Carolina Trust Bank Posts Net Profit of $309,000 in Third Quarter

LINCOLNTON, N.C., Oct. 21, 2011 /PRNewswire/ -- Carolina Trust Bank (NASDAQ: CART) today reported net income attributable to common shareholders of $309,000 in the third quarter of 2011, or $0.07 per diluted common share, as stable credit trends and improving net interest margins helped boost the bank to its first quarterly profit in 2011.  

Carolina Trust realized a net income improvement of $1.10 million on a link-quarter basis as the bank rebounded from a ($793,000) net loss, or ($0.17) loss per diluted share, for the quarter ended June 30, 2011. Excluding payment of dividends on preferred shares, Carolina Trust Bank earned $380,000 in the third quarter compared to a second-quarter loss of ($722,000). Year-to-date net income fell $1,371,000 year-over-year.

Quarterly results were driven by lower provisions for loan losses as credit concerns began to stabilize and lower funding costs that resulted in higher yields and improved net interest income through the first nine months of 2011.

"We're making every effort to stay on top of our problem loans and manage our portfolio," said President and CEO Michael Cline. "The big question for all banks is property valuations. When will they hit bottom? In the meantime, we've begun to see positive results from our efforts to change our deposit mix."

Total nonperforming assets, including foreclosed property and non-accrual loans, were flat to slightly down from the second quarter, but up year-over-year due primarily to higher non-accrual loans, which have steadily declined in the first nine months of 2011. While slightly above levels at Sept. 30, 2010, delinquent loans – past due 30 to 89 days - fell by $2.21 million in the third quarter from the previous quarter. Net charge-offs, their lowest in several quarters, declined significantly in the third quarter on a link-quarter and year-to-year basis.

Net interest margins continued to improve steadily as Carolina Trust's strategy to replace higher-yielding brokered instruments with core deposits reduced borrowing costs in the first nine months. Lower funding costs resulted in savings of $302,000 on a year-over-year basis. Total deposits in the third quarter remained flat compared to Sept. 30, 2010, but fell by $6.36 million from the previous quarter.

"We made a conscious decision to shrink deposits and allow the higher-priced CDs to run off," Cline said. "Higher margins mean higher profits. Fortunately, we have the liquidity and strength to execute on this business decision.

"We are focusing our efforts on continuing to reduce non-performing assets and realigning our balance sheet for profit when this credit cycle ends," he said. "Part of that is re-pricing and allowing certain deposits to go elsewhere. We also have a good pipeline of loans even though loan demand was down this quarter."

Since Sept. 30, 2010, Carolina Trust has replaced nearly half of its brokered deposits with an equal amount of low-cost core deposits, such as checking, savings and money market accounts. The brokered deposits released consisted of higher rate certificates of deposit, which were acquired in a 2009 merger. Carolina Trust also paid off in the first nine months of 2011 approximately $4 million in higher-cost borrowings from the Federal Home Loan Bank.

Balance Sheet

Total loans were $204.47 million at Sept 30, 2011, compared to $206.24 million for the previous quarter and $211.46 million a year ago. Total deposits remained flat year-over-year, but declined by 2.73% to $226.86 million from the second quarter. Core deposits grew year-over-year by $11.47 million, or 5.78%, while higher-priced brokered deposits declined by $11.33 million, or 40.20% percent.

Reserves for loan losses declined to $3.91 million in the third quarter from $3.96 million in the prior quarter, as a result of charging off impaired loans, but slightly ahead of the $3.52 million reported at Sept. 30, 2010.  Shareholder equity improved to $27.36 million in the third quarter compared to $26.78 million in the second quarter and $22.61 million at Sept. 30, 2010.

Carolina Trust Bank, reported a Tier 1 capital leverage ratio of 9.58% at September 30, 2011, up from 9.40% from the previous quarter and 7.98% a year ago. Each of the bank's capital ratios, including those based on risk-weighted calculations, improved over the previous quarter and year-over-year. The bank meets all regulatory requirements for being "well-capitalized," the highest recognized category based on regulatory capital guidelines.

Net Interest Income and Expense

Net interest income increased by $94,000 in the third quarter, despite a drop in loans of $1.77 million over the same period. Net interest margin – the difference between what banks earn on loans and other investments and pay for deposits and borrowed funds - continued to trend upward in the first nine months of 2011, improving by 14 basis points to 3.52% at Sept. 30, 2011 compared to 3.38% at June 30, 2011.  

A shift in deposit mix contributed to lower funding costs, which declined by $112,000 compared to the third quarter of 2010. The impact in reduced interest expense resulted in savings of $302,000 year-over-year. Before accounting for accretion of the bank's merger with Carolina Commerce, net interest margin improved by 30 basis points for the first nine months of 2011 compared to the first nine months of 2010.

Noninterest income was $316,000 for the quarter ended September 30, 2011, compared to $225,000 for the quarter ended June 30, 2011. Expenses related to operations showed a slight increase to $2.10 million in the third quarter, up $194,000 over the second quarter.

Asset Quality

Total nonperforming assets, which include foreclosed property and non-accrual loans, fell to $11.97 million in the third quarter from $12.28 million at June 30, 2011. Non-accrual loans – loans 90 days past due and no longer earning interest – were $5.99 million at Sept. 30, 2011, declining by $445,000 from the previous quarter. Foreclosed real estate owned by the bank remained stable quarter-over-quarter at $5.74 million, but increased marginally from $5.29 million at Sept. 30, 2010.

Net loan charge-offs were $170,000 in the third quarter, or $1.50 million lower than the previous quarter, reflecting improvement in the small business portfolio. Charge-offs were 0.08% of average loans for the  quarter ended September 30, 2011, compared to 0.82% of average loans for the quarter ended June 30, 2011. Net loan charge-offs for the quarter ended September 30, 2010 were $1.61 million, or 0.75% of average loans. Reserves for loan losses fell to $3.91 million in the third quarter compared to $3.96 million in the previous quarter. Allowance for loan losses to total loans was 1.91 % compared to 1.92% at June 30, 2011.

Past due loans as a percentage of total loans were 4.51% at Sept. 30, 2011, compared to 5.71% at June 30, 2011.

Carolina Trust Bank, with $270 million in assets, is a full service state chartered bank headquartered in Lincolnton, N.C., operating six full service branches in Lincoln, Catawba and Gaston Counties and a loan production office in Rutherford County.

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.

SOURCE Carolina Trust Bank