Carter Bankshares, Inc. Announces Fourth Quarter 2020 Financial Results

·36 min read

MARTINSVILLE, VA / ACCESSWIRE / January 28, 2021 / Carter Bankshares, Inc. (the "Company") (NASDAQ:CARE) today announced net income of $2.9 million, or $0.11 diluted earnings per share, for the fourth quarter of 2020 as compared to a net loss of $57.7 million, or $2.19 per share, in the third quarter of 2020 due to a one-time goodwill impairment charge of $62.2 million that was recorded in the third quarter of 2020. Excluding this one-time charge, net income in the third quarter of 2020 was $4.5 million as compared to net income of $3.6 million, or $0.14 diluted earnings per share, for the fourth quarter of 2019. Pre-tax pre-provision earnings1, excluding goodwill impairment, were $7.9 million, $8.3 million and $2.4 million for the quarters ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

For the year ended December 31, 2020, the Company realized a net loss of $45.9 million, or $1.74 per share. Net income, excluding the one-time goodwill impairment charge, was $16.3 million as compared to net income of $26.6 million, or $1.01 diluted earnings per share in 2019. Pre-tax pre-provision earnings1, excluding goodwill impairment, were $35.1 million and $31.2 million for the years ended December 31, 2020 and 2019, respectively.

Fourth Quarter 2020 Financial Highlights

  • On November 23, 2020, the Company completed the reorganization in which Carter Bankshares, Inc. became the parent bank holding company of Carter Bank & Trust;

  • Net interest income increased $0.7 million, or 2.8%, to $26.2 million as compared to the linked quarter primarily due to a 16 basis point decrease in funding costs compared to the third quarter of 2020;

  • Net interest margin, on a fully taxable equivalent basis, increased four basis points to 2.71% over the linked quarter;

  • Total deposits increased $70.8 million to $3.7 billion as of December 31, 2020 as compared to the linked quarter and $180.4 million, or 5.1%, as compared to December 31, 2019. Total deposits at December 31, 2020 include $84.7 million of deposits held for assumption in connection with the Company's agreement to sell four of its banking branches. Deposits held for assumption at December 31, 2020 include $9.5 million of noninterest-bearing deposits, $4.9 million of interest-bearing deposits, $13.8 million of money market and savings deposits and $56.5 million in certificates of deposit. Noninterest-bearing and interest-bearing demand deposits, money market accounts and savings, increased by $162.2 million, or 8.8%, as compared to linked quarter and increased $469.5 million, or 30.4%, as compared to December 31, 2019;

  • On January 6, 2021, the Company announced the closing of 24 retail branch offices through closure or sale. The branch closures are expected to occur on or about April 16, 2021, as part of our branch network optimization project aligned with our strategic goals to enhance franchise value and improve operating efficiency;

  • On January 14, 2021, the Company announced that it agreed to sell three of the aforementioned branches to Pendleton Community Bank. On January 27, 2021, the Company announced that it agreed to sell one of the aforementioned branches to F & M Bank. These agreements are subject to regulatory approvals and expected to be completed in the second quarter of 2021. In connection with the Company's agreement to sell these four banking branches are $9.8 million of loans and $84.7 million of deposits detailed previously;

  • The provision for loan losses totaled $4.8 million for the quarter ended December 31, 2020, $2.9 million for the quarter ending September 30, 2020 and $(1.0) million for the same quarter of 2019. The increase from the previous quarter was primarily due to an increase in specific reserves for two credit relationships, offset by a decrease in our quantitative reserves due to the decline in historic loss rates;

  • Nonperforming loans declined $8.5 million, or 20.9% as compared to September 30, 2020 due to sale proceeds from two credit relationships. Nonperforming loans to total portfolio loans were 1.09%, 1.35% and 1.46% as of December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

"Last year, we faced significant adversity due to the COVID-19 pandemic. It was a challenging year not only for the Company, but for many of our business and consumer banking customers. We are extremely proud of how our teammates have remained resilient and committed to meeting the needs of our customer base," stated Litz H. Van Dyke, Chief Executive Officer. "We remained profitable, well-capitalized, have strong liquidity, and continue to implement state-of-the-art technology on par with or above the industry standard to continue to provide our customers with financial flexibility, and to offer products and services through multiple delivery channels while providing a safe environment for both employees and customers."

Van Dyke continued, "Going forward, we believe we are positioned for continued improvement in the financial performance of the Company. We have adjusted our branch operating models to increase efficiency and profitability, and are nearing completion of our branch optimization initiative. With a "right-sized" branch footprint, we can now focus on growth in both strong existing markets as well as new emerging markets. We continue to build out our commercial, retail and mortgage lending groups in all key markets. While progress continues with respect to asset quality, further reduction of troubled assets remains a constant goal. Finally, we have made solid progress in improving our deposit mix and lowering our cost of funds, both of which are now driving an improved net interest margin. Despite the challenges that COVID-19 continues to present, we will continue to build and strengthen our customer relationships and remain very optimistic about our future."

Operating Highlights

Net interest income decreased $7.2 million, or 6.4%, to $105.1 million during 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, decreased 25 basis points to 2.80% over the past twelve months. The decreases in short-term interest rates had a negative impact on both net interest income and net interest margin, but are offset by a lower cost of funds. The yield on interest-earning assets decreased 54 basis points, offset by a 34 basis point decline in funding costs as compared to 2019.

The provision for loan losses totaled $18.0 million during 2020 and $3.4 million for 2019. The Company is subject to the adoption of the Current Expected Credit Losses ("CECL") accounting method under Financial Accounting Standards Board ("FASB") Accounting Standards Update 2016-03 and related amendments, Financial Instruments - Credit Losses (Topic 326). However, the Company elected to defer the implementation of CECL pursuant to the Coronavirus Aid, Relief, and Economic Security ("CARES") Act which permits the deferral of implementation until the earlier of: i) the cessation of the national emergency related to the outbreak of COVID-19, or ii) December 31, 2020, which was later extended to January 1, 2022. The Company plans to adopt as of January 1, 2021 as allowed under the provisions of the CARES Act. The total balance of reserves increased $15.3 million during 2020 which was comprised of an increase in specific reserves of $9.1 million and an increase in general reserves of $6.2 million. The $6.2 million increase in general reserves included an increase of $16.1 million in qualitative reserves offset by a decrease of $9.9 million in quantitative reserves due to improvements in the Company's loss history. The $16.1 million increase in qualitative reserves included $9.6 million due to general economic uncertainties and specific concerns regarding disruptions to the Company's hospitality clients caused by the COVID-19 pandemic and an additional $6.5 million based on general economic, geo-political and other risk factors determined by management. These qualitative reserves are intended to reflect not only the risks of continued weak economic conditions on our loan portfolio, but also loss estimates identified in loan portfolios deemed to be at risk from the COVID-19 pandemic. The Company adjusted qualitative risk factors under its incurred loss model for economic conditions, changes in payment deferral procedures, expected changes in collateral values due to reduced cash flows and external factors such as government actions. Management believes the uncertainty regarding customers' ability to repay loans could be adversely impacted by the COVID-19 pandemic given higher unemployment rates, requests for payment deferrals, temporary business shutdowns and reduced consumer and business spending.

At December 31, 2020, nonperforming loans were $32.0 million, a decrease of $10.1 million, or 24.0% as compared to December 31, 2019. Net charge-offs were $2.7 million during 2020 as compared to $3.8 million in the same period of 2019. As a percentage of total portfolio loans, on an annualized basis, net charge-offs were 0.09% and 0.13% for the periods ending December 31, 2020 and 2019, respectively. Nonperforming loans as a percentage of total portfolio loans were 1.09%, 1.35% and 1.46% as of December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Noninterest income for the year ended December 31, 2020, excluding net securities gains, increased $5.0 million, or 34.3%, as compared to 2019. The increase was primarily due to $4.1 million of commercial loan swap fee income as result of the high demand for this product in the current low interest rate environment, $0.5 million of higher insurance commissions, $0.7 million of higher debit card interchange fees and an increase of $0.5 million in other income. These increases were offset by lower service charges on deposit accounts of $0.3 million due to COVID-19 fee waivers. The income from other real estate owned ("OREO") also declined $0.3 million due to the sale of several large commercial properties over the last 12 months. Securities gains of $6.9 million and $2.2 million were realized during 2020 and 2019, respectively, to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

Total noninterest expense for the year ended December 31, 2020 increased $60.7 million, or 62.0%, to $158.8 million as compared to 2019. This increase was primarily due to the aforementioned one-time goodwill impairment charge of $62.2 million. Excluding the impact of the one-time goodwill impairment charge, noninterest expense decreased $1.4 million, or 1.5%, to $96.6 million. The decrease was primarily driven by a decline of $0.5 million in salaries and employee benefits, $3.3 million of lower losses and write-downs of OREO, $1.2 million of lower tax credit amortization and a $0.4 million decline in unfunded loan commitment expense. The decrease in salaries and benefits is primarily attributable to our branch network optimization project, offset by normal merit increases and a decline in salary deferrals on new loan originations during 2020. There have not been any permanent or temporary reductions in employees as a result of COVID-19. Offsetting these decreases are increases in occupancy expense of $1.6 million as a result of higher depreciation for software and equipment for ancillary products and services. FDIC insurance increased $1.0 million primarily due to the $1.1 million one-time credit for eligible institutions available in the third quarter of 2019. Other expense increases of $1.4 million are related to other taxes, advertising, professional and legal fees and data processing.

Financial Condition

Total assets were $4.2 billion at December 31, 2020 and $4.0 billion at December 31, 2019. Total portfolio loans increased $62.4 million, or 2.2%, to $2.9 billion as of December 31, 2020 as compared to December 31, 2019. Nonperforming loans decreased $10.1 million to $32.0 million, or 24.0% at December 31, 2020 as compared to $42.1 million at December 31, 2019. OREO decreased $2.6 million at December 31, 2020 as compared to December 31, 2019. Closed retail Company offices declined $0.5 million and have a remaining book value of $2.5 million at December 31, 2020 as compared to $3.0 million at December 31, 2019.

Federal Reserve Bank excess reserves increased $124.2 million at December 31, 2020 as compared to December 31, 2019 due to maintaining higher liquidity levels as a result of COVID-19.

The securities portfolio increased $36.1 million and is currently 18.6% of total assets at December 31, 2020 as compared to 18.5% of total assets at December 31, 2019. The increase is a result of active balance sheet management. We have further diversified the securities portfolio as to bond types, maturities and interest rate structures.

Total deposits increased $180.4 million or 5.1%, to $3.7 billion at December 31, 2020 as compared to December 31, 2019. Total deposits at December 31, 2020 includes $84.7 million of deposits held for assumption in connection with the Company's agreement to sell four of its banking branches.

Deposits held for assumption at December 31, 2020 include $9.5 million of noninterest-bearing deposits, $4.9 million of interest-bearing deposits, $13.8 million of money market and savings deposits and $56.5 million in certificates of deposit. Core deposits, including noninterest-bearing and interest-bearing demand deposits, money market accounts and savings, increased by $469.5 million, or 30.4%, at December 31, 2020 compared to December 31, 2019. Offsetting these increases was the intentional runoff of $289.1 million of higher cost certificates of deposits. Noninterest-bearing deposits comprised 19.2% and 15.8% of total deposits at December 31, 2020 and December 31, 2019, respectively.

The allowance for loan losses was 1.83%, 1.67% and 1.34% of total portfolio loans at December 31, 2020, September 30, 2020 and December 31, 2019, respectively. General reserves as a percentage of total portfolio loans were 1.32%, 1.40% and 1.13% at December 31, 2020, September 30, 2020 and December 31, 2019, respectively. The allowance for loan losses was 169.1% of nonperforming loans at December 31, 2020 as compared to 92.0% of nonperforming loans at December 31, 2019. Management believes, the allowance for loan losses is adequate to absorb probable losses inherent in the loan portfolio. For further information regarding the Company's decision to defer CECL under Section 4014 of the CARES Act, as well as further detail on the increase in provision during 2020, please see the discussion above under Provision for Loan Losses.

The Company provides deferrals to customers under Section 4013 of the CARES Act and regulatory interagency statements on loan modifications. The Company launched successive deferral programs with short term expirations. The Part I program was launched in March 2020 and expired at the end of August 2020. The deferrals in Part I typically provided deferral of both principal and interest through the expiry. The Part II program was launched in July 2020 and expired at the end of December 2020. The deferrals in this program were needs based and required the collection of updated financial information and in certain situations, the validation of liquidity to support the business. Prior to the extension of the CARES Act, the Company launched the Part III program that offered borrowers in the Part II program an extension of deferrals through June 2021. For those borrowers who opted into the Part III program, they are required to provide monthly financial statements and remit payments on a quarterly basis based on excess cash flows, if any, up to their otherwise contractual payment. Management expects the majority of deferrals in the Part III program to be principal only deferrals. At the end of the deferral period, for term loans, payments will be applied to accrued interest first and will resume principal payments once accrued interest is current. Deferred principal will be due at maturity. For interest only loans, such as lines of credit, deferred interest will be due at maturity. As of December 31, 2020, we had 83 loans opt for deferrals under Part III of the program which continues through June 30, 2021, with an aggregate principal balance of $388.6 million or 13.2% of total portfolio loans. The weighted average deferment period for these customers is 5.9 months. Approximately $313.9 million of these modifications were comprised of 56 loan deferrals related to the hospitality industry.

We have participated in the Paycheck Protection Program ("PPP") established by the CARES Act. As of December 31, 2020, we had approved 515 loan applications totaling $39.9 million through our internal lending program, of which 64 have been fully forgiven by the Small Business Administration (SBA). These PPP loans generated $1.5 million in fees, which will be recognized in income as loans are forgiven, or over the remaining life of the loan for any portion that is not forgiven. We had an additional 451 loans approved that were referred to an online small business lender, totaling $17.9 million, resulting in referral fees of $27 thousand. On December 22, 2020 Congress passed legislation that was signed into law on December 27, 2020, making available new PPP funding. We will be providing access to the program through our internal lending program for our current business customers.

A one-time goodwill impairment charge of $62.2 million was recorded as of September 30, 2020. The Company performed an interim impairment analysis of goodwill as of September 30, 2020 due to the continued decline in our stock price primarily related to the economic fallout of COVID-19. The impairment charge is a non-cash charge that does not affect regulatory capital ratios, liquidity, or our overall financial strength.

The Company remains well capitalized. The Company's Tier 1 Capital ratio was 13.08% at December 31, 2020 as compared to 13.58% at December 31, 2019. The Company's leverage ratio was 10.26% at December 31, 2020 as compared to 10.33% at December 31, 2019. The Company's Total Risk-Based Capital ratio was 14.33% at December 31, 2020 as compared to 14.83% at December 31, 2019.

Total capital of $440.2 million at December 31, 2020, reflects a decrease of $32.9 million as compared to December 31, 2019. The decrease in equity during 2020 is due to a net loss of $45.9 million, offset by a $15.6 million increase in other comprehensive income due to changes in fair value of investment securities. The net decrease also included the $3.7 million special dividend paid in March of 2020. The remaining difference of $1.1 million is related to restricted stock activity during the year ended December 31, 2020.

At December 31, 2020, funding sources accessible to the Company include borrowing availability at the Federal Home Loan Bank ("FHLB"), equal to 25% of the Company's assets approximating $1.0 billion, subject to the amount of eligible collateral pledged, federal funds unsecured lines with six other correspondent financial institutions in the amount of $145.0 million and access to the institutional CD market. In addition to the above resources, the Company also has $632.7 million of unpledged available-for-sale investment securities as an additional source of liquidity.

About Carter Bankshares, Inc.

Headquartered in Martinsville, VA, Carter Bankshares, Inc. (NASDAQ: CARE) provides a full range of commercial banking, consumer banking, mortgage and services through its subsidiary Carter Bank & Trust. The Company has $4.2 billion in assets and 92 branches in Virginia and North Carolina. For more information or to open an account visit www.CBTCares.com.

Important Note Regarding Non-GAAP Financial Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables in our definitions and reconciliations of GAAP to non-GAAP financial measures. This press release and the accompanying tables discuss financial measures, such as adjusted noninterest expense, adjusted efficiency ratio, and net interest income on a fully taxable equivalent basis, which are all non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company's operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.

Important Note Regarding Forward-Looking Statements

This information contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to our financial condition, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels and asset quality. Forward looking statements are typically identified by words or phrases such as "will likely result," "expect," "anticipate," "estimate," "forecast," "project," "intend," " believe," "assume," "strategy," "trend," "plan," "outlook," "outcome," "continue," "remain," "potential," "opportunity," "believe," "comfortable," "current," "position," "maintain," "sustain," "seek," "achieve" and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. 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. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses; cyber-security concerns; rapid technological developments and changes; the Company's liquidity and capital positions; the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (such as the current COVID-19 pandemic), and of governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company's liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth; sensitivity to the interest rate environment including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; regulatory supervision and oversight; legislation affecting the financial services industry as a whole, and Carter Bankshares, Inc., in particular; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or more costly than anticipated; containing costs and expenses; reliance on significant customer relationships; general economic or business conditions; deterioration of the housing market and reduced demand for mortgages; re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses. Many of these factors, as well as other factors, are described in our filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Carter Bankshares, Inc.
Wendy Bell, 276-656-1776
Senior Executive Vice President & Chief Financial Officer
wendy.bell@CBTCares.com

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
BALANCE SHEETS
(Unaudited)

(Dollars in Thousands, except per share data)

December 31,

September 30,

December 31,

2020

2020

2019

ASSETS

Cash and Due From Banks

$

38,535

$

37,688

$

41,386

Interest-Bearing Deposits in Other Financial Institutions

39,954

6,267

45,156

Federal Reserve Bank Excess Reserves

163,453

107,219

39,270

Total Cash and Cash Equivalents

241,942

151,174

125,812

Securities, Available-for-Sale, at Fair Value

778,679

777,986

742,617

Loans Held-for-Sale

25,437

32,104

19,714

Loans Held-for-Sale in Connection with Sale of Banking Branches, at the lower of cost or fair value

9,835

-

-

Portfolio Loans

2,947,170

2,985,921

2,884,766

Allowance for Loan Losses

(54,074

)

(49,965

)

(38,762

)

Portfolio Loans, net

2,893,096

2,935,956

2,846,004

Bank Premises and Equipment, net

85,307

87,439

85,942

Bank Premises and Equipment Held-for-Sale, net

2,293

-

-

Other Real Estate Owned, net

15,722

16,410

18,324

Goodwill

-

-

62,192

Federal Home Loan Bank Stock, at Cost

5,093

5,093

4,113

Bank Owned Life Insurance

53,997

53,651

52,597

Other Assets

67,778

74,312

48,793

TOTAL ASSETS

$

4,179,179

$

4,134,125

$

4,006,108

LIABILITIES

Deposits:

Noninterest-Bearing Demand

$

699,229

$

665,813

$

554,875

Interest-Bearing Demand

366,201

351,066

286,561

Money Market

294,229

211,465

140,589

Savings

625,482

622,806

561,814

Certificates of Deposits

1,614,770

1,762,645

1,960,406

Deposits Held for Assumption in Connection with Sale of Banking Branches

84,717

-

-

Total Deposits

3,684,628

3,613,795

3,504,245

FHLB Borrowings

35,000

35,000

10,000

Other Liabilities

19,377

50,523

18,752

TOTAL LIABILITIES

3,739,005

3,699,318

3,532,997

SHAREHOLDERS' EQUITY

Common Stock, Par Value $1.00 Per Share, Authorized 100,000,000 Shares;

26,385,041 outstanding at December 31, 2020,

26,386,901 outstanding at September 30, 2020 and 26,334,229 at December 31, 2019

26,385

26,387

26,334

Additional Paid-in-Capital

143,457

143,244

142,492

Retained Earnings

254,611

251,669

304,158

Accumulated Other Comprehensive Income

15,721

13,507

127

TOTAL SHAREHOLDERS' EQUITY

440,174

434,807

473,111

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

4,179,179

$

4,134,125

$

4,006,108

PROFITABILITY RATIOS (ANNUALIZED)

Return on Average Assets

(1.12

)%

(1.59

)%

0.65

%

Return on Average Shareholders' Equity

(9.78

)%

(13.59

)%

5.76

%

Portfolio Loan to Deposit Ratio

79.99

%

82.63

%

82.32

%

Allowance to Total Portfolio Loans

1.83

%

1.67

%

1.34

%

CAPITALIZATION RATIOS

Shareholders' Equity to Assets

10.53

%

10.52

%

11.81

%

Tier 1 Leverage Ratio

10.26

%

10.12

%

10.33

%

Risk-Based Capital - Tier 1

13.08

%

13.08

%

13.58

%

Risk-Based Capital - Total

14.33

%

14.33

%

14.83

%

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
INCOME STATEMENTS
(Unaudited)

(Dollars in Thousands, except per share data)

Quarter-to-Date

Year-to-Date

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

Interest Income

$

33,502

$

33,986

$

39,759

$

140,941

$

159,120

Interest Expense

7,349

8,550

11,333

35,826

46,773

NET INTEREST INCOME

26,153

25,436

28,426

105,115

112,347

Provision for Loan Losses

4,821

2,914

(982

)

18,006

3,404

NET INTEREST INCOME AFTER

21,332

22,522

29,408

87,109

108,943

PROVISION FOR LOAN LOSSES

NONINTEREST INCOME

Gains on Sales of Securities, net

959

2,388

606

6,882

2,205

Service Charges, Commissions and Fees

1,623

1,205

1,733

4,668

4,962

Debit Card Interchange Fees

1,587

1,559

1,326

5,857

5,160

Insurance

(395

)

482

128

1,728

1,225

Bank Owned Life Insurance Income

346

351

357

1,400

1,436

Other Real Estate Owned Income

61

58

72

340

689

Commercial Loan Swap Fee Income

931

1,572

-

4,051

-

Other

477

360

287

1,654

1,193

TOTAL NONINTEREST INCOME

5,589

7,975

4,509

26,580

16,870

NONINTEREST EXPENSE

Salaries and Employee Benefits

13,284

13,036

15,083

52,390

52,879

Occupancy Expense, net

3,292

3,413

3,082

13,369

11,785

FDIC Insurance Expense

685

547

549

2,313

1,270

Other Taxes

808

809

746

3,151

2,847

Advertising Expense

223

404

743

1,633

1,445

Telephone Expense

578

578

578

2,303

2,202

Professional and Legal Fees

1,696

1,474

1,560

5,006

4,507

Data Processing

731

836

492

2,648

2,267

Losses on Sales and Write-downs of Other Real Estate Owned, net

78

1,305

4,163

1,435

4,732

Losses on Sales and Write-downs of Bank Premises, net

11

17

165

99

188

Debit Card Expense

576

764

593

2,565

2,753

Tax Credit Amortization

272

272

576

1,088

2,265

Unfunded Loan Commitment Expense

(503

)

(348

)

(255

)

(252

)

121

Other Real Estate Owned Expense

246

94

292

657

525

Goodwill Impairment Expense

-

62,192

-

62,192

-

Other

1,864

1,907

2,119

8,178

8,243

TOTAL NONINTEREST EXPENSE

23,841

87,300

30,486

158,775

98,029

INCOME (LOSS) BEFORE INCOME TAXES

3,080

(56,803)

3,431

(45,086)

27,784

Income Tax Provision (Benefit)

138

875

(175

)

772

1,209

NET INCOME (LOSS)

$

2,942

$

(57,678)

$

3,606

$

(45,858)

$

26,575

Shares Outstanding, at End of Period

26,385,041

26,386,901

26,334,229

26,385,041

26,334,229

Average Shares Outstanding-Basic

26,386,170

26,385,189

26,334,069

26,379,774

26,323,899

Average Shares Outstanding-Diluted

26,394,106

26,385,189

26,362,129

26,379,774

26,339,085

PER SHARE DATA

Basic Earnings (Loss) Per Common Share

$

0.11

$

(2.19

)

$

0.14

$

(1.74

)

$

1.01

Diluted Earnings (Loss) Per Common Share

$

0.11

$

(2.19

)

$

0.14

$

(1.74

)

$

1.01

Book Value

$

16.68

$

16.48

$

17.97

$

16.68

$

17.97

Tangible Book Value2

$

16.68

$

16.48

$

15.60

$

16.68

$

15.60

Market Value

$

10.72

$

6.65

$

23.72

$

10.72

$

23.72

PROFITABILITY RATIOS (non-GAAP)

Net Interest Margin (FTE)3

2.71

%

2.67

%

3.06

%

2.80

%

3.05

%

Core Efficiency Ratio4

71.02

%

75.27

%

76.13

%

73.81

%

71.62

%

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
NET INTEREST MARGIN (FTE) (QTD AVERAGES)
(Unaudited)

(Dollars in Thousands)

December 31, 2020

September 30, 2020

December 31, 2019

ASSETS

Average Balance

Income/ Expense

Rate

Average Balance

Income/ Expense

Rate

Average Balance

Income/ Expense

Rate

Interest-Bearing Deposits with Banks

$ 123,118

$ 34

0.11%

$ 124,886

$ 32

0.10%

$ 97,512

$ 410

1.67%

Tax-Free Investment Securities

63,574

491

3.07%

54,541

455

3.32%

20,337

207

4.04%

Taxable Investment Securities

698,761

3,018

1.72%

693,330

3,150

1.81%

730,444

4,723

2.57%

Tax-Free Loans

265,649

2,119

3.17%

302,351

2,397

3.15%

355,639

2,830

3.16%

Taxable Loans

2,757,028

28,341

4.09%

2,694,747

28,511

4.21%

2,558,192

32,167

4.99%

Federal Home Loan Bank Stock

5,093

48

3.75%

5,093

39

3.05%

4,081

60

5.83%

Total Interest-Earning Assets

$ 3,913,223

$ 34,051

3.46%

$ 3,874,948

$ 34,584

3.55%

$ 3,766,205

$ 40,397

4.26%

LIABILITIES

Deposits:

Interest-Bearing Demand

$ 358,024

$ 214

0.24%

$ 330,402

$ 239

0.29%

$ 245,887

$ 364

0.59%

Money Market

249,879

232

0.37%

200,303

210

0.42%

154,381

358

0.92%

Savings

626,744

162

0.10%

616,414

168

0.11%

563,401

148

0.10%

Certificates of Deposit

1,711,053

6,619

1.54%

1,801,535

7,815

1.73%

1,994,916

10,403

2.07%

Total Interest-Bearing Deposits

$ 2,945,700

$ 7,227

0.98%

$ 2,948,654

$ 8,432

1.14%

$ 2,958,585

$ 11,273

1.51%

Borrowings:

FHLB Borrowings

35,000

101

1.15%

35,000

101

1.15%

9,239

39

1.67%

Other Borrowings

1,721

21

4.85%

1,183

17

5.72%

1,547

21

5.39%

Total Borrowings

36,721

122

1.32%

36,183

118

1.30%

10,786

60

2.21%

Total Interest-Bearing Liabilities

$ 2,982,421

$ 7,349

0.98%

$ 2,984,837

$ 8,550

1.14%

$ 2,969,371

$ 11,333

1.51%

Net Interest Income

$ 26,702

$ 26,034

$ 29,064

Net Interest Margin

2.71%

2.67%

3.06%

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
NET INTEREST MARGIN (FTE) (YTD AVERAGES)
(Unaudited)

(Dollars in Thousands)

December 31, 2020

December 31, 2019

ASSETS

Average Balance

Income/ Expense

Rate

Average Balance

Income/ Expense

Rate

Interest-Bearing Deposits with Banks

$ 104,526

$ 302

0.29%

$ 123,946

$ 2,750

2.22%

Tax-Free Investment Securities

47,364

1,567

3.31%

63,641

2,352

3.70%

Taxable Investment Securities

697,408

14,264

2.05%

730,500

17,826

2.44%

Tax-Free Loans

307,023

9,739

3.17%

379,090

12,154

3.21%

Taxable Loans

2,672,435

117,226

4.39%

2,489,105

126,940

5.10%

Federal Home Loan Bank Stock

4,925

218

4.43%

2,352

144

6.12%

Total Interest-Earning Assets

$ 3,833,681

$ 143,316

3.74%

$ 3,788,634

$162,166

4.28%

LIABILITIES

Deposits:

Interest-Bearing Demand

$ 321,036

$ 1,140

0.36%

$ 249,086

$ 2,004

0.80%

Money Market

197,225

924

0.47%

134,676

1,671

1.24%

Savings

599,637

632

0.11%

582,195

1,388

0.24%

Certificates of Deposit

1,818,837

32,695

1.80%

2,054,077

41,593

2.02%

Total Interest-Bearing Deposits

$ 2,936,735

$ 35,391

1.21%

$ 3,020,034

$ 46,656

1.54%

Borrowings:

FED Funds Purchased

55

1

1.82%

-

-

-

FHLB Borrowings

30,628

361

1.18%

2,329

38

1.63%

Other Borrowings

1,408

73

5.18%

1,042

79

7.58%

Total Borrowings

32,091

435

1.36%

3,371

117

3.47%

Total Interest-Bearing Liabilities

$ 2,968,826

$ 35,826

1.21%

$ 3,023,405

$ 46,773

1.55%

Net Interest Income

$ 107,490

$115,393

Net Interest Margin

2.80%

3.05%

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
LOANS AND LOANS HELD-FOR-SALE
(Unaudited)

December 31,

September 30,

December 31,

(Dollars in Thousands)

2020

2020

2019

Commercial

Commercial Real Estate

$

1,453,799

$

1,417,164

$

1,365,310

Commercial and Industrial

306,828

300,951

256,798

Obligations of State and Political Subdivisions

250,336

310,610

364,869

Commercial Construction

387,407

386,343

292,827

Total Commercial Loans

2,398,370

2,415,068

2,279,804

Consumer

Residential Mortgages

472,170

490,343

514,538

Other Consumer

57,647

66,177

73,688

Consumer Construction

18,983

14,333

16,736

Total Consumer Loans

548,800

570,853

604,962

Total Portfolio Loans

2,947,170

2,985,921

2,884,766

Loans Held-for-Sale

25,437

32,104

19,714

Loans Held-for-Sale in Connection with Sale of Banking Branches, at the lower of cost or fair value

9,835

-

-

Total Loans

$

2,982,442

$

3,018,025

$

2,904,480

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
ASSET QUALITY DATA
(Unaudited)

(Dollars in Thousands)

December 31,

September 30,

December 31,

Nonperforming Loans

2020

2020

2019

Commercial Real Estate

$

224

$

235

$

1,017

Commercial and Industrial

456

159

77

Obligations of State and Political Subdivisions

-

-

-

Commercial Construction

2,012

3,748

3,210

Residential Mortgages

4,135

3,310

2,857

Other Consumer

191

152

267

Consumer Construction

-

-

-

Total Nonperforming Loans

7,018

7,604

7,428

Nonperforming Troubled Debt Restructurings

Commercial Real Estate

21,667

28,599

30,073

Commercial and Industrial

-

-

390

Obligations of State and Political Subdivisions

-

-

-

Commercial Construction

3,319

4,249

4,242

Residential Mortgages

-

-

-

Other Consumer

-

-

-

Consumer Construction

-

-

-

Total Nonperforming Troubled Debt Restructurings

24,986

32,848

34,705

Total Nonperforming Loans and Troubled Debt Restructurings

32,004

40,452

42,133

Other Real Estate Owned

15,722

16,410

18,324

Total Nonperforming Assets

$

47,726

$

56,862

$

60,457

At or for the Year-Ended
December 31, 2020

At or for the Nine Months Ended September 30, 2020

At or for the Year-Ended
December 31, 2019

Nonperforming Loans

$

32,004

$

40,452

$

42,133

Other Real Estate Owned

15,722

16,410

18,324

Total Nonperforming Assets

47,726

56,862

60,457

Troubled Debt Restructurings (Nonaccruing)

24,986

32,848

34,705

Troubled Debt Restructurings (Accruing)

109,250

110,320

109,265

Total Troubled Debt Restructurings

$

134,236

$

143,168

$

143,970

Nonperforming Loans and Troubled Debt Restructurings to Total Portfolio Loans

1.09

%

1.35

%

1.46

%

Nonperforming Assets to Total Portfolio Loans plus Other Real Estate Owned

1.61

%

1.89

%

2.08

%

Allowance for Loan Losses to Total Portfolio Loans

1.83

%

1.67

%

1.34

%

Allowance for Loan Losses to Nonperforming Loans

168.96

%

123.52

%

92.00

%

Net Loan Charge-offs (Recoveries)

$

2,694

$

1,982

$

3,841

Net Loan Charge-offs (Recoveries) (Annualized) to Average Loans

0.09

%

0.09

%

0.13

%

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
ALLOWANCE FOR LOAN LOSSES
(Unaudited)

Quarter-to-Date

Year-to-Date

December 31,

September 30,

December 31,

December 31,

December 31,

(Dollars in Thousands)

2020

2020

2019

2020

2019

Balance Beginning of Year

$

49,965

$

47,405

$

40,331

$

38,762

$

39,199

Provision for Loan Losses

4,821

2,914

(982

)

18,006

3,404

Charge-offs:

Commercial Real Estate

-

-

-

40

69

Commercial and Industrial

56

-

19

102

22

Obligations of State and Political Subdivisions

-

-

-

-

-

Commercial Construction

-

-

-

-

393

Residential Mortgages

173

-

-

193

197

Other Consumer

719

680

1,362

4,020

4,401

Consumer Construction

-

-

-

-

-

Total Charge-offs

948

680

1,381

4,355

5,082

Recoveries:

Commercial Real Estate

-

-

-

707

-

Commercial and Industrial

70

119

-

191

-

Obligations of State and Political Subdivisions

-

-

-

-

-

Commercial Construction

-

-

630

-

630

Residential Mortgages

26

1

9

27

9

Other Consumer

140

206

155

736

602

Consumer Construction

-

-

-

-

-

Total Recoveries

236

326

794

1,661

1,241

Total Net Charge-offs

712

354

587

2,694

3,841

Balance End of Year

$

54,074

$

49,965

$

38,762

$

54,074

$

38,762

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
(Unaudited)
(Dollars in Thousands, except per share data)

DEFINITIONS AND RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES:

1Pre-tax pre-provision earnings are computed as net interest income plus noninterest income minus noninterest expense before the provision for loan losses and income tax provision.

2Tangible Equity

Quarter-to-Date

Year-to-Date

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

Total Shareholders' Equity

$

440,174

$

434,807

$

473,111

$

440,174

$

473,111

Less: Goodwill

-

-

62,192

-

62,192

Tangible Equity

$

440,174

$

434,807

$

410,919

$

440,174

$

410,919

Shares Outstanding at End of Period

26,385,041

26,386,901

26,334,229

26,385,041

26,334,229

Tangible Book Value Per Common Share

$

16.68

$

16.48

$

15.60

$

16.68

$

15.60

3Net interest income has been computed on a fully taxable equivalent basis ("FTE") using a 21% federal income tax rate for the 2020 and 2019 periods.

Net Interest Income (FTE) (Non-GAAP)

Quarter-to-Date

Year-to-Date

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

Interest Income

$ 33,502

$ 33,986

$ 39,759

$ 140,941

$ 159,120

Interest Expense

(7,349)

(8,550)

(11,333)

(35,826)

(46,773)

Net Interest Income

26,153

25,436

28,426

105,115

112,347

Tax Equivalent Adjustment3

549

598

638

2,375

3,046

NET INTEREST INCOME (FTE) (Non-GAAP)

$ 26,702

$ 26,034

$ 29,064

$ 107,490

$ 115,393

Net Interest Income (Annualized)

106,228

103,570

115,308

107,490

115,393

Average Earning Assets

3,913,223

3,874,948

3,766,205

3,833,681

3,788,634

NET INTEREST MARGIN (FTE) (Non-GAAP)

2.71%

2.67%

3.06%

2.80%

3.05%

4Core Efficiency Ratio (Non-GAAP)

Quarter-to-Date

Year-to-Date

December 31,

September 30,

December 31,

December 31,

December 31,

2020

2020

2019

2020

2019

NONINTEREST EXPENSE

$ 23,841

$ 87,300

$ 30,486

$ 158,775

$ 98,029

Less: Losses on Sales and Write-downs of Other Real Estate Owned, net

(78)

(1,305)

(4,163)

(1,435)

(4,732)

Less: Losses on Sales and Write-downs of Bank Premises, net

(11)

(17)

(165)

(99)

(188)

Less: Tax Credit Amortization

(272)

(272)

(576)

(1,088)

(2,265)

Plus: Contingent Liability

-

144

-

144

331

Less: Conversion Expense

-

-

-

-

(2)

Less: Goodwill Impairment

-

(62,192)

-

(62,192)

-

Plus: FDIC Assessment Credits

-

-

-

-

1,056

Less: Professional Fees

(201)

-

-

(201)

-

Plus: Vacation Accrual

(588)

99

(539)

(9)

107

CORE NONINTEREST EXPENSE (Non-GAAP)

$ 22,691

$ 23,757

$ 25,043

$ 93,895

$ 92,336

NET INTEREST INCOME

$ 26,153

$ 25,436

$ 28,426

$ 105,115

$ 112,347

Plus: Taxable Equivalent Adjustment3

549

598

638

2,375

3,046

NET INTEREST INCOME (FTE) (Non-GAAP)

$ 26,702

$ 26,034

$ 29,064

$ 107,490

$ 115,393

Less: Gains on Sales of Securities, net

(959)

(2,388)

(606)

(6,882)

(2,205)

Less: Other Real Estate Owned Income

(61)

(58)

(72)

(340)

(689)

Less: Other Gains

-

-

-

(307)

(447)

Plus: Equity Method-Insurance One-Time Payout

678

-

-

678

-

Noninterest Income

5,589

7,975

4,509

26,580

16,870

CORE NET INTEREST INCOME (FTE) (Non-GAAP) plus NONINTEREST INCOME

$ 31,949

$ 31,563

$ 32,895

$ 127,219

$ 128,922

CORE EFFICIENCY RATIO (Non-GAAP)

71.02%

75.27%

76.13%

73.81%

71.62%

SOURCE: Carter Bankshares, Inc.

Carter Bankshares, Inc.