10-Q 1 form10q.htm 10-Q

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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2018

COMMISSION FILE NUMBER 000-55683

CAROLINA TRUST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

NORTH CAROLINA
(State or other jurisdiction of incorporation or organization)

81-2019652
(I.R.S. Employer Identification No.)

901 EAST MAIN STREET
LINCOLNTON, NORTH CAROLINA 28092
(Address of Principal Executive Offices) (Zip Code)

(704) 735-1104
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
Accelerated Filer
       
Non-accelerated Filer
  (Do not check if smaller reporting company)
Smaller Reporting Company
       
   
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

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, 2018 was 7,156,987.
 


TABLE OF CONTENTS

Part I.
FINANCIAL INFORMATION
 
     
Item 1 -
Financial Statements (Unaudited)
 
     
 
2
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
8
     
 
9
     
Item 2 -
38
     
Item 4 -
46
     
Part II.
OTHER INFORMATION
 
     
Item 6 -
47
 
Part I. FINANCIAL INFORMATION
Item 1 – Financial Statements
CAROLINA TRUST BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share and per share data)

 
   
June 30,
2018
   
December 31,
2017*
 
Assets
           
Cash and due from banks
 
$
13,804
   
$
5,409
 
Interest-earning deposits with banks
   
35,600
     
3,647
 
Cash and cash equivalents
   
49,404
     
9,056
 
                 
Certificates of deposit with banks
   
1,498
     
1,498
 
Investment securities available for sale, at fair value (amortized cost $29,182 and $32,067)
   
28,202
     
31,112
 
Equity securities
   
713
     
-
 
Federal Home Loan Bank stock, at cost
   
1,050
     
1,341
 
Loans
   
374,026
     
348,679
 
Less:  Allowance for loan and lease losses
   
(3,844
)
   
(3,599
)
Net Loans
   
370,182
     
345,080
 
                 
Bank-owned life insurance
   
7,295
     
7,197
 
Accrued interest receivable
   
1,140
     
1,078
 
Bank premises, equipment and software
   
6,258
     
6,466
 
Foreclosed assets
   
1,971
     
789
 
Core deposit intangible, net of accumulated amortization of $728 and $711 at June 30, 2018 and December 31, 2017, respectively
   
56
     
73
 
Other assets
   
3,085
     
2,928
 
Total Assets
 
$
470,854
   
$
406,618
 
                 
Liabilities and Stockholders’ Equity
               
Noninterest-earning demand deposits
 
$
66,793
   
$
49,199
 
Interest-earning demand deposits
   
126,108
     
115,396
 
Savings
   
23,610
     
22,066
 
Time deposits
   
176,768
     
153,992
 
Total deposits
   
393,279
     
340,653
 
                 
Capital lease obligation
   
174
     
207
 
Federal Home Loan Bank advances
   
16,100
     
23,600
 
Long term subordinated debt
   
9,713
     
9,676
 
Accrued interest payable
   
360
     
292
 
Other liabilities
   
3,027
     
3,071
 
Total liabilities
   
422,653
     
377,499
 
                 
Common stock warrant
   
426
     
426
 
Common stock, $2.50 par value; 10,000,000 shares authorized; 7,156,987 and 4,657,880 shares issued and outstanding
   
17,892
     
11,645
 
Additional paid-in capital
   
25,214
     
13,008
 
Retained earnings
   
5,420
     
4,772
 
Accumulated other comprehensive loss
   
(751
)
   
(732
)
Total stockholders’ equity
   
48,201
     
29,119
 
Total Liabilities and Stockholders’ Equity
 
$
470,854
   
$
406,618
 

*Derived from Carolina Trust BancShares, Inc.’s audited financial statements included in its 2017 Annual Report on Form 10-K
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
CAROLINA TRUST BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except share and per share data)
 
   
Three Months Ended June 30,
 
   
2018
   
2017
 
Interest Income
           
Interest on investment securities and cash
 
$
352
   
$
250
 
Interest and fees on loans
   
4,846
     
4,016
 
Total interest income
   
5,198
     
4,266
 
                 
Interest Expense
               
Interest expense non-maturity deposits
   
166
     
105
 
Interest expense time deposits
   
702
     
498
 
Interest expense borrowed funds
   
80
     
51
 
Interest expense capital lease
   
3
     
4
 
Interest expense debt
   
13
     
-
 
Interest expense on subordinated debt
   
191
     
188
 
Total interest expense
   
1,155
     
846
 
Net interest income
   
4,043
     
3,420
 
Loan loss provision
   
88
     
64
 
Net interest income after loan loss provision
   
3,955
     
3,356
 
                 
Noninterest income
               
Overdraft fees on deposits
   
141
     
94
 
Interchange fee income, net
   
52
     
42
 
Service charges on deposits
   
16
     
11
 
Mortgage fee income
   
27
     
25
 
Customer service fees
   
14
     
14
 
ATM income
   
7
     
7
 
Bank-owned life insurance income
   
49
     
55
 
Unrealized gain on equity securities
   
50
     
-
 
Other income
   
10
     
8
 
Total noninterest income
   
366
     
256
 
                 
Noninterest expense
               
Salaries & benefits expense
   
1,834
     
1,774
 
Occupancy expense
   
186
     
220
 
Furniture, fixture & equipment expense
   
153
     
153
 
Data processing expense
   
188
     
269
 
Office supplies expense
   
21
     
23
 
Professional fees
   
112
     
136
 
Advertising and marketing
   
27
     
36
 
Insurance
   
92
     
73
 
Foreclosed asset expense, net
   
300
     
221
 
Loan expense
   
58
     
54
 
Stockholder expense
   
35
     
54
 
Directors fees and expenses
   
66
     
69
 
Telephone expense
   
69
     
76
 
Core deposit intangible amortization expense
   
8
     
11
 
Merger expenses
   
323
     
-
 
Other operating expense
   
148
     
158
 
Total noninterest expense
   
3,620
     
3,327
 
Pre-tax income
   
701
     
285
 
Income tax expense
   
191
     
89
 
Net income
 
$
510
   
$
196
 
                 
Earnings per share
               
Basic earnings per common share
 
$
0.08
   
$
0.04
 
Diluted earnings per common share
 
$
0.08
   
$
0.04
 
Weighted average common shares outstanding
   
6,583,719
     
4,654,880
 
Diluted average common shares outstanding
   
6,671,626
     
4,722,607
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
CAROLINA TRUST BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except share and per share data)

 
   
Six Months Ended June 30,
 
   
2018
   
2017
 
Interest Income
           
Interest on investment securities and cash
 
$
601
   
$
467
 
Interest on loans
   
9,424
     
7,876
 
Total interest income
   
10,025
     
8,343
 
                 
Interest Expense
               
Interest expense non-maturity deposits
   
312
     
180
 
Interest expense time deposits
   
1,310
     
1,006
 
Interest expense borrowed funds
   
190
     
96
 
Interest expense capital lease
   
7
     
9
 
Interest expense debt
   
14
     
-
 
Interest expense on subordinated debt
   
382
     
378
 
Total interest expense
   
2,215
     
1,669
 
Net interest income
   
7,810
     
6,674
 
Loan loss provision
   
340
     
215
 
Net interest income after loan loss provision
   
7,470
     
6,459
 
                 
Noninterest income
               
Overdraft fees on deposits
   
281
     
178
 
Interchange fee income, net
   
98
     
63
 
Service charges on deposits
   
31
     
25
 
Mortgage fee income
   
42
     
41
 
Customer service fees
   
29
     
27
 
ATM income
   
13
     
13
 
Bank-owned life insurance income
   
98
     
91
 
Unrealized gain on equity securities
   
88
     
-
 
Other income
   
16
     
12
 
Total noninterest income
   
696
     
450
 
                 
Noninterest expense
               
Salaries & benefits expense
   
3,697
     
3,517
 
Occupancy expense
   
414
     
424
 
Furniture, fixture & equipment expense
   
310
     
293
 
Data processing expense
   
390
     
537
 
Office supplies expense
   
41
     
43
 
Professional fees
   
223
     
242
 
Advertising and marketing
   
59
     
71
 
Insurance
   
186
     
146
 
Foreclosed asset expense, net
   
326
     
261
 
Loan expense
   
86
     
91
 
Stockholder expense
   
69
     
112
 
Directors fees and expenses
   
140
     
139
 
Telephone expense
   
140
     
146
 
Core deposit intangible amortization expense
   
17
     
23
 
Merger expenses
   
323
     
-
 
Other operating expense
   
295
     
259
 
Total noninterest expense
   
6,716
     
6,304
 
Pre-tax income
   
1,450
     
605
 
Income tax expense
   
359
     
198
 
Net income
 
$
1,091
   
$
407
 
                 
Earnings per share
               
Basic earnings per common share
 
$
0.19
   
$
0.09
 
Diluted earnings per common share
 
$
0.19
   
$
0.09
 
Weighted average common shares outstanding
   
5,667,619
     
4,654,635
 
Diluted average common shares outstanding
   
5,763,824
     
4,728,495
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
CAROLINA TRUST BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  (Unaudited)
(Dollars in thousands)
 
   
Three Months Ended June 30,
 
   
2018
   
2017
 
             
Net income
 
$
510
   
$
196
 
                 
Other comprehensive income (loss):
               
Unrealized gain (loss) on investment securities:
               
Unrealized holding gains (losses) arising during period
   
(163
)
   
12
 
Deferred income tax benefit (expense)
   
38
     
(5
)
Total other comprehensive income (loss)
   
(125
)
   
7
 
                 
Total comprehensive income
 
$
385
   
$
203
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
CAROLINA TRUST BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  (Unaudited)
(Dollars in thousands)

 
   
Six Months Ended June 30,
 
   
2018
   
2017
 
             
Net income
 
$
1,091
   
$
407
 
                 
Other comprehensive income (loss):
               
Unrealized gain (loss) on investment securities:
               
Unrealized holding gains (losses) arising during period
   
(603
)
   
178
 
Deferred income tax benefit (expense)
   
141
     
(66
)
Total other comprehensive income (loss)
   
(462
)
   
112
 
                 
Total comprehensive income
 
$
629
   
$
519
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
CAROLINA TRUST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands)
 
   
2018 Shares
Outstanding
   
June 30,
2018
   
2017 Shares
Outstanding
   
June 30,
2017
 
Common stock warrant
       
$
426
         
$
426
 
                             
Common stock, $2.50 par value
                           
Balance, beginning of year
   
4,657,880
   
$
11,645
     
4,650,808
   
$
11,627
 
Exercise of stock options
   
3,107
     
7
     
738
     
2
 
Restricted stock vesting
   
-
     
-
     
3,334
     
8
 
Sale of common stock
   
2,496,000
     
6,240
     
-
     
-
 
Balance, end of period
   
7,156,987
   
$
17,892
     
4,654,880
   
$
11,637
 
                                 
Additional paid-in capital
                               
Balance, beginning of year
         
$
13,008
           
$
12,988
 
Stock-based compensation
           
1
             
18
 
Exercise of stock options
           
7
             
1
 
Restricted stock vesting
           
-
             
(8
)
Sale of common stock
           
12,198
             
-
 
Balance, end of period
         
$
25,214
           
$
12,999
 
                                 
Retained earnings
                               
Balance, beginning of year
         
$
4,772
           
$
4,241
 
Net income
           
1,091
             
407
 
Reclassification of loss on equity securities
           
(443
)
           
-
 
Balance, end of period
         
$
5,420
           
$
4,648
 
                                 
Accumulated other comprehensive income (loss)
                               
Balance, beginning of year
         
$
(732
)
         
$
(249
)
Reclassification of loss on equity securities
           
443
             
-
 
Other comprehensive income (loss)
           
(462
)
           
112
 
Balance, end of period
         
$
(751
)
         
$
(137
)
                                 
Total stockholders’ equity
         
$
48,201
           
$
29,573
 

See accompanying notes to Condensed Consolidated Financial Statements.
 
CAROLINA TRUST BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
 
   
Six Months Ended June 30,
 
   
2018
   
2017
 
Cash flows from operating activities
           
Net income
 
$
1,091
   
$
407
 
Adjustments to reconcile net income to cash and cash equivalents provided by operating activities:
               
Provision for loan losses
   
340
     
215
 
Depreciation and amortization of bank premises, equipment and software
   
231
     
213
 
Accretion of loan fair value adjustments related to acquisition
   
(3
)
   
(4
)
Net amortization of bond premiums/discounts
   
68
     
74
 
Amortization of long term subordinated debt issuance costs
   
37
     
35
 
Unrealized gain on equity securities
   
(88
)
   
-
 
Amortization of core deposit intangible
   
17
     
23
 
Stock compensation expense
   
1
     
18
 
Increase in value of life insurance contracts
   
(98
)
   
(91
)
Net losses and impairment write-downs on foreclosed assets
   
226
     
217
 
Deferred tax provision
   
(107
)
   
677
 
Decrease in other assets
   
91
     
56
 
Increase in accrued interest receivable
   
(62
)
   
(3
)
Increase (decrease) in accrued interest payable
   
68
     
(32
)
Decrease in other liabilities
   
(44
)
   
(555
)
Net cash and cash equivalents provided by operating activities
   
1,768
     
1,250
 
                 
Cash flows from investing activities
               
Net increase in loans
   
(27,057
)
   
(16,249
)
Proceeds from sale of foreclosed assets
   
210
     
211
 
Net purchases of bank premises, equipment and software
   
(23
)
   
(459
)
Purchase of Bank owned life insurance
   
-
     
(5,500
)
Purchase of available-for-sale securities
   
-
     
(4,832
)
Proceeds from maturities, calls and pay-downs of available-for-sale securities
   
1,613
     
2,482
 
Redemption (purchase) of Federal Home Loan Bank stock
   
291
     
(121
)
Net cash and cash equivalents used in investing activities
   
(24,966
)
   
(24,468
)
                 
Cash flows from financing activities
               
Increase in deposits
   
52,626
     
12,227
 
Increase (decrease) in Federal Home Loan Bank advances
   
(7,500
)
   
3,000
 
Payment of capital lease obligation
   
(33
)
   
(30
)
Issuance of long term debt
   
3,000
     
-
 
Repayment of long term debt
   
(3,000
)
   
-
 
Net proceeds from issuance of common stock
   
18,453
     
3
 
Net cash and cash equivalents provided by financing activities
   
63,546
     
15,200
 
Net increase (decrease) in cash and cash equivalents
   
40,348
     
(8,018
)
                 
Cash and cash equivalents, beginning
   
9,056
     
26,149
 
Cash and cash equivalents, ending
 
$
49,404
   
$
18,131
 
                 
Supplemental disclosure of cash flow information
               
Cash paid during the period for taxes
 
$
466
   
$
-
 
Cash paid during the period for interest
 
$
2,147
   
$
1,550
 
                 
Noncash financing and investing activities
               
Unrealized gain (loss) on investment securities available-for-sale, net of taxes
 
$
(462
)
 
$
112
 
Transfer of loans to foreclosed assets
 
$
1,618
   
$
-
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)
 
(1)
Presentation of Financial Statements

The consolidated financial statements include the accounts of Carolina Trust BancShares, Inc. (the “Company”), its subsidiary Carolina Trust Bank (the “Bank”), and the Bank’s wholly owned subsidiary, Western Carolina Holdings, LLC, which owns certain Bank assets. All significant intercompany balances and transactions have been eliminated in consolidation. On August 16, 2016, the Company announced that it had consummated a statutory share exchange pursuant to which it became the parent company of the Bank.  Shares of the Bank’s common stock were exchanged for shares of the Company’s common stock at a one-for-one exchange rate.  The Company is a North Carolina business corporation that is operating as a registered bank holding company under the Bank Holding Company Act of 1956.  The Bank is the only subsidiary of the Company.

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for fair presentation of the financial information as of June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.  Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018.

Information regarding the organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s 2017 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments - Overall, Subtopic 825-10 (“ASU 2016-01”) to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The fair value measurement based on an exit price assumes that an asset or liability is exchanged in an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date under current market conditions.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (2) in the absence of a principal market, in the most advantageous market for the asset or liability.  The company has adopted the standard and applied the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the 2018 fiscal year. The amendments related to equity securities without readily determinable fair values were applied prospectively to equity investments that existed as of January 1, 2018.  The Company is now reporting unrealized gains and losses of its marketable equity securities in income as compared to the previous method of reporting through other comprehensive income.  The nonmarketable equity securities that do not have readily determinable values were previously recorded at cost.  Following implementation, these securities, primarily Federal Home Loan Bank, or FHLB, stock, are recorded at cost less any impairment, plus or minus any observable changes in price resulting from transactions for similar or identical investments of the same issuer.  The unrealized loss on equity securities in accumulated other comprehensive income in the amount of $443,000 was reclassified to retained earnings on January 1, 2018.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

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 need to use more judgment and make more estimates than under existing guidance. This analysis 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 Company adopted this standard in 2018 using the full retrospective approach.  The majority of the Company’s revenues are generated from financial instruments which are not within the scope of this standard.  Management has evaluated the impact for its various other revenue streams including the following:  deposit account fees and service charges; other fees such as wire services and check cashing services; ATM surcharges; card related fees; and gains and losses from sales of foreclosed properties and fixed assets.  This evaluation led management to conclude that this standard does not materially impact its financial statements.  Additionally, based on underlying contracts, this standard requires the Company to report costs associated with debit card and ATM transactions netted against the related fees from such transactions. Previously, such costs were reported as check card expenses. For the three and six months ended June 30, 2018, gross interchange fees totaled $131,000 and $252,000, respectively, and related costs totaled $79,000 and $154,000, respectively. In the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018, we reported on a net basis $52,000 and $98,000, respectively, as interchange fee income. For the three and six months ended June 30, 2017, gross interchange fees totaled $124,000 and $243,000, respectively, and related costs totaled $82,000 and $180,000, respectively. In the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017, we reported on a net basis $42,000 and $63,000, respectively, as interchange fee income.

In February 2016, the FASB issued ASU 2016-02, Leases, which 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, includ-ing 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.  Currently the Company has several multi-year property leases for which reporting will be impacted by this standard.  At the end of 2017, four of our locations have operating leases that expire in 2019 with aggregate payments totaling $157,000.  If the new standard were in effect, an asset and a liability for the present value of payments would be recognized.  Similarly, other property leases expire in 2020 and 2021 that have payments totaling $126,000 and $159,000, respectively.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

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.  The Company has formed a management committee including those responsible for credit analysis and review, accounting and finance, information technology and lending to develop an understanding of the requirements and plan implementation.  The Company is adopting a software model for the ALLL model that has add-on functionality for compliance with the new standard.

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 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.

In June 2013, the U.S. Treasury sold the warrant to private investors in a Dutch auction process.  Following the reorganization of the Bank into the Company, the right to acquire up to 86,957 shares of Bank common stock at a price of $6.90 per share was converted to the right to purchase the same number of shares of the Company’s common stock.  The warrant book value, $426,000 is recognized as the Company’s stockholders’ equity.  The warrant expires February 6, 2019.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

The following table summarizes earnings per share and the shares utilized in the computations for the three and six months ended June 30, 2018 and 2017, respectively:

Dollars in thousands, except per share data
 
Net Income
Available to
Common
Shareholders
   
Weighted
Average
Common
Shares
   
Per Share
Amount
 
Three months ended June 30, 2018
                 
Basic earnings per common share
 
$
510
     
6,583,719
   
$
0.08
 
Effect of dilutive stock options
           
73,084
         
Effect of dilutive stock warrants
           
14,823
         
Diluted earnings per common share
 
$
510
     
6,671,626
   
$
0.08
 
                         
Three months ended June 30, 2017
                       
Basic earnings per common share
 
$
196
     
4,654,880
   
$
0.04
 
Effect of dilutive stock options
           
64,378
         
Effect of dilutive stock warrants
           
3,349
         
Diluted earnings per common share
 
$
196
     
4,722,607
   
$
0.04
 

   
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, 2018
                 
Basic earnings per common share
 
$
1,091
     
5,667,619
   
$
0.19
 
Effect of dilutive stock options
           
77,027
         
Effect of dilutive stock warrants
           
19,178
         
Diluted earnings per common share
 
$
1,091
     
5,763,824
   
$
0.19
 
                         
Six months ended June 30, 2017
                       
Basic earnings per common share
 
$
407
     
4,654,635
   
$
0.09
 
Effect of dilutive stock options
           
67,116
         
Effect of dilutive stock warrants
           
6,744
         
Diluted earnings per common share
 
$
407
     
4,728,495
   
$
0.09
 

For the three and six months ended June 30, 2018, there were no shares that were anti-dilutive. For the three and six months ended June 30, 2017, there were 40,931 shares related to stock options 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.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

(4)
Fair Value Measurements

The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. These fair value estimates are made at each reporting date, based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price a liability could be settled for. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The methodologies for financial assets and financial liabilities are discussed below:

Cash and Due from Banks, Interest-Earning Deposits with Banks and Certificates of Deposit with Banks

The carrying amounts for cash and due from banks, interest-earning deposits with banks and certificates of deposit with banks approximate fair value because of the short maturities of those instruments.

Investment and Equity Securities

Fair value for investment and equity securities equals the quoted market price if such information is available. If a quoted market price is not available in active markets for identical securities (level 1), fair value may be estimated using observable inputs such as quoted prices for similar securities, interest rates and yield curves, implied volatilities and credit spreads (level 2).  Otherwise, unobservable inputs such as independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating on similar securities, prepayment assumptions and other factors such as credit loss assumptions (level 3).  The fair value would be based on an exit price between market participants that may include adjustments for liquidity and credit.

Loans

The fair value of loans is estimated based on exit price. These cash flows include assumptions for prepayment estimates over each loan’s remaining life, considerations for the current interest rate environment compared to the weighted average rate of each portfolio and a credit risk component based on the historical and expected performance of each portfolio. The calculation also includes market liquidity and credit adjustments.  These valuations are not comparable with the fair values disclosed for December 31, 2017 which were based on an entrance price basis.

Accrued Interest Receivable and Payable

The carrying amount is a reasonable estimate of fair value.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

Deposits

The fair value of demand deposits, savings, money market and negotiable order of withdrawal (NOW) accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting expected cash flows using the rates currently offered for instruments of similar remaining maturities.

Capital Lease Obligation, Federal Home Loan Bank Advances and Long Term Subordinated Debt

The fair value of borrowings is based upon discounted expected cash flows using current rates at which borrowings of similar maturity could be obtained.

Financial Instruments with Off-Balance Sheet Risk

With regard to commitments to extend credit discussed in Note 9, the fair value amounts are not material.

The carrying amounts and estimated fair values of the Company’s financial instruments, none of which are held for trading purposes, are as follows at June 30, 2018 and December 31, 2017:

         
Fair Value Measurements at June 30, 2018 using
 
         
Quoted Prices in
Active Markets for
Identical Assets
   
Significant
Other
Observable
Inputs
   
Significant
Unobservable
Inputs
       
Dollars in thousands
 
Carrying
Value
   
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
ASSETS
                             
Cash and due from banks
 
$
13,804
   
$
13,804
   
$
-
   
$
-
   
$
13,804
 
Interest-earning deposits with banks
   
35,600
     
35,600
     
-
     
-
     
35,600
 
Certificates of deposit with banks
   
1,498
     
-
     
1,479
     
-
     
1,479
 
Federal Home Loan Bank stock
   
1,050
     
-
     
1,050
     
-
     
1,050
 
Investment securities available for sale
   
28,202
     
-
     
28,202
     
-
     
28,202
 
Equity securities
   
713
     
713
     
-
     
-
     
713
 
Net loans
   
370,182
     
-
     
-
     
361,857
     
361,857
 
Accrued interest receivable
   
1,140
     
-
     
1,140
     
-
     
1,140
 
                                         
LIABILITIES
                                       
Deposits
 
$
393,279
   
$
-
   
$
382,953
   
$
-
   
$
382,953
 
Capital lease obligation
   
174
     
-
     
174
     
-
     
174
 
Federal Home Loan Bank Advances
   
16,100
     
-
     
15,991
     
-
     
15,991
 
Long term subordinated debt
   
9,713
     
-
      9,411      
-
      9,411  
Accrued interest payable
   
360
     
-
     
360
     
-
     
360
 
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)
 
         
Fair Value Measurements at December 31, 2017 using
 
         
Quoted Prices in
Active Markets for
Identical Assets
   
Significant
Other
Observable
Inputs
   
Significant
Unobservable
Inputs
       
Dollars in thousands
 
Carrying
Value
   
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
ASSETS
                             
Cash and due from banks
 
$
5,409
   
$
5,409
   
$
-
   
$
-
   
$
5,409
 
Interest-earning deposits with banks
   
3,647
     
3,647
     
-
     
-
     
3,647
 
Certificates of deposit with banks
   
1,498
     
-
     
1,519
     
-
     
1,519
 
Federal Home Loan Bank stock
   
1,341
     
-
     
1,341
     
-
     
1,341
 
Investment securities available for sale
   
31,112
     
626
     
30,486
     
-
     
31,112
 
Net loans
   
345,080
     
-
     
-
     
345,370
     
345,370
 
Accrued interest receivable
   
1,078
     
-
     
1,078
     
-
     
1,078
 
                                         
LIABILITIES
                                       
Deposits
 
$
340,653
   
$
-
   
$
330,672
   
$
-
   
$
330,672
 
Capital lease obligation
   
207
     
-
     
207
     
-
     
207
 
Federal Home Loan Bank Advances
   
23,600
     
-
     
23,495
     
-
     
23,495
 
Long term subordinated debt
   
9,676
     
-
     
9,619
     
-
     
9,619
 
Accrued interest payable
   
292
     
-
     
292
     
-
     
292
 

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
 
Level 1
Valuation based upon quoted prices for identical instruments traded in active markets.

Level 2
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

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 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.  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 agency securities, mortgage-backed securities issued by government-sponsored enterprises and municipal bonds.   There have been no changes in valuation techniques for the quarter ended June 30, 2018. 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, 2018
                       
U.S. Government and federal agency
 
$
10,827
   
$
-
   
$
10,827
   
$
-
 
Mortgage-backed securities*
   
17,089
     
-
     
17,089
     
-
 
Municipal securities
   
286
     
-
     
286
     
-
 
Equity securities
   
713
     
713
     
-
     
-
 
Total
 
$
28,915
   
$
713
   
$
28,202
   
$
-
 
                                 
December 31, 2017
                               
U.S. Government and federal agency
 
$
11,276
   
$
-
   
$
11,276
   
$
-
 
Mortgage-backed securities*
   
18,915
     
-
     
18,915
     
-
 
Municipal securities
   
295
     
-
     
295
     
-
 
Equity securities
   
626
     
626
     
-
     
-
 
Total
 
$
31,112
   
$
626
   
$
30,486
   
$
-
 
 
*All of the Company’s mortgage-backed securities are issued either by the U.S. Government, which includes GNMA pools, or by government-sponsored enterprises such as FNMA and FHLMC.

The Company did not have any transfers of assets between Levels 1, 2 or 3 during the periods ended June 30, 2018 and December 31, 2017.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures it for impairment. The fair value of impaired loans is estimated using one of several methods, including collateral value, a loan’s observable market price and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value exceeds the recorded investments in such loans. At June 30, 2018, the discounted cash flows method was used in determining the fair value of nine loans totaling $1.8 million and the fair value of the collateral method was used in the other twenty-three loans totaling $2.5 million. At December 31, 2017, the discounted cash flows method was used in determining the fair value of nine loans totaling $1.9 million and the fair value of the collateral method was used in the other twenty-nine loans totaling $4.2 million. Impaired loans where an allowance is established based on the fair value of collateral and also when written down with the discounted cash flow method require classification in the fair value hierarchy. The fair value of the collateral for an impaired loan is classified as Level 3. Although appraisals of these properties are frequently based on comparable properties, they are not identical. Significant unobservable inputs will need to be used in assessing the value.  When the discounted cash flows method is used, the Company records the impaired loan as nonrecurring Level 3. There have been no changes in valuation techniques for the period ended June 30, 2018. 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, 2018 and 2017.

   
June 30, 2018
   
June 30, 2017
 
Dollars in thousands
 
Level 2
   
Level 3
   
Level 2
   
Level 3
 
Carrying value of impaired loans before allocations
 
$
-
   
$
1,685
     
-
   
$
1,789
 
Specific valuation allowance allocations
   
-
     
(249
)
   
-
     
(247
)
Carrying value of impaired loans after allocations
 
$
-
   
$
1,436
     
-
   
$
1,542
 

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The fair value of foreclosed assets are classified as Level 3. Although appraisals of these properties are frequently based on comparable properties, they are not identical. Significant unobservable inputs will need to be used in assessing the value.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

The carrying value of foreclosed assets is periodically reviewed and written down to fair value. Any loss is included in earnings. For the three months ended June 30, 2018, there were no assets that were written down prior to foreclosure. For the six months ended June 30, 2018, foreclosed assets in the amount of $1,158,000 were written down by $180,000 to $978,000 prior to foreclosure.  For the three and six months ended June 30, 2018, foreclosed assets with a carrying value of $978,000 were written down by $248,000 to $730,000 subsequent to foreclosure. For the three months ended June 30, 2017, foreclosed assets with a carrying value of $767,000 were written down by $184,000 to $583,000. For the six months ended June 30, 2017, foreclosed assets with a carrying value of $776,000 were written down by $193,000 to $583,000.

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, 2018
                       
Foreclosed assets
 
$
730
   
$
-
   
$
-
   
$
730
 
Impaired loans
   
1,436
     
-
     
-
     
1,436
 
Total
 
$
2,166
   
$
-
   
$
-
   
$
2,166
 
                                 
December 31, 2017
                               
Foreclosed assets
 
$
324
   
$
-
   
$
-
   
$
324
 
Impaired loans
   
1,621
     
-
     
-
     
1,621
 
Total
 
$
1,945
   
$
-
   
$
-
   
$
1,945
 

Quantitative Information About Level 3 Fair Value Measurements:

   
Fair
Value
 
Valuation
Technique
 
Unobservable
Input
 
Range
   
Weighted
Average
 
Dollars in thousands
                       
June 30, 2018
                       
Impaired loans
 
$
1,436
 
Discounted cash flows
 
Discount rate
   
4.75% - 8.50
%
   
7.08
%
Foreclosed assets
   
730
 
Discounted appraisals
 
Appraisal adjustments
   
8.00
%
   
8.00
%
                               
December 31, 2017
                             
Impaired loans
 
$
101
 
Discounted appraisals
 
Appraisal adjustments
   
20.00 – 25.00
%
   
23.33
%
     
1,520
 
Discounted cash flows
 
Discount rate
   
4.75 – 8.50
%
   
7.06
%
                               
Foreclosed assets
   
324
 
Discounted appraisals
 
Appraisal adjustments
   
15.00
%
   
15.00
%
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

(5)
Investment Securities

The amortized cost and fair value of securities, with gross unrealized gains and losses, is as follows:

 
In thousands
 
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair Value
 
June 30, 2018
                       
Available for sale securities
                       
U.S. Government and federal agency
 
$
11,207
   
$
6
   
$
(386
)
 
$
10,827
 
Mortgage-backed securities *
   
17,680
     
22
     
(613
)
   
17,089
 
Municipal securities
   
295
     
-
     
(9
)
   
286
 
Total available for sale securities
 
$
29,182
   
$
28
   
$
(1,008
)
 
$
28,202
 
                                 
December 31, 2017
                               
U.S. Government and federal agency
 
$
11,424
   
$
11
   
$
(159
)
 
$
11,276
 
Mortgage-backed securities *
   
19,142
     
61
     
(288
)
   
18,915
 
Municipal securities
   
297
     
-
     
(2
)
   
295
 
Equity securities
   
1,204
     
-
     
(578
)
   
626
 
   
$
32,067
   
$
72
   
$
(1,027
)
 
$
31,112
 
 
*All mortgage-backed securities are issued either by the U.S. Government through GNMA or by government sponsored enterprises FNMA or FHLMC.

The amortized cost and fair values of securities available-for-sale at June 30, 2018 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
   
7,293
     
7,089
 
Due after five but within ten years
   
8,155
     
7,847
 
Due after ten years
   
13,734
     
13,266
 
   
$
29,182
   
$
28,202
 
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

The following table details unrealized losses and related fair values in the Company’s 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, 2018 and December 31, 2017, 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, 2018
                                   
Available for sale securities
                                   
U.S. Government and federal agency
 
$
7,721
   
$
(236
)
 
$
2,962
   
$
(150
)
 
$
10,683
   
$
(386
)
Mortgage-backed securities *
   
4,864
     
(109
)
   
10,508
     
(504
)
   
15,372
     
(613
)
Municipal Securities
   
286
     
(9
)
   
-
     
-
     
286
     
(9
)
Total temporarily impaired securities
 
$
12,871
   
$
(354
)
 
$
13,470
   
$
(654
)
 
$
26,341
   
$
(1,008
)
                                                 
December 31, 2017
                                               
U.S. Government and federal agency
 
$
7,101
   
$
(88
)
 
$
2,008
   
$
(71
)
 
$
9,109
   
$
(159
)
Mortgage-backed securities *
   
5,472
     
(38
)
   
10,560
     
(250
)
   
16,032
     
(288
)
Municipal securities
   
295
     
(2
)
   
-
     
-
     
295
     
(2
)
Equity securities
   
626
     
(577
)
   
-
     
(1
)
   
626
     
(578
)
Total temporarily impaired securities
 
$
13,494
   
$
(705
)
 
$
12,568
   
$
(322
)
 
$
26,062
   
$
(1,027
)
 
*All mortgage-backed securities are issued either by the U.S. Government through GNMA or by government-sponsored enterprises FNMA or FHLMC.

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, 2018, management believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.  The unrealized losses on debt securities 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 re-pricing date or if market yields for such investments decline. Management analyzed the issuer data from public filings, reviewed transcripts of earnings discussions, and assessed whether the decline in value was other than temporary.

Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality for the debt securities.  Accordingly, as of June 30, 2018, management believes the impairments detailed in the table above are temporary, and no impairment loss has been realized in the Company’s net income.

Securities with a fair value of $1.0 million at June 30, 2018 were pledged to secure public funds. The Company had no sales of securities during the three and six month periods ended June 30, 2018 and June 30, 2017.
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

(6)
Loans

The following is a summary of loans at June 30, 2018 and December 31, 2017:

   
June 30, 2018
   
December 31, 2017
 
 
Dollars in thousands
 
Amount
   
Percent of
Total
   
Amount
   
Percent of
Total
 
Commercial real estate
                       
Residential ADC
 
$
5,254
     
1.40
%
 
$
7,242
     
2.08
%
Commercial ADC
   
25,686
     
6.87
%
   
24,364
     
6.99
%
Farmland
   
5,743
     
1.54
%
   
5,392
     
1.55
%
Multifamily
   
14,061
     
3.76
%
   
11,967
     
3.43
%
Owner occupied
   
96,098
     
25.69
%
   
84,808
     
24.32
%
Non-owner occupied
   
91,932
     
24.58
%
   
79,549
     
22.81
%
Total commercial real estate
   
238,774
     
63.84
%
   
213,322
     
61.18
%
                                 
Commercial
                               
Commercial and industrial
   
42,675
     
11.41
%
   
47,032
     
13.49
%
Agriculture
   
285
     
0.07
%
   
415
     
0.12
%
Other
   
1,607
     
0.43
%
   
1,420
     
0.40
%
Total commercial
   
44,567
     
11.91
%
   
48,867
     
14.01
%
                                 
Residential mortgage
                               
First lien, closed-end
   
51,529
     
13.78
%
   
47,936
     
13.75
%
Junior lien, closed-end
   
714
     
0.19
%
   
1,123
     
0.32
%
Total residential mortgage
   
52,243
     
13.97
%
   
49,059
     
14.07
%
                                 
Home equity lines
   
34,825
     
9.31
%
   
33,672
     
9.66
%
Consumer – other
   
3,617
     
0.97
%
   
3,759
     
1.08
%
                                 
Total loans
 
$
374,026
     
100.00
%
 
$
348,679
     
100.00
%

Loans are primarily originated for customers residing in Lincoln, Gaston, Rutherford, Catawba, Iredell, and Rowan 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 BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

Non-Accrual and Past Due Loans

Non-accrual loans, segregated by category, were as follows:

   
June 30,
2018
   
December 31,
2017
 
Dollars in thousands
           
Commercial real estate
           
Commercial ADC
 
$
4
   
$
5
 
Owner occupied
   
956
     
2,031
 
Non-owner occupied
   
6
     
28
 
Total commercial real estate
   
966
     
2,064
 
Commercial
               
Commercial and industrial
   
-
     
25
 
Total commercial
   
-
     
25
 
Residential mortgage:
               
First lien, closed end
   
74
     
86
 
Junior lien, closed end
   
5
     
455
 
Total residential mortgage
   
79
     
541
 
Home equity lines
   
30
     
34
 
Consumer – other
   
5
     
-
 
Total non-accrual loans
 
$
1,080
   
$
2,664
 

Interest foregone on non-accrual loans was approximately $22,000 and $37,000 for the three and six months ended June 30, 2018 and $68,000 and $105,000 for the three and six months ended June 30, 2017.

An analysis of past due loans, segregated by class, was as follows:

   
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
 
In thousands
                                   
June 30, 2018
                                   
Commercial real estate:
                                   
Residential ADC
 
$
375
   
$
-
   
$
375
   
$
4,879
   
$
5,254
   
$
-
 
Commercial ADC
   
-
     
-
     
-
     
25,686
     
25,686
     
-
 
Farmland
   
-
     
-
     
-
     
5,743
     
5,743
     
-
 
Multifamily
   
-
     
-
     
-
     
14,061
     
14,061
     
-
 
Owner occupied
   
458
     
948
     
1,406
     
94,692
     
96,098
     
-
 
Non-owner occupied
   
6
     
-
     
6
     
91,926
     
91,932
     
-
 
Total commercial real estate
   
839
     
948
     
1,787
     
236,987
     
238,774
     
-
 
Commercial:
                                               
Commercial and industrial
   
80
     
-
     
80
     
42,595
     
42,675
     
-
 
Agriculture
   
-
     
-
     
-
     
285
     
285
     
-
 
Other
   
-
     
-
     
-
     
1,607
     
1,607
     
-
 
Total commercial
   
80
     
-
     
80
     
44,487
     
44,567
     
-
 
Residential mortgage:
                                               
First lien, closed end
   
39
     
48
     
87
     
51,442
     
51,529
     
-
 
Junior lien, closed-end
   
-
     
-
     
-
     
714
     
714
     
-
 
Total residential mortgage
   
39
     
48
     
87
     
52,156
     
52,243
     
-
 
Home equity lines
   
-
     
-
     
-
     
34,825
     
34,825
     
-
 
Consumer – other
   
8
     
25
     
33
     
3,584
     
3,617
     
25
 
Total loans
 
$
966
   
$
1,021
   
$
1,987
   
$
372,039
   
$
374,026
   
$
25
 
 
CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

   
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
 
In thousands
                                   
December 31, 2017
                                   
Commercial real estate:
                                   
Residential ADC
 
$
-
   
$
-
   
$
-
   
$
7,242
   
$
7,242
   
$
-
 
Commercial ADC
   
-
     
-
     
-
     
24,364
     
24,364
     
-
 
Farmland
   
-
     
-
     
-
     
5,392
     
5,392
     
-
 
Multifamily
   
-
     
-
     
-
     
11,967
     
11,967
     
-
 
Owner occupied
   
254
     
2,018
     
2,272
     
82,536
     
84,808
     
-
 
Non-owner occupied
   
144
     
-
     
144
     
79,405
     
79,549
     
-
 
Total commercial real estate
   
398
     
2,018
     
2,416
     
210,906
     
213,322
     
-
 
Commercial:
                                               
Commercial and industrial
   
-
     
25
     
25
     
47,007