
|
|
This quarter
|
|
Year to date
|
|
In thousands
|
|
Unpaid Contractual Principal Balance
|
|
Total Recorded Investment
|
|
Related Allowance
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
2,973
|
|
|
$
|
2,307
|
|
|
$
|
—
|
|
|
$
|
2,326
|
|
|
$
|
11
|
|
|
$
|
2,340
|
|
|
$
|
27
|
|
|
Multifamily
|
|
|
160
|
|
|
|
160
|
|
|
|
—
|
|
|
|
162
|
|
|
|
—
|
|
|
|
81
|
|
|
|
1
|
|
|
Owner occupied
|
|
|
1,971
|
|
|
|
1,971
|
|
|
|
1
|
|
|
|
2,012
|
|
|
|
25
|
|
|
|
2,213
|
|
|
|
50
|
|
|
Non-owner occupied
|
|
|
41
|
|
|
|
41
|
|
|
|
—
|
|
|
|
42
|
|
|
|
—
|
|
|
|
43
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
5,145
|
|
|
|
4,479
|
|
|
|
1
|
|
|
|
4,542
|
|
|
|
36
|
|
|
|
4,677
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
928
|
|
|
|
923
|
|
|
|
128
|
|
|
|
938
|
|
|
|
19
|
|
|
|
959
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage First lien, closed-end
|
|
|
1,253
|
|
|
|
1,186
|
|
|
|
52
|
|
|
|
1,211
|
|
|
|
17
|
|
|
|
1,240
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
103
|
|
|
|
103
|
|
|
|
—
|
|
|
|
219
|
|
|
|
1
|
|
|
|
254
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
18
|
|
|
|
11
|
|
|
|
—
|
|
|
|
54
|
|
|
|
—
|
|
|
|
70
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
7,447
|
|
|
$
|
6,702
|
|
|
$
|
181
|
|
|
$
|
6,964
|
|
|
$
|
73
|
|
|
$
|
7,200
|
|
|
$
|
156
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
Loans
without an allowance at December 31, 2015
|
|
|
|
In thousands
|
|
Unpaid Contractual Principal Balance
|
|
Total Recorded Investment
|
|
Related Allowance
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial ADC
|
|
$
|
3,017
|
|
|
$
|
2,351
|
|
|
$
|
—
|
|
|
$
|
2,353
|
|
|
$
|
85
|
|
|
Owner occupied
|
|
|
2,135
|
|
|
|
2,135
|
|
|
|
—
|
|
|
|
2,338
|
|
|
|
79
|
|
|
Non-owner occupied
|
|
|
45
|
|
|
|
45
|
|
|
|
—
|
|
|
|
134
|
|
|
|
2
|
|
|
Total commercial real estate
|
|
|
5,197
|
|
|
|
4,531
|
|
|
|
—
|
|
|
|
4,825
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
551
|
|
|
|
546
|
|
|
|
—
|
|
|
|
578
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
First lien, closed-end
|
|
|
500
|
|
|
|
433
|
|
|
|
—
|
|
|
|
480
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
289
|
|
|
|
289
|
|
|
|
—
|
|
|
|
286
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – other
|
|
|
114
|
|
|
|
114
|
|
|
|
—
|
|
|
|
13
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
6,651
|
|
|
$
|
5,913
|
|
|
$
|
—
|
|
|
$
|
6,182
|
|
|
$
|
221
|
|
|
Loans with a related allowance at December 31, 2015
|
|
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
Owner
occupied
|
|
|
318
|
|
|
|
318
|
|
|
$
|
23
|
|
|
$
|
186
|
|
|
$
|
25
|
|
|
Total
commercial real estate
|
|
|
318
|
|
|
|
318
|
|
|
|
23
|
|
|
|
289
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
455
|
|
|
|
455
|
|
|
|
80
|
|
|
|
451
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
First lien, closed-end
|
|
|
846
|
|
|
|
846
|
|
|
|
102
|
|
|
|
967
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
- other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
1,628
|
|
|
$
|
1,628
|
|
|
$
|
214
|
|
|
$
|
1,709
|
|
|
$
|
105
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
Total Impaired Loans at December 31, 2015
|
|
|
|
In
thousands
|
|
Unpaid
Contractual Principal Balance
|
|
Total
Recorded Investment
|
|
Related
Allowance
|
|
Average
Recorded Investment
|
|
Interest
Income Recognized
|
|
Commercial
real estate
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
ADC
|
|
$
|
3,017
|
|
|
$
|
2,351
|
|
|
$
|
—
|
|
|
$
|
2,456
|
|
|
$
|
85
|
|
|
Owner
occupied
|
|
|
2,453
|
|
|
|
2,453
|
|
|
|
23
|
|
|
|
2,524
|
|
|
|
104
|
|
|
Non-owner
occupied
|
|
|
45
|
|
|
|
45
|
|
|
|
—
|
|
|
|
134
|
|
|
|
2
|
|
|
Total
commercial real estate
|
|
|
5,515
|
|
|
|
4,849
|
|
|
|
23
|
|
|
|
5,114
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
1,005
|
|
|
|
1,001
|
|
|
|
80
|
|
|
|
1,029
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien,
closed-end
|
|
|
1,346
|
|
|
|
1,279
|
|
|
|
102
|
|
|
|
1,447
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
299
|
|
|
|
298
|
|
|
|
9
|
|
|
|
287
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
– other
|
|
|
114
|
|
|
|
114
|
|
|
|
—
|
|
|
|
14
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
8,279
|
|
|
$
|
7,541
|
|
|
$
|
214
|
|
|
$
|
7,891
|
|
|
$
|
326
|
|
At June 30, 2016 there were no loans past due
90 days or more, which were still accruing interest and at December 31, 2015 there was one loan totaling $117,000 past due 90 days
or more, which was still accruing interest.
Troubled Debt Restructures
As of June 30, 2016, ten loans totaling $4,736,000
were identified as troubled debt restructurings and considered impaired, none of which had unfunded commitments. Ten loans totaling
$4,853,000 were identified as troubled debt restructurings and considered impaired at December 31, 2015, none of which had unfunded
commitments.
For the three and six month periods ended June
30, 2016 and June 30, 2015, there were no concessions made.
There were no loans that were modified as troubled
debt restructurings within the previous 12 months for which there was a payment default during the three and six month periods
ended June 30, 2016 and June 30, 2015.
If a restructured loan defaults after being
restructured, the loan is liquidated or charged off. Defaults of restructured loans are addressed in the qualitative factor of
the delinquency component.
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
The following table presents the successes
and failures of the types of modifications within the previous 12 months as of June 30, 2016 and 2015.
|
|
|
Paid in full
|
|
Paying as restructured
|
|
Converted to non-accrual
|
|
Foreclosure/Default
|
|
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
June 30, 2016
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2
|
|
|
$
|
944
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2
|
|
|
$
|
944
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
Paid in full
|
|
Paying as restructured
|
|
Converted to non-accrual
|
|
Foreclosure/Default
|
|
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
Number of loans
|
|
Recorded Investment
|
|
June 30, 2015
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
449
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
449
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Credit Quality Indicators
As part of the on-going monitoring of credit
quality of the Bank’s loan portfolio, management tracks certain credit quality indicators including trends related to (i)
the local, state and national economic outlook, (ii) concentrations of credit, (iii) interest rate movements, (iv) volume, mix
and size of loans and (v) delinquencies.
The Bank utilizes a risk-grading matrix to
assign a risk grade to each of its commercial and consumer loans. Loans are graded on a scale of 1-9. Risk grades 1-5 represent
pass rated loans. The general characteristics of the 9 risk grades are broken down into commercial and consumer and described below:
Loan Portfolio Risk Grades
|
|
Pass credits are grades 1-5 and represent credits with above average risk characteristics that are in accordance with loan policy guidelines regarding repayment ability, loan to value, and credit history. These types of credits have very few exceptions to policy.
|
|
|
|
|
|
Grade 6 –
Watch List or Special Mention. The loans in this category include the following characteristics:
|
*Loans with one or more major exceptions
with no mitigating factors.
*Extending loans that are currently
performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the
Bank’s position at some future date. Potential weaknesses are the result of deviations from prudent lending practice.
*Loans where adverse economic
conditions that develop subsequent to the loan origination that don’t jeopardize liquidation of the debt but do substantially
increase the level of risk may also warrant this rating.
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
Grade
7
– Substandard. A substandard loan is inadequately protected by the current sound net
worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the
institution will sustain some
loss if the deficiencies are not corrected. Loans consistently not meeting the repayment
schedule should be downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited
by any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to (i) high
debt to worth ratios, (ii) declining or negative earnings trends, (iii) declining or inadequate liquidity, (iv) improper loan
structure, (v) questionable repayment sources, (vi) lack of well-defined secondary repayment source, and (vii) unfavorable
competitive comparisons.
Grade 8 –
Doubtful. Loans classified Doubtful have all the weaknesses inherent in loans classified
Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because
certain events may occur which would salvage the debt. Among these events are injection of capital, alternative financing and
liquidation of assets or the pledging of additional collateral. The ability of the borrower to service the debt is extremely weak,
overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists. Doubtful
is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position
is determined, the amount is charged off.
Grade 9 –
Loss.
Loans classified Loss are considered
uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not
mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing
off this worthless loan even though partial recovery may be affected in the future.
Probable loss portions of Doubtful assets
should be charged against the Reserve for Loan Losses. Loans may reside in this classification for administrative purposes for
a period not to exceed the earlier of thirty (30) days or calendar quarter-end.
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
The following table presents the credit risk
profile by internally assigned risk grades.
June 30, 2016
|
Dollars in thousands
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
3,506
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
17,374
|
|
|
|
508
|
|
|
|
2,307
|
|
|
|
—
|
|
|
|
—
|
|
|
Farmland
|
|
|
3,747
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Multifamily
|
|
|
11,815
|
|
|
|
—
|
|
|
|
160
|
|
|
|
—
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
64,969
|
|
|
|
1,578
|
|
|
|
1,361
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
59,472
|
|
|
|
1,310
|
|
|
|
41
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
160,883
|
|
|
|
3,396
|
|
|
|
3,869
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
35,819
|
|
|
|
2,129
|
|
|
|
1,560
|
|
|
|
—
|
|
|
|
—
|
|
|
Agriculture
|
|
|
293
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
417
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial
|
|
|
36,529
|
|
|
|
2,129
|
|
|
|
1,560
|
|
|
|
—
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
41,488
|
|
|
|
2,991
|
|
|
|
394
|
|
|
|
—
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
748
|
|
|
|
465
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
42,236
|
|
|
|
3,456
|
|
|
|
394
|
|
|
|
—
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
32,794
|
|
|
|
1,851
|
|
|
|
122
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer - other
|
|
|
3,759
|
|
|
|
168
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
276,201
|
|
|
$
|
11,000
|
|
|
$
|
5,956
|
|
|
$
|
—
|
|
|
$
|
—
|
|
December 31, 2015
|
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Residential ADC
|
|
$
|
2,625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial ADC
|
|
|
15,868
|
|
|
|
516
|
|
|
|
2,351
|
|
|
|
—
|
|
|
|
—
|
|
|
Farmland
|
|
|
2,615
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Multifamily
|
|
|
11,475
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Owner occupied
|
|
|
67,727
|
|
|
|
2,392
|
|
|
|
1,849
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-owner occupied
|
|
|
56,842
|
|
|
|
1,357
|
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial real estate
|
|
|
157,152
|
|
|
|
4,265
|
|
|
|
4,245
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
40,443
|
|
|
|
2,146
|
|
|
|
483
|
|
|
|
—
|
|
|
|
—
|
|
|
Agriculture
|
|
|
83
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total commercial
|
|
|
40,578
|
|
|
|
2,146
|
|
|
|
483
|
|
|
|
—
|
|
|
|
—
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien, closed-end
|
|
|
42,560
|
|
|
|
3,113
|
|
|
|
475
|
|
|
|
—
|
|
|
|
—
|
|
|
Junior lien, closed-end
|
|
|
725
|
|
|
|
476
|
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
Total residential mortgage
|
|
|
43,285
|
|
|
|
3,589
|
|
|
|
514
|
|
|
|
—
|
|
|
|
—
|
|
|
Home equity lines
|
|
|
30,086
|
|
|
|
1,680
|
|
|
|
317
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer - other
|
|
|
3,713
|
|
|
|
309
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
274,814
|
|
|
$
|
11,989
|
|
|
$
|
5,559
|
|
|
$
|
—
|
|
|
$
|
—
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
Allowance for Loan Losses
The allowance for loan losses represents management’s
estimate of an amount adequate to provide for probable losses inherent in the loan portfolio. Management determines the allowance
for loan losses based on a number of factors, including a review and evaluation of the Bank’s loan portfolio and current
and projected economic conditions locally and nationally. The allowance is monitored and analyzed in conjunction with the Bank’s
loan analysis and grading program and provisions for loan losses are made to maintain an adequate allowance for loan losses. The
allowance for loan losses is created by direct charges to operations. Losses on loans are charged against the allowance for loan
losses in the accounting period in which they are determined by management to be uncollectible. Recoveries during the period are
credited to the allowance. The provision for loan losses is the amount necessary to adjust the allowance for loan losses to the
amount that management has determined to be adequate to provide for potential losses inherent in the loan portfolio. Certain changes
in factors may cause increases or decreases to the allowance for loan losses. The Bank did not record any provisions for loan losses
for the quarters ended June 30, 2016 and June 30, 2015. Management realizes that general economic trends greatly affect loan losses,
and no assurances can be made that future charges to the loan loss allowance may not be significant in relation to the amount provided
during a particular period, or that future evaluations of the loan portfolio based on conditions then prevailing will not require
sizable additions to the allowance, thus necessitating similarly sizable charges to income. Based on its best judgment, evaluation,
and analysis of the loan portfolio, management considers the allowance for loan losses to be adequate for the reporting periods.
The following table details activity in the
allowance for loan losses by portfolio segment for the three months ended June 30, 2016 and 2015.
|
|
|
Beginning
Balance
|
|
Provision
for (Recovery) of Loan Losses
|
|
Charge-offs
|
|
Recoveries
|
|
Ending
Balance
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,280
|
|
|
$
|
(18
|
)
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
2,283
|
|
|
Commercial
and industrial
|
|
|
458
|
|
|
|
93
|
|
|
|
—
|
|
|
|
—
|
|
|
|
551
|
|
|
Residential
mortgage
|
|
|
496
|
|
|
|
(90
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
406
|
|
|
Consumer
and home equity lines
|
|
|
287
|
|
|
|
15
|
|
|
|
(12
|
)
|
|
|
11
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,521
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
32
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,573
|
|
|
$
|
47
|
|
|
$
|
(58
|
)
|
|
$
|
2
|
|
|
$
|
2,564
|
|
|
Commercial
and industrial
|
|
|
489
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
34
|
|
|
|
522
|
|
|
Residential
mortgage
|
|
|
480
|
|
|
|
(17
|
)
|
|
|
(45
|
)
|
|
|
—
|
|
|
|
418
|
|
|
Consumer
and home equity lines
|
|
|
412
|
|
|
|
(29
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,954
|
|
|
$
|
—
|
|
|
$
|
(104
|
)
|
|
$
|
36
|
|
|
$
|
3,886
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
The following table details activity in the
allowance for loan losses by portfolio segment for the six months ended June 30, 2016 and 2015.
|
|
|
Beginning
Balance
|
|
Provision
for (Recovery) of Loan Losses
|
|
Charge-offs
|
|
Recoveries
|
|
Ending
Balance
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,302
|
|
|
$
|
27
|
|
|
$
|
(70
|
)
|
|
$
|
24
|
|
|
$
|
2,283
|
|
|
Commercial
and industrial
|
|
|
570
|
|
|
|
21
|
|
|
|
(58
|
)
|
|
|
18
|
|
|
|
551
|
|
|
Residential
mortgage
|
|
|
505
|
|
|
|
(99
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
406
|
|
|
Consumer
and home equity lines
|
|
|
346
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
13
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,723
|
|
|
$
|
(80
|
)
|
|
$
|
(157
|
)
|
|
$
|
55
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,456
|
|
|
$
|
210
|
|
|
$
|
(108
|
)
|
|
$
|
6
|
|
|
$
|
2,564
|
|
|
Commercial
and industrial
|
|
|
705
|
|
|
|
(218
|
)
|
|
|
—
|
|
|
|
35
|
|
|
|
522
|
|
|
Residential
mortgage
|
|
|
464
|
|
|
|
(2
|
)
|
|
|
(45
|
)
|
|
|
1
|
|
|
|
418
|
|
|
Consumer
and home equity lines
|
|
|
377
|
|
|
|
10
|
|
|
|
(7
|
)
|
|
|
2
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,002
|
|
|
$
|
—
|
|
|
$
|
(160
|
)
|
|
$
|
44
|
|
|
$
|
3,886
|
|
The allocation of the allowance for loan losses
for June 30, 2016 and December 31, 2015 is presented in the tables below.
|
|
|
Loans Individually Evaluated for Impairment
|
|
Loans Collectively Evaluated for Impairment
|
|
Total
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
1
|
|
|
$
|
2,282
|
|
|
$
|
2,283
|
|
|
Commercial and industrial
|
|
|
128
|
|
|
|
423
|
|
|
|
551
|
|
|
Residential mortgage
|
|
|
52
|
|
|
|
354
|
|
|
|
406
|
|
|
Consumer and home equity lines
|
|
|
—
|
|
|
|
301
|
|
|
|
301
|
|
|
Total
|
|
$
|
181
|
|
|
$
|
3,360
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
23
|
|
|
$
|
2,279
|
|
|
$
|
2,302
|
|
|
Commercial and industrial
|
|
|
80
|
|
|
|
490
|
|
|
|
570
|
|
|
Residential mortgage
|
|
|
102
|
|
|
|
403
|
|
|
|
505
|
|
|
Consumer and home equity lines
|
|
|
9
|
|
|
|
337
|
|
|
|
346
|
|
|
Total
|
|
$
|
214
|
|
|
$
|
3,509
|
|
|
$
|
3,723
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
The Bank’s recorded investment in loans
as of June 30, 2016 and December 31, 2015 related to each balance in the allowance for loan losses by portfolio segment and disaggregated
on the Bank’s impairment methodology was as follows:
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
|
Loans Individually Evaluated for Impairment
|
|
Loans Collectively Evaluated for Impairment
|
|
Loans Individually Evaluated for Impairment
|
|
Loans Collectively Evaluated for Impairment
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
4,479
|
|
|
$
|
163,671
|
|
|
$
|
4,849
|
|
|
$
|
160,813
|
|
|
Commercial and industrial
|
|
|
923
|
|
|
|
39,751
|
|
|
|
1,001
|
|
|
|
42,710
|
|
|
Residential mortgage
|
|
|
1,186
|
|
|
|
44,900
|
|
|
|
1,279
|
|
|
|
46,109
|
|
|
Consumer and home equity lines
|
|
|
114
|
|
|
|
38,659
|
|
|
|
412
|
|
|
|
35,692
|
|
|
Unearned Discounts
|
|
|
—
|
|
|
|
(526
|
)
|
|
|
—
|
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,702
|
|
|
$
|
286,455
|
|
|
$
|
7,541
|
|
|
$
|
284,821
|
|
At June 30, 2016 the Bank had pre-approved
but unused lines of credit totaling $50.9 million. In management’s opinion these unused lines of credit represent no more
than normal lending risk to the Bank and will be funded from normal sources of liquidity.
The Bank has entered loan transactions with
its directors and executive officers. Such loans were made in the ordinary course of business and on substantially the same terms
and collateral as those for comparable transactions prevailing at the time and did not involve more than the normal risk of collectability
or present other unfavorable features.
A summary of related party loan transactions
as of June 30, 2016 and 2015 is as follows:
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Dollars
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
2,347
|
|
|
$
|
1,123
|
|
|
|
|
|
|
|
|
|
|
Loan
disbursements
|
|
|
635
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
Loan
repayments
|
|
|
(301
|
)
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
Changes
in related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30
|
|
$
|
2,681
|
|
|
$
|
1,223
|
|
|
|
|
|
|
|
|
|
At June 30, 2016 and 2015 the Bank had pre-approved
but unused lines of credit totaling $264,000 and $284,000, respectively, to executive officers, directors and their related interests.
Related party deposits totaled $1,466,000 and $1,610,000 at June 30, 2016 and 2015, respectively.
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
(7)
Foreclosed
Assets
The following table summarizes the activity
in foreclosed assets for the periods ended June 30, 2016 and 2015:
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
Dollars in thousands
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,994
|
|
|
$
|
2,048
|
|
|
Additions
|
|
|
369
|
|
|
|
627
|
|
|
Proceeds from sale
|
|
|
(940
|
)
|
|
|
(233
|
)
|
|
Valuation adjustments
|
|
|
(160
|
)
|
|
|
(15
|
)
|
|
Gains (losses) on sales
|
|
|
(29
|
)
|
|
|
(97
|
)
|
|
Balance, end of quarter
|
|
$
|
1,234
|
|
|
$
|
2,330
|
|
The Bank has two foreclosed residential real
estate properties totaling $59,000 as of June 30, 2016.
The recorded investment of consumer mortgage loans
secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $68,000 for June
30, 2016.
(8)
Earnings Per Share
Basic earnings per share are based upon the
weighted average number of common shares outstanding during the period. The weighted average common shares outstanding for the
diluted earnings per share computations were adjusted to reflect the assumed conversion of shares available under stock options
using the treasury method. The following tables summarize earnings per share and the shares utilized in the computations for the
three and six months ended June 30, 2016 and 2015, respectively:
|
|
|
|
Net
Income Available to Common Shareholders
|
|
|
Weighted
Average Common Shares
|
|
Per
Share Amount
|
|
Dollars
in thousands, except per share data
|
|
|
|
|
|
|
|
Threes
months ended
|
|
|
|
|
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
399
|
|
|
|
4,649,558
|
|
|
$
|
0.09
|
|
|
Effect
of dilutive stock options
|
|
|
—
|
|
|
|
46,575
|
|
|
|
|
|
|
Effect
of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
399
|
|
|
|
4,696,133
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
302
|
|
|
|
4,645,963
|
|
|
$
|
0.07
|
|
|
Effect
of dilutive stock options
|
|
|
—
|
|
|
|
39,159
|
|
|
|
|
|
|
Effect
of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
302
|
|
|
|
4,685,122
|
|
|
$
|
0.06
|
|
CAROLINA TRUST BANK
Notes to Condensed Consolidated Financial Statements
|
|
|
|
Net
Income
Available to
Common Shareholders
|
|
|
Weighted Average
Common Shares
|
|
Per Share Amount
|
|
Dollars in thousands, except per share data
|
|
|
|
|
|
|
|
Six months
ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
757
|
|
|
|
4,649,558
|
|
|
$
|
0.16
|
|
|
Effect of dilutive stock options
|
|
|
—
|
|
|
|
46,064
|
|
|
|
|
|
|
Effect of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
757
|
|
|
|
4,695,622
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
419
|
|
|
|
4,644,821
|
|
|
$
|
0.09
|
|
|
Effect of dilutive stock options
|
|
|
—
|
|
|
|
92,044
|
|
|
|
|
|
|
Effect of dilutive stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
419
|
|
|
|
4,736,865
|
|
|
$
|
0.09
|
|
For both the three and six month periods ended
June 30, 2016 there were 148,608 shares related to stock options and the common stock warrant that were anti-dilutive because the
exercise price exceeded the average market price for the period. For the three and six month periods ended June 30, 2015 there
were 255,421 and 261,478 shares, respectively, related to stock options and the common stock warrant that were anti-dilutive because
the exercise price exceeded the average market price for the period. Therefore, they were omitted from the calculation of diluted
earnings per share for their respective periods.
(9) Reclassifications
Certain reclassifications have been
made to the financial statements of the prior year to place them on a comparable basis with the current year. Net income and shareholders’
equity were not affected by these reclassifications.
Item 2 - Management’s Discussion
and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis
is intended to assist readers in the understanding and evaluation of the financial condition and results of operations of Carolina
Trust Bank (the “Bank”). This report to shareholders may contain certain forward-looking statements consisting of estimates
with respect to the financial condition, results of operations and other business of Carolina Trust Bank that are subject to various
factors which could cause actual results to differ materially from those estimates. Factors, which could influence the estimates,
include changes in national, regional and local market conditions, legislative and regulatory conditions, and the interest rate
environment.
Recent Developments
As previously
reported, at the Bank’s annual meeting held on May 10, 2016, the Bank’s shareholders approved the reorganization of
the Bank into the bank holding company form of organization. The reorganization will result in Carolina Trust BancShares, Inc.,
a North Carolina corporation formed at the direction of the Bank’s board of directors, owning all of the outstanding common
stock of the Bank, and Carolina Trust BancShares will become the registered bank holding company of the Bank under the Bank Holding
Company Act of 1956, as amended. Additional detail regarding the reorganization can be found in the Bank’s definitive proxy
statement filed with the FDIC on April 6, 2016.
During the
second quarter, the Bank received the nonobjection of the Board of Governors of the Federal Reserve System to the planned reorganization,
which was the only regulatory approval required in connection with the bank holding company formation. The Bank expects to consummate
the reorganization in August 2016.
In the Bank’s proxy statement filed on
April 6, 2016, the Bank listed its Chairman, Johnathan L. Rhyne, Jr., as an ex officio member of its audit committee and its President
and CEO, Jerry L. Ocheltree, as an ex officio member of it compensation committee. This was incorrect, and Mr. Rhyne, who is an
independent director, is a member of the audit committee. Mr. Ocheltree is not a member of the compensation committee, neither
in a non-voting nor ex officio capacity. Upon the compensation committee’s request, Mr. Ocheltree provides such information
or presentations as the compensation committee may request.
Discussion of Financial Condition at June
30, 2016
During the period from December 31, 2015 to
June 30, 2016, total assets increased by approximately $39.9 million, or 11.95%. The increase, reflected primarily in interest
earning deposits with banks, investment securities available for sale, and loans, was funded by an increase in deposits and Federal
Home Loan Bank advances. Interest-earning deposits with banks, federal funds sold, and securities available for sale at June 30,
2016 totaled $62.6 million compared to $23.0 million at December 31, 2015.
At June 30, 2016, net loans constituted 77.45%
of the Bank’s total assets. Net loans increased by $977,000 from December 31, 2015 to June 30, 2016. Management’s continued
goal is to grow the loan portfolio to provide maximum income proportionate with acceptable risks. At June 30, 2016 and December
31, 2015 impaired loans, which consisted primarily of troubled debt restructures and non-accrual loans, were $6.7 million and $7.5
million respectively. Impaired loans of $1.4 million and $1.6 million had related allowances for loan losses aggregating $181,000
and $214,000 at June 30, 2016 and December 31, 2015, respectively. There were $5.3 million and $5.9 million of impaired loans without
an allowance at June 30, 2016 and December 31, 2015. Impaired loans at June 30, 2016 and December 31, 2015 consisted primarily
of commercial ADC (acquisition, development and construction), commercial
real estate, residential mortgage and commercial and
industrial loans. At June 30, 2016 the Bank identified ten loans amounting to approximately $4.7 million, which were restructured
to facilitate the borrowers’ ability to repay the outstanding balance. Of these ten loans, nine loans totaling $4.6 million
were accruing interest at June 30, 2016. At December 31, 2015, there were ten loans totaling $4.9 million which were restructured
to facilitate the borrowers’ ability to repay the outstanding balance and of these ten loans, nine loans totaling $4.7 million
were accruing interest. These ten restructured loans, which are included in the $6.7 million of impaired loans, are considered
troubled debt restructurings at June 30, 2016 and have specific reserves amounting to approximately $181,000. Reserves for loans
not considered impaired were approximately $3.4 million and $3.5 million at June 30, 2016 and December 31, 2015, respectively.
The allowance for loans losses at June 30, 2016 and December 31, 2015 is 1.21% and 1.27% respectively of gross loans outstanding.
The Bank records provisions for loan losses
based upon known problem loans and estimated probable losses in the existing loan portfolio. The Bank’s methodology for assessing
the appropriations of the allowance for loan losses consists of two key components, which are a specific allowance for identified
problem or impaired loans and a model estimating probable losses for the remainder of the portfolio.
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 Bank 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 decreased to $16.8 million at June
30, 2016 compared to $17.5 million at December 31, 2015. At June 30, 2016 foreclosed assets consisted of ten properties valued
at $1.2 million.
Deposits increased by approximately $38.6 million
during the six months ended June 30, 2016. The increase is primarily due to the increase in institutional deposits of $22.5 million.
Non-interest bearing demand deposits, money market and NOW deposits, savings deposits and time deposits increased by approximately
$7.1 million, $12.6 million, $0.6 million and $18.3 million respectively.
Stockholders’ equity amounted to $31.8
million, or 8.50% of total assets at June 30, 2016, compared to $30.5 million, or 9.12% of total assets at December 31, 2015.
Discussion of Results of Operations
For the three months ended June 30, 2016
and 2015
Net income for the three months ended June
30, 2016 was $457,000 compared to $361,000 for the second quarter of 2015, an increase of $96,000. Net income available to common
shareholders (which includes the effect of preferred stock dividends) was $399,000 for the second quarter of 2016 compared to
$302,000 for the three months ended June 30,
2015. Preferred stock dividends, pertaining to the $2.6 million of preferred stock outstanding, were $58,000 for the second quarter
of 2016 and $59,000 for the second quarter of 2015. The net income available to common shareholders for the second quarter of
2016 is an increase of $97,000 when compared to the second quarter of 2015. Diluted earnings per common share was $0.08 for the
three months ended June 30, 2016 compared to $0.06 for the second quarter of 2015.
Net interest income for the quarter ended June
30, 2016, totaled $3,379,000 compared to $3,071,000 for the quarter ended June 30, 2015. The Bank’s net interest spread
was approximately 3.69% and 4.05% for the quarters ended June 30, 2016 and 2015, respectively. Net interest margin on average
interest earning assets was 3.83% and 4.18% for the quarters ended June 30, 2016 and 2015, respectively. Net interest spread decreased
by 36 basis points, and net interest margin decreased by 35 basis points. The decreases in net interest spread and net interest
margin are due primarily to a lower yields on average earning assets.
The Bank did not record any provision for loan
losses for the quarters ended June 30, 2016 and June 30, 2015. The ratio of allowance for loan and lease losses as a percentage
of total loans decreased from 1.40% at June 30, 2015 to 1.21% at June 30, 2016. This decrease in this percentage is due to continued
improved credit quality as non-performing loans decreased. 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.
|
|
|
Loans
Outstanding
|
|
Non-
Performing
Loans
|
|
Net
Charge-offs
(recoveries)
|
|
Allowance
for Loan
Losses
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
June 30, 2016
|
|
$
|
293,157
|
|
|
$
|
1,739
|
|
|
$
|
(20
|
)
|
|
$
|
3,541
|
|
|
March 31, 2016
|
|
|
297,746
|
|
|
|
2,100
|
|
|
|
122
|
|
|
|
3,521
|
|
|
December 31, 2015
|
|
|
292,362
|
|
|
|
2,164
|
|
|
|
2
|
|
|
|
3,723
|
|
|
September 30, 2015
|
|
|
286,469
|
|
|
|
2,079
|
|
|
|
(109
|
)
|
|
|
3,825
|
|
|
June 30, 2015
|
|
|
278,305
|
|
|
|
3,335
|
|
|
|
68
|
|
|
|
3,886
|
|
|
March 31, 2015
|
|
|
257,919
|
|
|
|
3,562
|
|
|
|
48
|
|
|
|
3,954
|
|
|
December 31, 2014
|
|
|
244,646
|
|
|
|
4,166
|
|
|
|
162
|
|
|
|
4,002
|
|
|
September 30, 2014
|
|
|
227,933
|
|
|
|
3,081
|
|
|
|
(22
|
)
|
|
|
4,165
|
|
|
June 30, 2014
|
|
|
222,529
|
|
|
|
2,767
|
|
|
|
(102
|
)
|
|
|
4,143
|
|
|
March 31, 2014
|
|
|
221,887
|
|
|
|
3,603
|
|
|
|
(54
|
)
|
|
|
4,165
|
|
|
December 31, 2013
|
|
|
223,891
|
|
|
|
3,297
|
|
|
|
557
|
|
|
|
4,066
|
|
|
September 30, 2013
|
|
|
222,594
|
|
|
|
4,087
|
|
|
|
474
|
|
|
|
3,985
|
|
|
June 30, 2013
|
|
|
216,054
|
|
|
|
3,894
|
|
|
|
1,609
|
|
|
|
4,060
|
|
|
March 31, 2013
|
|
|
215,984
|
|
|
|
9,107
|
|
|
|
350
|
|
|
|
4,836
|
|
Non-interest income for the quarters ended
June 30, 2016 and 2015 totaled $312,000 and $293,000, respectively. Interchange fee income increased $19,000 or 20.2% due to the
increase in the number of deposit accounts.
Non-interest expenses for the June 30, 2016
and 2015 quarters totaled $2,968,000 and $2,747,000, respectively. The $221,000 increase was due in part to a $90,000 or 5.6% increase
in salaries and
employee benefits as a result of merit increases and performance bonus increases. There was also an increase of
$53,000 or 106% in foreclosed asset expense, due to an increase in impairment losses on foreclosed properties. Professional fees
increased by $41,000 or 69.5% due to consulting expenses related to accounting services, audit fees, compliance support, and strategic
planning.
The bank recorded income tax expense of $266,000
for the three month period ended June 30, 2016 resulting in an effective tax rate of 37%. For the same period in 2015, the bank
recorded income tax expense of $256,000 with an effective tax rate of 41%. The decrease in the effective tax rate is due to additional
2015 taxes from writing off an expired net operating loss deduction and to the 2016 reduction of the North Carolina corporate tax
rate to 4%.
Discussion of Results of Operations
For the Six months ended June 30, 2016 and
2015
Net income for the six months ended June 30,
2016 was $874,000 compared to $536,000 for the six months ended June 30, 2015, an increase of $338,000. Net income available to
common shareholders (which includes the effect of preferred stock dividends) was $757,000 for the six months ended June 30, 2016
compared to $419,000 for the six months ended June 30, 2015, a $338,000 increase. Preferred stock dividends pertaining to the
$2.6 million of preferred stock outstanding were $117,000 for the six months ended June 30, 2016 and June 30, 2015. Diluted earnings
per common share was $0.16 for the six months ended June 30, 2016 compared to $0.09 for the six months ended June 30, 2015.
Net interest income for the six months ended
June 30, 2016, totaled $6,768,000 compared to $5,947,000 for the six months ended June 30, 2015. The Bank’s net interest
spread was approximately 3.83% and 4.06% for the six months ended June 30, 2016 and 2015, respectively. Net interest margin on
average interest earning assets was 3.97% and 4.18% for the six months ended June 30, 2016 and 2015, respectively. The decreases
in net interest spread and net interest margin were 0.23% and 0.21% respectively. The decreases in net interest spread and net
interest margin are due primarily to a lower yields on average earning assets.
The Bank recorded a recovery of provision for
loan losses of $80,000 for the six months ended June 30, 2016 and did not record any provision for loan losses for the six months
ended June 30, 2015. This change is the provision for loan losses is due to continued improved credit quality as non-performing
loans decreased. 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.
Non-interest income for the six months ended
June 30, 2016 and 2015 totaled $598,000 and $522,000, respectively. Overdraft fees increased $36,000 or 21.8% and interchange fee
income increased $43,000 or 24.6% due to the increase in the number of deposit accounts.
Non-interest expenses for the six months ended
June 30, 2016 and 2015 totaled $6,073,000 and $5,552,000, respectively. The $521,000 increase was due in part to a $218,000 or
6.8% increase in salaries and employee benefits as a result of merit increases and performance bonus increases. There was also
an increase of $202,000 in professional fees due to consulting expenses related to accounting services, audit fees, compliance
support, and strategic planning. Foreclosed asset expense also increased $99,000 due to an increase in impairment losses on foreclosed
property.
Item 4. - Controls and Procedures
As of the end of the period covered by this
report, the Bank carried out an evaluation, under the supervision and with the participation of the Bank’s management, including
the Bank’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Bank’s disclosure controls
and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Bank’s
Chief Executive Officer and Chief Financial Officer have concluded that the Bank’s disclosure controls and procedures are
effective. No change in the Bank’s internal control over financial reporting occurred during the Bank’s last fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the Bank’s internal control over financial
reporting.
Part II. OTHER INFORMATION
Item 6. Exhibits
|
Exhibit #
|
|
Description
|
|
|
|
|
|
10.1
|
|
Employment Agreement with E. Laws dated as of May 25, 2016 (incorporated by reference to Exhibit 10.1 of the Bank’s Amendment No. 1 to its Form 8-K filed on May 31, 2016 with the FDIC)
|
|
|
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)
|
|
|
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)
|
|
|
|
|
|
32
|
|
Section 1350 Certification
|
SIGNATURES
Under the requirements of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
CAROLINA TRUST BANK
|
|
|
|
|
|
Date: August 11, 2016
|
By:
|
/s/ Jerry L. Ocheltree
|
|
|
|
Jerry L. Ocheltree
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: August 11, 2016
|
By:
|
/s/ Edwin E. Laws
|
|
|
|
Edwin E. Laws
|
|
|
|
Executive Vice President and Chief Financial
Officer
|
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 13a-14(a)
I, Jerry L. Ocheltree, certify that:
|
|
1.
|
I have reviewed this report on Form 10-Q of Carolina Trust Bank;
|
|
|
|
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
|
|
|
|
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d – 15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the entity, particularly during the period in which this report is being prepared;
|
|
|
|
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and audit committee of the registrant’s
board of directors:
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize,
and report financial information; and
|
|
|
|
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
|
|
Date: August 11, 2016
|
|
|
|
|
|
|
By:
|
/s/ Jerry L. Ocheltree
|
|
|
|
President and Chief Executive Officer
|
|
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Rule 13a-14(a)
I, Edwin E. Laws, certify that:
|
|
1.
|
I have reviewed this report on Form 10-Q of Carolina Trust Bank;
|
|
|
|
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which statements were
made, not misleading with respect to the period covered by this report;
|
|
|
|
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report.
|
|
|
|
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d – 15(e) and internal control over
financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others
within the entity, particularly during the period in which this report is being prepared;
|
|
|
|
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
|
|
|
|
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and audit committee of the registrant’s
board of directors:
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize,
and report financial information; and
|
|
|
|
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
|
|
Date: August 11, 2016
|
|
|
|
|
|
|
By:
|
/s/ Edwin E. Laws
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
Exhibit 32
Section 1350 Certification
The undersigned hereby certifies that, to
his or her knowledge,
(i)
the Form 10-Q filed by Carolina Trust Bank (the “Issuer”) for the quarter ended June
30, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(ii)
the information contained in that report fairly presents, in all material respects, the financial condition and results of operations
of the Issuer on the dates and for the periods presented therein.
|
|
CAROLINA TRUST BANK
|
|
|
|
|
|
Date: August 11, 2016
|
By:
|
/s/ Jerry L. Ocheltree
|
|
|
|
Jerry L. Ocheltree
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: August 11, 2016
|
By:
|
/s/ Edwin E. Laws
|
|
|
|
Edwin E. Laws
|
|
|
|
Executive Vice President and
Chief Financial Officer
|
Carolina Trust Bank 8-K12G3
Exhibit 99.04
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 25, 2016
FDIC Certificate No. 57206
Carolina Trust Bank
|
North Carolina
|
56-2197865
|
|
(State of incorporation)
|
(I.R.S. Employer Identification No.)
|
901 East Main Street, Lincolnton, North
Carolina 28092
(Address of principal executive offices)
(Zip Code)
Issuer’s telephone number: (704)
735-1104
Check the appropriate box below if the Form 8-K filing
is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule
425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant
to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant
to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
This document contains 2 pages.
Item 2.02. Results of Operations and
Financial Condition
On January 25, 2016, Carolina Trust Bank
(the “Bank”) reported financial results for the fourth quarter of 2015 and for the year ended December 31, 2015.
Carolina Trust Bank
is a community bank that operates nine full service branches in Lincolnton, Lake Lure, Gastonia, Hickory, Forest City, Vale and
Denver, North Carolina. Our common stock is traded on the NASDAQ Capital Market under the symbol “CART.”
Item 9.01(d): Exhibits
Exhibit 99: Press release
Signatures
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Carolina Trust Bank
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Richard M. Rager
|
|
|
|
Richard M. Rager
|
|
|
|
Executive Vice President and
Chief Credit Officer
|
|
|
|
|
|
|
Date:
|
January 26, 2016
|
Exhibit
99
|
Carolina
Trust Bank
|
|
|
|
News
Release
|
|
|
For
Immediate Release
|
|
Contact
:
|
|
|
Jerry
L. Ocheltree
|
|
|
President
and CEO
|
|
|
Carolina
Trust Bank
|
|
|
(704)
735-1104
|
|
Carolina
Trust Bank Reports 2015 Profit Fueled by
19.5%
Loan Growth and 20% Deposit Growth
LINCOLNTON,
N.C., January 25, 2016 (GLOBE NEWSWIRE) -- Carolina Trust Bank (CART) announced today its financial results for the year ended
December 31, 2015 and reported the Bank earned net income available to common shareholders of $1,040,000, or $0.22 per diluted
common share, a reduction of $5,590,000 and 84% as compared to the year ended December 31, 2014. The Company’s net income
for 2014 included recognition of a tax benefit of $4,820,000 in the fourth quarter resulting from the Bank’s reversal of
its deferred tax asset valuation allowance. Pre-tax net income increased $46,000 or 2% for the year ended December 31, 2015 as
compared to the same prior year period. Before payment of dividends on preferred shares, the Bank earned $1,276,000 for the year
ended December 31, 2015. Return on average total assets was 0.40% and return on average shareholder’s equity was 4.18% for
the year ended December 31, 2015.
Jerry
L. Ocheltree, President and Chief Executive Officer stated, “
We are quite pleased with our financial results for 2015
which were fueled by strong loan and deposit growth resulting in a 13.6% increase in net interest income, increased noninterest
income and continued improvement in asset quality which resulted in a further reduction in our allowance for loan and lease loss
for the year.
”
Select
financial highlights for 2015:
|
|
●
|
2015
pre-tax earnings of $2,364,000, a 2% or $46,000 increase as compared to 2014.
|
|
|
●
|
Increase
in total loans outstanding of $47,717,000 or 19.5% over the prior year.
|
|
|
●
|
Increase
in total deposits outstanding of $47,618,000 or 20.0%.
|
|
|
●
|
Increase
in net interest income of $1,503,000 or 13.6% as compared to the prior year.
|
|
|
●
|
Total
nonperforming assets (“NPAs”) decreased $2,055,000 from $6,213,000 at December 31, 2014 to $4,158,000 at December
31, 2015. This resulted in an 88 basis point reduction in
|
|
|
|
the
Bank’s NPAs as a percentage of total assets, from 2.12% at December 31, 2014 to 1.24% at December 31, 2015.
|
|
|
●
|
The
Bank’s Allowance for Loan and Lease Losses (“ALLL”) to total loans decreased from 1.64% at December 31, 2014
to 1.27% at December 31, 2015 due to continued improved credit quality as demonstrated by the reduction in NPAs and charge-offs.
|
For
the three-month period ending December 31, 2015, the Bank earned net income available to common shareholders of $248,000 for the
fourth quarter 2015 or $0.05 per diluted common share, a reduction of $4,592,000 and 95% as compared to the fourth quarter of
2014, which was significantly impacted by the reversal of the deferred tax asset valuation allowance discussed earlier. Pre-tax
net income increased $188,000 or 52% for the fourth quarter of 2015. Before payment of dividends on preferred shares, the Bank
earned $307,000 for the fourth quarter of 2015. The quarter-to-date earnings produced an annualized return on average earning
assets of 0.37% and an annualized return on average shareholder’s equity of 3.99%.
STRONG
LOAN AND DEPOSIT GROWTH
At
December 31, 2015, the Company’s total assets were $333,981,000, total loans stood at $292,363,000, total deposits were
$284,794,000 and total shareholder’s equity was $30,718,000. Compared with December 31, 2014, total assets increased $40,714,000
or 13.9%, total loans increased $47,717,000 or 19.5%, total deposits increased $47,618,000 or 20.1% and total shareholder’s
equity increased $630,000 or 2.1%.
CAPITAL
LEVELS
Capital
for the Bank exceeded “well-capitalized” requirements for each of the four primary capital levels monitored by state
and federal regulators. As of December 31, 2015, Common equity tier 1 capital ratio was 8.77%; Tier 1 capital ratio was 9.18%;
Total capital ratio was 10.38%; and Tier 1 leverage ratio was 8.55%.
ASSET
QUALITY IMPROVEMENT
The
Bank’s NPAs decreased 4 basis points to 1.24% as compared to 1.28% at September 30, 2015; and decreased 88 basis points
from 2.12% of total assets reported at December 31, 2014. During the fourth quarter, nonaccrual loans increased $83,000 to $2,047,000
and foreclosed assets decreased $174,000 to $1,994,000. In comparison to the prior year, nonaccrual loans decreased $1,944,000
and foreclosed assets decreased $54,000.
The
Bank recorded a negative $100,000 provision for loan losses during the fourth quarter of 2015, as compared to a $0 provision for
the same period last year. Net charge-offs for the year ended December 31, 2015 totaled $9,074 in comparison to $35,863 for last
year.
The
ratio of allowance for loan and lease losses as a percentage of total loans decreased from 1.64% at December 31, 2014 and from
1.34% at September 30, 2015 to 1.27% at December 31, 2015. At December 31, 2015, the Bank’s total reserves amounted to $3,723,000;
of which $214,000 are specific reserves on impaired loans and $3,509,000 are general reserves to cover inherent risks in the loan
portfolio based on the current economic environment. Total reserves represented 182% of the non-accrual loan balances as of December
31, 2015 as compared to 100% reported at December 31, 2014.
NET
INTEREST INCOME IMPROVES YEAR OVER YEAR
Net
interest income was $12,594,000 for the year ended December 31, 2015, an increase of $1,503,000 or 13.6% compared to 2014. The
Bank’s net interest margin was 4.20%, down 13 basis points compared to the 4.33% reported for last year.
Net
interest income was $3,354,000 for the fourth quarter of 2015, an increase of 20.0% or $559,000 as compared to the fourth quarter
of 2014. The Bank’s net interest margin was 4.24%, up 4 basis points, as compared to the 4.20% reported for the fourth quarter
of 2014 and up 7 basis points as compared to the third quarter of 2015. The increase in net interest margin as compared to the
linked quarter is primarily due to a lower level of cash on hand in the fourth quarter of 2015.
NONINTEREST
INCOME
For
the year ended December 31, 2015, noninterest income was $1,151,000, a $155,000 or 15.6% increase when compared to the prior year.
The Bank experienced increases across the board in all categories of noninterest income.
NONINTEREST
EXPENSE
Noninterest
expense for the year ended December 31, 2015 totaled $11,651,000, up $1,802,000 or 18.3% as compared to the $9,849,000 recorded
for the year ended December 31, 2014. Specific items to note are as follows:
|
|
●
|
Compensation
expense increased $1.3 million in comparison to 2014 as the result of equity and merit increases for all employees, new production
oriented positions which contributed to the continued loan growth for the bank. As a result of the increased number of employees,
the bank also saw increases in performance bonuses, health insurance and 401(K) expense.
|
|
|
●
|
Equipment
and software costs increased $136,000 or 38.0% due to an improvement and enhancement of our corporate-wide network and telecommunications
infrastructure and new software tools.
|
|
|
●
|
Data
processing expense increased $71,000 or 12.9% due to increased customer transactions across all business lines.
|
|
|
●
|
Legal
& professional fees increased primarily due to consulting expenses related to strategic planning, compliance support, compensation,
and accounting services.
|
|
|
●
|
Marketing
expenses increased due to advertising campaigns surrounding mobile banking and new product initiatives.
|
|
|
●
|
Foreclosed
asset expense actually decreased year over year by $174,000 or 27.0%.
|
Ocheltree
commented, “
Managing noninterest expense is a key area of focus for senior management as we head into 2016. We have successfully
added experienced lenders in key markets and do not anticipate any significant increases in new personnel for 2016. Additionally,
the increased equipment and software costs were critical as we bring our infrastructure up to date with customer expectations.
We are pleased with the overall reduction in foreclosed asset expense as compared to last year, and we anticipate further reductions
as we continue to reduce the number of assets in that portfolio.
”
Other
Information
The
entire Carolina Trust Bank community is deeply saddened by the untimely death of Chief Financial Officer, Donald J. Boyer in late
December 2015. Ocheltree stated, “
Don was a great member of the Carolina Trust family who always made sound decisions
and who had a fantastic
relationship
with all of our employees. He will be greatly missed by his CTB family. Our prayers are with his family as they move forward in
this trying time.
”
About
Carolina Trust Bank
Carolina
Trust Bank is a full service state chartered bank headquartered in Lincolnton, N.C., operating nine full service branches in Lincoln,
Catawba, Gaston and Rutherford Counties in western North Carolina and a loan production office in Mooresville, N.C.
Forward-Looking
Statement
:
This news release contains forward-looking statements. Words such as “anticipates,” “
believes,” “estimates,” “expects,” “intends,” “should,” “will,”
variations of such words and similar expressions are intended to identify forward-looking statements. These statements reflect
management’s current beliefs as to the expected outcomes of future events and are not guarantees of future performance.
These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Factors that could cause a difference include, among others: changes in the national
and local economies or market conditions; changes in interest rates, deposit flows, loan demand and asset quality, including real
estate and other collateral values; changes in banking regulations and accounting principles, policies or guidelines; and the
impact of competition from traditional or new sources. These and other factors that may emerge could cause decisions and actual
results to differ materially from current expectations. Carolina Trust Bank takes no obligation to revise, update, or clarify
forward-looking statements to reflect events or conditions after the date of this release.
Carolina
Trust Bank
Selected
Financial Highlights
Dollars
in thousands, except per share data
|
|
|
Unaudited
|
|
Audited
|
|
|
|
12/31/15
|
|
9/30/15
|
|
6/30/15
|
|
3/31/15
|
|
12/31/14
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
333,981
|
|
|
$
|
332,359
|
|
|
$
|
333,414
|
|
|
$
|
305,545
|
|
|
$
|
293,267
|
|
|
Total Deposits
|
|
$
|
284,794
|
|
|
$
|
285,385
|
|
|
$
|
276,183
|
|
|
$
|
259,711
|
|
|
$
|
237,176
|
|
|
Total Loans
|
|
$
|
292,363
|
|
|
$
|
286,469
|
|
|
$
|
278,305
|
|
|
$
|
257,919
|
|
|
$
|
244,646
|
|
|
Reserve for Loan Loss
|
|
$
|
3,723
|
|
|
$
|
3,825
|
|
|
$
|
3,886
|
|
|
$
|
3,954
|
|
|
$
|
4,002
|
|
|
Total Shareholders’ Equity
|
|
$
|
30,718
|
|
|
$
|
30,547
|
|
|
$
|
30,111
|
|
|
$
|
30,189
|
|
|
$
|
30,088
|
|
|
|
|
For the Year Ended
|
|
|
|
Unaudited 12/31/15
|
|
Audited 12/31/14
|
|
Variance
$
|
|
Variance
%
|
|
Income and Per Share Data:
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
14,905
|
|
|
$
|
13,042
|
|
|
$
|
1,863
|
|
|
|
14.3
|
%
|
|
Interest Expense
|
|
|
2,311
|
|
|
|
1,951
|
|
|
|
360
|
|
|
|
18.5
|
%
|
|
Net Interest Income
|
|
|
12,594
|
|
|
|
11,091
|
|
|
|
1,503
|
|
|
|
13.6
|
%
|
|
Provision for (recovery of) Loan Loss
|
|
|
(270
|
)
|
|
|
(80
|
)
|
|
|
(190
|
)
|
|
|
237.5
|
%
|
|
Net Interest Income After Provision
|
|
|
12,864
|
|
|
|
11,171
|
|
|
|
1,693
|
|
|
|
15.2
|
%
|
|
Non-interest income
|
|
|
1,151
|
|
|
|
996
|
|
|
|
155
|
|
|
|
15.65
|
|
|
Non-interest expense
|
|
|
11,651
|
|
|
|
9,849
|
|
|
|
1,802
|
|
|
|
18.3
|
%
|
|
Income Before Taxes
|
|
|
2,364
|
|
|
|
2,318
|
|
|
|
46
|
|
|
|
2.0
|
%
|
|
Income Tax Expense (benefit)
|
|
|
1,088
|
|
|
|
(4,539
|
)
|
|
|
5,627
|
|
|
|
(124.0
|
%)
|
|
Net Income
|
|
|
1,276
|
|
|
|
6,857
|
|
|
|
(5,581
|
)
|
|
|
(81.4
|
%)
|
|
Preferred Stock Dividend
|
|
|
236
|
|
|
|
227
|
|
|
|
9
|
|
|
|
4.0
|
%
|
|
Net Income Available to Common Shareholders
|
|
$
|
1,040
|
|
|
$
|
6,630
|
|
|
$
|
(5,590
|
)
|
|
|
(84.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,645,408
|
|
|
|
4,635,096
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
4,731,768
|
|
|
|
4,678,108
|
|
|
|
|
|
|
|
|
|
Carolina Trust Bank
Quarterly
Income Statement
Dollars
in thousands, except per share data
|
|
|
For
the three months ended:
|
|
Income
and Per Share Data:
|
|
Unaudited
12/31/15
|
|
Unaudited
9/30/15
|
|
Unaudited
6/30/15
|
|
Unaudited
3/31/15
|
|
Audited
12/31/14
|
|
Interest
Income
|
|
$
|
3,955
|
|
|
$
|
3,891
|
|
|
$
|
3,647
|
|
|
$
|
3,412
|
|
|
$
|
3,293
|
|
|
Interest
Expense
|
|
|
601
|
|
|
|
599
|
|
|
|
576
|
|
|
|
535
|
|
|
|
498
|
|
|
Net
Interest Income
|
|
|
3,354
|
|
|
|
3,292
|
|
|
|
3,071
|
|
|
|
2,877
|
|
|
|
2,795
|
|
|
Provision
for (recovery of) Loan Loss
|
|
|
(100
|
)
|
|
|
(170
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Net
Interest Income After Provision
|
|
|
3,454
|
|
|
|
3,462
|
|
|
|
3,071
|
|
|
|
2,877
|
|
|
|
2,795
|
|
|
Non-interest
income
|
|
|
311
|
|
|
|
300
|
|
|
|
304
|
|
|
|
236
|
|
|
|
275
|
|
|
Non-interest
expense
|
|
|
3,217
|
|
|
|
2,864
|
|
|
|
2,758
|
|
|
|
2,812
|
|
|
|
2,710
|
|
|
Income
Before Taxes
|
|
|
548
|
|
|
|
898
|
|
|
|
617
|
|
|
|
301
|
|
|
|
360
|
|
|
Income
Tax Expense (benefit)
|
|
|
241
|
|
|
|
466
|
|
|
|
256
|
|
|
|
125
|
|
|
|
(4,539
|
)
|
|
Net
Income
|
|
|
307
|
|
|
|
432
|
|
|
|
361
|
|
|
|
176
|
|
|
|
4,899
|
|
|
Preferred
Stock Dividend
|
|
|
59
|
|
|
|
59
|
|
|
|
59
|
|
|
|
59
|
|
|
|
59
|
|
|
Net
Income Available to Common Shareholders
|
|
$
|
248
|
|
|
$
|
373
|
|
|
$
|
302
|
|
|
$
|
117
|
|
|
$
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
1.04
|
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
1.04
|
|
|
Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,645,997
|
|
|
|
4,645,975
|
|
|
|
4,645,975
|
|
|
|
4,643,666
|
|
|
|
4,635,215
|
|
|
Diluted
|
|
|
4,718,669
|
|
|
|
4,721,188
|
|
|
|
4,685,122
|
|
|
|
4,680,116
|
|
|
|
4,669,888
|
|
Carolina
Trust Bank
Selected
Financial Highlights
Dollars
in thousands, except per share data
|
|
|
12/31/15
|
|
9/30/15
|
|
6/30/15
|
|
3/31/15
|
|
12/31/14
|
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio
|
|
|
8.77
|
%
|
|
|
8.67
|
%
|
|
|
7.77
|
%
|
|
|
8.07
|
%
|
|
|
N/A
|
|
|
Tier 1 capital ratio
|
|
|
9.18
|
%
|
|
|
8.78
|
%
|
|
|
8.62
|
%
|
|
|
9.00
|
%
|
|
|
9.77
|
%
|
|
Total capital ratio
|
|
|
10.38
|
%
|
|
|
10.03
|
%
|
|
|
9.88
|
%
|
|
|
10.25
|
%
|
|
|
11.03
|
%
|
|
Tier 1 leverage ratio
|
|
|
8.55
|
%
|
|
|
8.12
|
%
|
|
|
8.28
|
%
|
|
|
8.53
|
%
|
|
|
9.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible Common Equity
|
|
$
|
27,964
|
|
|
$
|
27,778
|
|
|
$
|
27,304
|
|
|
$
|
27,385
|
|
|
$
|
26,965
|
|
|
Common Shares Outstanding
|
|
|
4,646,225
|
|
|
|
4,645,975
|
|
|
|
4,645,975
|
|
|
|
4,645,755
|
|
|
|
4,635,422
|
|
|
Book Value per Common Share
|
|
$
|
6.02
|
|
|
$
|
5.98
|
|
|
$
|
5.88
|
|
|
$
|
5.89
|
|
|
$
|
5.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios (annualized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets (%)
|
|
|
0.37
|
%
|
|
|
0.51
|
%
|
|
|
0.46
|
%
|
|
|
0.24
|
%
|
|
|
7.35
|
%
|
|
Return on Average Equity (%)
|
|
|
3.99
|
%
|
|
|
5.58
|
%
|
|
|
4.74
|
%
|
|
|
2.35
|
%
|
|
|
78.68
|
%
|
|
Net Interest Margin (%)
|
|
|
4.24
|
%
|
|
|
4.17
|
%
|
|
|
4.18
|
%
|
|
|
4.19
|
%
|
|
|
4.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent Loans (30-89 days accruing interest)
|
|
$
|
1,141
|
|
|
$
|
2,667
|
|
|
$
|
2,119
|
|
|
$
|
2,813
|
|
|
$
|
2,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent Loans (90 days or more and accruing)
|
|
$
|
117
|
|
|
$
|
115
|
|
|
$
|
114
|
|
|
$
|
112
|
|
|
$
|
174
|
|
|
Non-accrual Loans
|
|
$
|
2,047
|
|
|
$
|
1,964
|
|
|
$
|
3,221
|
|
|
$
|
3,450
|
|
|
$
|
3,991
|
|
|
OREO and repossessed property
|
|
$
|
1,994
|
|
|
$
|
2,168
|
|
|
$
|
2,331
|
|
|
$
|
2,328
|
|
|
$
|
2,048
|
|
|
Total Nonperforming Assets
|
|
$
|
4,158
|
|
|
$
|
4,247
|
|
|
$
|
5,666
|
|
|
$
|
5,890
|
|
|
$
|
6,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured Loans
|
|
$
|
4,872
|
|
|
$
|
4,788
|
|
|
$
|
4,338
|
|
|
$
|
4,436
|
|
|
$
|
4,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Assets / Total Assets
|
|
|
1.24
|
%
|
|
|
1.28
|
%
|
|
|
1.70
|
%
|
|
|
1.93
|
%
|
|
|
2.12
|
%
|
|
Nonperforming Assets / Equity Capital & ALLL
|
|
|
12.07
|
%
|
|
|
12.36
|
%
|
|
|
16.67
|
%
|
|
|
17.25
|
%
|
|
|
18.38
|
%
|
|
Allowance for Loan Losses / Nonperforming Assets
|
|
|
89.55
|
%
|
|
|
90.06
|
%
|
|
|
68.58
|
%
|
|
|
67.13
|
%
|
|
|
64.41
|
%
|
|
Allowance for Loan Losses / Total Loans
|
|
|
1.27
|
%
|
|
|
1.34
|
%
|
|
|
1.40
|
%
|
|
|
1.53
|
%
|
|
|
1.64
|
%
|
|
Net Loan Charge-offs (recoveries)
|
|
$
|
(4
|
)
|
|
$
|
(108
|
)
|
|
$
|
68
|
|
|
$
|
48
|
|
|
$
|
162
|
|
|
Net Loan Charge-offs / Average Loans (%)
|
|
|
0.00
|
%
|
|
|
(0.04
|
%)
|
|
|
0.03
|
%
|
|
|
0.02
|
%
|
|
|
0.07
|
%
|
Note: Financial information is unaudited.
Carolina Trust Bank 8-K12G3
Exhibit 99.05
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: March 23, 2016
FDIC Certificate No. 57206
Carolina Trust Bank
|
North Carolina
|
56-2197865
|
|
(State of incorporation)
|
(I.R.S. Employer Identification No.)
|
901 East Main Street, Lincolnton, North
Carolina 28092
(Address of principal executive offices)
(Zip Code)
Issuer’s telephone number: (704)
735-1104
Check the appropriate box below if the Form 8-K filing
is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant
to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant
to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Explanatory Note
This Amendment No. 1 on Form 8-K/A (this
“Form 8-K/A”) is an amendment to the Current Report of Form 8-K of Carolina Trust Bank, dated January 26, 2016 (the
“Original Form 8-K”). This Form 8-K/A is intended to furnish revised unaudited financial results for the year ended
December 31, 2015.
This Form 8-K/A amends and restates in
its entirety Items 2.02 and 9.01 of the Original Form 8-K. No other changes were made to the Original Form 8-K.
Item 2.02. Results of Operations and
Financial Condition
On March 23, 2016, Carolina Trust Bank
(the “Bank”) announced that it revised its previously announced unaudited financial results for the year ended December
31, 2015 and reported the Bank earned net income available to common shareholders of $824,000, or $0.18 per diluted common share,
in comparison to unaudited results of $1,042,000, or $0.22 per diluted common share, originally reported on January 25, 2016.
Carolina Trust Bank
is a community bank that operates nine full service branches in Lincolnton, Lake Lure, Gastonia, Hickory, Forest City, Vale and
Denver, North Carolina. The Bank’s common stock is traded on the NASDAQ Capital Market under the symbol “CART.”
This information contained in Item 2.02
of this Form 8-K/A shall not be deemed “filed” for purposes of section 18 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended,
or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01(d): Exhibits
Exhibit
99: Press release dated March 23, 2016
Signatures
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Carolina Trust Bank
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Jerry L. Ocheltree
|
|
|
|
Jerry L. Ocheltree
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
Date:
|
March 23, 2016
|
Exhibit 99
Carolina Trust Bank
News Release
For Immediate Release
Contact
:
Jerry L. Ocheltree
President and CEO
Carolina Trust Bank
(704) 735-1104
Carolina Trust Bank Revises
2015 Financial Statements
LINCOLNTON, N.C., March 23, 2016 (GLOBE NEWSWIRE) – Carolina
Trust Bank (Nasdaq: CART) announced today that it revised its unaudited financial results for the year ended December 31, 2015
and reported the Bank earned net income available to common shareholders of $824,000 or $0.18 per diluted common share in comparison
to unaudited results of $1,042,000 or $0.22 per diluted common share originally reported on January 25, 2016. Before payment of
dividends on preferred shares, the Bank earned $1,058,000 in comparison to the $1,276,000 previously reported for the year ended
December 31, 2015. The revised financial statements are primarily the result of a change in the discount rate used to account for
the Bank’s Supplemental Retirement Plan (“SERP”) as well as the write-off of an expired net operating loss carry
forward relating to the Carolina Commerce Bank acquisition in the Bank’s deferred tax asset balance as of December 31, 2015.
Complete financial results for the year ended December 31, 2015 are reported in the Bank’s Form 10-K and Annual Report that
were filed today.
A copy of the Bank’s Form 10-K and Annual Report may be obtained
by contacting the FDIC in writing at FDIC, Accounting and Securities Disclosure Section, 550 17th Street, NW, Washington, DC 20429,
or by email at PublicBankReports@FDIC.gov.
About Carolina Trust Bank
Carolina Trust Bank is a full service state
chartered bank headquartered in Lincolnton, N.C., operating nine full service branches in Lincoln, Catawba, Gaston and Rutherford
Counties in western North Carolina and a loan production office in Mooresville, N.C.
Carolina Trust Bank 8-K12G3
Exhibit
99.06
FEDERAL
DEPOSIT INSURANCE CORPORATION
Washington,
D.C. 20429
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (date of earliest date reported): March 23, 2016
FDIC
Certificate No. 57206
Carolina
Trust Bank
|
North
Carolina
|
|
56-2197865
|
|
(State
of incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
901
East Main Street, Lincolnton, North Carolina 28092
(Address
of principal executive offices) (Zip Code)
Issuer’s
telephone number:
(704) 735-1104
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
|
|
[ ]
|
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
|
|
|
|
|
[ ]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Item
5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers
On
March 23, 2016, Carolina Trust Bank (the “Bank”) appointed Edwin E. Laws as executive vice president and chief financial
officer of the Bank. Mr. Laws (age 56) is a North Carolina-licensed certified public accountant and most recently served since
2010 in the role of senior vice president in the finance department at First Bank, a North Carolina-chartered bank with approximately
$3.4 billion in assets. Mr. Laws previously served from July 2006 until September 2009 as executive vice president and chief financial
officer of Yadkin Valley Financial Corporation (now known as Yadkin Financial Corporation), a publicly-traded bank holding company
that was then headquartered in Elkin, North Carolina. Prior to such time, he was chief financial officer of Yadkin’s subsidiary
bank since August 2002.
Mr.
Laws’ base salary will be $142,000 per annum, with a bonus potential of up to 25% of his annual salary. He will be entitled
to participate in the Bank’s benefit plans available to similarly situated employees and will be eligible for up to 30 days
of paid-time off. The Bank expects to enter into an employment agreement with Mr. Laws containing similar terms to those contained
in existing agreements with the Bank’s other executives; however, the exact terms of the employment agreement have not been
finalized as of the date of this filing.
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
Carolina
Trust Bank
|
|
|
|
|
|
|
By:
|
/s/
Jerry L. Ocheltree
|
|
|
|
Jerry
L. Ocheltree
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
Date:
|
March
24, 2016
|
Carolina Trust Bank 8-K12G3
Exhibit
99.07
FEDERAL
DEPOSIT INSURANCE CORPORATION
Washington,
D.C. 20429
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (date of earliest event reported): April 28, 2016
FDIC
Certificate No. 57206
Carolina
Trust Bank
|
North
Carolina
|
56-2197865
|
|
(State
of incorporation)
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
901
East Main Street, Lincolnton, North Carolina 28092
|
|
(Address
of principal executive offices) (Zip Code)
|
|
|
|
Issuer’s
telephone number:
(704) 735-1104
|
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
|
|
[ ]
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
|
|
|
|
|
[ ]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Item
2.02. Results of Operations and Financial Condition
.
On
April 28, 2016, Carolina Trust Bank (the “Bank”) issued a news release to furnish its financial results for the three
months ended March 31, 2016. The Bank’s news release is attached hereto as Exhibit 99.1.
Item
9.01 Financial Statements and Exhibits.
(d)
Exhibits
Exhibit
99.1 – Press release dated April 28, 2016
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
Carolina
Trust Bank
|
|
|
|
|
|
|
By:
|
/s/
Edwin E. Laws
|
|
|
|
Edwin
E. Laws
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
Date:
|
April
29, 2016
|
Exhibit
99.1
Carolina
Trust Bank
News
Release
For
Immediate Release
Contact
:
Jerry
L. Ocheltree
President
and CEO
Carolina
Trust Bank
(704)
735-1104
Carolina
Trust Bank Reports First Quarter 2016
Earnings
of $0.08 per Share
LINCOLNTON,
N.C., April 28, 2016 (GLOBE NEWSWIRE) -- Carolina Trust Bank (NASDAQ - CART) announced today its financial results for the first
quarter that ended March 31, 2016 (“1Q 2016”). The Bank earned net income of $417,000 in 1Q 2016 as compared to $175,000
for the same period in 2015 (“1Q 2015”). After deducting the preferred stock dividends, net income available to common
stockholders was $358,000 and $117,000, respectively, for 1Q 2016 as compared to 1Q 2015. The increases in net income and net
income available to common stockholders were 138% and 206%, respectively, from 1Q 2015 to 1Q 2016. Diluted earnings per share
for the first quarter were $0.08, as compared to $0.03 for the same period last year. Return on average total assets was 0.48%,
and return on average shareholder’s equity was 5.08% for 1Q 2016.
The
earnings increase was driven primarily by loan growth. Average loans for the 1Q 2016 of approximately $294 million were 18% higher
than average loans for 1Q 2015 of approximately $250 million. Earnings were also impacted by an $80,000 recovery of prior loan
loss provisions for 1Q 2016 as compared to zero loan loss provision in 1Q 2015.
Jerry
L. Ocheltree, President and Chief Executive Officer stated, “
We are pleased to report a successful first quarter of 2016,
highlighted by earnings and loan growth. Our loan portfolio grew by $5.4 million in the first quarter, an annualized increase
of 7.4%. In addition we improved liquidity and added to our securities portfolio. Our branch employees worked hard to fund the
asset growth with core deposits. Non-interest bearing deposits grew by $5.4 million and interest-bearing checking and money market
accounts by $7.8 million. We continue to focus on earning assets,core deposits, profitability, and consistently serving our customers
well.
”
Select
financial highlights for the quarter ended March 31, 2016:
|
|
●
|
Pre-tax
earnings of $650,000, an increase of $350,000 or 117% compared to 1Q 2015.
|
|
|
●
|
Increase
in total loans outstanding of $5,384,000 or 7.4%, annualized, from the balance at December 31, 2015
|
|
|
●
|
Increase
in deposits of $35,895,000 or 50.7%, annualized, from December 31, 2015. Excluding time deposits obtained from institutional shareholders,
the deposit growth was $14,442,000 or 23.4%, annualized.
|
|
|
●
|
Increase
in net interest income of $513,000 or 17.8% as compared to 1Q 2015.
|
|
|
●
|
Total
nonperforming assets (“NPAs”) decreased $258,000 from $4,158,000 at December 31, 2014 to $3,900,000 at March 31, 2016.
This resulted in a 19 basis point reduction in the Bank’s NPAs as a percentage of total assets, from 1.24% at December 31,
2015 to 1.05% at March 31, 2016.
|
|
|
●
|
The
Bank’s Allowance for Loan and Lease Losses (“ALLL”) to total loans decreased from 1.27% at December 31, 2015
to 1.18% at March 31, 2016 due to continued improved credit quality as NPAs decreased, and quarterly net charge-offs to average
loans remained below 0.20%, annualized.
|
CAPITAL
LEVELS
Capital
for the Bank exceeded “well-capitalized” requirements for each of the four primary capital levels monitored by state
and federal regulators. As of March 31, the common equity tier 1 capital ratio was 8.60%; the tier 1 capital ratio was 9.17%;
the total capital ratio was 10.30%; and the tier 1 leverage ratio was 8.27%.
NET
INTEREST INCOME IMPROVES YEAR OVER YEAR
Net
interest income was $3,389,000 for the quarter ended March 31, 2016, an increase of $513,000 or 17.8% compared to 1Q 2015. The
Bank’s net interest margin for 1Q 2016 was 4.11%, down 8 basis points compared to the 4.19% reported for the same period
last year. The slight margin compression was due primarily to a shift in the mix of average assets from loans and investments
to overnight funds.
NONINTEREST
INCOME
For
the first quarter of 2016, noninterest income was $286,000, a $58,000 increase or 25.4% when compared to 1Q 2015. The Bank experienced
increases in overdraft fees, card interchange fees, and mortgage fee income.
|
|
●
|
The
ratio of noninterest income to average assets was 0.33%, annualized, as compared to 0.31% a year ago.
|
NONINTEREST
EXPENSE
Noninterest
expense for 1Q 2016 totaled $3,105,000, up $301,000 or 10.7% as compared to the $2,804,000 recorded for 1Q 2015. Specific items
to note are as follows:
|
|
●
|
Compensation
expense increased $128,000 in comparison to 2015 as the result of equity and merit increases for all employees, new production
oriented positions which contributed to the continued loan growth for the bank. As a result of the increased number of employees,
the bank also saw increases in performance bonuses, health insurance and 401(K) expense.
|
|
|
●
|
Occupancy
expense remained nearly flat at $217,000, increasing by only $1,000.
|
|
|
●
|
Data
processing expense increased $13,000 or 8.0% due to increased customer transactions across all business lines.
|
|
|
●
|
Professional
fees increased $161,000 or 278% primarily due to consulting expenses related to accounting services, audit fees, compliance support,
and strategic planning.
|
|
|
●
|
The
ratio of noninterest expenses to average assets was 3.57%, as compared to 3.81% a year ago.
|
About
Carolina Trust Bank
Carolina
Trust Bank is a full service state chartered bank headquartered in Lincolnton, N.C., operating nine full service branches in Lincoln,
Catawba, Gaston and Rutherford Counties in western North Carolina and a loan production office in Mooresville, N.C.
Forward-Looking
Statement
:
This news release contains forward-looking statements. Words such as “anticipates,” “
believes,” “estimates,” “expects,” “intends,” “should,” “will,”
variations of such words and similar expressions are intended to identify forward-looking statements. These statements reflect
management’s current beliefs as to the expected outcomes of future events and are not guarantees of future performance.
These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Factors that could cause a difference include, among others: changes in the national
and local economies or market conditions; changes in interest rates, deposit flows, loan demand and asset quality, including real
estate and other collateral values; changes in banking regulations and accounting principles, policies or guidelines; and the
impact of competition from traditional or new sources. These and other factors that may emerge could cause decisions and actual
results to differ materially from current expectations. Carolina Trust Bank takes no obligation to revise, update, or clarify
forward-looking statements to reflect events or conditions after the date of this release.
Carolina
Trust Bank
Selected
Financial Highlights
Dollars
in thousands, except per share data
|
|
|
Unaudited
3/31/16
|
|
(a)
12/31/15
|
|
Unaudited
9/30/15
|
|
Unaudited
6/30/15
|
|
Unaudited
3/31/15
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
372,746
|
|
|
$
|
334,049
|
|
|
$
|
332,359
|
|
|
$
|
333,414
|
|
|
$
|
305,545
|
|
|
Total
Deposits
|
|
|
320,689
|
|
|
|
284,794
|
|
|
|
285,385
|
|
|
|
276,183
|
|
|
|
259,711
|
|
|
Total
Loans
|
|
|
297,746
|
|
|
|
292,362
|
|
|
|
286,469
|
|
|
|
278,305
|
|
|
|
257,919
|
|
|
Reserve
for Loan Loss
|
|
|
3,521
|
|
|
|
3,723
|
|
|
|
3,825
|
|
|
|
3,886
|
|
|
|
3,954
|
|
|
Total
Stockholders’ Equity
|
|
|
31,043
|
|
|
|
30,464
|
|
|
|
30,548
|
|
|
|
30,111
|
|
|
|
30,189
|
|
|
|
|
For
the Three Months Ended
|
|
|
|
Unaudited
3/31/16
|
|
Unaudited
3/31/15
|
|
Variance
$
|
|
Variance
%
|
|
Income
and Per Share Data:
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
$
|
4,027
|
|
|
$
|
3,411
|
|
|
$
|
616
|
|
|
|
18.1
|
%
|
|
Interest
Expense
|
|
|
638
|
|
|
|
535
|
|
|
|
103
|
|
|
|
19.3
|
%
|
|
Net
Interest Income
|
|
|
3,389
|
|
|
|
2,876
|
|
|
|
513
|
|
|
|
13.6
|
%
|
|
Provision
for (recovery of) Loan Loss
|
|
|
(80
|
)
|
|
|
0
|
|
|
|
(80
|
)
|
|
|
NM
|
|
|
Net
Interest Income After Provision
|
|
|
3,469
|
|
|
|
2,876
|
|
|
|
593
|
|
|
|
20.6
|
%
|
|
Non-interest
income
|
|
|
286
|
|
|
|
228
|
|
|
|
58
|
|
|
|
25.4
|
%
|
|
Non-interest
expense
|
|
|
3,105
|
|
|
|
2,804
|
|
|
|
301
|
|
|
|
10.7
|
%
|
|
Income
Before Taxes
|
|
|
650
|
|
|
|
300
|
|
|
|
350
|
|
|
|
116.7
|
%
|
|
Income
Tax Expense (benefit)
|
|
|
233
|
|
|
|
125
|
|
|
|
108
|
|
|
|
86.4
|
%
|
|
Net
Income
|
|
|
417
|
|
|
|
175
|
|
|
|
242
|
|
|
|
138.3
|
%
|
|
Preferred
Stock Dividend
|
|
|
59
|
|
|
|
58
|
|
|
|
1
|
|
|
|
1.7
|
%
|
|
Net
Income Available to Common Shareholders
|
|
$
|
358
|
|
|
$
|
117
|
|
|
$
|
241
|
|
|
|
206.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,649,558
|
|
|
|
4,643,666
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
4,697,539
|
|
|
|
4,680,116
|
|
|
|
|
|
|
|
|
|
(a)
Note: Derived from audited financial statements
Carolina
Trust Bank
Quarterly
Income Statement
Dollars
in thousands, except per share data
|
|
|
For
the three months ended:
|
|
Income
and Per Share Data:
|
|
Unaudited
3/31/16
|
|
Unaudited
12/31/15
|
|
Unaudited
9/30/15
|
|
Unaudited
6/30/15
|
|
Unaudited
3/31/15
|
|
Interest
Income
|
|
$
|
4,027
|
|
|
$
|
3,956
|
|
|
$
|
3,891
|
|
|
$
|
3,647
|
|
|
$
|
3,411
|
|
|
Interest
Expense
|
|
|
638
|
|
|
|
601
|
|
|
|
599
|
|
|
|
576
|
|
|
|
535
|
|
|
Net
Interest Income
|
|
|
3,389
|
|
|
|
3,355
|
|
|
|
3,292
|
|
|
|
3,071
|
|
|
|
2,876
|
|
|
Provision
for (recovery of) Loan Loss
|
|
|
(80
|
)
|
|
|
(100
|
)
|
|
|
(170
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Net
Interest Income After Provision
|
|
|
3,469
|
|
|
|
3,455
|
|
|
|
3,462
|
|
|
|
3,071
|
|
|
|
2,876
|
|
|
Non-interest
income
|
|
|
286
|
|
|
|
304
|
|
|
|
284
|
|
|
|
293
|
|
|
|
228
|
|
|
Non-interest
expense
|
|
|
3,105
|
|
|
|
3,352
|
|
|
|
2,848
|
|
|
|
2,747
|
|
|
|
2,804
|
|
|
Income
Before Taxes
|
|
|
650
|
|
|
|
407
|
|
|
|
898
|
|
|
|
617
|
|
|
|
300
|
|
|
Income
Tax Expense (benefit)
|
|
|
233
|
|
|
|
316
|
|
|
|
467
|
|
|
|
256
|
|
|
|
125
|
|
|
Net
Income
|
|
|
417
|
|
|
|
91
|
|
|
|
431
|
|
|
|
361
|
|
|
|
175
|
|
|
Preferred
Stock Dividend
|
|
|
59
|
|
|
|
58
|
|
|
|
59
|
|
|
|
59
|
|
|
|
58
|
|
|
Net
Income Available to Common Shareholders
|
|
$
|
358
|
|
|
$
|
33
|
|
|
$
|
372
|
|
|
$
|
302
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,649,558
|
|
|
|
4,645,997
|
|
|
|
4,645,975
|
|
|
|
4,645,963
|
|
|
|
4,643,666
|
|
|
Diluted
|
|
|
4,697,539
|
|
|
|
4,692,203
|
|
|
|
4,721,188
|
|
|
|
4,685,122
|
|
|
|
4,680,116
|
|
Carolina
Trust Bank
Selected
Financial Highlights
Dollars
in thousands, except per share data
|
|
|
3/31/16
|
|
12/31/15
|
|
9/30/15
|
|
6/30/15
|
|
3/31/15
|
|
Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
Common
equity tier 1 capital ratio
|
|
|
8.59
|
%
|
|
|
8.67
|
%
|
|
|
8.63
|
%
|
|
|
7.77
|
%
|
|
|
8.07
|
%
|
|
Tier
1 capital ratio
|
|
|
9.16
|
%
|
|
|
9.10
|
%
|
|
|
8.74
|
%
|
|
|
8.62
|
%
|
|
|
9.00
|
%
|
|
Total
capital ratio
|
|
|
10.29
|
%
|
|
|
10.30
|
%
|
|
|
10.00
|
%
|
|
|
9.88
|
%
|
|
|
10.25
|
%
|
|
Tier
1 leverage ratio
|
|
|
8.27
|
%
|
|
|
8.48
|
%
|
|
|
8.09
|
%
|
|
|
8.28
|
%
|
|
|
8.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
Common Equity (b)
|
|
$
|
28,304
|
|
|
$
|
27,710
|
|
|
$
|
27,778
|
|
|
$
|
27,324
|
|
|
$
|
27,385
|
|
|
Common
Shares Outstanding
|
|
|
4,649,558
|
|
|
|
4,646,225
|
|
|
|
4,645,975
|
|
|
|
4,645,975
|
|
|
|
4,645,755
|
|
|
Book
Value per Common Share
|
|
$
|
6.12
|
|
|
$
|
6.00
|
|
|
$
|
6.02
|
|
|
$
|
5.93
|
|
|
$
|
5.94
|
|
|
Tangible
Book Value per Common Share (b)
|
|
$
|
6.09
|
|
|
$
|
5.96
|
|
|
$
|
5.98
|
|
|
$
|
5.88
|
|
|
$
|
5.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Ratios (annualized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on Average Assets
|
|
|
0.48
|
%
|
|
|
0.11
|
%
|
|
|
0.51
|
%
|
|
|
0.46
|
%
|
|
|
0.24
|
%
|
|
Return
on Average Common Equity
|
|
|
5.08
|
%
|
|
|
0.50
|
%
|
|
|
5.27
|
%
|
|
|
4.34
|
%
|
|
|
1.71
|
%
|
|
Net
Interest Margin
|
|
|
4.11
|
%
|
|
|
4.24
|
%
|
|
|
4.17
|
%
|
|
|
4.18
|
%
|
|
|
4.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent
Loans (30-89 days accruing interest)
|
|
$
|
588
|
|
|
$
|
1,141
|
|
|
$
|
2,667
|
|
|
$
|
2,119
|
|
|
$
|
2,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent
Loans (90 days or more and accruing)
|
|
$
|
0
|
|
|
$
|
117
|
|
|
$
|
115
|
|
|
$
|
114
|
|
|
$
|
112
|
|
|
Non-accrual
Loans
|
|
$
|
2,100
|
|
|
$
|
2,047
|
|
|
$
|
1,964
|
|
|
$
|
3,221
|
|
|
$
|
3,450
|
|
|
OREO
and repossessed property
|
|
$
|
1,800
|
|
|
$
|
1,994
|
|
|
$
|
2,168
|
|
|
$
|
2,331
|
|
|
$
|
2,328
|
|
|
Total
Nonperforming Assets
|
|
$
|
3,900
|
|
|
$
|
4,158
|
|
|
$
|
4,247
|
|
|
$
|
5,666
|
|
|
$
|
5,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured
Loans
|
|
$
|
4,807
|
|
|
$
|
4,853
|
|
|
$
|
4,788
|
|
|
$
|
4,338
|
|
|
$
|
4,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
Assets / Total Assets
|
|
|
1.05
|
%
|
|
|
1.24
|
%
|
|
|
1.28
|
%
|
|
|
1.70
|
%
|
|
|
1.93
|
%
|
|
Nonperforming
Assets / Equity Capital & ALLL
|
|
|
11.28
|
%
|
|
|
12.16
|
%
|
|
|
12.36
|
%
|
|
|
16.67
|
%
|
|
|
17.25
|
%
|
|
Allowance
for Loan Losses / Nonperforming Assets
|
|
|
90.28
|
%
|
|
|
89.55
|
%
|
|
|
90.06
|
%
|
|
|
68.58
|
%
|
|
|
67.13
|
%
|
|
Allowance
for Loan Losses / Total Loans
|
|
|
1.18
|
%
|
|
|
1.27
|
%
|
|
|
1.34
|
%
|
|
|
1.40
|
%
|
|
|
1.53
|
%
|
|
Net
Loan Charge-offs (recoveries)
|
|
$
|
122
|
|
|
$
|
1
|
|
|
($
|
108
|
)
|
|
$
|
68
|
|
|
$
|
48
|
|
|
Net
Loan Charge-offs / Average Loans (%)
|
|
|
0.17
|
%
|
|
|
0.00
|
%
|
|
|
(0.04
|
%)
|
|
|
0.03
|
%
|
|
|
0.02
|
%
|
Note:
Financial information is unaudited.
(b)
Note
Reconciliation
of non-GAAP to GAAP:
|
|
|
3/31/16
|
|
12/31/15
|
|
9/30/15
|
|
6/30/15
|
|
3/31/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (GAAP)
|
|
$
|
31,043
|
|
|
$
|
30,464
|
|
|
$
|
30,548
|
|
|
$
|
30,111
|
|
|
$
|
30,189
|
|
|
Less:
Preferred stock
|
|
|
2,580
|
|
|
|
2,580
|
|
|
|
2,580
|
|
|
|
2,580
|
|
|
|
2,580
|
|
|
Less:
Core deposit intangible
|
|
|
159
|
|
|
|
174
|
|
|
|
189
|
|
|
|
207
|
|
|
|
225
|
|
|
Tangible
Common Equity (non-GAAP)
|
|
|
28,304
|
|
|
|
27,710
|
|
|
|
27,779
|
|
|
|
27,324
|
|
|
|
27,384
|
|
|
Common
shares outstanding
|
|
|
4,649,558
|
|
|
|
4,646,225
|
|
|
|
4,645,975
|
|
|
|
4,645,975
|
|
|
|
4,645,755
|
|
|
Tangible
Book Value per Common Share (non-GAAP)
|
|
$
|
6.09
|
|
|
$
|
5.96
|
|
|
$
|
5.98
|
|
|
$
|
5.88
|
|
|
$
|
5.89
|
|
Carolina Trust Bank 8-K12G3
Exhibit
99.08
FEDERAL
DEPOSIT INSURANCE CORPORATION
Washington,
D.C. 20429
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (date of earliest date reported): May 10, 2016
FDIC
Certificate No. 57206
Carolina
Trust Bank
|
North
Carolina
|
|
56-2197865
|
|
(State
of incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
901
East Main Street, Lincolnton, North Carolina 28092
(Address
of principal executive offices) (Zip Code)
Issuer’s
telephone number:
(704) 735-1104
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
|
|
[ ]
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
|
|
|
|
|
[ ]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Item 5.07 Submission
of Matters to a Vote of Security Holders
On
May 10, 2016, Carolina Trust Bank held its Annual Meeting of Shareholders (the “Annual Meeting”). There were four
proposals submitted to shareholders at the Annual Meeting. In the case of Proposal 1, all of the nominees were approved and elected
to serve on the Bank’s Board of Directors. The other 3 proposals were also approved by the shareholders. Proposal 2 was
an advisory vote on executive compensation. Proposal 3, a plan of reorganization of Carolina Trust Bank into a bank holding company,
required approval by a majority of common shares issued and outstanding and two thirds of the preferred shares issued and outstanding.
The proposals below are described in greater detail in the Registrant’s definitive proxy statement for the Annual Meeting,
filed with the FDIC on April 5, 2016.
The
voting results were as follows:
Proposal
1
:
Proposal to elect five members of the Board of Directors for three-year terms.
|
Directors
Elected
|
|
Shares
Voted For
|
|
Shares
Withheld
|
|
|
Shares
Abstained
|
|
|
Broker
Non-Votes
|
|
Bryan
Elliott Beal
|
|
|
2,859,243
|
|
|
|
78,626
|
|
|
|
0
|
|
|
|
838,929
|
|
|
Terri
Q. Blake
|
|
|
2,854,205
|
|
|
|
83,664
|
|
|
|
0
|
|
|
|
838,929
|
|
|
Jennifer
Marion Mills
|
|
|
2,862,713
|
|
|
|
75,156
|
|
|
|
0
|
|
|
|
838,929
|
|
|
Joseph
M. Rhyne, III
|
|
|
2,842,974
|
|
|
|
94,895
|
|
|
|
0
|
|
|
|
838,929
|
|
|
Jim
R. Watson
|
|
|
2,839,239
|
|
|
|
98,630
|
|
|
|
0
|
|
|
|
838,929
|
|
Proposal
2
:
Approval of Executive Compensation in a non-binding, advisory vote.
|
|
|
Shares
Voted For
|
|
Shares
Withheld
|
|
Shares
Abstained
|
|
Broker
Non-Votes
|
|
|
|
|
2,753,178
|
|
|
|
150,658
|
|
|
|
34,033
|
|
|
|
838,929
|
|
Proposal
3
:
Reorganization of the Bank into a Bank Holding Company Form of Organization. Approval required a majority of
the issued and outstanding shares of the Bank’s common stock and two-thirds of the issued and outstanding shares of the
Bank’s preferred stock.
|
|
|
Shares
Voted For
|
|
Shares
Withheld
|
|
Shares
Abstained
|
|
Broker
Non-Votes
|
|
Common
stock
|
|
|
2,879,283
|
|
|
|
51,342
|
|
|
|
7,244
|
|
|
|
838,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
2,447
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Proposal
4
: Ratification of the appointment of Dixon Hughes Goodman LLP as the independent registered public accounting firm
for the year ending December 31, 2016.
|
|
|
Shares
Voted For
|
|
Shares
Withheld
|
|
Shares
Abstained
|
|
|
Broker
Non-Votes
|
|
|
|
|
|
3,714,500
|
|
|
|
53,513
|
|
|
|
8,785
|
|
|
|
0
|
|
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
Carolina
Trust Bank
|
|
|
|
|
|
|
By:
|
/s/
Edwin E. Laws
|
|
|
|
Edwin
E. Laws
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
Date:
|
May
12, 2016
|
Carolina Trust Bank 8-K12G3
Exhibit
99.09
FEDERAL
DEPOSIT INSURANCE CORPORATION
Washington,
D.C. 20429
FORM
8-K/A
(Amendment
No. 1)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (date of earliest event reported): March 23, 2016
FDIC
Certificate No. 57206
Carolina
Trust Bank
|
North
Carolina
|
|
56-2197865
|
|
(State of incorporation)
|
|
(I.R.S. Employer Identification
No.)
|
901
East Main Street, Lincolnton, North Carolina 28092
(Address
of principal executive offices) (Zip Code)
Issuer’s
telephone number:
(704) 735-1104
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
|
|
[ ]
|
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
|
|
|
|
|
[ ]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
|
|
|
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Item
5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements
of Certain Officers
As
previously reported by Carolina Trust Bank (the “Bank”) in its Current Report on Form 8-K (the “Initial Filing”)
filed on March 25, 2016 with the FDIC, the Bank appointed Edwin E. Laws as its executive vice president and chief financial officer
effective March 23, 2016. As referenced in its Initial Filing, the Bank anticipated entering into an employment agreement with
Mr. Laws, but the exact terms of the employment agreement had not been finalized as of the date of the Initial Filing. This amendment
to the Initial Filing is being filed to report the Bank’s execution of an employment agreement dated May 25, 2016, with
Mr. Laws.
Under
the agreement, Mr. Laws’ base salary is $142,000 per annum, which salary will be reviewed not less often than annually by
the board of directors. If a change in control (as defined in the employment agreement) of the Bank should occur, the officer’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 the Bank
notifies the officer of non-extension at least 90 days prior to the applicable anniversary date.
If
the 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. However, if the Bank were to terminate his employment without cause within
24 months following a change in control, then the officer would be entitled to receive a lump-sum payment of 2.99 times his base
salary. Mr. Laws would also be entitled to receive the same lump-sum payment if within 24 months following a change in control
of the Bank, Mr. Laws terminates his own employment following a “termination event” (as defined in the agreement).
Under the agreement, Mr. Laws has also agreed to certain non-competition and confidentiality covenants.
The
foregoing description of the employment agreement is a summary and does not purport to be complete and is qualified in its entirety
by reference to the full text of the employment agreement, which is filed as Exhibit 10.1 to this amended report and is incorporated
herein by reference.
Item
9.01. Financial Statements and Exhibits
|
|
Exhibit
10.1
|
Employment Agreement dated May 25, 2016 with Edwin E. Laws.
|
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
Carolina
Trust Bank
|
|
|
|
|
|
By:
|
/s/
Richard M. Rager
|
|
|
|
Richard
M. Rager
|
|
|
|
Executive
Vice President and
Chief Credit Officer
|
|
|
|
|
|
|
Date:
|
May 26, 2016
|
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS
EMPLOYMENT AGREEMENT
(the “Agreement”) is entered into as of May 25
th
, 2016 (the “Effective Date”),
by and between
CAROLINA TRUST BANK,
a North Carolina banking corporation (the “
Bank
”) and
EDWIN E.
LAWS,
an individual resident of North Carolina (the “
Officer
”). The Bank and Officer are sometimes herein
referred to each as a “
Party
” and together as the “
Parties
.”
For
and in consideration of their mutual promises, covenants and conditions hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which hereby are acknowledged, the Parties agree as follows:
1.
Employment
.
The
Bank agrees to employ the Officer, and the Officer agrees to accept employment upon the terms and conditions stated herein as
an Executive Vice President of the Bank. The Officer shall render such administrative and management services to the Bank and
to the Bank’s parent holding company, Carolina Trust Bancshares, Inc. (the “Company”), as are customarily performed
by persons situated in a similar executive capacity. The Officer shall promote the business of the Bank and perform such other
duties as shall, from time to time, be reasonably assigned by the President of the Bank. Upon the request of the Board of Directors
(the “
Directors
”), the Officer shall disclose all business activities or commercial pursuits in which Officer
is engaged, other than Bank duties.
2.
Compensation.
The
Bank shall pay the Officer during the Term of this Agreement (as defined below), as compensation for all services rendered by
the Officer to the Bank, a base salary at the rate of One Hundred Forty-Two Thousand Dollars ($142,000.00) per annum, payable
in cash not less frequently than monthly (the “
Base Salary
”). The rate of such Base Salary shall be reviewed
by the Directors not less often than annually and may be increased, but not decreased, during the Term of this Agreement in such
amounts as the Directors, in their discretion, may decide. In determining salary increases, the Directors may compensate the Officer
for increases in the cost of living and may also provide for performance or merit increases. Participation in the Bank’s
incentive compensation, deferred compensation, discretionary bonus, profit-sharing, retirement and other employee benefit plans
and participation in any fringe benefits shall not reduce the Base Salary payable to the Officer under this Paragraph,
Following
a Change in Control (as defined in Paragraph 10), the Officer’s rate of Base Salary shall be increased not less than five
percent (5%) annually during the remaining Term of this Agreement.
Any
payments made under this Agreement shall be subject to such deductions as are required by law or regulation or as may be agreed
to by the Bank and the Officer.
3.
Discretionary
Bonuses
.
During the Term of this Agreement, the Officer shall be entitled, in an equitable manner with all other
key management personnel of the Bank, to such discretionary bonuses as may be authorized, declared and paid by the Directors to
the Bank’s key management employees. No other compensation provided for in this Agreement shall be deemed a substitute for
the Officer’s right to such discretionary bonuses when and as declared by the Directors.
4.
Participation
in Retirement and Employee Benefit Plans: Fringe Benefits
.
(a)
The Officer shall be entitled to participate in any plan relating to medical and dental insurance, deferred compensation, stock
options, stock purchases, pension, thrift, profit sharing, group life insurance, education, or other retirement or employee benefits
that the Bank has adopted, or may, from time to time adopt, for the benefit of its executive employees or for employees generally,
subject to the eligibility rules of such plans.
(b)
The Officer shall also be entitled to participate in any other fringe benefits that are now or may be or become applicable to
the Bank’s executive employees and any other benefits that are commensurate with the duties and responsibilities to be performed
by the Officer under this Agreement. Additionally, the Officer shall be entitled to such vacation and sick leave as shall be established
under uniform employee policies promulgated by the Directors. The Bank shall reimburse the Officer for all out-of-pocket reasonable
and necessary documented business expenses, including dues for one civic club and mileage for the use of Officer’s personal
automobile, which the Officer may incur in connection with the Officer’s services on behalf of the Bank.
(c)
All employee benefits provided by the Bank are subject to the provisions of their respective plan documents in accordance with
their terms and are subject to amendment or termination by the Bank without Officer’s consent.
5.
Term
.
The
initial term of employment under this Agreement shall be for the period commencing upon the Effective Date of this Agreement and
ending two (2) calendar years from the Effective Date of this Agreement (the “
Initial Term
”). On each anniversary
of the Effective Date of this Agreement, the term of this Agreement shall automatically be extended for an additional one year
period beyond the then effective expiration date (each an “
Extension Term
”) unless the Bank provides the Officer
with written notice at least ninety (90) days prior to the end of the Initial Term or any Extension Term advising the Officer
that this Agreement shall not be further extended; provided that the President shall review the Officer’s performance annually
and make a specific determination pursuant to such review to renew this Agreement prior to the ninety (90) days’ notice.
The Initial Term and any Extension Term(s) are referred to herein as the “
Term
” of this Agreement.
6.
Loyalty;
Noncompetition
.
(a) During
the Term of this Agreement, t
he Officer shall devote his full efforts and
entire business time to the performance of the Officer’s duties and responsibilities under this Agreement.
(b)
The
Officer agrees he will not, within the “Restricted Area,” directly or indirectly, engage in any business that competes
with the Bank or any of its subsidiaries without the prior written consent of the Bank (i)
in
which the Officer will have duties, or will perform or be expected to perform services for such business, that are the same as
or substantially similar to the duties or services actually performed by the Officer for the Bank within the twelve (12) month
period immediately preceding the termination of the Officer’s employment with the Bank, or (ii) in which the Officer will
use or disclose or be reasonably expected to use or disclose any confidential or proprietary information of the Bank for the purpose
of providing, or attempting to provide, such business with a competitive advantage
. For
the purposes of this Agreement, the “
Restricted Area
” is defined as the following
divisible
territories: Lincoln County, North Carolina, or within thirty (30) miles of any Bank office operated during the Term of this Agreement.
The one-year restricted period, however, does not include any period of violation or period of time required for litigation to
enforce the Officer’s agreement not to compete against the Bank. Notwithstanding the foregoing, the Officer shall be free,
without such consent, to purchase or hold as an investment or otherwise, up to five percent (5%) of the outstanding stock or other
security of any corporation that has its securities publicly traded on any recognized securities exchange or in any over-the counter
market. Notwithstanding the foregoing, the provisions of this Paragraph 6(b) shall not apply in the event that, within twenty-four
(24) months following a “Change of Control” (as such term is defined in Paragraph 10(d) hereof), the Officer’s
employment is terminated by the Bank other than for “Cause” (as such term is defined in Paragraph 8(d) hereof), or
the Officer terminates his employment with the Bank due to the occurrence of a “Termination Event” (as such term is
defined in Paragraph 10(b) hereof).
(c)
The Officer agrees he will hold in confidence all knowledge or information
of a confidential nature with respect to the business of the Bank or any subsidiary received by the Officer during the term of
this Agreement and will not disclose or make use of such information without the prior written consent of the Bank. The Officer
agrees that he will be liable to the Bank for any damages caused by unauthorized disclosure of such information. Upon termination
of his employment, the Officer agrees to return all records or copies thereof of the Bank or any subsidiary in his possession
or under his control that relate to the activities of the Bank or any subsidiary.
(d)
The
Officer acknowledges that
the Bank will suffer irreparable harm in the event that the Officer breaches any of his obligations
under Paragraph 6 of this Agreement and that
it would not be possible
to
ascertain the amount of monetary damages in the event of such a breach.
Accordingly,
the Officer agrees that, in the event of a breach by the Officer of any of his obligations under Paragraph 6 of this Agreement,
the Bank, in addition to any other relief available to it at law or in equity, will be entitled to obtain from any court of competent
jurisdiction preliminary and permanent injunctive relief, and expedited discovery for the purpose of seeking relief, in order
to prevent or to restrain any such breach.
If the scope of any restriction
contained in this Paragraph 6 is determined to be too broad by any court of competent jurisdiction, then such restriction shall
be enforced to the maximum extent permitted by law, and the Officer consents that the scope of this restriction may be modified
judicially.
7.
Standards
.
The
Officer shall perform his duties
and
responsibilities under this Agreement in accordance with such reasonable standards expected of executives
with comparable positions in comparable organizations and as may be established from time
to
time
by the Directors. The Bank will provide the Officer with the working facilities and staff customary for similar executives and
necessary for the Officer to perform his duties.
8.
Termination
and Termination Pay
.
(a) The
Officer’s employment under this Agreement shall be terminated upon the death of the Officer during the Term of this Agreement,
in which event, the Officer’s estate shall be entitled to receive the compensation due the Officer through the last day
of the calendar month in which the Officer’s death shall have occurred and for a period of one month thereafter.
(b)
The Officer may terminate his employment under this Agreement at any time upon sixty (60) days’ prior written notice to
the Direct
ors. Upon such termination,
the Officer shall be entitled to receive compensation through the effective date of such termination. The Bank, at its sole election,
may relieve the Officer of his duties and pay the Officer his current Base Salary in lieu of all or a portion of such notice period.
Notwithstanding such termination, the Officer’s obligations under Paragraph 6 shall survive any termination of employment.
(c)
The Directors may terminate the Officer’s employment at any time and for any reason in the absence of “Cause”
as defined below. Upon a termination without Cause during the Initial Term, the Officer shall continue to receive his Base Salary
through the end of the Initial Term; upon a termination without Cause during an Extension Term, the Officer shall continue to
receive his Base Salary through the end of such Extension Term. Notwithstanding such termination, the Officer’s obligations
under Paragraph 6 shall survive any termination of employment.
(d)
The Directors may terminate the Officer’s employment for Cause immediately upon written notice specifying the grounds for
a termination for Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination
for Cause. For the purpose of this Agreement, a termination for
Cause
shall include 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 minor traffic violations
or similar minor offenses); or material breach of any provision of this Agreement. Notwithstanding such termination, the Officer’s
obligations under Paragraph 6 shall survive any termination of employment.
(e)
Subject to the Bank’s obligations and the Officer’s rights under (i) Title I of the Americans with Disabilities Act,
§504 of the Rehabilitation Act, and the Family and Medical Leave Act, and to (ii) the vacation leave, disability leave, sick
leave and any other leave policies of the Bank, the Officer’s employment under this Agreement automatically shall be terminated
in the event the Officer becomes disabled during the term of this Agreement and it is determined by the Bank that the Officer
is unable to perform the essential functions of the Officer’s job under this Agreement with or without a reasonable accommodation
for sixty (60) business days or more (which need not be consecutive) during any 12-month period. Upon any such termination, the
Officer shall be entitled to receive any compensation the Officer shall have earned prior to the date of termination but which
remains unpaid, and shall be entitled to any payments provided under any disability income plan of the Bank which is applicable
to the Officer. Notwithstanding such termination, the Officer’s obligations under Paragraph 6 shall survive any termination
of employment.
In
the event of any disagreement between the Officer and the Bank as to whether the Officer is physically or mentally incapacitated
such as will result in the terminati
on
of the Officer’s employment pursuant to this Paragraph 8(e), the question of such incapacity shall be submitted to an impartial
physical licensed to practice medicine in North Carolina for determination and who will be selected by mutual agreement of the
Officer and the Bank, or failing such agreement, by two (2) physicians (one (1) of whom shall be selected by the Bank and the
other by the Officer), and such determination of the question of such incapacity by such physician or physicians shall be final
and binding on the Officer and the Bank, The Bank shall pay the reasonable fees and expenses of such physician or physicians in
making
any
determination required under this Paragraph 8(e).
9.
Additional Regulatory Requirements
.
Notwithstanding anything contained in this Agreement to the contrary, it
is understood and agreed that the Bank (or any of its successors in interest) shall not be required to make any payment or take
any action under this Agreement if:
(a)
the Bank is declared by any governmental agency having jurisdiction over the Bade (hereinafter referred to as “
Regulatory
Authority
”) to be insolvent, in default or operating in an unsafe or unsound manner; or
(b)
in the reasonable opinion of counsel to the Bank, such payment or action (i) would be prohibited by or would violate any provision
of state or federal law applicable to the Bank, including, without limitation, the Federal Deposit Insurance Act as now in effect
or hereafter amended, (ii) would be prohibited by or would violate any applicable rules, regulations, orders or statements of
policy, whether now existing or hereafter promulgated, of any Regulatory Authority, or (iii) otherwise would be prohibited by
any Regulatory Authority.
10.
Change in Control.
(a)
In the event of a termination of the Officer’s employment by the Bank other than for Cause (as defined in Paragraph
8(d)), and other than due to the Officer’s death or disability, within twenty-four (24) months after a “Change in
Control” of the Bank (as defined in Subparagraph (d) below), the Officer shall be entitled to receive the amount set forth
in Subparagraph (c) below. Said sum shall be payable as provided in Subparagraph (e) below.
(b)
In addition to any rights the Officer might have to terminate this Agreement contained in Paragraph 8, the Officer shall have
the right to terminate this Agreement upon the occurrence of any of the following events (the “
Termination Events
”)
without the Officer’s consent within twenty-four (24) months following a Change in Control of the Bank:
(i) Officer is assigned any duties and/or responsibilities that are inconsistent with or constitute a demotion or reduction in the
Officer’s position, duties, responsibilities or status as such existed at the time of the Change in Control or with his
reporting responsibilities or titles with the Bank in effect at such time, regardless of Officer’s resulting position; or
(ii) Officer’s annual base salary rate is reduced below the annual amount in effect as of the effective date of a Change in Control
or as the same shall have been increased from time to time following such effective date; or
(iii) Officer’s life insurance, medical or hospitalization insurance, disability insurance, stock options plans, stock
purchase plans, deferred compensation plans, management retention plans, retirement plans or similar plans or benefits being
provided by the Bank to the Officer as of the effective date of the Change in Control are reduced in their level, scope or
coverage, or any such insurance, plans or benefits are eliminated, unless such reduction or elimination applies
proportionately to all salaried employees of the Bank who participated in such benefits prior to such Change in Control;
or
(iv)
Officer is transferred to a location that is an unreasonable distance from his current principal
work location without the Officer’s express written consent.
The
Officer shall notify the Bank within ninety (90) days of the initial existence of a Termination Event described above. If the
Bank does not correct the Termination Event within thirty (30) days following such notification, the Officer shall have the right
to terminate this Agreement in accordance with this Paragraph 10. If Officer does not so terminate this Agreement within seven
(7) days following the end of the thirty (30) day correction period, he shall thereafter have no further rights hereunder with
respect to that Termination Event, but shall retain rights, if any, hereunder with respect to any other Termination Event as to
which the twenty four (24) month period has not expired.
(c) In
the
event
that
the
Officer terminates this Agreement pursuant to Paragraph 10(b), the Bank will be obligated
to pay or cause to be paid to Officer an amount equal to 2.99 times the Officer’s then current Base Salary.
(d) For
the purposes of this Agreement, the term “
Change in Control
” shall mean any of the following events:
(i) After the effective date of this Agreement, any “person” (as such term is defined in Section 7(j)(8)(A) of the Change
in Bank Control Act of 1978), directly or indirectly, acquires beneficial ownership of voting stock, or acquires irrevocable proxies
or any combination of voting stock and irrevocable proxies, representing thirty-five percent (35%) or more of any class of voting
securities of the Company or the Bank, or acquires control of, in any manner, the election of a majority of the Directors; or
(ii) The Company or the Bank consolidates or merges with or into another corporation, association or entity, or is otherwise reorganized,
where the Company or the Bank, as applicable, is not the surviving corporation in such
transaction;
or
(iii)
All or substantially all of the assets of the Company or the
Bank
are sold or otherwise transferred to or are acquired by any other corporation, association or other
person, entity or group. Notwithstanding the other provisions of this Paragraph 10: (A) the reorganization of the Bank as a wholly-owned
subsidiary of the Company shall not constitute a Change in Control; and (B) a transaction or event shall not be considered
a
Change in Control if, prior to the consummation or occurrence of such transaction or event, Officer
and Bank agree in writing that the same shall not be treated as a Change in Control for purposes of this Agreement.
(e) Such
amounts payable pursuant to
this
Paragraph 10 shall be paid in one lump sum following termination of this Agreement.
(f) It
is the intent of the Parties hereto that all payments made pursuant to this Agreement be deductible by the Bank for federal income
tax purposes and not result in the imposition of an excise tax on the Officer. Notwithstanding anything contained in this Agreement
to the contrary, any payments to be made to or for the benefit of the Officer which are deemed to be “parachute payments”
as that term is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), shall be modified
or reduced to the extent deemed to be necessary by the Directors to avoid the imposition of excise taxes on the
Officer
under Section 4999 of the Code or the disallowance of a deduction to the Bank under Section 280(a) of the Code.
11.
Code
Section 409A.
Notwithstanding any other provision in
the
Agreement to the contrary, if and to the extent that Code Section 409A is deemed to apply to any
benefit under the Agreement, it is the general intention of the Bank that such benefits shall, to the extent practicable, comply
with, or be exempt from Code Section 409A, and the Agreement shall, to the extent practicable,
be construed in accordance
therewith. Deferrals of benefits distributable pursuant to the Agreement that
are otherwise exempt
from Code Section 409A in a manner that would cause Code Section 409A to apply shall not be permitted unless such deferrals are
in compliance with Code Section 409A. In the event that the Bank (or a successor thereto) has any stock which is publicly traded
on an established securities market or otherwise and the Officer
is
determined to be a “specified employee”
(as defined under Code Section 409A), any payment to be made to the Officer upon a separation from service may not be made before
the date that is six months after the Officer’s separation from service (or death, if earlier). To the extent that the Officer
becomes subject to the six-month delay rule, all payments that would have been made to the Officer during the six months following
his separation from service that are not otherwise exempt from Code Section 409A, if any, will be accumulated and paid to the
Officer during the seventh month following his separation from service, and any remaining payments due will be made in their ordinary
course as described in the Agreement.
The
parties intend that each installment of any payments provided for in this Agreement is a separate “payment” for purposes
of Section 409A.
For the purposes herein, the phrase “termination
of employment” or similar phrases will be interpreted in accordance with the term “separation from service”
as defined under Code Section 409A if and to the extent required under Code Section 409A. Further, (i) in the event that Code
Section 409A requires that any special terms, provisions or conditions be included in the Agreement, then such terms, provisions
and conditions shall, to the extent practicable, be deemed to be made a part of the Agreement, and (ii) terms used in the Agreement
shall be construed in accordance with Code Section 409A if and to the extent required. Further, in the event that the Agreement
or any benefit thereunder shall be deemed not to comply with Code Section 409A, then neither the Bank, the Board, the Compensation
Committee nor its or their designees or agents shall be liable to any participant or other person for actions, decisions or determinations
made in good faith.
12.
Successors and Assigns
.
(a)
This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall
acquire, directly or indirectly, by conversion, merger, purchase or otherwise, all or substantially all of the assets of the Bank.
(b)
Since the Bank is contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.
13.
Modification: Waiver; Amendments
.
No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Officer and on behalf
of the Bank by such officer as may be specifically designated by the Directors. No waiver by either Party hereto, at any time,
of any breach by the other Party hereto of, or compliance with, any condition or provision of this Agreement to be performed by
such other Party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent time. No amendment or addition to this Agreement
shall be binding unless in writing and signed by both Parties, except as herein otherwise provided.
14.
Applicable Law
.
This Agreement shall
be
governed
in all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of North Carolina, except
to the extent that federal law shall be deemed to apply.
15.
Severability
.
The provisions
of
this Agreement shall be deemed severable and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
[Signature
page follows.]
IN
WITNESS WHEREOF,
the Parties have executed this Agreement as of the day and year first written above.
|
|
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CAROLINA TRUST BANK
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|
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By:
|
/s/
Jerry L. Ocheltree
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Jerry L. Ocheltree
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President
and Chief Executive Officer
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Attest:
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|
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/s/ Sue
S. Stamey
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Sue S. Stamey, Corporate Secretary
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OFFICER:
|
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/s/
Edwin E. Laws
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Edwin E.
Laws
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Carolina Trust Bank 8-K12G3
Exhibit 99.10
FEDERAL
DEPOSIT INSURANCE CORPORATION
Washington,
D.C. 20429
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (date of earliest date reported): July 27, 2016
FDIC
Certificate No. 57206
Carolina
Trust Bank
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North
Carolina
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56-2197865
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(State
of incorporation)
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(I.R.S.
Employer Identification No.)
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901
East Main Street, Lincolnton, North Carolina 28092
|
|
(Address
of principal executive offices) (Zip Code)
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Issuer's
telephone number:
(704) 735-1104
|
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
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[ ]
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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[ ]
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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[ ]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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[ ]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Item
2.02. Results of Operations and Financial Condition
On
July 27, 2016, Carolina Trust Bank (the “Bank”) issued a news release to furnish its financial results for the three
month and six month periods ended June 30, 2016. The Bank’s news release is attached hereto as Exhibit 99.1.
Item
9.01 Financial Statements and Exhibits
(d)
Exhibits
Exhibit
99.1 – Press release dated July 27, 2016
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
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Carolina
Trust Bank
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By:
|
/s/
Edwin E. Laws
|
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Edwin
E. Laws
|
|
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Chief
Financial Officer
|
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|
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Date:
July 28, 2016
|
Exhibit
99.1
|
News
Release
|
|
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|
|
Contact
:
|
|
|
Jerry
L. Ocheltree
|
|
|
President
and CEO
|
|
|
Carolina
Trust Bank
|
|
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(704)
735-1104
|
|
Carolina
Trust Bank Reports Second Quarter 2016
Diluted
Earnings per Share of $0.08
LINCOLNTON,
N.C., July 27, 2016 (GLOBE NEWSWIRE) -- Carolina Trust Bank (NASDAQ - CART) announced today its financial results for the second
quarter that ended June 30, 2016 (“2Q 2016”). The Bank earned net income of $457,000 in 2Q 2016 as compared to $361,000
for the same period in 2015 (“2Q 2015”), representing a 27%, or $96,000, increase in net income between the comparative
quarters. The Bank’s net income for 2Q 2016 was also a 10% improvement over the $417,000 in net income previously reported
for the quarter ended March 31, 2016 (the “linked quarter”). After deducting the preferred stock dividends, net income
available to common stockholders in 2Q 2016 was $399,000, a 32% increase over the 2Q 2015 figure, $302,000, and 11% over the linked
quarter figure, $358,000. Diluted earnings per share for the 2Q 2016 were $0.08, as compared to $0.06 for the same period last
year. Annualized return on average total assets was 0.49%, and annualized return on average common shareholder’s equity
was 5.57% for 2Q 2016. The 2Q 2016 annualized return average assets was higher than both 2Q 2015 and the linked quarter at 0.46%
and 0.48%, respectively. Similarly, the 2Q 2016 annualized return on average common equity of 5.57% was higher than both 2Q 2015
at 4.34% and the linked quarter at 5.08%.
The
earnings increase over 2Q 2015 was driven primarily by loan growth. Average loans for the 2Q 2016 of approximately $295 million
were 11% higher than average loans for 2Q 2015 of approximately $265 million. The growth in average loans from 2Q 2015 to 2Q 2016
generated additional net interest income of $308,000, that was offset by noninterest expense growth of $221,000. Noninterest income
was $19,000 greater in 2Q 2016 than in 2Q 2015 due to the increase in deposit accounts.
While
net interest income decreased by $10,000 as compared to the linked quarter, favorable changes in noninterest expenses ($137,000
decrease) and noninterest income ($26,000 increase) resulted in pre-tax income growth.
Jerry
L. Ocheltree, President and Chief Executive Officer stated, “
Our second quarter of 2016 was marked by increases in both
earnings and core deposits. We promoted our money market accounts and continued developing commercial relationships that contributed
to our growth in noninterest checking accounts. In spite of several large loans paying off, we were able to generate new loan
activity, which altogether resulted in 1.5% decline in loans outstanding. We continue to see a steady pipeline of loans in our
markets, especially in Hickory, Gastonia, and Mooresville.”
“At
our annual meeting in May, shareholders approved the proposal to reorganize the bank into a bank holding company ownership structure.
We plan to make the reorganization effective in mid-August. Our customers will still be doing business with Carolina Trust Bank
as they always have. Our common stock shareholders will own stock in Carolina Trust BancShares, Inc., which, following completion
of the reorganization, will be our new bank holding company that will own all of the common stock of Carolina Trust Bank. The
benefits of this reorganization include more flexibility in raising regulatory capital and better visibility of our annual, quarterly,
and periodic reports filed under the Securities Exchange Act. Currently we file such reports as well as other disclosure documents
in hard copy form with the FDIC. On the effective date of the reorganization, we will begin filing these documents electronically
with the SEC using their EDGAR system which is readily available to anyone at www.sec.gov.”
Set
forth below are certain selected financial items for the quarter ended June 30, 2016:
|
|
●
|
Pre-tax
earnings of $723,000, an increase of $106,000 or 17.2% compared to 2Q 2015.
|
|
|
●
|
Increase
in net interest income of $308,000 or 10.0% as compared to 2Q 2015.
|
|
|
●
|
Decrease
in loans of $4.6 million (“mm”) or 6.2%, annualized, during 2Q 2016.
|
|
|
●
|
Increase
in deposits of $2.7 mm or 3.4%, annualized, during 2Q 2016.
|
|
|
●
|
Total
nonperforming assets (“NPAs”) decreased $927,000 from $3,900,000 at March 31, 2016 to $2,973,000 at June 30, 2016.
This resulted in a 25 basis point (“bp”) reduction in the Bank’s NPAs as a percentage of total assets, from
1.05% at March 31, 2016 to 0.80% at June 30, 2016.
|
|
|
●
|
The
Bank’s Allowance for Loan and Lease Losses (“ALLL”) to total loans increased 3 bp from 1.18% at March 31, 2016
to 1.21% at June 30, 2016. This slight increase resulted from a combination of the decrease in loans outstanding and a $21,000
increase in the allowance for loans evaluated individually for impairment. There was virtually no change in the allowance for
loans evaluated collectively for impairment. Classified loans were up by $566,000 during 2Q 2016, while non-performing loans were
down by $361,000 during the period.
|
|
|
●
|
The
classified asset ratio at June 30, 2016 was 22%.
|
|
|
|
Classified
asset ratio
|
=
|
[classified
loans and other real estate]
|
|
|
|
|
|
[tier
1 capital and allowance for loan losses]
|
|
|
|
Classified
loans
|
=
|
loans
that are risk-graded as substandard, doubtful or loss
|
|
|
|
|
CAPITAL
LEVELS
Capital
for the Bank exceeded “well-capitalized” requirements for each of the four primary capital levels monitored by state
and federal regulators. As of June 30, 2016, the common equity tier 1 capital ratio was 9.18%; the tier 1 capital ratio was 9.83%;
the total capital ratio was 11.00%; and the tier 1 leverage ratio was 8.03%.
NET
INTEREST INCOME IMPROVES YEAR OVER YEAR
Net
interest income was $3,379,000 in 2Q 2016, up from $3,071,000 in 2Q 2015 and down slightly from $3,389,000 in the linked quarter.
The Bank’s net interest margin (“NIM”) for 2Q 2016 was 3.83%, down 35 basis points from 4.18% reported for the
same period last year. The margin compression was due primarily to the increase in lower yielding overnight funds, as part of
a strategy to add liquidity in early 2016. Compared to the linked quarter, NIM decreased by 28 bp, which was due mostly to the
increase in overnight funds and secondarily to the decreasing yield on investment securities. Securities that were called during
the last two quarters were replaced by lower yielding securities.
NONINTEREST
INCOME
For
2Q 2016, noninterest income was $312,000, a $19,000 increase or 6.5% when compared to 2Q 2015. The Bank experienced increases
in card interchange fees and overdraft fee income.
|
|
●
|
The
ratio of noninterest income to average assets was 0.34%, annualized, as compared to 0.37% a year ago and 0.33% in the linked quarter.
|
NONINTEREST
EXPENSE
Noninterest
expense for 2Q 2016 totaled $2,968,000, up $221,000 or 8.0% as compared to the $2,747,000 recorded for 2Q 2015. Specific expense
items to note for 2Q 2016 are as follows:
|
|
●
|
Compensation
expenses increased $90,000 (5.6%) in comparison to 2Q 2015 as the result of equity and merit increases for all employees, new
production oriented positions which contributed to the loan growth over the past twelve months. As a result of the increased number
of employees, the Bank also saw increases in performance bonuses, health insurance and 401(K) expense.
|
|
|
●
|
Occupancy
expenses were nearly flat at $210,000, increasing by only $1,000.
|
|
|
●
|
Data
processing expenses increased $12,000 or 7.8% due to increased customer transactions across all business lines.
|
|
|
●
|
Professional
fees increased $41,000 or 69.5% primarily due to accounting and legal services.
|
|
|
●
|
The
ratio of noninterest expenses to average assets was 3.20%, as compared to 3.48% a year ago and to 3.57% in the linked quarter.
|
About
Carolina Trust Bank
Carolina
Trust Bank is a full service, state-chartered bank headquartered in Lincolnton, N.C., operating nine full service branches in
Lincoln, Catawba, Gaston and Rutherford Counties in western North Carolina and a loan production office in Mooresville, N.C.
Forward-Looking
Statement
:
This news release contains forward-looking statements. Words such as “anticipates,” “
believes,” “estimates,” “expects,” “intends,” “should,” “will,”
variations of such words and similar expressions are intended to identify forward-looking statements. These statements reflect
management’s current beliefs as to the expected outcomes of future events and are not guarantees of future performance.
These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Factors that could cause a difference include, among others: Bank management could
determine to abandon the holding company formation; changes in the national and local economies or market conditions; changes
in interest rates, deposit flows, loan demand and asset quality, including real estate and other collateral values; changes in
banking regulations and accounting principles, policies or guidelines; and the impact of
competition
from traditional or new sources. These and other factors that may emerge could cause decisions and actual results to differ materially
from current expectations. Carolina Trust Bank undertakes no obligation to revise, update, or clarify forward-looking statements
to reflect events or conditions after the date of this release.
Carolina
Trust Bank
Selected
Financial Highlights
Dollars
in thousands, except per share data
|
|
|
Unaudited
6/30/16
|
|
Unaudited
3/31/16
|
|
(a)
12/31/15
|
|
Unaudited
9/30/15
|
|
Unaudited
6/30/15
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
373,955
|
|
|
$
|
372,746
|
|
|
$
|
334,049
|
|
|
$
|
332,359
|
|
|
$
|
333,414
|
|
|
Total
Deposits
|
|
|
323,418
|
|
|
|
320,689
|
|
|
|
284,794
|
|
|
|
285,385
|
|
|
|
276,183
|
|
|
Total
Loans
|
|
|
293,157
|
|
|
|
297,746
|
|
|
|
292,362
|
|
|
|
286,469
|
|
|
|
278,305
|
|
|
Reserve
for Loan Loss
|
|
|
3,541
|
|
|
|
3,521
|
|
|
|
3,723
|
|
|
|
3,825
|
|
|
|
3,886
|
|
|
Total
Stockholders’ Equity
|
|
|
31,768
|
|
|
|
31,043
|
|
|
|
30,464
|
|
|
|
30,548
|
|
|
|
30,111
|
|
Comparative
Income Statements
For
the Three Months Ended
|
|
|
Unaudited
6/30/16
|
|
Unaudited
6/30/15
|
|
Variance
$
|
|
Variance
%
|
|
Income
and Per Share Data:
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
$
|
4,083
|
|
|
$
|
3,647
|
|
|
$
|
436
|
|
|
|
12.0
|
%
|
|
Interest
Expense
|
|
|
704
|
|
|
|
576
|
|
|
|
128
|
|
|
|
22.2
|
%
|
|
Net
Interest Income
|
|
|
3,379
|
|
|
|
3,071
|
|
|
|
308
|
|
|
|
10.0
|
%
|
|
Provision
for (recovery of) Loan Loss
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
NM
|
|
|
Net
Interest Income After Provision
|
|
|
3,379
|
|
|
|
3,071
|
|
|
|
308
|
|
|
|
10.0
|
%
|
|
Non-interest
income
|
|
|
312
|
|
|
|
293
|
|
|
|
19
|
|
|
|
6.5
|
%
|
|
Non-interest
expense
|
|
|
2,968
|
|
|
|
2,747
|
|
|
|
221
|
|
|
|
8.0
|
%
|
|
Income
Before Taxes
|
|
|
723
|
|
|
|
617
|
|
|
|
106
|
|
|
|
17.2
|
%
|
|
Income
Tax Expense
|
|
|
266
|
|
|
|
256
|
|
|
|
10
|
|
|
|
3.9
|
%
|
|
Net
Income
|
|
|
457
|
|
|
|
361
|
|
|
|
96
|
|
|
|
26.6
|
%
|
|
Preferred
Stock Dividend
|
|
|
58
|
|
|
|
59
|
|
|
|
(1
|
)
|
|
|
-1.7
|
%
|
|
Net
Income Available to Common Shareholders
|
|
$
|
399
|
|
|
$
|
302
|
|
|
$
|
117
|
|
|
|
32.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,649,558
|
|
|
|
4,645,963
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
4,696,133
|
|
|
|
4,685,122
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Note:
Derived from audited financial statements
|
Carolina
Trust Bank
Comparative
Income Statements
For
the six months ended
Dollars
in thousands, except per share data
|
|
|
Unaudited
6/30/16
|
|
Unaudited
6/30/15
|
|
Variance
$
|
|
Variance
%
|
|
Income
and Per Share Data:
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
$
|
8,110
|
|
|
$
|
7,058
|
|
|
$
|
1,052
|
|
|
|
14.9
|
%
|
|
Interest
Expense
|
|
|
1,342
|
|
|
|
1,111
|
|
|
|
231
|
|
|
|
20.8
|
%
|
|
Net
Interest Income
|
|
|
6,768
|
|
|
|
5,947
|
|
|
|
821
|
|
|
|
13.8
|
%
|
|
Provision
for (recovery of) Loan Loss
|
|
|
(80
|
)
|
|
|
0
|
|
|
|
(80
|
)
|
|
|
NM
|
|
|
Net
Interest Income After Provision
|
|
|
6,848
|
|
|
|
5,947
|
|
|
|
901
|
|
|
|
15.2
|
%
|
|
Non-interest
income
|
|
|
598
|
|
|
|
522
|
|
|
|
76
|
|
|
|
14.6
|
%
|
|
Non-interest
expense
|
|
|
6,073
|
|
|
|
5,552
|
|
|
|
521
|
|
|
|
9.4
|
%
|
|
Income
Before Taxes
|
|
|
1,373
|
|
|
|
917
|
|
|
|
456
|
|
|
|
49.7
|
%
|
|
Income
Tax Expense
|
|
|
499
|
|
|
|
381
|
|
|
|
118
|
|
|
|
31.0
|
%
|
|
Net
Income
|
|
|
874
|
|
|
|
536
|
|
|
|
338
|
|
|
|
63.1
|
%
|
|
Preferred
Stock Dividend
|
|
|
117
|
|
|
|
117
|
|
|
|
0
|
|
|
|
0
|
%
|
|
Net
Income Available to Common Shareholders
|
|
$
|
757
|
|
|
$
|
419
|
|
|
$
|
338
|
|
|
|
80.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,649,558
|
|
|
|
4,644,821
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
4,695,622
|
|
|
|
4,736,865
|
|
|
|
|
|
|
|
|
|
Carolina
Trust Bank
Quarterly
Income Statement
Dollars
in thousands, except per share data
|
|
|
For
the three months ended:
|
|
Income
and Per Share Data:
|
|
Unaudited
6/30/16
|
|
Unaudited
3/31/16
|
|
Unaudited
12/31/15
|
|
Unaudited
9/30/15
|
|
Unaudited
6/30/15
|
|
Interest
Income
|
|
$
|
4,083
|
|
|
$
|
4,027
|
|
|
$
|
3,956
|
|
|
$
|
3,891
|
|
|
$
|
3,647
|
|
|
Interest
Expense
|
|
|
704
|
|
|
|
638
|
|
|
|
601
|
|
|
|
599
|
|
|
|
576
|
|
|
Net
Interest Income
|
|
|
3,379
|
|
|
|
3,389
|
|
|
|
3,355
|
|
|
|
3,292
|
|
|
|
3,071
|
|
|
Provision
for (recovery of) Loan Loss
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
(100
|
)
|
|
|
(170
|
)
|
|
|
—
|
|
|
Net
Interest Income After Provision
|
|
|
3,379
|
|
|
|
3,469
|
|
|
|
3,455
|
|
|
|
3,462
|
|
|
|
3,071
|
|
|
Non-interest
income
|
|
|
312
|
|
|
|
286
|
|
|
|
304
|
|
|
|
284
|
|
|
|
293
|
|
|
Non-interest
expense
|
|
|
2,968
|
|
|
|
3,105
|
|
|
|
3,352
|
|
|
|
2,848
|
|
|
|
2,747
|
|
|
Income
Before Taxes
|
|
|
723
|
|
|
|
650
|
|
|
|
407
|
|
|
|
898
|
|
|
|
617
|
|
|
Income
Tax Expense
|
|
|
266
|
|
|
|
233
|
|
|
|
316
|
|
|
|
467
|
|
|
|
256
|
|
|
Net
Income
|
|
|
457
|
|
|
|
417
|
|
|
|
91
|
|
|
|
431
|
|
|
|
361
|
|
|
Preferred
Stock Dividend
|
|
|
58
|
|
|
|
59
|
|
|
|
58
|
|
|
|
59
|
|
|
|
59
|
|
|
Net
Income Available to Common Shareholders
|
|
$
|
399
|
|
|
$
|
358
|
|
|
$
|
33
|
|
|
$
|
372
|
|
|
$
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.01
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,649,558
|
|
|
|
4,649,558
|
|
|
|
4,645,997
|
|
|
|
4,645,975
|
|
|
|
4,645,963
|
|
|
Diluted
|
|
|
4,696,133
|
|
|
|
4,697,539
|
|
|
|
4,692,203
|
|
|
|
4,721,188
|
|
|
|
4,685,122
|
|
Carolina
Trust Bank
Selected
Financial Highlights
Dollars
in thousands, except per share data
|
|
|
6/30/16
|
|
3/31/16
|
|
12/31/15
|
|
9/30/15
|
|
6/30/15
|
|
Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
Common
equity tier 1 capital ratio
|
|
|
9.19
|
%
|
|
|
8.59
|
%
|
|
|
8.67
|
%
|
|
|
8.63
|
%
|
|
|
7.77
|
%
|
|
Tier
1 capital ratio
|
|
|
9.83
|
%
|
|
|
9.16
|
%
|
|
|
9.10
|
%
|
|
|
8.74
|
%
|
|
|
8.62
|
%
|
|
Total
capital ratio
|
|
|
11.01
|
%
|
|
|
10.29
|
%
|
|
|
10.30
|
%
|
|
|
10.00
|
%
|
|
|
9.88
|
%
|
|
Tier
1 leverage ratio
|
|
|
8.03
|
%
|
|
|
8.27
|
%
|
|
|
8.48
|
%
|
|
|
8.09
|
%
|
|
|
8.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
Common Equity (b)
|
|
$
|
29,043
|
|
|
$
|
28,304
|
|
|
$
|
27,710
|
|
|
$
|
27,778
|
|
|
$
|
27,324
|
|
|
Common
Shares Outstanding
|
|
|
4,649,558
|
|
|
|
4,649,558
|
|
|
|
4,646,225
|
|
|
|
4,645,975
|
|
|
|
4,645,975
|
|
|
Book
Value per Common Share
|
|
$
|
6.28
|
|
|
$
|
6.12
|
|
|
$
|
6.00
|
|
|
$
|
6.02
|
|
|
$
|
5.93
|
|
|
Tangible
Book Value per Common Share (b)
|
|
$
|
6.25
|
|
|
$
|
6.09
|
|
|
$
|
5.96
|
|
|
$
|
5.98
|
|
|
$
|
5.88
|
|
|
Performance
Ratios (annualized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on Average Assets
|
|
|
0.49
|
%
|
|
|
0.48
|
%
|
|
|
0.11
|
%
|
|
|
0.51
|
%
|
|
|
0.46
|
%
|
|
Return
on Average Common Equity
|
|
|
5.57
|
%
|
|
|
5.08
|
%
|
|
|
0.50
|
%
|
|
|
5.27
|
%
|
|
|
4.34
|
%
|
|
Net
Interest Margin
|
|
|
3.83
|
%
|
|
|
4.11
|
%
|
|
|
4.24
|
%
|
|
|
4.17
|
%
|
|
|
4.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent
Loans (30-89 days accruing interest)
|
|
$
|
1,449
|
|
|
$
|
588
|
|
|
$
|
1,141
|
|
|
$
|
2,667
|
|
|
$
|
2,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent
Loans (90 days or more and accruing)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
117
|
|
|
$
|
115
|
|
|
$
|
114
|
|
|
Non-accrual
Loans
|
|
$
|
1,739
|
|
|
$
|
2,100
|
|
|
$
|
2,047
|
|
|
$
|
1,964
|
|
|
$
|
3,221
|
|
|
OREO
and repossessed property
|
|
$
|
1,234
|
|
|
$
|
1,800
|
|
|
$
|
1,994
|
|
|
$
|
2,168
|
|
|
$
|
2,331
|
|
|
Total
Nonperforming Assets
|
|
$
|
2,973
|
|
|
$
|
3,900
|
|
|
$
|
4,158
|
|
|
$
|
4,247
|
|
|
$
|
5,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured
Loans
|
|
$
|
4,736
|
|
|
$
|
4,807
|
|
|
$
|
4,853
|
|
|
$
|
4,788
|
|
|
$
|
4,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
Assets / Total Assets
|
|
|
0.80
|
%
|
|
|
1.05
|
%
|
|
|
1.24
|
%
|
|
|
1.28
|
%
|
|
|
1.70
|
%
|
|
Nonperforming
Assets / Equity Capital & ALLL
|
|
|
8.42
|
%
|
|
|
11.28
|
%
|
|
|
12.16
|
%
|
|
|
12.36
|
%
|
|
|
16.67
|
%
|
|
Allowance
for Loan Losses / Nonperforming Assets
|
|
|
119.11
|
%
|
|
|
90.28
|
%
|
|
|
89.55
|
%
|
|
|
90.06
|
%
|
|
|
68.58
|
%
|
|
Allowance
for Loan Losses / Total Loans
|
|
|
1.21
|
%
|
|
|
1.18
|
%
|
|
|
1.27
|
%
|
|
|
1.34
|
%
|
|
|
1.40
|
%
|
|
Net
Loan Charge-offs (recoveries)
|
|
$
|
(20
|
)
|
|
$
|
122
|
|
|
$
|
1
|
|
|
$
|
(108
|
)
|
|
$
|
68
|
|
|
Net
Loan Charge-offs (recoveries) / Average Loans (%)
|
|
|
(0.03
|
%)
|
|
|
0.17
|
%
|
|
|
0.00
|
%
|
|
|
(0.04
|
%)
|
|
|
0.03
|
%
|
Note:
Financial information is unaudited.
(b)
Note
Reconciliation
of non-GAAP to GAAP:
|
|
|
6/30/16
|
|
3/31/16
|
|
12/31/15
|
|
9/30/15
|
|
6/30/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (GAAP)
|
|
$
|
31,768
|
|
|
$
|
31,043
|
|
|
$
|
30,464
|
|
|
$
|
30,548
|
|
|
$
|
30,111
|
|
|
Less:
Preferred stock
|
|
|
2,580
|
|
|
|
2,580
|
|
|
|
2,580
|
|
|
|
2,580
|
|
|
|
2,580
|
|
|
Less:
Core deposit intangible
|
|
|
145
|
|
|
|
159
|
|
|
|
174
|
|
|
|
189
|
|
|
|
207
|
|
|
Tangible
Common Equity (non-GAAP)
|
|
|
29,043
|
|
|
|
28,304
|
|
|
|
27,710
|
|
|
|
27,779
|
|
|
|
27,324
|
|
|
Common
shares outstanding
|
|
|
4,649,558
|
|
|
|
4,649,558
|
|
|
|
4,646,225
|
|
|
|
4,645,975
|
|
|
|
4,645,975
|
|
|
Tangible
Book Value per Common Share (non-GAAP)
|
|
$
|
6.25
|
|
|
$
|
6.09
|
|
|
$
|
5.96
|
|
|
$
|
5.98
|
|
|
$
|
5.88
|
|
Carolina Trust Bank 8-K12G3
Exhibit 99.11
Carolina
Trust Bank
901 East Main Street
P.O. Box 308
Lincolnton, North Carolina 28093-0308
Telephone: (704) 735-1104
|
Notice of Annual Meeting of Shareholders
|
|
Tuesday, May 10, 2016
|
To the Shareholders:
The 2016 Annual Meeting of the Shareholders
of Carolina Trust Bank (the “Bank”) will be held:
|
|
●
|
Tuesday, May 10, 2016
|
|
|
|
|
|
|
●
|
10:00 a.m. (local time)
|
|
|
|
|
|
|
●
|
The Lincoln Cultural Center
|
|
|
|
|
|
|
●
|
403 E. Main Street
|
|
|
|
|
|
|
●
|
Lincolnton (Lincoln County), North Carolina
|
or at any adjournments thereof, for the following purposes:
|
|
●
|
To elect five directors to serve three-year terms until the Annual Meeting in 2019, or until their successors are elected and qualified.
|
|
|
|
|
|
|
●
|
To approve a non-binding advisory vote on the compensation of the Bank’s executive officers.
|
|
|
|
|
|
|
●
|
To approve an Agreement and Plan of Reorganization and Share Exchange dated as of March 30, 2016, between Carolina Trust Bank and Carolina Trust BancShares, Inc., and the transactions contemplated by that agreement, including the reorganization of the bank into the holding company form of organization.
|
|
|
|
|
|
|
●
|
To ratify the appointment of Dixon Hughes Goodman LLP as the Bank’s independent registered public accounting firm for the year ending December 31, 2016.
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●
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To transact such other business as may properly come before the meeting or any adjournments thereof.
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Shareholders of record at the close of business
on March 21, 2016, are entitled to notice of the meeting and to vote at the meeting and any adjournments thereof. The Bank’s
stock transfer books will not be closed. The Bank has concluded that shareholders are not entitled to assert appraisal rights under
Article 13 of the North Carolina Business Corporation Act with respect to the proposed reorganization of the Bank under the share
exchange agreement referenced above.
Your vote is important
.
Whether
or not you attend the meeting in person, we encourage you to vote your shares by proxy. You may vote your shares by completing
the enclosed proxy card and returning it in the enclosed pre-paid envelope. Holders of our common stock may also vote their shares
via the internet. Even if you expect to attend the meeting, please vote your proxy. By doing so, you will not give up the right
to vote at the meeting. If you vote your proxy and then attend the meeting, you may notify the Secretary that you wish to vote
in person, and the Bank will disregard the proxy you previously voted, provided you do vote in person or otherwise validly revoke
your proxy.
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By order of the
Board of Directors,
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Jerry L. Ocheltree
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President
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April 5, 2016
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TABLE OF CONTENTS
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SUMMARY
|
1
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ANNUAL MEETING
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4
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VOTING OF APPOINTMENTS OF PROXY
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4
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REVOCATION OF APPOINTMENT OF PROXY
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5
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QUORUM
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6
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HOW YOUR VOTES WILL BE COUNTED
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6
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EXPENSES OF SOLICITATION
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7
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VOTING SECURITIES
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7
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BENEFICIAL OWNERSHIP OF SECURITIES
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8
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PROPOSAL 1: ELECTION OF DIRECTORS
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10
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MANAGEMENT OF THE BANK
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11
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Proposal 2: Advisory Vote on Executive Compensation
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24
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PROPOSAL 3: REORGANIZATION OF CAROLINA TRUST BANK INTO A BANK HOLDING COMPANY FORM OF ORGANIZATION
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25
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DESCRIPTION OF THE AGREEMENT
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26
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DESCRIPTION OF CAROLINA TRUST BANCSHARES, INC. CAPITAL STOCK
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30
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COMPARISON OF THE RIGHTS OF SHAREHOLDERS
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33
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PRO FORMA CONSOLIDATED CAPITALIZATION
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36
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INFORMATION ABOUT CAROLINA TRUST BANCSHARES, INC.
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36
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REGULATION AND SUPERVISION OF CAROLINA TRUST BANCSHARES, INC.
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37
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LEGAL MATTERS
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43
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PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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43
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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43
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ANNUAL REPORT
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44
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HOW TO SUBMIT SHAREHOLDER PROPOSALS
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44
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OTHER MATTERS
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45
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i
SUMMARY
This summary highlights the material
terms of Proposal 3 in this Proxy Statement. To understand the holding company reorganization fully and for a more complete description
of the legal terms of this transaction, you should carefully read this entire document and the documents to which we refer.
The Bank Intends to Reorganize Into a Holding
Company Structure (Page 25)
Carolina Trust Bank (the
“Bank”) is seeking shareholder approval to consummate a holding company reorganization pursuant to an Agreement and
Plan of Reorganization and Share Exchange dated as of March 30, 2016 (the “Agreement”) with Carolina Trust BancShares,
Inc. (“BancShares”). Under the holding company reorganization between the Bank and BancShares, all of the outstanding
shares of the Bank’s common stock would be exchanged for newly issued shares of BancShares’s common stock on a one-for-one
basis. For example, if you own 100 shares of the Bank’s common stock, you would become the owner of 100 shares of BancShares’s
common stock, if and when the holding company reorganization is completed. As a result of the share exchange, BancShares would
own 100% of the Bank’s common stock, and the Bank would continue its current business and operations as a North Carolina-chartered
bank using its current name.
The Bank’s Fixed Rate
Non-Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock”) will not be exchanged in connection with
the reorganization, but rather will remain as outstanding securities of the Bank. The Bank’s Preferred Stock and common stock
are collectively referred to in this proxy statement as the Bank’s “capital stock”.
The total cost of forming
the holding company is estimated to be $50,000, which would be borne by the Bank if the Board of Directors of the Bank (the “Board”)
and management of the Bank, following receipt of all required shareholder and regulatory approvals, choose to reorganize into a
holding company form of organization.
THE BANK’S CAPITAL STOCK IS NOT AND
BANCSHARES’s
CAPITAL STOCK WILL NOT BE INSURED BY THE FDIC OR GUARANTEED BY
THE ISSUER AND BOTH ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF VALUE.
Federal Income Tax Consequences (Page 28)
We will structure the proposed
transaction so that the Bank’s shareholders generally will not recognize any gain or loss for federal income tax purposes
as a result of the holding company reorganization. We will not seek a ruling from the U.S. Internal Revenue Service (“IRS”)
regarding the proposed transaction, so there can be no assurance that the IRS will agree with this characterization.
because
Tax Matters Can Be Complicated and Tax Results May Vary Among Shareholders, We Urge You to Contact Your Own Tax Advisor to Understand
Fully How the Transaction Would Affect You.
Board Recommends Shareholder Approval (Page 26)
The Board of the Bank believes
that granting authority to reorganize into a holding company form of organization is in the best interests of shareholders and
unanimously recommends that shareholders vote
“FOR”
approval of Proposal 3. The Board believes that a holding
company structure will permit additional flexibility in managing the organization’s capital structure and funding opportunities,
as well as provide additional opportunities to increase growth and diversity in its product and service offerings.
Annual Meeting (Page 4)
The Bank will hold its Annual Meeting of Shareholders
at 10:00 a.m., local time, on May 10, 2016 at the Lincoln Cultural Center located at 403 E. Main Street, Lincolnton (Lincoln County),
North Carolina.
The Companies
Carolina Trust Bank
901 East Main Street
Lincolnton, North Carolina 28093-0308
(704) 735-1104
The Bank is a state-chartered
commercial bank organized under the laws of the State of North Carolina. The Bank’s main office is located in Lincolnton,
North Carolina at the address above.
Carolina Trust BancShares, Inc.
901 East Main Street
Lincolnton, North Carolina 28093-0308
(704) 735-1104
At the direction of the Board,
in February of 2016, management of the Bank incorporated a North Carolina corporation named “Carolina Trust BancShares, Inc.”,
which was formed to be the owner of all of the Bank’s issued and outstanding shares of common stock should a reorganization
into a holding company be undertaken and completed. If the Bank’s common stock and Preferred Stock shareholders separately
approve the holding company reorganization agreement, and the reorganization is completed following the receipt of all required
regulatory approvals, then BancShares will own all of the shares of the Bank’s outstanding common stock and the former common
stock shareholders of the Bank will become the owners of all of BancShares’s outstanding common stock.
The Agreement Governing the Transaction (Page 26)
We have attached the holding
company reorganization Agreement as
Appendix A
at the back of this Proxy Statement. We encourage you to read this agreement,
as it is the legal document that governs the proposed holding company reorganization.
Votes Required to Approve the Transaction (Page 25)
Approval of the holding company
reorganization requires the affirmative vote of the holders of at least a majority of the outstanding shares of the Bank’s
common stock and of the holders of at least two-thirds (2/3) of the outstanding shares of the Bank’s Preferred Stock, voting
separately. A shareholder’s failure to vote will have the same effect as a vote against approval of the reorganization.
Directors and executive officers
of the Bank own approximately 6.42% of the shares of common stock (exclusive of exercisable options owned by such persons) that
may be cast at the meeting, and we expect them to vote in favor of the holding company reorganization. There are 11 registered
holders of the Bank’s Preferred Stock, and though such shares are generally nonvoting, the terms of the preferred stock provide
voting rights for such shares in connection with the holding company reorganization. Directors and executive officers of the Bank
own approximately 3.92% of the shares of Preferred Stock that may be cast at the meeting, and we expect them to vote in favor of
the holding company reorganization.
Brokers who hold shares as
nominees, or in “street name,” will not have the authority to vote such shares in the holding company reorganization
unless they receive instructions from the shareholder whose account they hold.
If we receive all required shareholder and
regulatory approvals, we anticipate that we will proceed with the holding company reorganization.
The Board, however, is
not required to consummate the transaction even if the shareholders approve the transaction.
The Record Date is March 21, 2016
If you owned shares of the
Bank’s common stock at the close of business on March 21, 2016, which we refer to as the Record Date, you may vote on the
matters to be considered at the Annual Meeting. As of March 21, 2016, there were 4,649,558 shares of the Bank’s common stock
issued and outstanding and approximately 1,491 shareholders of record. Each shareholder of the Bank’s common stock will have
one vote at the meeting for each share of stock they owned on such date.
There were 2,600 shares of
the Bank’s Preferred Stock issued and outstanding and 11 holders of the Bank’s Preferred Stock as of the Record Date.
The only proposal that holders of the Bank’s Preferred Stock are entitled to vote on at the Annual Meeting is Proposal 3.
Each shareholder of the Bank’s Preferred Stock will have one vote at the meeting for each share of Preferred Stock they owned
on such date.
Other Matters To Be Acted On
Since this is an annual meeting of shareholders,
the common stock shareholders are also being asked to take the following actions at the Annual Meeting:
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To elect five members of the Board of Directors each for a term of three years (Proposal 1);
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To approve an advisory vote on the compensation of the Bank’s executive officers (Proposal 2);
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To ratify the appointment of Dixon Hughes Goodman LLP as the Bank’s independent registered public accounting firm for
the year ending December 31, 2016 (Proposal 4); and
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●
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To transact any other business that may properly come before the meeting.
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Trading of Carolina Trust BancShares, Inc. Capital Stock
Shares of BancShares common
stock to be issued in connection with the holding company reorganization are expected to be listed for trading on the Nasdaq Capital
Market under the trading symbol “CART”. We can offer no assurance that a liquid market for shares of BancShares common
stock will develop or be maintained in the future.
Existing Share Certificates (Page 27)
If
the holding company reorganization is consummated, common stock shareholders will need to exchange their common stock certificates
of the Bank for BancShares common stock certificates after the transaction is completed. If we consummate the reorganization, we
will mail you information following the effective date of the transaction. We will include a letter of transmittal regarding the
procedures to be followed to exchange your certificates of common stock of the Bank for certificate(s) of common stock of BancShares.
DO NOT send your Bank common stock share certificates at this time, but await further instructions to do so.
Carolina
Trust Bank
901 East Main Street
P.O. Box 308
Lincolnton, North Carolina 28093-0308
Telephone: (704) 735-1104
PROXY STATEMENT
ANNUAL MEETING
The Board of Directors (the “Board”)
of Carolina Trust Bank (the “Bank”), hereby solicits your appointment of proxy, in the form enclosed with this Proxy
Statement, for use at the Annual Meeting of Shareholders (“Annual Meeting”) to be held:
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Tuesday, May 10, 2016
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10:00 a.m. (local time)
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The Lincoln Cultural Center
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403 E. Main Street
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Lincolnton (Lincoln County), North Carolina
|
or at any adjournment thereof, for the purposes
stated in the accompanying Notice of Annual Meeting of Shareholders. The Board has fixed the close of business on March 21, 2016,
as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. Included with
these proxy materials is the Bank’s 2015 Annual Report to Shareholders. The Bank anticipates mailing this Proxy Statement
and the enclosed form of appointment of proxy on or about April 5, 2016.
You are invited to attend the Annual Meeting.
Even if you plan to attend the Annual Meeting, please vote on the proposals described in this Proxy Statement on the internet or
by returning the enclosed appointment of proxy.
Important Notice Regarding the Availability
of Proxy Materials for the Shareholders Meeting to Be Held on Tuesday, May 10, 2016: The Proxy Statement, form of proxy and annual
report to shareholders are available at
http://www.carolinatrust.com
.
VOTING OF APPOINTMENTS OF PROXY
Your vote is important.
Your shares
can be voted at the annual meeting only if you attend the meeting or vote by proxy using one of the methods outlined below. You
do not have to attend the meeting to vote, but rather can vote by proxy if you so elect.
Instructions for our holders of common stock
.
Holders of our shares of common stock may vote by proxy via the following methods:
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●
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Vote over the internet
: You may access our internet voting site by going to:
http://www.proxyvote.com
. If you
have access to the internet, we encourage you to vote in this manner and also sign up for electronic delivery of future corporate
mailings. The internet voting procedures are designed to authenticate shareholders and to allow you to confirm that your instructions
have been properly
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followed. The internet voting facility for eligible shareholders
will close at 11:59 pm Eastern Time on Monday, May 9, 2016.
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●
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Vote by mail
: You may vote by executing and returning the enclosed appointment of proxy in the pre-addressed pre-paid
envelope provided with this Proxy Statement.
|
Instructions for our holders
of Preferred Stock
. Holders of our shares of Preferred Stock may vote by proxy by executing and returning the enclosed appointment
of proxy in the pre-addressed pre-paid envelope provided with this Proxy Statement.
The Board has named William
M. Wadsworth and Sue S. Stamey (the “Proxies”) as management proxies in the enclosed appointment of proxy. When appointments
of proxy in the enclosed form are properly executed and returned in time for the Annual Meeting, the shares they represent will
be voted at the meeting in accordance with the directions you give. If no directions are given on how to vote your shares, the
appointment of proxy will be voted FOR the five nominees for director in Proposal 1 described herein, FOR approval of the compensation
of the executive officers in Proposal 2, FOR approval of the proposed bank holding company reorganization in Proposal 3, and FOR
ratification of the appointment of Dixon Hughes Goodman LLP as the Bank’s independent registered public accounting firm in
Proposal 4. If, at or before the time of the Annual Meeting, any nominee named in Proposal 1 has become unavailable for any reason,
the Proxies will have the discretion to vote for a substitute nominee. On such other matters as may properly come before the meeting,
the Proxies will be authorized to vote the shares of common stock represented by appointments of proxy in accordance with their
best judgment. These matters include, among other matters, approval of the minutes of the 2015 annual meeting and consideration
of a motion to adjourn the Annual Meeting to another time or place.
Record Holders.
If
you hold your shares of the Bank’s capital stock in your own name, you are a “record” shareholder. Record shareholders
may complete and sign the accompanying appointment of proxy and mail it in the business return envelope provided or deliver it
in person to the Bank.
Street Name Holders.
If you hold your shares of the Bank’s capital stock through a broker or other nominee, you are a “street name”
shareholder. Street name shareholders who wish to vote at an annual meeting need to obtain the proxy materials from the institution
that holds their common stock and follow the voting instructions on that form.
REVOCATION OF APPOINTMENT
OF PROXY
The method by which you vote will not limit
in any way your right to vote at the Annual Meeting if you later decide to attend the Annual Meeting and vote in person.
If you vote an appointment of proxy
,
you may revoke that appointment at any time before the actual voting. To revoke the appointment of proxy:
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vote again over the internet prior to 11:59 pm Eastern Time on Monday, May 9, 2016,
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notify the Bank’s Secretary in writing,
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execute another appointment of proxy bearing a later date and file it with the Secretary, or
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vote in person at the meeting as described below.
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The address for the Secretary is:
Sue S. Stamey, Secretary
Carolina Trust Bank
P.O. Box 308
Lincolnton, North Carolina 28093-0308
If you vote the appointment of proxy
,
you may still attend the meeting and vote in person. When you arrive at the meeting, first notify the Secretary of your desire
to vote in person. You will then be given a ballot to vote in person, and provided you do vote in person or otherwise validly revoke
your prior appointment of proxy as described above, your appointment of proxy will be disregarded.
If you attend the meeting in person
,
you may vote your shares without returning the enclosed appointment of proxy. However, if you do not return the enclosed appointment
of proxy and your plans change and you are not able to attend, your shares will not be voted. Even if you plan to attend the meeting,
the best way to ensure that your shares will be voted is to return the enclosed appointment of proxy and, when you get to the meeting,
notify the Secretary that you wish to vote in person.
QUORUM
We will have two voting groups at the Annual
Meeting, with one group consisting of the holders of the shares of the Bank’s common stock and the second voting group consisting
of the holders of the shares of the Bank’s Preferred Stock. Shares entitled to vote as separate voting groups on a matter
may take action on a matter at the meeting only if a quorum of that voting group exists with respect to that matter. The holders
of a majority of the Bank’s outstanding shares of common stock and a majority of the Bank’s outstanding shares of Preferred
Stock, represented in person or by proxy, shall constitute a quorum at the Annual Meeting. If there is no quorum present at the
opening of the Annual Meeting, the Annual Meeting may be adjourned from time to time by the vote of a majority of the shares of
common stock and a majority of the shares of Preferred Stock voting on the motion to adjourn. As permitted under North Carolina
law, if we have a quorum present with respect to one voting group and not the other voting group, we may elect to continue the
meeting with respect to the voting group for which we have a quorum present and adjourn the meeting with respect to the voting
group for which a quorum may be lacking.
The holders of common stock are entitled to
vote on all matters at the Annual Meeting and thus the holders of a majority of the common stock outstanding, represented in person
or by proxy, must be present to constitute a quorum at the Annual Meeting with respect to that voting group. Additionally, the
holders of Preferred Stock are entitled to vote on Proposal 3 regarding the proposed reorganization of the Bank into the holding
company form of organization. A majority of the votes of preferred stock entitled to be cast on Proposal 3 must be present in person
or by proxy to constitute a quorum with respect to Proposal 3.
Abstentions and broker non-votes will be counted
as present and entitled to vote for purposes of determining whether a quorum is present at the Annual Meeting. A broker non-vote
occurs when an institution holding shares as a nominee does not have discretionary voting authority with respect to a proposal
and has not received voting instructions from the beneficial owner of the capital stock.
HOW YOUR VOTES WILL BE COUNTED
Each share of common stock is entitled to one
vote for each matter submitted for a vote, and, in the election of directors, for each director to be elected. Proxies will be
tabulated by one or more inspectors of election designated by the Board.
Proposal 1 — Election of directors.
In the election of directors under Proposal 1, the five nominees receiving the highest number of votes
for the five
director seats will be elected. Shares not voted (including abstentions and broker non-votes) will have no effect. Shareholders
are not authorized to cumulate their votes for directors.
Proposal 2 — Approval of executive
compensation.
The compensation of the Bank’s executive officers under this Proposal will be approved if the number of
votes cast for the Proposal exceeds the number of votes cast against the Proposal.
Shares not voted (including abstentions
and broker non-votes) will have no effect.
Proposal 3 — Approval of bank holding
company reorganization.
The proposed reorganization of the Bank into the holding company form of organization will be approved
if a majority of the Bank’s shares of common stock entitled to vote at the Annual Meeting and two-thirds of the Bank’s
shares of Preferred Stock entitled to vote at the Annual Meeting, voting as separate groups, each vote in favor of the Proposal.
Shares not voted (including abstentions and broker non-votes) will have the same effect as a vote against this Proposal.
Proposal 4 — Ratification of the appointment
of Dixon Hughes Goodman LLP as the Bank’s independent registered public accounting firm.
The appointment of the independent
registered public accounting firm will be ratified under this Proposal if the number of votes cast for the proposal exceeds the
number of votes cast against the proposal.
Shares not voted (including abstentions and broker non-votes) will have no effect.
Each share of Preferred Stock is entitled to
one vote for each matter that the holders of Preferred Stock are entitled to vote on. The holders of Preferred Stock are entitled
to vote on Proposal 3 only. Proxies will be tabulated by one or more inspectors of election designated by the Board.
EXPENSES OF SOLICITATION
We will pay the cost of this proxy solicitation.
In addition to solicitation by mail, the Bank’s directors, officers and regular employees may solicit appointments of proxy
in person, by telephone or via electronic means such as the internet. None of these employees will receive any additional or special
compensation for this solicitation. We will, on request, reimburse brokerage houses and other nominees their reasonable expenses
for sending these proxy soliciting materials to the beneficial owners of the Bank’s stock held of record by such persons.
VOTING SECURITIES
At the close of business on the Record Date,
there were 4,649,558 shares of the Bank’s common stock, par value $2.50 per share, issued and outstanding and entitled to
vote at the Annual Meeting. The Bank is authorized to issue 10,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The voting rights of any newly created series of preferred stock are to be set by the Board at the time such stock is issued.
At the close of business on the voting Record Date, there were 2,600 shares of Preferred Stock issued and outstanding. Registered
holders of the Bank’s outstanding Preferred Stock are entitled to vote as a separate voting group on Proposal 3, but are
not entitled to exercise voting rights on any other matters at the Annual Meeting. As of the Record Date, there were approximately
1,491 holders of record of the Bank’s common stock and approximately 11 holders of record of the Bank’s Preferred Stock.
BENEFICIAL OWNERSHIP OF SECURITIES
Common Stock
The following table sets forth the beneficial
ownership of each person known to the Bank to be holding more than five percent of the shares of common stock as of December 31,
2015 (as reported in filings on behalf of the shareholders listed below).
|
Name and Address of Shareholder
|
|
Shares
currently
owned
|
|
Percent
of
shares
owned
(1)
|
|
Pullco Financial Partners, LLC
|
|
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361,332
|
(2)
|
|
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7.78
|
%
|
|
1230 Peachtree Street, Suite 1150
|
|
|
|
|
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|
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Atlanta, Georgia 30309
|
|
|
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Wellington Management Group LLP
|
|
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282,156
|
(3)
|
|
|
6.07
|
%
|
|
280 Congress Street
|
|
|
|
|
|
|
|
|
|
Boston, Massachusetts 02210
|
|
|
|
|
|
|
|
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(1)
|
The ownership percentages of each individual shareholder listed above is calculated based on the total of 4,646,225 shares of common stock issued and outstanding at December 31, 2015.
|
|
|
|
|
|
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(2)
|
In the filing made by Pullco Financial Partners, LLP (“PFP”), PFP is managed by Pullco Capital Management, LLC (“PCM”) and William Pulliam is the President of PCM and manager of PFP. PFP has sole voting and dispositive power over 340,000 shares and Mr. Pulliam has sole and dispositive power over 21,332 shares.
|
|
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(3)
|
In the filing made by Wellington Management Company, LLP (“Wellington”), Wellington indicates it has shared voting power over the shares, which includes the 282,156 shares listed as owned by Wellington Group Holdings LLP and Wellington Management Company LLP.
|
The following table shows,
as of December 31, 2015, the number of shares of common stock owned by each director and executive officer and by all directors
and executive officers of the Bank as a group:
|
Name (position)
|
|
Shares
currently
owned
(1)
|
|
Percent
of
shares
owned
(2)
|
|
Bryan Elliott Beal (director)
|
|
|
15,528
|
|
|
|
*
|
|
|
Terri Q. Blake (director)
|
|
|
14,318
|
|
|
|
*
|
|
|
Scott C. Davis (director)
|
|
|
34,884
|
|
|
|
*
|
|
|
Richard Darrell Gettys (director)
|
|
|
11,103
|
|
|
|
*
|
|
|
Pamela C. Huskey (director)
|
|
|
7,540
|
|
|
|
*
|
|
|
Edwin E. Laws (EVP and Chief Financial Officer)
|
|
|
—
|
|
|
|
*
|
|
|
Jennifer Marion Mills (director)
|
|
|
400
|
|
|
|
*
|
|
|
Jerry L. Ocheltree (President and director)
|
|
|
52,449
|
|
|
|
1.12
|
%
|
|
Nancy B. Paschall (director)
|
|
|
7,480
|
|
|
|
*
|
|
|
Richard M. Rager (EVP and Chief Credit Officer)
|
|
|
19,192
|
|
|
|
*
|
|
|
Johnathan L. Rhyne, Jr. (director and Chairman)
|
|
|
141,679
|
|
|
|
3.05
|
%
|
|
Joseph M. Rhyne III (director)
|
|
|
13,276
|
|
|
|
*
|
|
|
Frederick P. Spach, Jr. (director)
|
|
|
13,434
|
|
|
|
*
|
|
|
Jim R. Watson (director)
|
|
|
24,123
|
|
|
|
*
|
|
|
Rosalind N. Welder (director)
|
|
|
9,413
|
|
|
|
*
|
|
|
Directors and executive officers as a group (15 persons)
|
|
|
364,819
|
|
|
|
7.73
|
%
|
|
|
*
|
Owns less than one percent of the outstanding
shares of common stock.
|
|
|
|
|
|
|
(1)
|
For each director and executive officer listed above, this column includes the following number of
shares of common stock capable of being issued within 60 days of December 31, 2015, upon the exercise of stock options held by
the named individual: Beal – 1,187; Blake – 1,143; Davis – 1,810; Gettys – 986; Ocheltree – 39,292;
Paschall – 1,863; Rager – 13,862; J.L. Rhyne – 4,161; J.M. Rhyne – 945; Spach – 2,758; Watson –
1,257; Welder – 994; and directors and executive officers as a group – 70,258. To the Bank’s knowledge, each
person has sole voting and investment power over the securities shown as beneficially owned by such person, except for the following
shares of common stock for which the individual indicates that he or she shares voting and/or investment power: Blake – 7,038;
Davis – 732; Huskey – 7,103; J.M. Rhyne – 2,104; Spach – 2,187; Watson – 17,820; and directors and
executive officers as a group – 36,984.
|
|
|
|
|
|
|
(2)
|
The ownership percentage of each individual is calculated based on the total of 4,646,225 shares of common stock issued and
outstanding at December 31, 2015, plus the number of shares that can be issued to that individual within 60 days of December 31,
2015, upon the exercise of stock options held by the individual. The ownership percentage of the group is based on the total shares
outstanding plus the number of shares that can be issued to the entire group within 60 days of December 31, 2015, upon the exercise
of all stock options held by the group.
|
Preferred Stock
The following table sets forth the beneficial
ownership of each person known to the Bank to be holding more than five percent of the shares of Preferred Stock as of December
31, 2015.
|
Beneficial Owner
|
|
Preferred Stock currently
owned
|
|
Percent of Preferred Stock owned
(2)
|
8267561 Canada Inc.
c/o EJF Capital, LLC
2107 Wilson Blvd, #410
Arlington, Virginia 22201
|
|
|
135
|
(1)
|
|
|
5.19
|
%
|
EJF Debt Opportunities Master Fund, LP
2107 Wilson Blvd, #410
Arlington, Virginia 22201
|
|
|
1,077
|
(1)
|
|
|
41.42
|
%
|
EJF Debt Opportunities Master Fund II, LP
2107 Wilson Blvd, #410
Arlington, Virginia 22201
|
|
|
908
|
(1)
|
|
|
34.92
|
%
|
EJF Tarp Holdings LLC
2107 Wilson Blvd, #410
Arlington, Virginia 22201
|
|
|
160
|
(1)
|
|
|
6.15
|
%
|
HHMI VII LLC
Howard Hughes Medical Institute
4000 Jones Bridge Road
Chevy Chase, Maryland 20815
|
|
|
141
|
|
|
|
5.42
|
%
|
|
|
(1)
|
Based on information available to the Bank, it is believed that each of the above marked holders with a shared address have
investment decisions directed by the same principal. As such, and assuming shared beneficial ownership, aggregate shared beneficial
ownership for the identified holders, together with one additional less than 5% holder believed to be affiliated with the group,
would be 2,307 shares, or 88.73% of the class.
|
|
|
|
|
|
|
(2)
|
The ownership percentages of each holder listed above is calculated based on the total of 4,646,225 shares of common stock
issued and outstanding at December 31, 2015.
|
The following table shows,
as of December 31, 2015, the number of shares of the Bank’s Preferred Stock owned by each director and executive officer
and by all directors and executive officers of the Bank as a group:
|
Beneficial Owner
|
|
Preferred
Stock
currently
owned
(1)
|
|
Percent of
Preferred
Stock
owned
(2)
|
|
Terri Q. Blake (director)
|
|
|
35
|
|
|
|
1.35
|
%
|
|
Scott C. Davis (director)
|
|
|
29
|
|
|
|
1.12
|
%
|
|
Richard Darrell Gettys (director)
|
|
|
23
|
|
|
|
*
|
|
|
Johnathan L. Rhyne, Jr. (director and Chairman)
|
|
|
15
|
|
|
|
*
|
|
|
Directors and executive officers as a group
|
|
|
102
|
|
|
|
3.92
|
%
|
|
|
*
|
Owns less
than one percent of the outstanding shares of Preferred Stock.
|
|
|
|
|
|
|
(1)
|
To the Bank’s knowledge, each person has sole voting and investment power over the securities
shown as beneficially owned by such person.
|
|
|
|
|
|
|
(2)
|
The ownership percentage of each individual is calculated based on the total of 2,600 shares
of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, issued and outstanding at December 31, 2015.
|
PROPOSAL 1: ELECTION OF DIRECTORS
Board size and membership.
Under the
Bank’s articles of incorporation and bylaws, the number of directors shall be the number the Board determines from time to
time prior to each Annual Meeting of Shareholders at which directors are to be elected. That number cannot be less than seven nor
more than thirty. The Bank’s articles of incorporation and bylaws also provide that the Board shall be divided into three
classes, each containing as nearly as equal a number of directors as possible, each elected to staggered three-year terms. The
Board has set the number of director seats for 2016 at thirteen.
Director Independence.
Other than President
and CEO Jerry L. Ocheltree, all of the current directors satisfy the independence requirements stated in the rules of The Nasdaq
Stock Market LLC (“Nasdaq”).
Directors to be elected at this Annual Meeting.
At this Annual Meeting, five directors will be elected to three-year terms, expiring at the Annual Meeting of Shareholders
in 2019, or until their successors are elected and qualified, or until their death, resignation or retirement. These are the Class
III directors.
How votes will be counted.
Unless you
give instructions to the contrary, the Proxies will vote for the election of the five nominees listed below by casting the number
of votes for each nominee designated by the shareholder proxies. If, at or before the meeting time, any of these nominees should
become unavailable for any reason, the Proxies have the discretion to vote for a substitute nominee. Management currently has no
reason to anticipate that any of the nominees will become unavailable.
Votes needed to elect.
The five nominees
receiving the highest number of votes will be elected.
Nominations.
The Nominating Committee
has nominated the four incumbent Class III Board members and one new nominee for election to the Board. All of the nominees have
served as directors of the Bank since its incorporation on December 5, 2000, with the exception of Jennifer Marion Mills, who was
appointed to the Board in 2015.
Nominees.
The following table shows
the names of the nominees for election, their ages at December 31, 2015, and their principal occupations during the past five years.
Listed below are the
names of the five directors nominated for election as a Class III directors for three-year terms expiring in 2019:
|
Name
|
|
Age
|
|
Principal Occupations During the Past Five Years
|
|
Bryan Elliott Beal
|
|
57
|
|
President and Chief Executive Officer since January 2013, prior to that, Chief Financial Officer, Carolina Mills, Inc., Maiden, NC.
|
|
|
|
|
|
|
|
Terri Q. Blake
|
|
63
|
|
Shareholder/Certified Public Accountant, Sherrill Blake & Harrison CPA PA (certified public accountants), Lincolnton, NC since 2012; prior to that, shareholder/Certified Public Accountant, Miller Sherrill Blake Eagle CPA PA (certified public accountants), Lincolnton, NC.
|
|
|
|
|
|
|
|
Jennifer Marion Mills
|
|
40
|
|
Director of Advertising, Randy Marion Automotive, since 1998, Mooresville, NC; Principal, Allstate Insurance Agency located at Randy Marion Chevrolet Buick Cadillac dealership since 2015, Mooresville, NC.
|
|
|
|
|
|
|
|
Joseph M. Rhyne III
|
|
45
|
|
Certified Financial Planner and insurance Agent, MassMutual Life Insurance Company; Registered Representative, MML Investors Services, Inc. (securities); both of Lincolnton, NC.
|
|
|
|
|
|
|
|
Jim R. Watson
|
|
61
|
|
Associate Professor, College of Education, University of North Carolina at Charlotte, Charlotte, NC; President, WSRR Consulting Group, LLC and Managing Partner, Silo Investors, LLC; both of Lincolnton; retired Superintendent, Lincoln County Schools.
|
The Board of Directors recommends that
the shareholders vote for the election of each of the nominees for director listed above. The five nominees receiving the highest
number of votes will be elected.
MANAGEMENT OF THE BANK
Directors
The following table shows the names, ages at
December 31, 2015, and principal occupations during the past five years of the Bank’s Class I and Class II directors. Each
such person has served as a director of the Bank since the Bank’s incorporation on December 5, 2000 with the exception of:
Mr. Ocheltree, who has served since 2014 when he was nominated to complete the term of the previous President and Chief Executive
Officer; Frederick P. Spach, Jr., who became a member of the Board after the merger of Carolina Commerce Bank, Gastonia, North
Carolina, with and into the Bank during the fourth quarter of 2009; and Nancy B. Paschall, who was elected at the 2013 annual meeting.
Both Ms. Paschall and Mr. Spach served as directors of Carolina Commerce Bank from the date of its incorporation on June 29, 2004.
Listed below are the names of the directors
elected as Class I directors for three-year terms expiring in 2017:
|
Name
|
|
Age
|
|
Principal Occupations During the Past Five Years
|
|
Richard Darrell Gettys
|
|
54
|
|
Electrical Engineer, Brittain Engineering, Hickory, NC since 2013; Executive Director of Facilities, Lincoln County School System, Lincolnton, NC until February 2013.
|
|
|
|
|
|
|
|
Nancy B. Paschall
|
|
55
|
|
Shareholder, Mullen, Holland & Cooper, PA (law firm), Gastonia, NC.
|
|
|
|
|
|
|
|
Frederick P. Spach, Jr.
|
|
52
|
|
President and CEO, Carolina Brush Manufacturing Co., Inc. (manufacturer of brushes for commercial and industrial use), Gastonia, NC.
|
|
Name
|
|
Age
|
|
Principal Occupations During the Past Five Years
|
|
Rosalind N. Welder
|
|
66
|
|
Retired June 2011; prior to that, Dean, Lincoln Campus Gaston College, Lincolnton, NC.
|
Listed below are the names of the directors
elected as Class II directors for three-year terms expiring in 2018:
|
Name
|
|
Age
|
|
Principal Occupations During the Past Five Years
|
|
Scott C. Davis
|
|
60
|
|
President, Gaston Electronics; President, Gaston County Dyeing Machine Company (manufacturing); both of Stanley, NC.
|
|
|
|
|
|
|
|
Pamela C. Huskey
|
|
65
|
|
Partner/Owner, Citizens Sprinkler, Inc.; Retired Lincoln County Clerk of Superior Court; both of Lincolnton, NC.
|
|
|
|
|
|
|
|
Jerry L. Ocheltree
|
|
55
|
|
President and Chief Executive Officer, Carolina Trust Bank since January 2014; prior to that, President and Chief Executive Officer, First Bank, Troy, North Carolina, from 2005 until June 2013.
|
|
|
|
|
|
|
|
Johnathan L. Rhyne, Jr.
|
|
60
|
|
Partner/Member, The Jonas Law Firm, P.L.L.C., Lincolnton, NC; former Member, North Carolina House of Representatives, 2009-2011, Raleigh, NC.
|
Director Qualifications
In evaluating a director candidate, the 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 Bank’s operations. In addition
to fulfilling the above criteria, all of the current directors of the Bank satisfy the independence requirements stated in the
rules of Nasdaq, other than Mr. Ocheltree, who is an employee of the Bank. The Nominating Committee believes that all of the current
directors are independent of the influence of any particular stockholder or group of stockholders whose interests may diverge from
the interests of our stockholders as a whole.
Each current director also brings a strong
and unique background and set of skills to the 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.
Four of our directors previously served on the Board of another community bank. Two of our directors have significant finance experience
and are qualified as audit committee financial experts as that term is defined in regulations promulgated under the Securities
Exchange Act of 1934, as amended. Two of our directors have experience in construction and real estate development, which comprises
a material portion of our loan portfolio. 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 Bank.
Bryan Elliott Beal
has extensive knowledge
in corporate accounting having spent the majority of the last twenty-five years in various Chief Financial Officer positions, which
included experience in mergers and acquisitions, and all of which qualify him to serve as the Bank’s audit committee financial
expert. He also holds positions with local civic and non-profit organizations.
Terri Q. Blake
has been in public accounting
since 1982 and brings to the Board knowledge of both personal and small business accounting and tax rules. Ms. Blake also serves
in leadership positions with several local non-profit and civic organizations.
Scott C. Davis
has expertise in marketing,
budgeting and management, which he brings to the Board through his experience in the manufacturing of textile electronic equipment
for the last 30 years.
Richard Darrell Gettys
has managed over
$100,000,000 in construction and renovation projects since 2004. He brings substantial expertise in budget management and the construction
industry to the Board. Mr. Gettys has also served in a leadership role on a local non-profit and civic organization.
Pamela C. Huskey
brings extensive knowledge
of the legal system in Lincoln County to the Board gained through her experience working in the Clerk of Court’s office for
30 years. After retiring from the Clerk’s office, she and her husband have successfully operated a commercial sprinkler business,
which has afforded her knowledge of operating small businesses as well as the local construction industry. Ms. Huskey has also
served on the boards of directors of various local non-profit organizations.
Jennifer Marion Mills
is the Director
of Advertising for Randy Marion Automotive. Randy Marion is the largest volume GM dealer in the Southeast with franchises including
Chevrolet, Buick, Cadillac, Ford, Lincoln, Subaru and Isuzu trucks. It operates six locations in Catawba, Iredell and Mecklenburg
Counties. Ms. Mills is also a principal in the new Allstae Insurance Agency at the Randy Marion Chevrolet Buick Cadillac dealership
in Mooresville, North Carolina. Ms. Mills is active in church and civic affairs. With the bank expanding its operation in Catawba
County and the recent opening of a loan production office in Iredell County, Ms. Mills’ business and community contacts provide
market knowledge and business development opportunities.
Jerry L. Ocheltree
has served in the
banking industry for over 30 years, including leadership roles as President and Chief Executive Officer for three banks. Prior
to joining the Bank, he served as the President and Chief Executive Officer of First Bancorp, the parent company of First Bank,
Troy, 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. He also served as Chair of the North Carolina Bankers Association for 2012
- 2013.
Nancy B. Paschall
is an attorney in
Gastonia. She was an organizing director of Carolina Commerce Bank, where she served as chair of the loan committee. She is the
past-chair of the Gaston Regional Chamber of Commerce. Ms. Paschall also serves on the boards of directors of various local non-profit
organizations.
Johnathan L. Rhyne, Jr.
is an attorney
in Lincolnton. From 2010 to 2012, 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 the 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 Bank operates. Mr. Rhyne also
serves as chair of the board of directors of a public foundation and on the board of directors of one local non-profit organization.
He also serves on the North Carolina Banking Commission having been appointed by the Governor in 2015.
Joseph M. Rhyne III
brings his extensive
knowledge of current market conditions and investment strategies as a financial planner to the Board. He is a Past President of
the Rotary Club of Lincolnton, and has held past leadership roles on several other local non-profit organizations.
Frederick P. Spach, Jr.
brings to the
Board 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.
Jim R. Watson
brings years of management
experience to the Board after managing 1,600 full and part-time employees and a budget of $100,000,000 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 the Bank operates.
Rosalind N. Welder
has been in education
for over 30 years, including 11 years in Lincoln County. She has also been very active in the civic affairs of Lincoln County,
serving on the boards of directors of several non-profit organizations.
Director Relationships
Board Relationships.
No director or
executive officer is related to another director or executive officer.
Other Directorships:
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 Securities Exchange Act of 1934, as amended (“Exchange Act”).
Committees of the Board of Directors
The Board has established the committees described
below.
Executive Committee
The Executive Committee may exercise all of
the Board’s authority between Board meetings subject to such limitations as may be required by law or imposed by Board resolution.
The Executive Committee held five meetings during 2015. The members of the Executive Committee during 2015 were Directors Johnathan
L. Rhyne, Jr. (chair), Bryan E. Beal, Jerry L. Ocheltree, Scott Craig Davis and Jim R. Watson.
Audit Committee
The Audit Committee is responsible for ensuring
that the Board receives objective information regarding Bank policies, procedures and activities with respect to auditing, accounting,
internal accounting controls, financial reporting, and such other Bank activities as the Board may direct. The Audit Committee
engages a qualified firm of certified public accountants to conduct such audit work as is necessary for this purpose. The Audit
Committee held five meetings during 2015. Please review the report of the Audit Committee below. The members of the Audit Committee
during 2015, each of whom satisfied the audit committee independence requirements stated in the rules of Nasdaq, were Directors
Bryan E. Beal (chair), Terri Q. Blake, Jennifer Marion Mills, Johnathan Rhyne (Ex Officio) and Rosalind N. Welder. Mr. Beal has
been appointed as the audit committee financial expert for the Audit Committee. His qualifications to serve as the audit committee
financial expert are listed under “Nominees” above.
Compensation Committee
The charter for the Compensation Committee
is available on the Bank’s corporate website located at
http://www.carolinatrust.com
. In accordance with its Charter,
the Compensation Committee approves compensation, including annual salary, stock option grants, incentive compensation and other
benefits, for senior management of the Bank. The Compensation Committee approves compensation based upon a review of
the compensation
earned by executive officers with financial institutions of similar asset size in North Carolina from an annual survey of compensation
prepared by the North Carolina Bankers Association. Mr. Ocheltree recommended base salaries other than his own and was permitted
to discuss the targets for incentive cash compensation. Mr. Ocheltree was not permitted to be present while his compensation was
being debated or approved by the Compensation Committee. For officer salaries paid during 2015, he participated in the discussion
of executive compensation other than his own. The Compensation Committee engaged a compensation consultant, Pearl Meyer, to provide
advice and recommendations on the amount or form of 2016 executive compensation. See the discussion below under Board Attendance
and Fees regarding the Committee’s use of a compensation consultant to provide advice regarding the amount and form of directors’
fees. The Compensation Committee held five meetings in 2015. The members of the Compensation Committee during 2015 were Directors
Jim R. Watson (chair), Terri Q. Blake, Scott Craig Davis, Richard Darrell Gettys, Johnathan L. Rhyne, Jr. and Jerry Ocheltree (Ex
Officio).
Nominating Committee
The Nominating Committee identifies individuals
qualified to become Board members and selects director nominees. The committee oversees all material aspects of the Board nominations
process. The Nominating Committee met twice during 2015. The members of the Nominating Committee during 2015 were Directors Johnathan
L. Rhyne, Jr. (chair), Bryan E. Beal, Scott Craig Davis, and Jim R. Watson.
Other standing committees
The Board has approved four additional standing
committees to which certain responsibilities have been delegated. These are the Loan Committee, the Property and Facilities Committee,
the Marketing and Business Development Committee, and the Asset/Liability and Investment Committee.
Corporate Governance: Board Leadership and Risk Oversight
Jerry L. Ocheltree serves as the Bank’s
Chief Executive Officer. Johnathan L. Rhyne, Jr. serves as the Bank’s Chairman of the Board. The Bank has determined that
splitting the role of Chairman of the Board and Chief Executive Officer is appropriate for the Bank, because the Board feels it
is prudent to have an independent director set the agenda for Board meetings instead of an inside director. The Board feels this
arrangement allows the directors to appropriately exercise their oversight role.
Responsibility for risk oversight ultimately
rests with the Board of Directors. The officers of the Bank are responsible for managing the Bank’s risks on a day-to-day
basis. Oversight of the Bank’s risk management is filtered to the Board primarily through the Audit, Loan and Asset/Liability
and Investment Committees. The committees with primary risk oversight functions are each chaired by independent directors in order
to provide a measure of third-party objectivity to the review of the officer’s management of risk.
Board Attendance and Fees
The Board held twelve meetings in 2015. All
the directors attended at least seventy-five percent of all Board and committee meetings in the aggregate. It is the policy of
the Board that all directors attend shareholder meetings. Eleven of the thirteen directors attended the 2015 Annual Meeting.
During 2015, the directors
received $500 for each Board meeting attended ($750 for the chair) and $200 for each committee meeting attended ($350 for the chair).
Beginning with the November 2015 meeting, directors received $600 for each Board meeting attended ($850 for the chair) and $250
for each committee meeting attended ($400 for the chair). In addition, directors receive an annual retainer of $3,000. During 2015,
the Compensation Committee employed Pearl Meyer & Partners (“Pearl Meyer”) to evaluate the Bank’s director
compensation as
compared to the director fees paid by a peer group developed by Pearl Meyer. The fees paid to the directors were
recommended by Pearl Meyer.
Director Compensation
The following table sets
forth certain information regarding the compensation paid by the Bank to our directors during the fiscal year ended December 31,
2015.
|
2015
Director Compensation Table
|
|
Name
|
|
|
Fees Earned
or
Paid in Cash ($)
|
|
|
Total
Compensation ($)
|
|
Bryan E. Beal
|
|
|
13,950
|
|
|
|
13,950
|
|
|
Terri Q. Blake
|
|
|
12,500
|
|
|
|
12,500
|
|
|
Scott C. Davis
|
|
|
13,900
|
|
|
|
13,900
|
|
|
Richard Darrell Gettys
|
|
|
13,550
|
|
|
|
13,550
|
|
|
Pamela C. Huskey
|
|
|
12,150
|
|
|
|
12,150
|
|
|
Jennifer M. Mills
|
|
|
2,450
|
|
|
|
2,450
|
|
|
Nancy B. Paschall
|
|
|
10,200
|
|
|
|
10,200
|
|
|
Johnathan L. Rhyne, Jr.
|
|
|
22,850
|
|
|
|
22,850
|
|
|
Joseph M. Rhyne III
|
|
|
9,550
|
|
|
|
9,550
|
|
|
Frederick P. Spach, Jr.
|
|
|
13,800
|
|
|
|
13,800
|
|
|
Jim R. Watson
|
|
|
14,000
|
|
|
|
14,000
|
|
|
Rosalind N. Welder
|
|
|
11,850
|
|
|
|
11,850
|
|
|
Roger D. Williams
(1)
|
|
|
6,650
|
|
|
|
6,650
|
|
|
|
(1)
|
Mr. Williams’ term as a director of the Bank
terminated during 2015.
|
Director Nominations
The charter for the Nominating
Committee is available on the Bank’s corporate website located at
http://www.carolinatrust.com
. Except for the additions
of Ms. Mills in 2015, Mr. Ocheltree in 2014, Ms. Paschall in 2012 and Mr. Spach in October 2009, there have been no additions to
the Board since the incorporation of the Bank. At such time as there is a need for nominations to the Board, nominations for election
to the Board shall be made by the Nominating Committee appointed by the Board. All members of the Nominating Committee satisfy
the independence requirements stated in the rules of Nasdaq. In order to be considered for election to the Board, the Bank’s
bylaws require the nominee be the owner and holder of shares of common stock having at least $1,000 in book value as of the last
business day of the calendar year immediately prior to the proposed election of that nominee. The Bank’s bylaws further provide
that any shareholder entitled to vote on such election may nominate any shareholder for election to the Board if written notice
of the nomination of such person is received by the Secretary of the Bank at the principal office of the Bank at least 45 days
prior to the date that notice of the previous year’s annual shareholder meeting was mailed to the shareholders. See “HOW
TO SUBMIT SHAREHOLDER PROPOSALS - Nominations of directors” in this Proxy Statement for further details. For both nominees
submitted by the Bank or shareholders for election to the Board, the Nominating Committee considers several factors beyond those
set forth above in determining whether to nominate a candidate for election to the Board. These additional factors include the
nominee’s personal and professional integrity, ability and judgment and his or her ability to be effective, in conjunction
with the other Board members and nominees, in collectively serving the long-term interests of the Bank’s shareholders. The
Committee also considers the overall composition of the Board taking into consideration such factors as business experience and
specific areas of expertise of each Board member. While the Bank and Nominating Committee do not have a specific policy with respect
to its Board
members’ diversity, the Committee does consider each nominee’s potential to contribute to the diversity
of backgrounds that the Board desires to have represented.
Shareholder Communications with Directors
The Bank encourages all shareholders who wish
to communicate with any of the directors to send such inquiries by mail, telephone or email to the Bank. The Bank will forward
all communications to the named director or, if no particular director is named, to the appropriate committee of the Board for
consideration.
Code of Ethics
The Bank has adopted a Code of Ethics for Senior
Officers to resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to all directors
and employees, including senior officers such as the Chief Executive Officer, the Chief Financial Officer, the Controller and any
other employee with any responsibility for the preparation and filing of documents with the Federal Deposit Insurance Corporation.
The Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance
with laws and regulations. The Code of Ethics is available on the Bank’s website located at
http://www.carolinatrust.com
.
The Bank may post amendments to or waivers of the provisions of the Code of Ethics, if any, made with respect to any of our executive
officers on that website. Please note, however, that the information contained on the website is not incorporated by reference
in, or considered to be a part of, this Proxy Statement.
Bank Transactions with Directors and Officers
The Bank expects to have banking transactions
in the ordinary course of the Bank’s business with directors, executive officers and their associates. All transactions with
directors, executive officers and their associates will be made in the ordinary course of the Bank’s business, on substantially
the same terms, including (in the case of loans) interest rates, collateral and repayment terms, as those prevailing at the same
time for other comparable transactions, and will not involve more than normal risks of collectibility or present other unfavorable
features.
At December 31, 2015, the aggregate outstanding
amount of indebtedness, net of amounts participated by other banks, from all directors and executive officers (and their associates)
as a group was $2,317,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Directors and executive officers of the Bank
are required by federal law to file reports with the Federal Deposit Insurance Corporation regarding the amount of and changes
in their beneficial ownership of the shares of common stock. To the Bank’s knowledge, all such required reports have been
timely filed.
Report of the Audit Committee
In accordance with its written Charter (which
is available on the Bank’s corporate website located at
http://www.carolinatrust.com
), the Audit Committee supervises
the quality and integrity of the accounting, auditing and financial reporting practices of the Bank on behalf of the Board. Management
has the primary responsibility for preparing the financial statements and managing the reporting process, including the system
of internal controls. As required by the Audit Charter, each Audit Committee member satisfies the independence and financial literacy
requirements for serving on the Audit Committee, and at least one member has accounting or related financial management expertise,
all as stated in the rules of Nasdaq. In fulfilling its oversight responsibilities, the Audit Committee discussed and reviewed
the audited financial statements in the Annual Report with management, including a discussion of the quality, not just the acceptability,
of the
accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements
of the Bank.
The Audit Committee discussed and reviewed
with the independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of the
audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality,
not just the acceptability, of the Bank’s accounting principles and such other matters as are required to be discussed with
the Audit Committee by Statement on Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90 (
Communication
with Audit Committees
).
In discharging its responsibility
for the audit process, the Audit Committee obtained from the independent registered public accounting firm a letter describing
all relationships between the accountants and the Bank that might bear on the accountant’s independence required by the applicable
requirements of the Public Company Accounting Oversight Board regarding the accountant’s communications with the audit committee
concerning independence. The Audit Committee also discussed with the accountants any relationships that might impact their objectivity
and independence and satisfied itself as to the accountant’s independence, and considered the compatibility of nonaudit services
with the accountant’s independence.
The Audit Committee reviewed
with both the independent accountants and the internal auditors their audit plans, audit scope, and identification of audit risks.
The Audit Committee met with the internal auditors and the independent accountants, with and without management present, to discuss
the results of their examinations, their evaluations of the Bank’s internal controls, the overall quality of the Bank’s
financial reporting, and the internal audit function’s organization, responsibilities, budget and staffing.
Based on the above-mentioned review and discussions
with management and the independent accountants, the Audit Committee recommended to the Board (and the Board approved) inclusion
of the Bank’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015,
for filing with the Federal Deposit Insurance Corporation.
This report is submitted by the Audit Committee:
Directors Bryan E. Beal (chair), Terri Q. Blake, Jennifer Marion Mills and Rosalind N. Welder.
Executive Officers
Set forth below are the executive officers
of the Bank and their ages at December 31, 2015, together with a brief description of prior business experience:
|
Name
|
|
Age
|
|
Principal Occupations During the Past Five Years
|
|
Jerry L. Ocheltree
|
|
55
|
|
President and Chief Executive Officer, Carolina Trust Bank since January 2014; prior to that, President and Chief Executive Officer, First Bank, Southern Pines, North Carolina, from 2005 until June 2013.
|
|
|
|
|
|
|
|
Richard M. Rager
|
|
59
|
|
Executive
Vice President and Chief Credit Officer, Carolina Trust Bank since September 2011; prior to that, Senior
Vice President and Chief Credit Officer, Carolina Trust Bank.
|
|
|
|
|
|
|
|
Edwin E. Laws
|
|
56
|
|
Executive Vice President and Chief Financial Officer, Carolina Trust Bank since March 2016; prior to that, Senior Vice President, Finance, First Bank, Southern Pines, North Carolina, from 2010 until 2016.
|
Executive Compensation
Cash compensation.
This table sets
forth certain information regarding the compensation paid by the Bank to or for our Chief Executive Officer, Chief Financial Officer
and Chief Credit Officer (our “named executive officers”) for the years indicated. There were only three executive
officers of the Bank during 2015.
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock Awards
|
|
Option Awards
|
|
All Other Compensation
|
|
Total Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry L. Ocheltree
|
|
|
2015
|
|
|
$
|
265,000
|
|
|
$
|
107,325
|
|
|
$
|
—
|
|
|
$
|
3,335
|
|
|
$
|
98,519
|
(1)
|
|
$
|
474,179
|
|
|
President and CEO
|
|
|
2014
|
|
|
|
240,000
|
|
|
|
60,000
|
|
|
|
33,100
|
|
|
|
82,910
|
|
|
|
85,308
|
(2)
|
|
|
501,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald J. Boyer
(3)
|
|
|
2015
|
|
|
|
142,000
|
|
|
|
15,000
|
|
|
|
—
|
|
|
|
3,335
|
|
|
|
22,809
|
(4)
|
|
|
183,144
|
|
|
EVP and CFO
|
|
|
2014
|
|
|
|
130,810
|
|
|
|
19,560
|
|
|
|
—
|
|
|
|
10,480
|
|
|
|
28,433
|
(5)
|
|
|
189,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Rager
|
|
|
2015
|
|
|
|
162,000
|
|
|
|
54,675
|
|
|
|
—
|
|
|
|
3,335
|
|
|
|
49,181
|
(6)
|
|
|
269,171
|
|
|
EVP and CCO
|
|
|
2014
|
|
|
|
144,200
|
|
|
|
21,600
|
|
|
|
—
|
|
|
|
20,960
|
|
|
|
40,988
|
(7)
|
|
|
227,748
|
|
|
|
(1)
|
Includes fees paid to the officer for Board and committee meetings attended as a member of the Board of Directors, the Bank’s
matching contribution on behalf of the officer under the Bank’s salary deferral plan under Section 401(k) of the Code, as
amended (“401(k) Plan”), medical, dental and life insurance premiums paid on the officer’s behalf, the officer’s
automobile allowance, and country club dues.
|
|
|
|
|
|
|
(2)
|
Includes an accrual of $48,000 on behalf of the officer under the Bank’s non-qualified retirement agreement with the
officer, $12,658 for moving expenses, fees paid to the officer for Board and committee meetings attended as a member of the Board
of Directors, the Bank’s matching contribution on behalf of the officer under the Bank’s 401(k) Plan, and the officer’s
automobile allowance.
|
|
|
|
|
|
|
(3)
|
Mr. Boyer is deceased. He was employed by the Bank until December 27, 2015.
|
|
|
|
|
|
|
(4)
|
Includes fees paid to the officer for Board and committee meetings, medical, dental and life insurance premiums paid on the
officer’s behalf, and the Bank’s matching contribution on behalf of the officer under the Bank’s 401(k) Plan.
|
|
|
|
|
|
|
(5)
|
Includes an accrual of $20,401 under the Bank’s non-qualified retirement plan on behalf of the officer, the Bank’s
matching contribution on behalf of the officer under the Bank’s 401(k) Plan and fees paid for attendance at Board and committee
meetings.
|
|
|
|
|
|
|
(6)
|
Includes the Bank’s matching contribution on behalf of the officer under the Bank’s 401(k) Plan and medical, dental
and life insurance premiums paid on the officer’s behalf.
|
|
|
|
|
|
|
(7)
|
Includes the accrual of $36,106 under the Bank’s non-qualified retirement plan on behalf of the officer and the Bank’s
matching contribution on behalf of the officer under the Bank’s 401(k) Plan.
|
Outstanding Equity Awards at Fiscal Year-End
The following tables contain information with
respect to outstanding equity awards of the Bank held by the named executive officers at and as of December 31, 2015.
|
|
|
OPTION AWARDS
|
|
STOCK AWARDS
|
|
Name
|
|
Number of securities
underlying unexercised options (#) exercisable
|
|
Number of securities underlying unexercised options (#) unexercisable
|
|
Option exercise
price ($)
|
|
Option Expiration Date
|
|
Number of shares not vested #
|
|
Market value
of shares not vested ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry L. Ocheltree
|
|
|
15,000
|
|
|
|
20,000
|
(1)
|
|
|
3.31
|
|
|
1/1/24
|
|
|
|
6,666
|
(6)
|
|
41,329
|
|
|
|
|
|
4,000
|
|
|
|
4,000
|
(2)
|
|
|
4.92
|
|
|
8/18/24
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
874
|
(3)
|
|
|
5.39
|
|
|
4/27/25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald J. Boyer
(5)
|
|
|
550
|
|
|
|
-0-
|
|
|
|
14.98
|
|
|
7/17/17
|
(5)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2,000
|
|
|
|
-0-
|
|
|
|
12.25
|
|
|
3/10/18
|
(5)
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
-0-
|
|
|
|
3.14
|
|
|
3/9/21
|
(5)
|
|
|
|
|
|
|
|
|
|
OPTION AWARDS
|
|
STOCK AWARDS
|
|
Name
|
|
Number of securities
underlying unexercised options (#) exercisable
|
|
Number of
securities underlying unexercised
options (#) unexercisable
|
|
Option exercise
price ($)
|
|
Option
Expiration
Date
|
|
Number of shares not vested #
|
|
Market value
of shares not vested ($)
|
|
|
|
|
2,000
|
|
|
|
-0-
|
|
|
|
3.06
|
|
|
3/19/23
|
(5)
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
-0-
|
|
|
|
4.92
|
|
|
8/18/24
|
|
|
|
|
|
|
|
|
|
|
|
1,166
|
|
|
|
-0-
|
|
|
|
5.39
|
|
|
4/27/25
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Rager
|
|
|
2,420
|
|
|
|
-0-
|
|
|
|
16.21
|
|
|
6/20/16
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
1,650
|
|
|
|
-0-
|
|
|
|
14.98
|
|
|
7/17/17
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
-0-
|
|
|
|
12.25
|
|
|
3/10/18
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
-0-
|
|
|
|
3.14
|
|
|
3/9/21
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
500
|
(4)
|
|
|
3.06
|
|
|
3/19/23
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
4,000
|
(2)
|
|
|
4.92
|
|
|
8/18/24
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
874
|
(3)
|
|
|
5.39
|
|
|
4/27/25
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects a January 1, 2014, option grant. The 20,000 shares underlying unexercisable options vested on January 1, 2016.
|
|
|
|
|
|
|
(2)
|
Reflect option grants made on August 18, 2014. Shares underlying these option grants, subject to continued service requirement,
vest in four equal increments on August 18, 2014, 2015, 2016, and 2017.
|
|
|
|
|
|
|
(3)
|
Reflect option grants made on April 27, 2015. Shares underlying these option grants, subject to continued service requirement,
vest in approximately four equal increments on April 27, 2015, 2016, 2017, and 2018.
|
|
|
|
|
|
|
(4)
|
Reflects option grant made on May 19, 2013. Shares underlying this option grant, subject to continued service requirement,
vest in four equal increments on May 19, 2013, 2014, 2015, and 2016.
|
|
|
|
|
|
|
(5)
|
As a result of Mr. Boyer’s death on December 27, 2015, these options will terminate on December 27, 2016.
|
|
|
|
|
|
|
(6)
|
Reflects unvested portion of grant of 10,000 shares of restricted stock originally granted on January 1, 2014. Shares vest
in 1/3 increments, with annual vesting dates of January 1, 2015, 2016 and 2017. Market value of unvested shares calculated based
on NASDAQ closing price as of December 31, 2015.
|
Terms of the Employment Agreements.
Mr. Ocheltree
: The Bank entered into
an employment contract with Mr. Ocheltree effective January 1, 2014 (the “Ocheltree Agreement”). Under the Ocheltree
Agreement, he received an annual cash salary of $265,000, with discretionary bonuses as determined pursuant to the Bank’s
management incentive program (his target bonus for 2015 was 30% of annual salary, or 79,500). The initial term of the Ocheltree
Agreement was for two years and on or before each annual anniversary date after the initial two year period, the term of the original
Ocheltree Agreement would have been extended for up to an additional one year period beyond the then effective expiration date
upon a Board resolution to that effect. By amendment dated August 1, 2014 (“Term Amendment”), the renewal period was
changed to the first anniversary of the Ocheltree Agreement. On that date, the term of the Ocheltree Agreement was automatically
extended for an additional one year period beyond the then effective expiration date. On each subsequent anniversary date, the
Ocheltree Agreement will be automatically extended unless written notice from the Bank or the officer is received 90 days prior
to the anniversary date advising the other that the Ocheltree Agreement shall not be further extended. The effect of the Term Amendment
is that the term of the Ocheltree Agreement is two years. Mr. Ocheltree has the option to terminate the Ocheltree Agreement upon
ninety days written notice to the Bank. While employed by the Bank and for one year following termination of employment, the Ocheltree
Agreement prohibits him from competing with the Bank. The Ocheltree Agreement also provided for the awarding of 35,000 stock options
to vest two years after issuance, the granting of 10,000 shares of common stock that will vest equally over three years, participation
in a defined contribution supplemental retirement plan funded at not less than 20% of his base
salary to vest after five years
of employment, and reimbursement of up to $7,500 in reasonable moving expenses. In addition, he is also entitled to all fringe
benefits that are generally provided by the Bank for its employees.
Officer Rager:
The Bank entered into
an employment contract with Richard M. Rager, Executive Vice President and Chief Credit Officer of the Bank, effective June 6,
2006 (the “Rager Agreement”). In 2014, the Bank amended the Rager Agreement to reduce the term of the agreement to
two years. On each anniversary of the effective date, the term of the Rager Agreement is automatically extended for an additional
one year period beyond the then effective expiration date unless written notice from the Bank or Mr. Rager is received 90 days
prior to the anniversary date advising the other that the Rager Agreement shall not be further extended. Mr. Rager has the option
to terminate the Rager Agreement upon sixty days written notice to the Bank. While employed by the Bank and for one year following
termination of employment, the Rager Agreement prohibits Mr. Rager from competing with the Bank. Under the Rager Agreement, Mr.
Rager receives an annual cash salary, with annual adjustments and discretionary bonuses as determined by the Compensation Committee.
In addition, Mr. Rager is also entitled to all fringe benefits that are generally provided by the Bank for its employees.
Potential Payments Following
a Change in Control.
Under the terms of the Ocheltree Agreement, Mr. Ocheltree has the right to terminate his employment if
he determines, in his sole discretion, that 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 the Ocheltree Agreement, 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:
|
|
●
|
Any person or group acquires beneficial ownership representing thirty-five percent (35%) or more of any class of voting securities
of the Bank, or acquires control of, in any manner, the election of a majority of the Bank’s Board; or
|
|
|
|
|
|
|
●
|
The Bank consolidates or merges with or into another corporation, association or entity, or is otherwise reorganized, where
the Bank is not the surviving corporation in such transaction; or
|
|
|
|
|
|
|
●
|
All or substantially all of the assets of the Bank are sold or otherwise transferred to or are acquired by any other corporation,
association or other person, entity or group.
|
Upon such a termination of
employment following a change in control during the first year of the Ocheltree Agreement, the original Ocheltree Agreement provided
that Mr. Ocheltree would be paid an amount equal to 1.99 times his “base amount” as defined in Section 280G(b)(3) of
the Internal Revenue Code of 1986, as amended (the “Code”). After any subsequent year of the original Ocheltree Agreement,
the payment would have been equal to his base amount. By another amendment to the Ocheltree Agreement dated August 1, 2014, the
Bank’s payment was increased to 2.99 times Mr. Ocheltree’s base amount for any change in control that takes place during
the term of the Ocheltree Agreement. This compensation is payable in a lump sum. Mr. Ocheltree’s stock options and restricted
stock also fully vest in the event of a change in control. The Bank has the right, under the Ocheltree Agreement, to reduce any
such benefits as necessary under the Internal Revenue Code to avoid the imposition of excise taxes on Mr. Ocheltree or the disallowance
of a deduction to the Bank.
Under the terms of each Officer
Agreement, the officer has the right to terminate his employment if he determines, in his sole discretion, that 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 the Officer Agreement,
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:
|
|
●
|
Any person or group acquires beneficial ownership representing more than fifty percent (50%) of the fair market value or voting
power of the Bank’s securities;
|
|
|
|
|
|
|
●
|
During any period of twelve consecutive months, any person or group acquires beneficial ownership representing thirty-five
percent (35%) or more of any class of voting securities of the Bank, or a majority of the Bank’s Board is replaced by individuals
who were not appointed, or whose election was not endorsed in advance, by a majority of the Bank’s Board; or
|
|
|
|
|
|
|
●
|
During any period of twelve consecutive months, any person or group acquires more than forty percent (40%) of the assets of
the Bank.
|
Upon such a termination of
employment following a change in control, the Bank has agreed to pay each officer an amount equal to 2.99 times his “base
amount” as defined in Section 280G(b)(3) of the Code. This compensation is payable in a lump sum. The Bank has the right,
under the Agreements, to reduce any such payments as necessary under the Code to avoid the imposition of excise taxes on each officer
or the disallowance of a deduction to the Bank.
Upon the effective date of
a dissolution, liquidation, reorganization, merger, or consolidation of the Bank with one or more other corporations in which the
Bank is not the surviving corporation, or the transfer of all or substantially all of the assets or shares of the Bank to another
person or entity, or a tender offer approved by the Board (any such transaction being hereinafter referred to as an “Acceleration
Event”) in which the options are not assumed by the surviving entity, all unvested options granted under the Bank’s
stock options plans shall become immediately exercisable in full and may thereafter be exercised at any time before the date of
consummation of the Acceleration Event.
Potential Payments Upon
Termination
.
Under the Ocheltree 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 the Ocheltree
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 this 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.
Under the Officer Agreements,
in the event either officer’s employment is terminated by the Bank without cause, the Bank is obligated to pay each officer
the compensation and benefits provided for in the Officer Agreements for the remaining term of each Officer 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 Officer Agreement.
Retirement Benefits
As required by the terms of the Ocheltree Agreement,
on August 27, 2014, the Bank executed an agreement with Mr. Ocheltree providing an individual Supplemental Executive Retirement
Plan (“Ocheltree SERP”). Because of federal tax code limitations on the amount of compensation that may be deferred
by a highly compensated employee under the 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 the 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 Ocheltree SERP, the Bank shall annually
accrue a liability retirement account 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 five years from January 1, 2014. 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.
In August 2007, for officer Rager and certain
other Bank officers then employed, the Bank adopted a Supplemental Executive Retirement Plan to supplement the amount that these
officers can defer until retirement for the same reasons it entered into the Ocheltree SERP (“Officer SERP”). The Bank
owns life insurance policies on the lives of certain current and former executive officers. The benefits from these policies are
intended to offset the cost of future funding of the retirement benefits payable under the Officer SERP. These retirement benefits
are also unfunded and are not intended to be a tax-qualified retirement plan under Section 401(a) of the Code.
For Mr. Rager, the Officer SERP provides an
annual retirement benefit equal to fifteen percent (15%) of his average annual base salary during his final five years of employment.
His benefit will be paid over the ten (10) years following his retirement. Each officer becomes ten percent vested for each year
of service with the Bank, and becomes fully vested in all retirement benefits after ten years of service. Vesting will be accelerated
following the occurrence of the following events:
|
Specified Event
|
|
Percent Vested
|
|
Separation from Service after Change in Control
|
|
|
100
|
%
|
|
Separation from Service after Disability
|
|
|
100
|
%
|
|
Separation from Service after Ten (10) Years of Service
|
|
|
100
|
%
|
If
the officer dies while employed by
the Bank, the Bank shall 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.
Potential Payments Following a Change in
Control.
In the event of a change of control of the Bank (as defined in the Ocheltree SERP), Mr. Ocheltree shall be paid the
accrued balance under the Ocheltree SERP in a lump sum thirty (30) days following the change of control. 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 the Officer Agreements), the full retirement benefit under the Officer SERP is payable
in a lump sum using a five percent discount rate at the beginning of the month following the officer’s termination. The Officer
SERP also provides that 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 shall 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.
Potential Payments Upon Termination
.
If Mr. Ocheltree is terminated after vesting but prior to retirement, the accrued balance under the Ocheltree SERP shall be
paid to Mr. Ocheltree in a lump sum thirty (30) days following his attainment of the age of sixty-five. If the employment of officer
Rager with the Bank is terminated without cause, the vested retirement benefit under his Officer SERP is payable in a lump sum
using a five percent discount rate at the beginning of the month following the officer’s termination. Termination for cause
includes termination because of the officer’s gross negligence or gross neglect of his duties, fraud, embezzlement or theft,
intentional wrongful damage to the business or property of the Bank, willful misconduct which may cause substantial economic or
reputation injury to the Bank, or the conviction for or plea of nolo contendere to a felony or misdemeanor involving dishonesty
or moral turpitude. No benefit will be payable if officer Rager is terminated for cause.
Proposal
2: Advisory Vote on Executive Compensation
Section 14A of the Securities Exchange Act
requires the Bank to conduct periodic shareholder advisory votes on executive compensation. At the 2013 Annual Meeting, the shareholders
voted to approve the Board’s recommendation that this shareholder advisory vote on executive compensation be conducted annually.
This “say-on-pay” proposal permits
shareholders to approve the compensation paid or provided to the Bank’s named executive officers and the Bank’s compensation
policies and practices. By voting “FOR” Proposal 2, you will be approving the compensation paid or provided to named
executive officers of the Bank and the Bank’s executive compensation policies and practices, as described in the tabular
and narrative compensation disclosures contained in this Proxy Statement above under “Executive Compensation.”
The vote by the Bank’s shareholders on
this Proposal 2 is a non-binding, advisory vote. This means that the results of the vote will not be binding on the Bank’s
Board of Directors or its Compensation Committee, will not overrule or affect any previous action or decision by the Board or the
Compensation Committee or any compensation previously paid or awarded, and will not create or imply any additional duty on the
part of the Board or the Compensation Committee.
The Board of Directors and its Compensation
Committee believe that the Bank’s compensation policies and practices appropriately reward performance without inviting unnecessary
risk-taking by its executive officers and are strongly aligned with the long-term interests of the Bank’s shareholders. Further,
the Board and its Compensation Committee believe the compensation paid or provided to the Bank’s named executive officers
is and has been appropriate for each of the named executive officers and comparable to the compensation of officers of peer institutions
for the industry in which the Bank operates.
For the foregoing reasons, the Board
of Directors recommends that you approve the compensation of the Bank’s executive officers by voting “FOR” Proposal
2. This proposal will be approved if the number of votes cast in favor of Proposal 2 exceeds the number of votes cast against it.
PROPOSAL 3: REORGANIZATION OF CAROLINA
TRUST BANK INTO A BANK
HOLDING COMPANY FORM OF ORGANIZATION
THE FOLLOWING INFORMATION DESCRIBES MATERIAL
ASPECTS OF THE PROPOSED REORGANIZATION OF CAROLINA TRUST BANK INTO A BANK HOLDING COMPANY TO BE CALLED CAROLINA TRUST BANCSHARES,
INC. THE FULL TEXT OF THE AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE IS ATTACHED AS
APPENDIX A
.
General
Carolina Trust Bank (the
“Bank”) and Carolina Trust BancShares, Inc. (“BancShares”) have entered into an Agreement and Plan of Reorganization
and Share Exchange dated as of March 30, 2016 (the “Agreement”), pursuant to which BancShares will become a bank holding
company with the Bank as its wholly owned subsidiary (the “Holding Company Reorganization”). A copy of the Agreement
is attached as
Appendix A
to this Proxy Statement. BancShares is a North Carolina business corporation that was incorporated
on February 29, 2016, at the direction of the Board of Directors of the Bank. BancShares was formed for the purpose of becoming
the holding company of the Bank when, and if, the Board of the Bank determined to proceed with a reorganization into the holding
company form of ownership. BancShares has no current operations and has never commenced any operations.
If the Holding Company Reorganization
is approved by the holders of the Bank’s common stock and Preferred Stock, voting as separate groups, and all other conditions
set forth in the Agreement are satisfied, including receipt of all required regulatory approvals, all of the outstanding shares
of the Bank’s common stock will be converted into the right to receive an equal number of shares of BancShares’ common
stock in a one-for-one exchange. If the Holding Company Reorganization is consummated, there will be no changes to the outstanding
shares of the Bank’s Preferred Stock, which will continue with the same rights, preferences, privileges and voting powers,
and limitations and restrictions, that such Bank Preferred Stock had prior to the Holding Company Reorganization.
After the effective date
of the Holding Company Reorganization, the Bank will continue its existing business and operations as a wholly owned subsidiary
of BancShares. The consolidated assets, liabilities, common stock shareholders’ equity and income of BancShares immediately
following the effective date will be the same as those of the Bank immediately prior to the effective date. The Bank will continue
to operate under the name “Carolina Trust Bank”, and its deposit accounts will continue to be insured up to applicable
limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The corporate existence
of the Bank will continue unaffected and unimpaired by the Holding Company Reorganization, except that all of the outstanding shares
of the Bank’s common stock will be owned by BancShares. The current common stock shareholders of the Bank will own all of
the outstanding shares of BancShares’s common stock after completion of the Holding Company Reorganization.
Each director of the Bank
will remain a director of the Bank following the Holding Company Reorganization. The initial Board of Directors of BancShares will
be comprised of the following individuals, each of whom is a current member of the Bank’s Board of Directors: Johnathan L.
Rhyne, Jr., Bryan E. Beal, Scott Craig Davis, Jerry L. Ocheltree, Frederick P. Spach, Jr., and Jim R. Watson.
Vote Required
Common Stock
. Approval
of the Agreement requires the approval of a majority of the issued and outstanding shares of the Bank’s common stock. The
required vote of shareholders is based upon the number of outstanding
shares of the Bank’s common stock and not the number
of those shares that are actually voted. Accordingly, anything but a vote “FOR” the Holding Company Reorganization
proposal will have the effect of a vote “AGAINST” the proposal. That is why your vote is very important. The failure
to submit a proxy card, to vote by Internet or in person at the Annual Meeting, or an abstention from voting, will have the same
effect as a vote “AGAINST” this proposal.
Preferred Stock
. Under
North Carolina law, approval of the Agreement also requires the approval of two-thirds (2/3) of the issued and outstanding shares
of the Bank’s Preferred Stock voting as a separate class. Accordingly, anything but a vote “FOR” Proposal 3 will
have the effect of a vote “AGAINST” the proposal. The failure to submit a proxy card or vote in person at the Annual
Meeting, or an abstention from voting by the Preferred Stock shareholder, will have the same effect as a vote “AGAINST”
Proposal 3.
THE BANK’S BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE PROPOSED HOLDING COMPANY REORGANIZATION AND UNANIMOUSLY RECOMMENDS A VOTE “
FOR
” APPROVAL
AND ADOPTION OF THE AGREEMENT.
DESCRIPTION OF THE AGREEMENT
The Bank
The Bank was incorporated
on December 5, 2000, and opened for business on December 8, 2000. The Bank’s main office is located at 901 East Main Street,
Lincolnton, North Carolina 28093-0308.
Carolina Trust BancShares, Inc.
BancShares was incorporated
in February 29, 2016 at the direction of the Bank’s Board. BancShares must apply to, and obtain the approval of, the Federal
Reserve in order to consummate the Holding Company Reorganization and become the registered bank holding company of the Bank. Upon
consummation of the Holding Company Reorganization, BancShares will have no significant assets other than the shares of the Bank’s
common stock acquired in the Holding Company Reorganization, and will have no significant liabilities. Initially, BancShares will
neither own nor lease any property, but will instead use the premises, equipment and furniture of the Bank. There is no intent
to have BancShares employ any persons other than certain executive officers of the Bank, although it may utilize the support staff
of the Bank from time to time. Additional employees may be hired, as appropriate, to the extent BancShares expands its business
in the future.
Reasons for the Reorganization
The Bank’s Board believes
that having the authority to reorganize into a holding company form of organization would create a more flexible organizational
structure that could provide benefits such as additional alternatives for funding the Bank’s growth, the ability to accommodate
distinct subsidiaries for additional lines of business, and increased efficiency with regard to potential acquisition activities.
Furthermore, the enactment of the Gramm-Leach-Bliley Act of 1999, which made historic changes to the structure of the financial
services industry, requires that certain activities be conducted only through the holding company form of organization.
As a holding company, however,
BancShares would also be regulated by the Federal Reserve, which is not currently a regulatory agency with direct supervisory authority
over the Bank. Accordingly, additional regulatory oversight and increased overhead expenses would be experienced. Notwithstanding
such additional burdens, the Board currently believes the holding company form of organization to be advantageous for the Bank.
That belief is based upon the following:
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|
●
|
A holding company structure is more flexible and allows for acquisitions of both banks and permissible
non-bank entities in a more efficient and economic manner.
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|
|
|
|
|
|
●
|
Funding options and financial flexibility are enhanced by the holding company form of organization,
including improved capital treatment on a consolidated basis for certain types of debt.
|
|
|
|
|
|
|
●
|
Additional lines of business may be permissible with less regulatory burden.
|
|
|
|
|
|
|
●
|
A holding company has the ability to engage in activities that may not be permissible for either the
Bank or for a direct subsidiary of the Bank to perform.
|
While there are no current
plans for BancShares or the Bank to offer additional lines of business or to engage in additional activities, such options may
be considered in the future. A holding company structure would enhance the Bank’s ability to capitalize on opportunities
that could result from the consolidation of the financial services industry as well as opportunities associated with expanded activities
permitted by the Gramm-Leach-Bliley Act.
Effective Time
The date and time on which
the Holding Company Reorganization will be effective will be the date and time as set forth in the Articles of Share Exchange filed
with the North Carolina Secretary of State. We refer to this date and time as the “Effective Time.” Articles of Share
Exchange will be filed only if BancShares and the Bank receive all required shareholder and regulatory approvals.
Actions at the Effective Time
In the event that all required
shareholder and regulatory approvals are received, the Holding Company Reorganization will be accomplished through the following
steps:
|
|
●
|
At the Effective Time, BancShares will exchange on a one-for-one basis newly issued shares of its common stock for all the
shares of the Bank’s common stock issued and outstanding on a record date to be set immediately prior to the Effective Time.
As an example, if a Bank shareholder owns 100 shares of the Bank’s common stock, such shareholder will receive 100 shares
of BancShares’ common stock in the Holding Company Reorganization.
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|
|
|
|
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|
●
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At the Effective Time, all outstanding options under the Bank’s existing stock option plans will convert into options
to acquire the number of shares of BancShares common stock that the holders of such options were entitled to acquire of Bank common
stock immediately prior to the share exchange on substantially the same terms and conditions as set forth in the existing plans,
and the plans shall be adopted by BancShares and amended and restated in connection therewith. Similarly, any outstanding warrants
that entitle the holder thereof to acquire shares of the common stock of the Bank will be converted into the right to acquire an
equivalent number of shares of BancShares common stock.
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|
|
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●
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At the Effective Time, all outstanding awards of restricted stock, if any, that remain unvested will convert into awards of
restricted shares of BancShares common stock on substantially the same terms, restrictions and conditions as set forth in the applicable
grant agreement.
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|
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●
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Following the Effective Time, BancShares will, or will cause a duly appointed exchange agent (the “Exchange Agent”),
to mail to each former shareholder of record of the Bank’s common stock immediately prior to the Effective Time written instructions
and transmittal materials for use in surrendering such holder’s shares of Bank common stock.
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|
●
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If a holder’s shares of Bank common stock are held in certificated form, no new certificated shares of Bancshares common
stock will be delivered to such holder until the return of the Bank certificate(s) in
|
|
|
|
accordance with the instructions set forth
in the transmittal materials. BancShares may elect to issue the new shares of its common stock in uncertificated form.
|
Conditions to the Holding Company Reorganization
The Agreement provides that
the obligations of the Bank and BancShares to consummate the Holding Company Reorganization are subject to the satisfaction of
the following conditions:
|
|
●
|
the separate approval of the Agreement by the affirmative vote of the holders of a majority of the issued and outstanding shares
of the Bank’s common stock and by the affirmative vote of the holders of at least two-thirds (2/3) of the issued and outstanding
shares of the Bank’s Preferred Stock;
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●
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the approval by the Federal Reserve of BancShares’ notification regarding its intent to become a bank holding company
under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) through its acquisition of all of the Bank’s
outstanding common stock;
|
|
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●
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the receipt of all other consents and approvals and the satisfaction of all other requirements necessary for the consummation
of the Holding Company Reorganization; and
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●
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expiration of any waiting period required by any supervisory authority to complete the transaction.
|
Even if we file the appropriate
application with the Federal Reserve under the BHC Act, there are no assurances that all conditions will be satisfied and that
the Holding Company Reorganization will be consummated. Furthermore, the directors of the Bank may elect to delay or abandon the
Holding Company Reorganization at their discretion.
Termination
The Agreement may be terminated
prior to the Effective Time if:
|
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●
|
any condition precedent to the Holding Company Reorganization has not been fulfilled or waived;
|
|
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|
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|
|
●
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any action, suit, proceeding or claim has been instituted, made or threatened relating to the Agreement that makes consummation
of the transaction inadvisable in the opinion of the Board of the Bank or the Board of Directors of BancShares; or
|
|
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|
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|
|
●
|
for any other reason, consummation of the transaction is inadvisable in the opinion of either the Board of the Bank or the
Board of Directors of BancShares.
|
Federal Income Tax Consequences of the Holding Company Reorganization
The following is a summary
of the material United States federal income tax consequences to U.S. holders of the Bank’s common stock of the Holding Company
Reorganization. The summary is based on the Code, U.S. Treasury regulations thereunder and administrative rulings and court decisions
in effect as of the date of this document, all of which are subject to change at any time, possibly with retroactive effect.
For purposes of this discussion,
the term “U.S. holder” means a beneficial owner that is: (i) an individual citizen or resident of the United States;
(ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the
laws of the United States or any of its political subdivisions; (iii) a trust that (a) is subject to the primary supervision of
a court within the United States and one or more United States persons have the authority to control all substantial decisions
of the trust, or (b) has a valid election in effect under applicable U.S. Treasury regulations, to be treated as a U.S. person;
or (iv) an estate that is subject to U.S. federal income taxation on its income regardless of its source.
If an entity taxable as a
partnership holds Bank common stock, the tax treatment of its partners or other owners generally will depend on the status of the
owners and the activities of that entity. Entities taxable as a partnership and their owners should consult their tax advisors
about the tax consequences of the Holding Company Reorganization to them.
This discussion only addresses
Bank shareholders that are U.S. holders and hold their shares of Bank common stock as a capital asset within the meaning of the
Internal Revenue Code of 1986, as amended (the “Code”). Further, this summary does not address all aspects of U.S.
federal income taxation that might be relevant to a Bank shareholder in light of such holder’s particular circumstances or
that might be applicable to holders subject to special treatment under U.S. federal income tax law (including, for example, financial
institutions, dealers in securities, traders in securities that elect to use a mark-to-market method of accounting, insurance companies,
tax-exempt entities, holders who acquired Bank common stock pursuant to the exercise of employee stock options or otherwise as
compensation, foreign holders, and holders who hold Bank common stock as part of a hedge, straddle, constructive sale or conversion
transaction). In addition, no information is provided in this discussion with respect to the tax consequences of the Holding Company
Reorganization under applicable state, local or non-U.S. laws, or the tax consequences to any holders of the Preferred Stock.
HOLDERS OF BANK CAPITAL
STOCK ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF THE HOLDING COMPANY REORGANIZATION,
INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
The Reorganization
.
While the Bank’s management believes that the ensuing discussion reflects the probable tax consequences of the proposed Holding
Company Reorganization, neither the Bank nor BancShares will request or obtain a ruling from the U.S. Internal Revenue Service
(the “IRS”) or an opinion of counsel regarding the U.S. federal income tax consequences of the transaction. Further,
the statements contained in this discussion are not binding on either the IRS or the courts. Accordingly, there can be no assurances
that the IRS will not disagree with or challenge any of the conclusions described herein.
The Holding Company Reorganization
is intended to qualify as a nontaxable exchange under section 351 of the Code for holders of the Bank’s common stock that
exchange those shares for BancShares common stock. Assuming such treatment, and subject to the limitations and qualifications described
herein, the material U.S. federal income tax consequences of the transaction will generally be as follows:
|
|
●
|
No gain or loss will be recognized by the Bank’s holders of common stock on the receipt of BancShares common stock in
exchange for their Bank common stock.
|
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●
|
The basis of each Bank common shareholder in the BancShares common stock received by such shareholder will be the same as the
basis of the Bank common stock surrendered in exchange therefor.
|
|
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|
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|
●
|
The holding period of the BancShares common stock received by each Bank shareholder will include the holding period of the
Bank’s common stock surrendered in exchange therefor, provided that the Bank’s common stock is held as a capital asset
at the Effective Time.
|
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|
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|
●
|
Neither BancShares nor the Bank should incur any federal income tax liability as a result of the Holding Company Reorganization.
|
Treatment as a Taxable
Sale of Bank Shares
. If, however, the IRS were to assert successfully that the Holding Company Reorganization fails to qualify
as a nontaxable exchange governed by section 351(a) of the Code, then each Bank shareholder would be required to recognize taxable
gain (or possibly loss) equal to the difference between: (i) the sum of the fair market value of the BancShares shares received
in the exchange at the Effective Time, and (ii) the shareholder’s adjusted income tax basis in the Bank shares surrendered
therefor. A
shareholder’s income tax basis in the BancShares shares received in such a taxable exchange would equal the shares’
fair market value at the Effective Time, and the shareholder’s holding period for the BancShares shares would begin on the
day after the Effective Time. The gain or loss recognized would be long-term capital gain or loss if the shareholder’s holding
period for the Bank stock surrendered was more than one year.
Information Reporting
.
A holder of Bank common stock that receives BancShares common stock as a result of the Holding Company Reorganization will be required
to retain records pertaining to the transaction. If the Holding Company Reorganization qualifies as a nontaxable exchange under
section 351 of the Code, each holder of Bank stock that (i) is required to file a U.S. federal income tax return, (ii) is a “significant
transferor”, and (iii) receives BancShares stock in the Holding Company Reorganization will be required to file a statement
with the shareholder’s U.S. federal income tax return for the year of the transaction in accordance with U.S. Treasury regulations
section 1.351-3 setting forth certain information, including the basis and fair market value of such shareholder’s Bank stock
surrendered in the transaction. For this purpose, a “significant transferor” is a holder of BancShares stock that,
immediately after the Holding Company Reorganization, will own at least 5% of the outstanding stock of BancShares (by either voting
power or value).
This summary set forth
above is included for general information only. It is not intended to be, nor should it be construed to be, tax advice to any particular
Bank shareholder. This summary does not address all possible income tax consequences of the Holding Company Reorganization under
the Code. This summary does not address any potential tax consequences to holders of the Bank’s Preferred Stock. Accordingly,
all Bank shareholders are urged to consult their own tax advisors as to the specific tax consequences to them of the transaction,
including the applicability and effect of federal, state, local, and foreign income and other tax laws on their particular circumstances.
DESCRIPTION OF CAROLINA TRUST BANCSHARES,
INC. CAPITAL STOCK
The following is a summary
of the material provisions of the Articles of Incorporation and Bylaws of BancShares.
General
The Articles of Incorporation
of BancShares authorize the issuance of 11,000,000 shares of capital stock, consisting of 10,000,000 shares of common stock, par
value $2.50 per share, and 1,000,000 shares of preferred stock with such rights, privileges, and preferences as may be determined
by the Board of Directors of BancShares.
Currently, there is one share
of BancShares’ common stock issued and outstanding, and that share is held by the Bank’s Chairman of the Board. BancShares
will file an application to list its common stock on the Nasdaq Capital Market and it is anticipated that BancShares’ common
stock will trade on the Capital Market under the ticker symbol “CART”.
At the Effective Time, the
single outstanding share of BancShares’ common stock will be redeemed and canceled, and there will be, based on shares outstanding
as of the Record Date for this Annual Meeting, approximately 4,649,558 shares of BancShares’ common stock outstanding as
a result of the exchange of newly issued shares of BancShares’ common stock for outstanding shares of the Bank’s common
stock on a one-for-one basis.
In the future, the authorized
but unissued and unreserved shares of BancShares’ capital stock will be available for issuance for general purposes, including,
but not limited to, possible issuance in connection with stock dividends or stock splits, future mergers or acquisitions, or future
private placements or public offerings of securities. Except as otherwise may be required to approve a merger or other transaction
in which the additional
authorized shares of BancShares’ capital stock would be issued, no shareholder approval will be required
for the issuance of those shares. See the section entitled “
Comparison of the Rights
of Shareholders
” at page 33 for a discussion of the rights of the holders of BancShares’ capital stock as compared
to the holders of the Bank’s capital stock.
Common Stock
General
. Each share of BancShares’
common stock will have the same relative rights as, and will be identical in all respects to, each other share of BancShares’
common stock.
Dividend Rights
. As a North Carolina
corporation, BancShares will not be directly subject to the restrictions on the payment of dividends applicable to the Bank. Holders
of shares of BancShares’ common stock will be entitled to receive such cash dividends as the Board of Directors of BancShares
may declare out of funds legally available therefor. However, the payment of dividends by BancShares will be subject to the restrictions
of North Carolina law applicable to the declaration of dividends by a business corporation. Under such provisions, cash dividends
may not be paid if a corporation will not be able to pay its debts as they become due in the usual course of business after making
such cash dividend distribution or if the corporation’s total assets would be less than the sum of its total liabilities
plus the amount that would be needed to satisfy certain liquidation preferential rights. If the Holding Company Reorganization
is consummated, the ability of BancShares to pay dividends to the holders of shares of BancShares’ common stock will, at
least initially, be completely dependent upon the amount of dividends the Bank pays to BancShares. See “
Comparison
of the Rights of shareholders
- Comparison of the Rights of Holders of the Bank’s Capital Stock and BancShares’
Capital Stock - Payment of Dividends.”
Further, BancShares’ ability to pay dividends
on its common stock may be limited by the terms of one or more series of preferred stock that may be authorized by the Board of
Directors of BancShares in the future. BancShares’ Board of Directors may not be required to seek shareholder approval before
issuing any such newly authorized series.
Voting Rights
. Each share of BancShares’
common stock will entitle the holder thereof to one vote on all matters upon which shareholders have the right to vote. In addition,
in the election of directors, each holder of BancShares’ common stock will have the right to vote the number of shares owned
by such holder on the record date for as many persons as there are directors to be elected. Cumulative voting will not be available
with respect to the election of directors of BancShares. See “
Comparison of the Rights
of shareholders
- Comparison of the Rights of Holders of the Bank’s Capital Stock and BancShares’ Capital Stock
- Voting Rights.”
Liquidation Rights
. In the event of
any liquidation, dissolution or winding up of BancShares, the holders of shares of BancShares common stock will be entitled to
receive, after payment of all debts and liabilities and the liquidation preference on any preferred securities that may be outstanding
at the time of such liquidation, all remaining assets available for distribution in cash or in kind. In the event of any liquidation,
dissolution or winding up of the Bank, BancShares, as the holder of all shares of the Bank’s common stock upon completion
of the Holding Company Reorganization, would be entitled to receive, after satisfaction of $1,000 per share liquidation preference
on the Bank’s Preferred Stock, payment of all debts and liabilities of the Bank (including all deposits and accrued interest
thereon) and all remaining assets of the Bank available for distribution in cash or in kind.
Preemptive Rights; Redemption
. Holders
of shares of BancShares’ common stock will not be entitled to preemptive rights with respect to any shares that may be issued.
BancShares’ common stock will not be subject to call or redemption.
Preferred Stock
BancShares’ Articles of Incorporation
authorize the issuance of 1,000,000 shares of preferred stock with such rights, privileges, and preferences as may be determined
by the Board of Directors of BancShares, in its sole discretion, and the Board of Directors of BancShares will also have the authority
to fix the number of shares constituting any series, the designation of such series, and the dividend rate for each series of preferred
stock, without any further vote or action by our shareholders. BancShares preferred stock may be issued with voting, liquidation,
dividend and other rights superior to the rights of its common stock. The potential issuance of preferred stock may delay or prevent
a change in control of BancShares, discourage bids for BancShares 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 BancShares common stock.
Certain Articles and Bylaw Provisions Having
Potential Anti-Takeover Effects
General
. The following is a summary
of the material provisions of the Articles of Incorporation and Bylaws of BancShares, which will address matters of corporate governance
and the rights of shareholders. Certain of these provisions may delay or prevent takeover attempts not first approved by the Board
of Directors of BancShares (including takeovers which certain shareholders may deem to be in their best interests). These provisions
also could delay or frustrate the removal of incumbent directors or the assumption of control by shareholders. All references to
the Articles of Incorporation and Bylaws are to BancShares’ Articles of Incorporation and Bylaws to be in effect as of the
Effective Time.
Classification of the Board of Directors
.
The Bylaws of BancShares provide that the number of directors constituting the Board of Directors shall be not less than 5 nor
more than 30. This is an equivalent provision to that which is included in the Bank’s Bylaws, with the exception that the
Bank’s Bylaws requires a minimum of 7 directors. The Bylaws of BancShares also provide that the Board of Directors of BancShares
shall be divided into three classes, which shall be as nearly equal in number as possible. Initially, the classes will be elected
for terms of one, two or three years, after which each director shall serve for a term ending on the date of the third annual meeting
of shareholders following the annual meeting at which the director was elected (i.e., “staggered terms”). A director
elected to fill a vacancy shall serve only until the next meeting of shareholders at which directors are elected. Approximately
one-third of the members of the Board of Directors of BancShares will be elected each year, and two annual or special meetings
would be required for BancShares’ shareholders to change a majority of the members constituting the Board of Directors of
BancShares. This staggered term Bylaw provision is an equivalent provision to that which is included in the current Bylaws of the
Bank.
Filling Vacancies
. Except for vacancies
occurring as a result of an increase in the size of the Board of Directors, vacancies occurring in the Board of Directors of BancShares
may be filled by the shareholders or a majority of the remaining directors, even though less than a quorum. Vacancies resulting
from an increase in the size of the Board of Directors generally can only be filled by shareholders at a duly called meeting of
shareholders. The shareholders, at any meeting thereof, may authorize not more than two (2) additional directorships, which may
be left unfilled by the shareholders at such meeting to be filled in the discretion of the Board of Directors during the interval
between meetings of the shareholders.
Amendment of Bylaws
. Subject to certain
restrictions described below, either a majority of the Board of Directors or the shareholders of BancShares may amend or repeal
the Bylaws. A bylaw adopted, amended, or repealed by the shareholders may not be readopted, amended, or repealed by the Board of
Directors of BancShares. Generally, the shareholders of BancShares may adopt, amend, or repeal the Bylaws in accordance with the
NCBCA.
Special Meetings of Shareholders
. BancShares’
Bylaws provide that only the chairman of the board, the president, the secretary, or the Board of Directors of BancShares may call
a special meeting of shareholders.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
Comparison of the Rights of Holders of the
Bank’s Common Stock and BancShares’ Common Stock
THE BANK’S CAPITAL STOCK IS NOT, AND
BANCSHARES
’
CAPITAL STOCK WILL NOT BE, INSURED BY THE FDIC OR GUARANTEED BY
THE ISSUER AND EACH IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF VALUE.
General
. Upon consummation of the Holding
Company Reorganization, shareholders of Bank common stock as of the Effective Time will become shareholders of BancShares common
stock. Certain legal distinctions exist between owning BancShares’ common stock and the Bank’s common stock. The common
stock shareholders of BancShares will be governed by and subject to the Articles of Incorporation and Bylaws of BancShares rather
than the Articles of Incorporation and Bylaws of the Bank. BancShares is a corporation governed by the laws of the State of North
Carolina applicable to business corporations, while the Bank is a commercial bank governed by the banking laws of North Carolina,
which incorporate the North Carolina laws applicable to business corporations only to the extent they do not conflict with the
banking laws.
The following is a summary
of the material differences in the rights of holders of BancShares’ common stock and of holders of the Bank’s common
stock. Shareholders should consult their own legal counsel with respect to specific differences and changes in their rights as
shareholders that will result from the proposed Holding Company Reorganization.
Capital Structure
. The Bank’s
Articles of Incorporation authorize the issuance of up to 10,000,000 shares of common stock, par value $2.50 per share, and 1,000,000
shares of Preferred Stock with such rights, privileges, and preferences as may be determined by the Board of Directors of the Bank
and approved by the North Carolina Commissioner of Banks. As of the Record Date for the Annual Meeting, there were 4,649,558 shares
of the Bank’s common stock issued and outstanding and 2,600 shares of Bank Preferred Stock issued and outstanding.
BancShares’ Articles
of Incorporation authorize the issuance of up to 11,000,000 shares of capital stock divided into 10,000,000 shares of $2.50 par
value per share common stock and 1,000,000 shares of preferred stock with such rights, privileges, and preferences as the Board
of Directors of BancShares shall determine in its sole discretion. Because the exchange of common stock shares by virtue of the
Holding Company Reorganization is on a one-for-one basis (and BancShares will redeem and cancel the single organizational share
issued by it for nominal consideration), BancShares will have the same number of common stock shares issued and outstanding immediately
after consummation of the Holding Company Reorganization as the Bank did immediately before.
Voting Rights
. In general, each holder
of the Bank’s common stock and each holder of BancShares’ common stock is entitled to one vote per share on all matters
submitted to a vote of shareholders. In the election of directors, each holder of the Bank’s common stock and of BancShares’
common stock has the right to vote the number of shares owned by such shareholder on the record date for as many persons as there
are directors to be elected. Cumulative voting is not available with respect to the election of directors of the Bank or BancShares.
Directors
. The Bylaws of the Bank provide
that the Board of Directors shall consist of between 7 and 30 members. Similarly, the Bylaws of BancShares provide that its Board
of Directors shall consist of between 5 and 30 members. The Boards of Directors of both the Bank and BancShares may fill vacancies
arising in their directorships, unless such vacancies are the result of an increase in the size of the Board of Directors, in which
case the vacancies are to be filled by shareholders.
The Bylaws of both the Bank
and BancShares provide that the terms of the directors shall be staggered. This means that the directors are divided into three
classes, each consisting of approximately one-third of the total directors. Each year, one class of the directors would come up
for election for terms of three years. The Bank’s Board is currently staggered and, following the first shareholder meeting
of BancShares at which directors are elected, BancShares’ Board will be staggered as well.
Rights to Repurchase Stock
. Under North
Carolina banking law, the Bank may repurchase its stock subject to the requirement that a repurchase not reduce the Bank’s
capital below an amount equal to at least the amount of capital required for a bank to be deemed “adequately capitalized”
under applicable federal regulatory capital standards. An FDIC-insured institution like the Bank is also required to obtain FDIC
approval before repurchasing its capital stock.
Under both the NCBCA and the Bank Holding Company
Act, BancShares will be allowed to purchase, with appropriate Board of Directors’ approval, its own stock in the open market
or in privately negotiated transactions subject to applicable law or other restrictions and the availability of funds therefor.
Under certain circumstances, stock repurchases by BancShares will require the prior approval of the Federal Reserve Bank of Richmond.
BancShares may consider repurchases of its stock in the future, but there can be no assurance that BancShares will conduct such
repurchases.
The Bank’s and BancShares’ respective
ability to effect repurchases can also be limited by state and federal regulatory action or directive or if the applicable regulators
determine safety and soundness restrictions so warrant.
The Bank’s ability to repurchase shares
of its capital stock may be limited by the terms of the Bank’s currently outstanding Preferred Stock, which currently entitles
the holders thereof to an annualized dividend of 9% on the $1,000 liquidation value per share of Preferred Stock. Subject to certain
exceptions, no capital stock of the Bank may be purchased, redeemed or otherwise acquired for consideration by the Bank if full
dividends have not been declared and paid in full for the most recently completed quarterly dividend period. These potential restrictions
on stock repurchases as a result of the outstanding Preferred Stock will not apply to BancShares’ prospective repurchases
of its own capital stock.
Payment of Dividends
. The Bank and BancShares
are each subject to general North Carolina corporate law restrictions on the amount of dividends they are permitted to pay. A North
Carolina corporation may not pay a dividend if, after giving effect to such dividend, the corporation would not be able to pay
its debts as they become due in the usual course of business or the corporation’s total assets would be less than the sum
of its total liabilities plus the amount that would be needed to satisfy certain liquidation preferential rights.
Additionally, the Bank may not declare a dividend
or other distribution if doing so would reduce the Bank’s capital below the amount required for a bank to be deemed “adequately
capitalized” under applicable federal regulatory capital standards. Similarly, under federal law, an insured financial institution
like the Bank is also prohibited from making capital distributions, including the payment of dividends, if, after such distributions,
the institution would become “undercapitalized” (as such term is defined by applicable laws and regulations). Lastly,
regulatory authorities may limit payment of dividends by any bank when it is determined that such a limitation is in the public
interest and is necessary to ensure the financial soundness of the bank. Although BancShares’ ability to pay dividends will
not be subject to the prior listed restrictions, such restrictions will indirectly affect BancShares because dividends from the
Bank will be the primary source of funds of BancShares for the payment of dividends to BancShares shareholders.
As a result of the Bank’s
currently outstanding Preferred Stock, the Bank may be prohibited from paying cash dividends or distributions on its common stock
if full dividends have not been paid on the Preferred Stock for the most recently completed quarterly dividend period. Failure
to pay dividends on the Preferred Stock would impact
the ability of the Bank to dividend cash to BancShares, which will likely
be initially dependent on the Bank as a source of funds. BancShares, which will not have any preferred stock outstanding immediately
following consummation of the Holding Company Reorganization, will not be subject to these same prospective cash dividend restrictions.
Limitation of Liability and Indemnification
of Directors, Officers and Employees
. The Articles of Incorporation of the Bank and of BancShares each eliminate a director’s
personal liability for breach of duty as a director to the fullest extent permitted by law. As required by North Carolina banking
law, the Articles of Incorporation of the Bank qualify the elimination of liability for acts or omissions as to which the elimination
of liability would be inconsistent with the provisions of North Carolina banking law or the business of banking. While BancShares’
Articles of Incorporation do not have this explicit qualification, it does qualify a director’s limitation of liability in
many of the same ways as the Bank’s Articles of Incorporation. For example, the Articles of Incorporation of BancShares and
the Bank each contain exceptions to the limitations on personal liability for a breach of duty that involves (i) acts or omissions
that the director at the time of the breach knew or believed were clearly in conflict with the entity’s best interests, (ii)
any liability under Section 55-8-33 of the North Carolina General Statutes; or (iii) any transaction from which the director derived
an improper personal benefit.
The Bylaws of the Bank and
of BancShares provide for indemnification to the fullest extent permitted by law. Under the Federal Deposit Insurance Act, as amended
(“FDIA”), both the Bank and BancShares would be prohibited from paying any indemnification with respect to any liability
or legal expense incurred by a director, officer, or employee as a result of an action or proceeding by a federal banking agency
resulting in a civil money penalty or certain other remedies against such person. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the “1933 Act”), may be permitted to directors, officers or persons controlling
BancShares pursuant to the forgoing provisions, BancShares has been informed that in the opinion of the SEC, such indemnification
is against public policy as expressed in the 1933 Act and is, therefore, unenforceable.
Bylaw Changes
. The Bylaws of BancShares
will be substantially the same as the Bylaws of the Bank. However, BancShares’ Bylaws will not include certain bank-specific
provisions that are included in the Bank’s Bylaws. Upon request, the Bank will provide its shareholders with copies of the
Bylaws of both the Bank and BancShares free of charge. Requests should be made to Sue S. Stamey, Secretary, at (704) 735-1104 or
mailed to the Bank, P.O. Box 308, Lincolnton, North Carolina 28093-0308, Attention: Sue S. Stamey.
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table presents
the pro forma consolidated capitalization of BancShares and the Bank, as its subsidiary, at December 31, 2015, adjusted to give
effect to the Holding Company Reorganization as described in this Proxy Statement. The authorized number of shares of common and
preferred stock of BancShares is 10,000,000 and 1,000,000, respectively.
|
(unaudited)
|
|
THE
BANK
|
|
BANCSHARES
|
|
PRO FORMA CONSOLIDATED CAPITALIZATION
(2)
|
|
SHAREHOLDERS’ EQUITY
:
|
|
|
|
|
|
|
|
Preferred Stock
|
|
$
|
2,579,939
|
|
|
$
|
-0-
|
|
|
$
|
2,579,939
|
|
|
Common Stock
|
|
|
11,615,563
|
|
|
|
2.50
|
(1)
|
|
|
11,615,563
|
|
|
Additional Paid-In Capital
|
|
|
13,350,193
|
|
|
|
7.50
|
(1)
|
|
|
13,350,193
|
|
|
Retained Earnings (Loss)
|
|
|
3,340,107
|
|
|
|
-0-
|
|
|
|
3,340,107
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
(167,611
|
)
|
|
|
-0-
|
|
|
|
(167,611
|
)
|
|
Total shareholders’ Equity
|
|
$
|
30,718,189
|
|
|
$
|
10.00
|
(1)
|
|
$
|
30,718,189
|
|
|
|
(1)
|
To be redeemed and canceled at the Effective Time of the Holding Company Reorganization.
|
|
|
|
|
|
|
(2)
|
Does not reflect approximately $50,000 in reorganization expenses which will be accounted for
as an operating expense as incurred.
|
INFORMATION ABOUT CAROLINA TRUST BANCSHARES,
INC.
Carolina Trust BancShares, Inc.
General
. Carolina Trust BancShares,
Inc. (“BancShares”) is a business corporation incorporated under the laws of the State of North Carolina. The only
office of BancShares, and its principal place of business, is located at the main office of the Bank at 901 East Main Street, Lincolnton,
North Carolina 28093. BancShares’s telephone number is (704) 735-1104
.
BancShares has been organized
for the purpose of becoming the holding company of the Bank. Pursuant to the Holding Company Reorganization, the Bank will become
a wholly owned subsidiary of BancShares, BancShares will become a bank holding company, and each holder of common stock of the
Bank will become a holder of common stock of BancShares without any change in the number of shares owned or percentage of common
stock ownership.
Currently, there are no plans
for BancShares to undertake any operating business activities. In the future, BancShares may become an operating company or acquire
other commercial banks or bank holding companies, or engage in or acquire such other activities or businesses as may be permitted
by applicable law, although there are no present plans or intentions to do so.
Property
. Initially, BancShares will
neither own nor lease any real or personal property but will utilize the premises and property of the Bank without the payment
of any rental fees to the Bank.
Competition
. It is expected that for,
the near future, the primary business of BancShares would be the ongoing business of the Bank. Therefore, the competitive conditions
to be faced by BancShares would be the same as those faced by the Bank. In addition, many banks and financial institutions have
formed, or are in the process of forming, holding companies. It is likely that these holding companies will attempt to acquire
banks, thrift institutions or companies engaged in bank-related activities. Thus, BancShares would face competition in
undertaking
any such acquisitions and in operating subsequent to any such acquisitions.
Board of Directors and Management
.
Following closing of the Holding Company Reorganization, the initial Board of Directors of BancShares will be comprised of the
following individuals, each of whom is a current member of the Bank’s Board of Directors: Johnathan L. Rhyne, Jr., Bryan
E. Beal, Scott Craig Davis, Jerry L. Ocheltree, Frederick P. Spach, Jr., and Jim R. Watson.
The initial executive officers of BancShares
will be the Bank’s current President and Chief Executive Officer and its current Executive Vice President and Chief Financial
Officer, who will serve in the same roles at BancShares:
|
Name
|
|
Position
with BancShares
|
|
|
|
|
|
Jerry L. Ocheltree
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Edwin E. Laws
|
|
Executive Vice President and Chief Financial Officer
|
BancShares’ sole function
initially will be the ownership of the stock of the Bank, and it will not engage in any other activities. No additional management
or personnel will be necessary at the present time or in the foreseeable future for the operations of BancShares. Sue S. Stamey,
who is the corporate secretary for the Bank, is also the corporate secretary for BancShares.
Employees
. At the present time, there
is no intention for BancShares to have any employees other than its management. BancShares will utilize the support staff of the
Bank from time to time. If BancShares acquires other financial institutions or pursues other lines of business, it may at such
time hire additional employees. Should BancShares or any other affiliate utilize employees or facilities of the Bank in the future,
it will compensate the Bank for any such usage.
REGULATION AND SUPERVISION OF
CAROLINA
TRUST BANCSHARES, INC.
Federal Regulation
. BancShares will
be subject to examination, regulation and periodic reporting under the Bank Holding Company Act (the “BHC Act”), as
administered by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).
Under the BHC Act, BancShares will be required
to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank
holding company. Prior Federal Reserve Board approval is required for BancShares to acquire direct or indirect ownership or control
of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or
indirectly, own or control more than five percent of any class of voting shares of such bank or bank holding company. In determining
whether to grant such approval, the Federal Reserve Board would be required to evaluate a number of statutory factors, including:
|
|
●
|
competitive factors, such as whether such acquisition would result in a monopoly or substantially lessen competition;
|
|
|
|
|
|
|
●
|
banking and community factors, such as the financial and managerial resources and future prospects of the company or companies
and the banks concerned, and the convenience and needs of the community to be served; and
|
|
|
|
|
|
|
●
|
certain supervisory factors and the extent to which a proposed acquisition would result in greater or more concentrated risks
to the stability of the U.S. banking or financial system.
|
The merger or consolidation of BancShares with
another bank holding company, or the acquisition by BancShares of the stock or assets of another bank, or the assumption of liability
by BancShares to pay any deposits in another bank, will require the prior written approval of the primary federal bank regulatory
agency of the acquiring or surviving bank under the federal Bank Merger Act. The decision is based upon a consideration of statutory
factors similar to those outlined above with respect to the BHC Act. In addition, in certain cases an application to, and the prior
approval of, the Federal Reserve Board under the BHC Act and/or the North Carolina Banking Commission may be required.
BancShares will be required to give the Federal
Reserve Board 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 BancShares’ consolidated net worth. The Federal Reserve Board may disapprove
of such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate
any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal
Reserve Board. Such notice and approval is not required for a bank holding company that would be treated as “well capitalized”
under applicable regulations of the Federal Reserve Board, that has received a composite “1” or “2” rating
at its most recent bank holding company inspection by the Federal Reserve Board, and that is not the subject of any unresolved
supervisory issues.
The status of BancShares as a registered bank
holding company under the BHC Act would not exempt it from certain federal and state laws and regulations applicable to corporations
generally, including, without limitation, certain provisions of the federal securities laws.
In addition, a bank holding company is prohibited
generally from engaging in, or acquiring five percent or more of any class of voting securities of any company engaged in non-banking
activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely
related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the
Federal Reserve Board has determined by regulation to be so closely related to banking as to be a proper incident thereto are:
|
|
●
|
making or servicing loans;
|
|
|
|
|
|
|
●
|
performing certain data processing services;
|
|
|
|
|
|
|
●
|
providing discount brokerage services;
|
|
|
|
|
|
|
●
|
acting as fiduciary, investment or financial advisor;
|
|
|
|
|
|
|
●
|
leasing personal or real property;
|
|
|
|
|
|
|
●
|
making investments in corporations or projects designed primarily to promote community welfare; and
|
|
|
|
|
|
|
●
|
acquiring a savings and loan association.
|
In evaluating a written notice of such an acquisition,
the Federal Reserve Board will consider various factors, including among others the financial and managerial resources of the notifying
bank holding company and the relative public benefits and adverse effects which may be expected to result from the performance
of the activity by an affiliate of such company. The Federal Reserve Board may apply different standards to activities proposed
to be commenced de novo and activities commenced by acquisition, in whole or in part, of a going concern. The required notice period
may be extended by the Federal Reserve Board under certain circumstances, including a notice for acquisition of a company engaged
in activities not previously approved by regulation of the Federal Reserve Board.
Capital Requirements
. The Federal Reserve
Board uses capital adequacy guidelines in its examination and regulation of bank holding companies. If capital falls below minimum
guidelines, a bank holding company may, among other things, be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board has adopted risk-based
capital measures to assist in the assessment of the capital adequacy of bank holding companies. The risk-based capital guidelines
include both a definition of capital and a framework for calculating risk weighted assets by assigning assets and off-balance sheet
items to broad risk categories. An institution’s risk-based capital ratio is calculated by dividing its qualifying capital
(the numerator of the ratio) by its weighted risk assets (the denominator).
The risk-based guidelines are used in the inspection
and supervisory process as well as in the analysis of applications acted upon by the Federal Reserve Board. Thus, in considering
an application filed by a bank holding company, the Federal Reserve Board will take into account the organization’s risk-based
capital ratio, the reasonableness of its capital plans, and the degree of progress it has demonstrated toward meeting the established
risk-based capital standards. The risk-based capital ratios focus principally on broad categories of credit risk, although the
framework for assigning assets and off-balance sheet items to risk categories does incorporate elements of transfer risk, as well
as limited instances of interest rate and market risk.
The risk-based and leverage standards presently
used by the Federal Reserve Board are minimum requirements, and higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less
all intangible assets), well above the minimum levels.
The risk-based guidelines presently only apply
on a consolidated basis to any bank holding company with consolidated assets of $1 billion or more. The risk-based guidelines also
apply on a consolidated basis to any bank holding company with consolidated assets of less than $1 billion if the holding company
(i) is engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (ii) conducts significant
off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank
subsidiary; or (iii) has a material amount of debt or equity securities outstanding (other than trust preferred securities) that
are registered with the SEC. The Federal Reserve Board may apply the risk-based guidelines at its discretion to any bank holding
company, regardless of asset size, if such action is warranted for supervisory purposes. We do not anticipate that BancShares would
be subject to the consolidated risk-based capital measures. However, as a holding company with less than $1 billion of assets,
BancShares would be subject to the Federal Reserve’s Small Bank Holding Company Policy Statement contained at Appendix C
to the Federal Reserve’s Regulation Y (12 C.F.R. Part 225), which governs the Federal Reserve’s evaluation of certain
applications by small bank holding companies related to acquisitions, securities redemptions, and dividends.
Source of Strength for Subsidiaries.
Bank holding companies are required to serve as a source of financial strength for their depository institution subsidiaries, and,
if their depository institution subsidiaries become undercapitalized, bank holding companies may be required to guarantee the subsidiaries’
compliance with capital restoration plans filed with their bank regulators, subject to certain limits.
Dividends.
As a bank holding company
that does not, as an entity, currently engage in separate business activities of a material nature, BancShares’ ability to
pay cash dividends will depend upon the cash dividends it may receive from the Bank. BancShares must pay all of its operating expenses
from funds it receives from the Bank. Therefore, shareholders may receive cash dividends from BancShares only to the extent that
funds are available after payment of our operating expenses, and that the Board of Directors decides to declare a cash dividend.
In addition, the Federal Reserve Board generally prohibits bank holding companies from paying dividends except out of operating
earnings where the prospective rate of earnings retention appears consistent with the bank holding company’s capital needs,
asset quality and overall financial condition.
Commonly Controlled Depository Institutions.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, depository institutions are liable to the FDIC
for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or
any assistance provided by the FDIC to such an institution in danger of default. This law is applicable to BancShares and the Bank
only to the
extent that BancShares were to maintain a separate subsidiary depository institution in addition to the Bank, which
is not currently anticipated.
Transactions with Affiliates.
Subsidiary
banks of a bank holding company are subject to certain quantitative and qualitative restrictions imposed by the Federal Reserve
Act on any extension of credit to, purchase of assets from, or letter of credit on behalf of the bank holding company or its subsidiaries,
and on the investment in or acceptance of stocks or securities of such holding company or its subsidiaries as collateral for loans.
In addition, provisions of the Federal Reserve Act and Federal Reserve Board regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of credit to officers, directors and principal shareholders
of the Bank, BancShares, any subsidiary of BancShares and related interests of such persons. Moreover, subsidiaries of bank holding
companies are prohibited from engaging in certain tying arrangements (with the holding company or any of its subsidiaries) in connection
with any extension of credit, lease or sale of property or furnishing of services.
Any loans by a bank holding company to a subsidiary
bank are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In the event of
a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain
the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to priority of payment. This priority
would also apply to guarantees of capital plans under the Federal Deposit Insurance Corporation Improvement Act of 1991.
Incentive Compensation Policies and Restrictions.
In July 2010, the federal banking agencies issued guidance which applies to all banking organizations supervised by the agencies.
Pursuant to the guidance, to be consistent with safety and soundness principles, a banking organization’s incentive compensation
arrangements should: (1) provide employees with incentives that appropriately balance risk and reward; (2) be compatible
with effective controls and risk management; and (3) be supported by strong corporate governance including active and effective
oversight by the banking organization’s board of directors. Monitoring methods and processes used by a banking organization
should be commensurate with the size and complexity of the organization and its use of incentive compensation.
Branching
The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 removed many of the remaining restrictions on opening bank branches across state lines, but it also granted
the individual states authority to set certain restrictions on such interstate branching. Section 613 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (described below and passed in 2010) removed many of the these remaining, state-specific
restrictions on de novo interstate branching by national and state-chartered banks. The FDIC and the OCC now have authority to
approve applications by insured state nonmember banks and national banks, respectively, to establish de novo branches in states
other than the bank’s home state if “the law of the state in which the branch is located, or is to be located, would
permit establishment of the branch, if the bank were a state bank chartered by such state.” The enactment of this section
may increase interstate banking by community banks in states where barriers to entry were previously high.
Change in Control
State and federal law restrict the amount of
voting stock of a bank holding company or a bank that a person may acquire without the prior approval of banking regulators. The
overall effect of such laws is to make it more difficult to acquire a bank holding company or bank by tender offer or similar means
than it might be to acquire control of another type of corporation.
Pursuant to North Carolina law, no person may
acquire control over a bank or bank holding company unless the North Carolina Commissioner of Banks first shall have approved such
proposed acquisition. Under North
Carolina law, “control” means the possession, directly or indirectly, of the power
or right to direct or to cause the direction of the management or policies of a person (i) by reason of an agreement, understanding,
proxy, or power of attorney or (ii) through the ownership of or voting power over 10% or more of any class of the voting securities
of the person.
Similarly, Section 3 of the BHC Act and its
implementing regulations require Federal Reserve Board approval for the following transactions:
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Any action that causes a bank or other company to become a bank holding company.
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Any action that causes a bank to become a subsidiary of a bank holding company.
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The acquisition by a bank holding company of direct or indirect ownership or control of any voting securities of a bank or
bank holding company, if the acquisition results in the company’s control of more than 5% of the outstanding shares of any
class of voting securities of the bank or bank holding company.
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The acquisition by a bank holding company or by a subsidiary thereof (other than a bank) of all or substantially all of the
assets of a bank.
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The merger or consolidation of bank holding companies, including a merger through the purchase of assets and assumption of
liabilities.
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Federal law imposes additional restrictions
on acquisitions of stock in bank holding companies and FDIC-insured banks. Under the federal Change in Bank Control Act and the
regulations thereunder, a person or group acting in concert must give advance notice to the Federal Reserve Board or the FDIC before
directly or indirectly acquiring the power to direct the management or policies of, or to vote 25% or more of any class of voting
securities of, any bank holding company or federally-insured bank. Upon receipt of such notice, the federal regulator either may
approve or disapprove the acquisition. The Change in Bank Control Act generally creates a rebuttable presumption of a change in
control if a person or group acquires ownership or control of or the power to vote 10% or more of any class of a bank holding company
or bank’s voting securities and either (i) the bank holding company has a class of securities that is subject to registration
under the Exchange Act; or (ii) following such transaction, no other person owns a greater percentage of that class of securities.
Government Monetary Policy and Economic Controls
As a bank holding company whose primary asset
would be the ownership of the capital stock of a commercial bank, BancShares would be directly affected by government monetary
policy and the economy in general. The actions and policies of the Federal Reserve Board, which acts as the nation’s central
bank, can directly affect the money supply and, in general, affect banks’ lending activities by increasing or decreasing
their costs and availability of funds. An important function of the Federal Reserve Board is to regulate the national supply of
bank credit in order to combat recession and curb inflation pressures. Among the instruments of monetary policy used by the Federal
Reserve Board to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate
and surcharge, if any, on member bank borrowings, and changes in reserve requirements against bank deposits. These methods are
used in varying combinations to influence overall growth of bank loans, investments and deposits, and interest rates charged on
loans or paid for deposits. The Bank is not a member of the Federal Reserve System but is subject to reserve requirements imposed
by the Federal Reserve Board on non-member banks. The monetary policies of the Federal Reserve Board have had a significant effect
on the operating results of commercial banks in the past and are expected to continue to do so in the future.
Gramm-Leach-Bliley Act of 1999
The Gramm-Leach-Bliley Act of 1999 allows a
bank holding company to qualify as a “financial holding company” and, as a result, be permitted to engage in a broader
range of activities that are “financial in nature” and in activities that are determined to be incidental or complementary
to activities that are financial in nature. The Gramm-Leach-Bliley Act amended the BHC Act to include a list of activities that
are financial in nature, and the
list includes activities such as underwriting, dealing in and making a market in securities, insurance
underwriting and agency activities and merchant banking. The Federal Reserve Board is authorized to determine other activities
that are financial in nature or incidental or complementary to such activities. The Gramm-Leach-Bliley Act also authorized banks
to engage through financial subsidiaries in certain of the activities permitted for financial holding companies.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer
Protection Act, or the Dodd-Frank Act, was signed into law in 2010 and implements 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, or the FSOC, 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 the 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 that such markets are fair, transparent and competitive.
Section 619 of the Dodd-Frank Act, known as
the Volcker Rule, prohibits insured depository institutions and companies affiliated with insured depository institutions (“banking
entities”) from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options
on these instruments, for their own account. The Volcker Rule also imposes limits on banking entities’ investments in, and
other relationships with, hedge funds or private equity funds. The final regulations implementing the Volcker Rule became effective
on April 1, 2014. Like the Volcker Rule, these final regulations provide exemptions for certain activities, including market making,
underwriting, hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds
or private equity funds. The final regulations also clarify that certain activities are not prohibited, including acting as agent,
broker, or custodian. Banking entities covered by the Volcker Rule were required to fully conform their activities and investments
by July 21, 2015.
A number of other provisions under the Dodd-Frank
Act remain to be implemented through the rulemaking process at various regulatory agencies. We are unable to predict the extent
to which the Dodd-Frank Act or the forthcoming rules and regulations will impact the business of the Bank and BancShares. However,
we believe that certain aspects of the legislation, including, without limitation, the costs of compliance with disclosure and
reporting requirements and examinations, could have a material impact on our business, financial condition, and results of operations.
Additionally, we cannot predict whether there will be additional proposed laws or reforms that would affect the U.S. financial
system or financial institutions, whether or when such changes may be adopted, how such changes may be interpreted and enforced,
or how such changes may affect us.
Securities and Exchange
Commission
The Bank is currently subject
to the informational requirements of Section 13 and 15(d) of the Exchange Act, and it files reports and other information required
by the Exchange Act with the FDIC. Upon consummation of the Holding Company Reorganization, BancShares will be subject to the
same informational requirements of the Exchange Act, except that it will file such reports and other information, including annual
reports, quarterly reports and proxy statements, with the Securities and Exchange Commission. BancShares reports filed with the
SEC will be available to be inspected and copied at the SEC’s public reference facilities at 100 F Street, N.E., Washington,
D.C. 20549-1004 (phone 1-800-SEC-0330) or on the SEC’s internet website at
http://www.sec.gov
through its EDGAR filing
system.
Legal Matters
The validity of the shares of Carolina Trust
BancShares, Inc. common stock offered hereby will be passed upon for BancShares by Wyrick Robbins Yates & Ponton LLP, Raleigh,
North Carolina.
PROPOSAL 4: RATIFICATION OF THE APPOINTMENT
OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee of the Board of Directors
has selected and will appoint Dixon Hughes Goodman LLP as the independent registered public accounting firm of the Bank’s
financial statements for the year ending December 31, 2016. Although shareholder ratification of the appointment of Dixon Hughes
Goodman is not required by the Bank’s Bylaws or otherwise, the Bank’s Board of Directors is submitting this appointment
to shareholders for their ratification at the annual meeting as a matter of good corporate practice. If the appointment of Dixon
Hughes Goodman is not ratified by our shareholders, the Audit Committee may appoint another independent public accounting firm
or nevertheless appoint Dixon Hughes Goodman. Even if the appointment of Dixon Hughes Goodman is ratified by the shareholders at
the annual meeting, the Audit Committee, in its discretion, may select a different independent public accounting firm at any time
during the year.
The Audit Committee operates under a written
charter adopted by the Board of Directors. In fulfilling its oversight responsibility of reviewing the services performed by the
Bank’s independent accountants, the Committee carefully reviews the policies and procedures for the engagement of the independent
accountants. The Audit Committee discussed with Dixon Hughes Goodman the overall scope and plans for the audit, and the results
of the audit for the year ended December 31, 2015. The fees billed for services were compatible with Dixon Hughes Goodman maintaining
their independence.
The Board of Directors recommends that
you vote FOR the ratification of the appointment of Dixon Hughes Goodman as the independent registered public accounting firm for
the Bank for the year ending December 31, 2016
.
This proposal will be approved if the number of votes cast in favor of Proposal
4 exceeds the number of votes cast against it.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Bank’s independent registered public
accounting firm for the year ended December 31, 2015, was Dixon Hughes Goodman LLP. As noted in Proposal 4, the Audit Committee
has selected Dixon Hughes Goodman to be the independent registered public accounting firm for the year ending December 31, 2016.
Representatives of Dixon Hughes Goodman will be present at the Annual Meeting with the opportunity to make a statement if they
desire, and they will be available to respond to appropriate questions.
Audit fees.
Audit fees include fees
billed to the Bank by Dixon Hughes Goodman in connection with the annual audit of the Bank’s financial statements and review
of the Bank’s interim financial statements. The aggregate fees billed or expected to be billed to the Bank by Dixon Hughes
Goodman for audit services rendered to the Bank for the fiscal years ended December 31, 2014 and 2015 are $87,500 and $87,300,
respectively.
Audit-Related fees.
There were no additional
fees billed or expected to be billed by Dixon Hughes Goodman for assurance and related services that are reasonably related
to the performance of the audit of the Bank’s financial statements, but which are not included in the audit fees disclosed
above, for the fiscal years ended December 31, 2014 and 2015.
Tax fees.
Tax fees include corporate
tax compliance, as well as counsel and advisory services. The aggregate fees billed or expected to be billed to the Bank by Dixon
Hughes Goodman for tax related services for the fiscal years ended December 31, 2014 and 2015 are $9,025 and $13,000, respectively.
All other fees.
There were no additional
fees billed to the Bank by Dixon Hughes Goodman during the fiscal years ended December 31, 2014 and 2015.
In accordance with its Audit Committee Charter,
the Bank’s Audit Committee must approve in advance any audit and permissible non-audit services provided by the Bank’s
independent accountants and the fees charged for those services.
ANNUAL REPORT
In accordance with the regulations of the Federal
Deposit Insurance Corporation (“FDIC”), information required to be included in the Bank’s 2015 annual disclosure
statement is contained in the Bank’s Annual Report to Shareholders for the year ended December 31, 2015, which accompanies
this Proxy Statement. No part of the 2015 Annual Report shall be regarded as proxy soliciting materials or as a communication by
means of which any solicitation is being or is to be made.
How to obtain copies of reports:
You
may obtain, without charge, a copy of the Bank’s Annual Report on Form 10-K, including the financial statements and schedules,
when it is available. To do so, send your request in writing to:
Sue S. Stamey
Secretary
Carolina Trust Bank
P.O. Box 308
Lincolnton, North Carolina 28093-0308
You may also obtain any exhibits to Form 10-K upon payment of the
cost of copying the exhibits.
HOW TO SUBMIT SHAREHOLDER PROPOSALS
How to submit a shareholder proposal for
possible inclusion in the Bank’s next Proxy Statement:
To be considered for inclusion in the proxy materials for the
Bank’s annual meeting in 2017, shareholder proposals must be received at the Bank’s principal office (currently: Carolina
Trust Bank, P.O. Box 308, Lincolnton, North Carolina 28093-0308) not later than December 6, 2016. In order for a proposal to be
included in the Bank’s proxy material for the next annual meeting, the person submitting the proposal must own, beneficially
or of record, at least 1% or $2,000 in market value of the shares entitled to be voted on that proposal at the next annual meeting
and must have held those shares for a period of at least one year and continue to hold them through the date of the next annual
meeting. Also, the proposal must comply with certain other eligibility and procedural requirements established under the Exchange
Act or related FDIC regulations. The Board will review any shareholder proposal received by that date to determine whether it meets
these criteria. Please submit any proposal by certified mail, return receipt requested.
Shareholder proposals after December 6,
2016:
Proposals submitted after December 6, 2016 will not be included in the proxy materials for the next annual meeting. However,
if a shareholder wishes to have a proposal considered at the next annual meeting as other business, the Bank’s bylaws require
that any such
proposals must be received in writing at the Bank’s principal office no later than February 17, 2017. If notice
of the proposal is not received by February 17, 2017, pursuant to the Bank’s bylaws, such notice will be considered untimely
for consideration at the next annual meeting.
Content of Proposals:
The Bank’s
bylaws provide that any notice of action to be brought before the annual meeting must set forth the following as to each matter
the shareholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for bringing such business before the annual meeting; (ii) the name and address of each shareholder
proposing such business as they appear on the Bank’s records; (iii) the number of shares that are owned of record and beneficially
by such shareholder; and (iv) any material interest of such shareholder in such business other than his or her interest as a shareholder
of the Bank. The presiding officer of the annual meeting may declare that the proposal is not properly brought before the annual
meeting if the proposal is not made in compliance with the foregoing procedures.
Nominations of directors:
The Bank’s
bylaws provide that shareholders may make nominations of directors if such nominations are made in writing and delivered to the
Bank at its main office, no later than February 17, 2017. Each such notice shall set forth: (a) the name and address of the shareholder
who intends to make the nomination; (b) a representation that such shareholder is a holder of record of shares of the Bank entitled
to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) as to each person to be nominated (i) such person’s name and address, employment history for the past
five years, affiliations, if any, with the Bank and other corporations, the number of shares of the Bank that are owned of record
or beneficially by such person and information concerning any transactions in such shares within the prior 60 days, whether such
person has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) within the past five
years and the details thereof, whether such person has been a party to any proceeding or subject to any judgment, decree or final
order with respect to violations of federal or state securities laws within the past five years and the details thereof, and the
details of any contract, arrangement, understanding or relationships with any person with respect to any securities of the Bank;
(ii) such person’s written consent to being named as a nominee and to serving as a director if elected; and (iii) a description
of all arrangements or understanding between the shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by the shareholder. The presiding officer of the annual
meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
OTHER MATTERS
Management knows of no other
matters which will be brought before this meeting, but if any such matter is properly presented at the meeting or any adjournment
thereof, the persons named in the enclosed form of appointment of proxy will vote in accordance with their best judgment.
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By order of the Board of Directors,
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Jerry L. Ocheltree
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President
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND
SHARE EXCHANGE
THIS AGREEMENT AND PLAN
OF REORGANIZATION AND SHARE EXCHANGE
(this “
Agreement
”), is made and entered into as of March 30,
2016, by and between
CAROLINA TRUST BANK
, a banking corporation incorporated under
the laws of the State of North Carolina and having its principal place of business in Lincolnton, North Carolina (the “
Bank
”),
and
CAROLINA TRUST BANCSHARES, INC.
, a North Carolina business corporation (the
“
Holding Company
”).
W I
T N E S S E T H
WHEREAS,
the Boards
of Directors of the Bank and the Holding Company believe that it is in the best interests of their respective shareholders that
the Bank be reorganized into a bank holding company structure pursuant to the terms of this Agreement, whereby the holders of the
Bank’s outstanding common stock would receive shares of the common stock of the Holding Company in exchange for their shares
of Bank common stock.
NOW, THEREFORE
,
in consideration of the mutual promises and conditions herein contained, the Bank and the Holding Company hereby mutually agree
to an exchange of shares on the terms and conditions and in the manner and on the basis hereinafter provided:
1.
The
Exchange.
(a) The name of the corporation whose
shares will be acquired is “Carolina Trust Bank”, and the name of the acquiring corporation is “Carolina Trust
BancShares, Inc.”
(b) At the Effective Time (as defined
in Paragraph 2 below), upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Article
11 of the North Carolina Business Corporation Act, as amended, each issued and outstanding share of common stock, $2.50 par value
per share, of the Bank (“
Bank Common Stock
”) shall be exchanged for one (1) share of common stock, $2.50
par value per share, of the Holding Company (“
Company Common Stock
”) (all the foregoing referred to collectively
as the “
Exchange
” and all such shares of Company Common Stock issued to the shareholders, collectively,
the “
Shares
”).
(c) As soon as possible after the Effective
Time, the Holding Company (or its duly authorized exchange agent acting on its behalf (the “
Exchange Agent
”))
shall furnish to each holder of Bank Common Stock transmittal forms and written instructions with respect to the Exchange. Until
shares of Bank Common Stock are surrendered for exchange in accordance with this Agreement, each outstanding certificate that,
prior to the Effective Time, represented shares of Bank Common Stock shall for all purposes evidence only the exchange rights established
pursuant to this Agreement. To the extent permitted by applicable law, the former shareholders of record of Bank Common Stock shall
be entitled to vote after the Effective Time at any meeting of the Holding Company’s shareholders the number of Shares of
Company Common Stock into which their Bank Common Stock was converted pursuant to this Agreement, regardless of whether such holders
have exchanged their physical certificates representing shares of Bank Common Stock for Shares of Holding Company Stock. The Holding
Company may in its discretion elect not to treat any such unsurrendered shares of Bank Common Stock as shares of Company Common
Stock for purposes of the payment of dividends or other distributions. If the Holding Company in its discretion so elects, then
unless and until any outstanding certificate evidencing Bank Common Stock is so surrendered, no dividends payable to the holders
of Company Common Stock will be paid to the holder of the unsurrendered Bank Common Stock certificate;
provided, however
,
upon surrender and exchange of each outstanding certificate evidencing Bank Common Stock for a certificate evidencing outstanding
Company Common Stock, there
shall be paid to the holder thereof the amount, without interest, of all dividends and other distributions,
if any, that theretofore were declared and became payable, but were not paid, with respect to said shares. The Holding Company,
subject to compliance with applicable law, may elect, in its sole discretion, to issue uncertificated Shares of Company Common
Stock in connection with the Exchange to former shareholders of Bank Common Stock.
(d) Each share of the Bank’s Fixed
Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value per share (“
Bank Preferred Stock
”),
issued and outstanding immediately prior to the Effective Time shall remain outstanding following the Effective Time and shall
be unaffected by the Exchange.
(e) At the Effective Time, all shares
of common stock of the Holding Company outstanding immediately prior to the Effective Time shall be redeemed from the holder(s)
thereof for the sum of $10.00 per share.
2. Closing;
Effective Time.
Consummation of the Exchange and the other transactions contemplated by this Agreement shall take place
at such time and date as the Holding Company and the Bank determine (the “
Closing
”). The Exchange shall
become effective at the time specified in Articles of Share Exchange to be filed with the Office of the Secretary of State of North
Carolina (the “
Effective Time
”).
3. NO
APPRAISAL RIGHTS
. Pursuant to Article 13 of Chapter 55 of the North Carolina General Statutes, the shareholders of the
Bank are not entitled to appraisal rights as a result of the Exchange.
4. Lost,
Destroyed, or Stolen Certificates
. Shareholders whose certificates evidencing shares of Bank Common Stock have been
lost, destroyed or stolen shall be entitled to receive certificates evidencing Shares for which such shares of Bank Common Stock
were exchanged pursuant to this Agreement upon compliance with conditions reasonably imposed by the Holding Company (or, as applicable,
its Exchange Agent), including, without limitation, a requirement that those shareholders provide a lost instruments indemnity
or surety bond in form, substance and amounts reasonably satisfactory to the Holding Company.
5. Stock
Option Plans and Equity grants
. At the Effective Time, all outstanding options under the Bank’s existing stock
option plans (the “
Option
Plans
”) shall be converted into options to acquire the number
of shares of Company Common Stock that the holders of such options were entitled to acquire of Bank Common Stock immediately prior
to the Exchange on substantially the same terms and conditions as set forth in the Option Plans and any grant agreements pertaining
to each specific option grant outstanding thereunder. The Option Plans shall be adopted by the Holding Company and amended and
restated in connection therewith, including, without limitation, to reflect any conforming amendments necessitated by the Exchange
or this Agreement. At the Effective Time, all outstanding awards of restricted stock, if any, that remain unvested will convert
into awards of restricted shares of BancShares common stock on substantially the same terms, restrictions and conditions as set
forth in the applicable grant or award agreement.
6. Bank
Warrants
.
At the Effective Time, any and all outstanding warrants entitling the holder thereof to purchase shares
of Bank Common Stock shall by virtue of this Agreement be converted into warrants to acquire the number of shares of Company Common
Stock that the holders of each such warrants were entitled to exercise for Bank Common Stock immediately prior to the Exchange
on substantially the same terms and conditions as set forth in the applicable warrant, warrant agreement or governing instrument.
7. Obligations
of the Parties Pending the Effective Time
. The Bank and the Holding Company shall, as soon as practicable, take the
following action, if such action has not already been taken:
(a) This Agreement shall be duly submitted
to the shareholders of the Bank for the purpose of considering and acting upon the Exchange in the manner required by law and the
Bank’s articles of incorporation and bylaws. The Bank shall use its best efforts to obtain the requisite approval of its
shareholders for the Exchange and the transactions contemplated by this Agreement, and the Bank and the Holding Company shall,
through their respective officers, execute and file with the appropriate regulatory authorities, including the Board of Governors
of the Federal Reserve System and the North Carolina Commissioner of Banks, such applications, notices, exhibits, documents and
papers as shall be necessary or appropriate to secure approval of or non-objection to this Agreement, the Exchange and the other
transactions contemplated hereby, as required by applicable statutes, rules and regulations;
(b) The Holding Company shall use its
best efforts to cause the issuance of Shares of Company Common Stock pursuant to this Agreement and the Exchange to be qualified
or exempted under the Securities Act of 1933, as amended, and the state securities laws of each state in which it deems such qualification
or exemption to be required; and
(c) Until
the Effective Time, neither the Bank nor the Holding Company shall dispose of its assets except in the ordinary and normal course
of business.
8. TAX
MATTERS
.
The parties intend that the exchange of the Bank Common Stock for shares of Company Common Stock be treated
as a transfer and exchange of property by the exchanging shareholders described in section 351 of the Internal Revenue Code of
1986, as amended.
9. Conditions
Precedent to the Exchange
. The Exchange shall be subject to the satisfaction of the following conditions:
(a) Ratification and confirmation of
this Agreement by approval of the Bank’s shareholders as required by law;
(b) Approvals by the Board of Governors
of the Federal Reserve System, or a Reserve Bank acting under designated authority, of the Exchange and the transactions related
thereto;
(c) Approval, to the extent required,
of any other governmental or regulatory authority; and
(d) Expiration
of any waiting period required by any supervisory authority.
10. Termination
.
This Agreement may be terminated prior to the Effective Time for any of the following reasons by written notice by either the Bank
or the Holding Company to the other upon authorization by resolution adopted by either board of directors:
(a) Any condition precedent contained
in Paragraph 9 has not been fulfilled or waived;
(b) Any action, suit, proceeding, or
claim has been instituted, made or threatened relating to the proposed Exchange that makes consummation of the Exchange inadvisable
in the opinion of the board of directors of either the Bank or the Holding Company; or
(c) The board of directors of either
the Bank or the Holding Company has determined that consummation of the Exchange is inadvisable in the opinion of such board of
directors.
11. Entire
Agreement
. This Agreement contains the entire agreement of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject
matter hereof.
12. Effect
of Agreement
.
The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
13. Amendment
.
This Agreement may be amended and modified pursuant to a writing signed by both parties.
14. Governing
Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.
[
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]
IN WITNESS WHEREOF,
the Bank and the Holding Company have caused this Agreement to be executed by their duly authorized officers to be effective
as of the date first above written.
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CAROLINA TRUST BANCSHARES, INC.
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By:
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/s/ Jerry L. Ocheltree
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Jerry L. Ocheltree
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President and Chief Executive Officer
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ATTEST:
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/s/ Sue S. Stamey
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Sue S. Stamey
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Corporate Secretary
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CAROLINA TRUST BANK
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By:
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/s/ Jerry L. Ocheltree
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Jerry L. Ocheltree
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President and Chief Executive Officer
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ATTEST:
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/s/ Sue S. Stamey
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Sue S. Stamey
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Corporate Secretary
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[This Page Intentionally Left Blank]
Carolina Trust Bank 8-K12G3
Exhibit
99.12
FEDERAL
DEPOSIT INSURANCE CORPORATION
Washington,
D.C. 20429
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report: January 14, 2016
FDIC
Certificate No. 57206
----------
Carolina
Trust Bank
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North
Carolina
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56-2197865
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(State
of incorporation)
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(I.R.S. Employer Identification No.)
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Issuer's
telephone number: (704) 735-1104
_________________________
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
[
] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[
] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[
] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[
] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
This
document contains 2 pages.
Item
5.02 — Departure of Certain Officers; Appointment of Certain Officers.
Donald
J. Boyer, Executive Vice President and Chief Financial Officer of the Bank, died on December 27, 2015. Lindsey D. Huffman, age
33 was named Interim Principal Financial Officer and will serve until a permanent Chief Financial Officer is employed. The Bank
has begun a search for a permanent replacement.
Ms.
Huffman is a long-term employee of the Bank and most recently served as the Controller.
Carolina
Trust Bank is a community bank that operates nine full service branches in Lincolnton, Lake Lure, Gastonia, Hickory, Forest City,
Vale and Denver, North Carolina. Our common stock is traded on the NASDAQ Capital Market under the symbol “CART.”
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
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Date:
January 14, 2016
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Carolina
Trust Bank
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By:
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/s/
Jerry L. Ocheltree
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Name:
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Jerry
L. Ocheltree
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Title:
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President
and Chief Executive Officer
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