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Carter Bank & Trust Announces Second Quarter 2018 Financial Results

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Carter Bank & Trust ( the "Bank") (OTCQX:CARE) today announced net
income of $7.2 million, or $0.27 earnings per share, for the second
quarter of 2018, as compared to a net loss of $1.5 million, or $0.06 per
share, for the second quarter of 2017. Pre-tax pre-provision earnings1
were $11.0 million in the second quarter of 2018 as compared to
$8.5 million in the same period last year.

For the six months ended June 30, 2018, net income was $16.0 million, or
$0.61 earnings per share, as compared to net income of $4.8 million, or
$0.18 earnings per share in the first six months of 2017. Pre-tax
pre-provision earnings were $20.6 million for the six months ended June
30, 2018 as compared to $20.2 million for the same period of 2017.

Second Quarter 2018 Financial Highlights

  • Second quarter net income of $7.2 million, or $0.27 earnings per
    share, as compared to a net loss of $1.5 million, or $0.06 per share,
    over the same quarter of 2017;
  • Net income was positively impacted by the Tax Cuts and Jobs Act (Tax
    Act) which lowered the federal corporate tax rate from 35% to 21%
    effective January 1, 2018;
  • Net interest income increased $1.8 million, or 6.6%, to $29.3 million
    compared to linked quarter and $2.6 million, or 9.9%, from June 30,
    2017;
  • Net interest margin, on a fully taxable equivalent basis, improved 45
    basis points to 3.23% over the same period last year, on a $217.1
    million lower asset base and despite the negative impact of a lower
    taxable equivalent adjustment resulting from the lower corporate tax
    rate;
  • Provision for loan losses declined $11.0 million, or 86.4%, compared
    to the second quarter of 2017 and
  • Nonperforming loans decreased $2.3 million from the linked quarter and
    decreased $9.0 million from June 30, 2017.

2018 Year-to-Date Financial Highlights

  • Year-to-date net income of $16.0 million, or $0.61 earnings per share,
    an increase of 233% over the same period of 2017;
  • Net interest margin, on a fully taxable equivalent basis, improved 37
    basis points to 3.13% year-over-year;
  • Net interest income increased $3.6 million, or 6.7%, to $56.7 million
    year-over-year;
  • Provision for loan losses declined $13.4 million, or 80.5%, compared
    to the same period of 2017 and
  • Securities gains of $1.0 million were realized in the first six months
    of 2018 to take advantage of market opportunities.

Litz H. Van Dyke, Chief Executive Officer, stated, "I am especially
pleased with the progress our organization has made on strategic
initiatives this quarter: building a strong credit infrastructure,
expansion of our net interest margin, the progress with our newly
launched mortgage initiative and the progression with our comprehensive
systems conversion project which is on target to occur in the fourth
quarter of 2018. The new system will lay the foundation to provide
additional products and services for our customers, operational
efficiencies and cost savings throughout the organization ultimately
creating value for our shareholders."

Operating Highlights

Net interest income increased $3.6 million to $56.7 million during the
first six months of 2018 as compared to the same period of 2017. The
increase in net interest income is primarily driven by a $2.1 million
decrease in interest expense and by an increase of $1.5 million in
interest income as compared to the same period of 2017. This is a result
of five increases in short-term interest rates since March of 2017 as
well as the intentional runoff of higher cost certificates of deposit.
The net interest margin, on a fully taxable equivalent basis, increased
37 basis points to 3.13% over the past twelve months due to our
deployment of excess cash into higher yielding and diversified
investment securities and loans as well as the aforementioned runoff of
higher cost deposits despite the decreased tax benefit from our
tax-exempt securities and loans due to the aforementioned decrease in
the federal corporate tax rate.

The provision for loan losses totaled $3.2 million for the six months
ended June 30, 2018, a decrease of $13.4 million as compared to the same
period of 2017. At June 30, 2018, nonperforming loans were $60.2
million, a decrease of $32.7 million from December 31, 2017 and a
decrease of $9.0 million from June 30, 2017. Net charge-offs were $33
thousand in the first six months of 2018 as compared to $14.6 million of
net charge-offs in the same period of 2017. As a percentage of loans, on
an annualized basis, net charge-offs were less than 0.01%, 1.58% and
1.10% for the periods ending June 30, 2018, December 31, 2017 and June
30, 2017, respectively. Nonperforming loans as a percentage of total
loans were 2.19%, 3.46% and 2.59% as of June 30, 2018, December 31, 2017
and June 30, 2017, respectively.

Noninterest income increased $2.7 million, or 48.7%, to $8.1 million,
excluding net securities gains, for the six months ending June 30, 2018
as compared to $5.4 million in the same period of 2017. The increase in
noninterest income is attributable to increased service charges of $0.4
million, $0.4 million of fees from bank owned life insurance, $0.6
million from the gain on sale of OREO during the first six months of
2018 and $1.3 million higher income from other real estate owned
("OREO") due to the acquisition of several large commercial properties
generating income during the first quarter of 2018. Securities gains of
$1.0 million were realized during the first six months of 2018 to take
advantage of market opportunities and reduce the credit risk of the
securities portfolio.

Total noninterest expense increased $6.8 million, or 17.8%, for the
first six months of 2018 to $45.2 million as compared to $38.4 million
in the same period of 2017. Increases included $4.7 million in salaries
and employee benefits, $0.5 million in occupancy expense, $0.5 million
in telephone expense, $1.9 million in professional and legal fees, $0.9
million in OREO expenses, $2.0 million of tax credit amortization and
$0.3 million in the reserve for unfunded loan commitments, included in
other expenses. The increase in salaries and benefits was expected and
planned as investments were made in the appropriate infrastructure to
support the Bank in the future. The increase in professional and legal
fees was related to regulatory and compliance reviews which were
completed as of June 30, 2018. The increase in OREO is due to the
aforementioned acquired properties. Offsetting these increases were
decreases of $2.4 million in data processing expenses due to the
write-off of expenses that were previously capitalized that were fully
expensed during 2017, $1.7 million of lower losses on sales and
write-downs of OREO and a decrease of $0.6 million in FDIC insurance
expense attributable to lower FDIC assessment rates and a decrease in
the assessment base.

Financial Condition

Total assets were $4.1 billion at June 30, 2018 and December 31, 2017.
Total portfolio loans were essentially flat at $2.7 billion as of June
30, 2018 and December 31, 2017 due to the reduction of several large
legacy credits, which offset new loan growth. Nonperforming loans
decreased $32.7 million to $60.2 million as of June 30, 2018 from $92.9
million at December 31, 2017 and decreased $9.0 million from $69.2
million as of June 30, 2017. The decrease in nonperforming loans is
primarily due to nonperforming credits migrating to OREO during the
first quarter of 2018. OREO increased $20.3 million as of June 30, 2018
as compared to December 31, 2017, primarily due to $29.3 million in
properties that were transferred to OREO during the first six months of
2018, offset by $9.0 million that was sold during the first half of 2018.

Federal Reserve Bank excess reserves declined $63.1 million at June 30,
2018 as compared to December 31, 2017 and declined $424.5 million from
the year ago period. This excess cash was deployed into higher yielding
and diversified securities, funded loan growth, and also funded the
planned decrease in high cost deposits during the past twelve months.

The securities portfolio decreased $81.5 million and is currently 21.2%
of total assets at June 30, 2018 as compared to 23.0% of total assets at
December 31, 2017. The decrease is a result of active balance sheet
management in calibration with loan and deposit growth. We have further
diversified the securities portfolio as to bond types, maturities and
interest rate structures.

Total deposits as of June 30, 2018 were $3.6 billion, essentially flat
as compared to December 31, 2017. Certificates of deposits increased by
$28.2 million, or 1.4%, as compared to December 31, 2017 due to recent
special rate promotions during the first and second quarters of 2018 and
declined $91.3 million, or 4.2%, as compared to June 30, 2017 due to the
aforementioned intentional reduction in higher cost time deposits.
Noninterest-bearing deposits increased by $18.4 million, or 3.5%, to
$548.6 million as of June 30, 2018 as compared to $530.2 million as of
December 31, 2017. Noninterest-bearing deposits comprised 15.1% and
14.4% of total deposits at June 30, 2018 and December 31, 2017.

The allowance for loan losses was 1.40% of total loans as of June 30,
2018 as compared to 1.32% as of December 31, 2017. The allowance for
loan losses was 64.0% of nonperforming loans as of June 30, 2018 as
compared to 38.0% of nonperforming loans as of December 31, 2017. In the
view of management, the allowance for loan losses is adequate to absorb
probable losses inherent in the loan portfolio.

The Bank remains well capitalized. The Bank's Tier 1 Capital ratio
increased to 13.65% as of June 30, 2018 as compared to 12.93% as of
December 31, 2017. The Bank's leverage ratio was 9.78% at June 30, 2018
as compared to 9.33% as of December 31, 2017. The Bank's Total
Risk-Based Capital ratio was 14.90% at June 30, 2018 as compared to
14.15% at December 31, 2017.

About Carter Bank & Trust

Headquartered in Martinsville, VA, Carter Bank & Trust is a
state-chartered community bank in Virginia with $4.1 billion in assets
and 106 branches in Virginia and North Carolina. For more information
visit www.CarterBankandTrust.com.

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, asset quality, financial position, and other matters regarding
or affecting Carter Bank & Trust and its future business and operations.
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; 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 Bank & Trust, 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; deterioration in the overall macroeconomic
conditions or the state of the banking industry that could warrant
further analysis of the carrying value of goodwill and could result in
an adjustment to its carrying value resulting in a non-cash charge to
net income; 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 FDIC.
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 BANK & TRUST
CONSOLIDATED FINANCIAL DATA
BALANCE SHEETS
(Unaudited)
 
(Dollars in Thousands, except per share data)   June 30,   December 31,   June 30,
2018   2017   2017
ASSETS
Cash and Due From Banks $ 50,893 $ 58,533 $ 43,318
Interest-Bearing Deposits in Other Financial Institutions 49,106 58,365 48,091

Federal Reserve Bank Excess Reserves

  88,624       151,715       513,154  

Total Cash and Cash Equivalents

188,623 268,613 604,563
 
Securities, Available-for-Sale, at Fair Value 865,689 947,201 -
Securities, Held-to-Maturity, at Cost (Fair Value $827,818 at June
30, 2017)
- -

823,063

Loans Held-for-Sale 1,121 517 2,669
Portfolio Loans, net of Unearned Income 2,749,724 2,684,445 2,667,102

Allowance for Loan Losses

  (38,530 )     (35,318 )     (36,500 )
Portfolio Loans, net 2,711,194 2,649,127 2,630,602
 
Bank Premises and Equipment, net 80,568 77,273 94,865
Other Real Estate Owned, net 60,047 39,793 34,522

Goodwill

58,726 59,762 59,762
Other Intangibles - 122 124
Bank Owned Life Insurance 50,393 - -
Other Assets   73,150       69,884       56,409  
TOTAL ASSETS $ 4,089,511     $ 4,112,292     $ 4,306,579  
 
 
LIABILITIES
Deposits
Noninterest-Bearing Demand $ 548,566 $ 530,242 $ 563,494

Interest-Bearing Demand

255,139 260,979 247,693
Money Market 92,760 102,686 143,376
Savings 662,689 721,459 733,855

Certificates of Deposits

  2,082,444       2,054,249       2,173,705  
Total Deposits 3,641,598 3,669,615 3,862,123
Other Liabilities   10,066       10,551       4,987  
TOTAL LIABILITIES   3,651,664       3,680,166       3,867,110  
 
 
SHAREHOLDERS' EQUITY

Common Stock, Par Value $1.00 Per Share, Authorized 100,000,000
Shares; 26,257,761 outstanding in 2018 and 2017

26,258 26,258 26,258
Additional Paid-in-Capital 142,178 142,178 142,178
Retained Earnings 281,958 265,930 271,033
Accumulated Other Comprehensive Loss   (12,547 )     (2,240 )     -  

TOTAL SHAREHOLDERS' EQUITY

  437,847       432,126       439,469  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,089,511     $ 4,112,292     $ 4,306,579  
 
PROFITABILITY RATIOS (ANNUALIZED)
Return on Average Assets 0.80 % -0.02 % 0.22 %
Portfolio Loan to Deposit Ratio 75.51 % 73.15 % 69.06 %
Allowance to Total Portfolio Loans 1.40 % 1.32 % 1.37 %
 
 
CARTER BANK & TRUST
CONSOLIDATED FINANCIAL DATA
INCOME STATEMENTS
(Unaudited)
 

(Dollars in Thousands, except per share data)

Quarter-to-Date         Year-to-Date
June 30,   March 31,   June 30, June 30,   June 30,
2018     2018     2017   2018     2017  
Interest Income $ 38,362 $ 35,588 $ 36,084 $ 73,950 $ 72,437
Interest Expense   9,111       8,151       9,476     17,262       19,320  
NET INTEREST INCOME 29,251 27,437 26,608 56,688 53,117
 
Provision for Loan Losses   1,730       1,515       12,742     3,245       16,622  

NET INTEREST INCOME AFTER

27,521 25,922 13,866 53,443 36,495

PROVISION FOR LOAN LOSSES

 
NONINTEREST INCOME
Gains on Sales of Securities, net 132 868 - 1,000 -
Service Charges, Commissions and Fees 780 1,252 591 2,032 1,599
Debit Card Interchange Fees 1,234 1,133 1,226 2,367 2,431
Insurance Commissions 69 535 405 604 869
Bank Owned Life Insurance Income 393 - - 393 -
Gains on Sales of Other Real Estate Owned, net 915 - - 573 -
Other Real Estate Owned Income 966 549 97 1,515 206
Other   252       394       202     646       363  

TOTAL NONINTEREST INCOME

  4,741       4,731       2,521     9,130       5,468  
 
NONINTEREST EXPENSE
Salaries and Employee Benefits 12,607 12,260 9,954 24,867 20,128
Occupancy Expense, net 2,321 2,325 2,044 4,646 4,150
FDIC Insurance Expense 633 838 924 1,471 2,053
Other Taxes 643 477 461 1,120 902
Telephone Expense 643 669 415 1,312 827
Professional and Legal Fees 2,402 1,210 1,404 3,612 1,682
Data Processing License Fee 200 268 1,444 468 2,904
Losses on Sales and Write-downs of Other Real Estate Owned, net - 342 1,759 - 1,707
Losses on Sales and Write-downs of Bank Premises 71 - 288 71 288
Debit Card Expense 662 652 630 1,314 1,249
Tax Credit Amortization 1,015 1,015 - 2,030 -
Other Real Estate Owned Expense 707 531 124 1,238 311
Other   1,118       1,972       1,158     3,090       2,208  
TOTAL NONINTEREST EXPENSE   23,022       22,559       20,605     45,239       38,409  
 
INCOME (LOSS) BEFORE INCOME TAXES 9,240 8,094 (4,218 ) 17,334 3,554

Income Tax Provision (Benefit)

  2,041       (735 )     (2,735 )   1,306       (1,265 )

NET INCOME (LOSS)

$ 7,199     $ 8,829     $ (1,483 ) $ 16,028     $ 4,819  
 
Average Shares Outstanding 26,257,761 26,257,761 26,257,761 26,257,761 26,257,761

 

PER SHARE DATA
Earnings (Loss) Per Common Share-Basic and Diluted $ 0.27 $ 0.34 $ (0.06 ) $ 0.61 $ 0.18
Market Value $ 17.96 $ 17.05 $ 15.50 $ 17.96 $ 15.50
 
PROFITABILITY RATIOS (non-GAAP)

Net Interest Margin (FTE)2

3.23 % 3.04 % 2.78 % 3.13 % 2.76 %

Core Efficiency Ratio3

61.64 % 64.67 % 56.29 % 63.11 % 56.48 %
 
 
CARTER BANK & TRUST
CONSOLIDATED SELECTED FINANCIAL DATA
(Unaudited)
 
DEFINITIONS AND RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
MEASURES:
 

1

Pre-tax pre-provision is computed as net interest income plus
noninterest income minus noninterest expense before the provision
for loan losses and income tax (benefit) provision.

 

2

Net interest income has been computed on a fully taxable
equivalent basis ("FTE") using a 35% federal income tax rate for
the 2017 periods and a 21% federal income tax statutory rate for
the 2018 periods.

 
 
Net Interest Income (FTE) (non-GAAP)   Quarter-to-Date       Year-to-Date  
June 30,   March 31,   June 30, June 30,   June 30,
2018   2018   2017   2018   2017  
 
Interest Income $ 38,362 $ 35,588 $ 36,084 $ 73,950 $ 72,437
Interest Expense (9,111 ) (8,151 ) (9,476 ) (17,262 ) (19,320 )

Tax Equivalent Adjustment2

  973       1,087       2,065     2,061       4,122  
NET INTEREST INCOME (FTE) (non-GAAP) $ 30,224 $ 28,524 $ 28,673 $ 58,749 $ 57,239
 
 

3Core Efficiency Ratio (non-GAAP)

Quarter-to-Date   Year-to-Date  
June 30, March 31, June 30, June 30, June 30,
2018   2018   2017   2018   2017  
NONINTEREST EXPENSE $ 23,022 $ 22,559 $ 20,605 $ 45,239 $ 38,409
Less: One Time Regulatory and Compliance (1,353 ) (500 ) (1,000 ) (1,853 ) (1,000 )
Less: Losses on Sales and Write-downs of Other Real Estate Owned, net - (342 ) (1,759 ) - (1,707 )
Less: Losses on Sales and Write-downs of Bank Premises (71 ) - (288 ) (71 ) (288 )
Less: Tax Credit Amortization (1,015 ) (1,015 ) - (2,030 )
Plus: Regulatory Review   323       -       -     323     -  

NET NONINTEREST EXPENSE

$ 20,906 $ 20,702 $ 17,558 $ 41,608 $ 35,414
 
NET INTEREST INCOME $ 29,251 $ 27,437 $ 26,608 $ 56,688 $ 53,117
Plus: Taxable Equivalent Adjustment   973       1,087       2,065     2,061     4,122  

NET INTEREST INCOME (FTE) (Non-GAAP)

$ 30,224 $ 28,524 $ 28,673 $ 58,749 $ 57,239
Less: Gains on Sales of Securities, net (132 ) (868 ) - (1,000 ) -
Less: Gains on Sales of Other Real Estate Owned, net (915 ) (573 ) -
Less: Other Gains - (374 ) - (374 ) -
Noninterest Income   4,741       4,731       2,521     9,130       5,468  
NET INTEREST INCOME (FTE) (Non-GAAP) plus NONINTEREST INCOME $ 33,918 $ 32,013 $ 31,194 $ 65,932 $ 62,707
 
CORE EFFICIENCY RATIO 61.64 % 64.67 % 56.29 % 63.11 % 56.48 %
 

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