Carter Bank & Trust Announces Fourth Quarter 2019 Financial Results

MARTINSVILLE, VA / ACCESSWIRE / January 28, 2020 / Carter Bank & Trust (the "Bank") CARE today announced net income of $3.6 million, or $0.14 diluted earnings per share, for the fourth quarter of 2019, as compared to net income of $7.6 million, or $0.29 diluted earnings per share, in the third quarter of 2019 and net income of $3.4 million, or $0.13 diluted earnings per share, for the fourth quarter of 2018. Pre-tax pre-provision earnings were $2.4 million, $9.4 million and $3.2 million for the quarters ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

For the year ended December 31, 2019, net income was $26.6 million, or $1.01 diluted earnings per share, as compared to net income of $11.9 million, or $0.45 diluted earnings per share in 2018. Pre-tax pre-provision earnings were $31.2 million for the years ended December 31, 2019 and 2018.

Fourth Quarter 2019 Financial Highlights

• Net interest margin, on a fully taxable equivalent basis, increased five basis points to 3.06% over the linked quarter, but declined 10 basis points over the same quarter last year;
• Net interest income increased $0.4 million, or 1.3%, over the linked quarter, but decreased $0.7 million, or 2.3%, over the same quarter last year;
• Securities gains of $0.6 million were realized in the fourth quarter of 2019 to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio, as compared to securities gains of $0.7 million in the linked quarter and $0.1 million in the same period of 2018;
• Loans were essentially flat as compared to the linked quarter due to several large commercial real estate loan pay-offs during the fourth quarter, but loans grew $198.1 million, or 7.3%, as compared to December 31, 2018;
• Provision for loan losses declined $2.4 million as compared to linked quarter due to loan growth muted by large commercial real estate pay-offs during the fourth quarter of 2019, continued improvement in asset quality and tightened underwriting standards and decreased $0.9 million as compared to the same quarter of 2018;
• Noninterest expense increased $7.7 million, or 33.8%, compared to linked quarter primarily due to one-time charges of $3.1 million of a write-down of legacy other real estate owned ("OREO") and $1.0 million of write-downs on retail branch offices marketed for sale. Other increases included $1.0 million in FDIC insurance due to the one-time credit in the third quarter of 2019, $2.1 million in salaries and benefits and $0.7 million for marketing expenses associated with our deposit acquisition strategy and
• Nonperforming loans declined $5.0 million, or 10.6% as compared to linked quarter and declined $8.6 million, or 16.9% as compared to December 31, 2018. Nonperforming loans as a percentage of total portfolio loans were 1.46%, 1.62% and 1.88% as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

2019 Year-to-Date Financial Highlights

• Net interest margin, on a fully taxable equivalent basis, declined five basis points to 3.05% year-over-year;
• Net interest income decreased $1.6 million, or 1.4%, to $112.3 million year-over-year;
• Provision for loan losses declined $13.5 million, or 79.8%, as compared to the same year-to-date period of 2018 primarily due to a $10.1 million charge-off of a legacy commercial real estate relationship in the third quarter of 2018 and
• Securities gains of $2.2 million were realized in 2019 to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio, as compared to securities gains of $1.3 million in 2018.

Chief Executive Officer Litz H. Van Dyke said, "We continue to be pleased with the progress our Bank is making in repositioning key performance drivers of our financial performance. The fourth quarter of 2019 saw continued improvement in credit quality, improvement in our net interest margin, despite a challenging rate environment, and traction in the launch of our core deposit acquisition strategy. We have implemented several strategic initiatives that are beginning to positively affect current performance and better position our Bank to create value for our shareholders in the long-term. We remain focused on continuing to improve the fundamental performance of the Bank and improving our ability to attract and retain core customer relationships. We are excited about our underlying momentum heading into 2020."

Operating Highlights

Net interest income decreased $1.6 million, or 1.4%, to $112.3 million during 2019 as compared to 2018. The net interest margin, on a fully taxable equivalent basis, decreased five basis points to 3.05% over the past twelve months. The yield on interest-earning assets increased 17 basis points, offset by a 32 basis point increase in funding costs as compared to 2018.

The provision for loan losses totaled $3.4 million for the twelve months ended December 31, 2019 and $16.9 million for the same period of 2018. At December 31, 2019, nonperforming loans were $42.1 million, a decrease of $8.6 million, or 16.9% as compared to December 31, 2018. Net charge-offs were $3.8 million during 2019 as compared to $13.0 million in 2018 primarily due to the aforementioned $10.1 million charge-off of a legacy commercial real estate relationship in the third quarter of 2018. As a percentage of total portfolio loans, net charge-offs were 0.13% and 0.48% for the periods ended December 31, 2019 and 2018, respectively. Nonperforming loans as a percentage of total portfolio loans were 1.46% and 1.88% as of December 31, 2019 and 2018, respectively.

Noninterest income decreased $1.1 million, or 6.7%, to $14.7 million, excluding net securities gains, for the twelve months ended December 31, 2019 as compared to 2018. This decrease was primarily due to lower income from OREO due to the sale of several large commercial properties over the last 12 months that generated income beginning in the first quarter of 2018, offset by higher fees on deposits, debit card fees and higher bank owned life insurance earnings. Securities gains of $2.2 million and $1.3 million were realized during 2019 and 2018, respectively, to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

Total noninterest expense decreased $1.7 million, or 1.7%, for the twelve months of 2019 to $98.0 million as compared to $99.7 million in 2018. The reduction was primarily driven by decreases of $1.7 million in FDIC insurance expense, $0.8 million in legal and professional fees, $1.8 million in tax credit amortization and $5.1 million in OREO expenses and losses on sales and write-downs of OREO due to fewer properties under management during 2019, offset by increases of $2.9 million in salaries and benefits, $1.5 million in occupancy expense, $0.6 million in data processing and $2.8 million in other expenses.

The decrease in FDIC expense was primarily due to a lower rate assessment and the one-time credit for the deposit insurance funds taken in the third quarter of 2019. The decrease in legal and professional fees was related to regulatory and compliance reviews which were completed as of September 30, 2018. Offsetting these decreases were increases of $2.9 million in salaries and benefits, $0.6 million in data processing expense due to our core conversion completed in the fourth quarter of 2018, $1.5 million in occupancy expense as a result of higher depreciation for hardware and software and amortization of maintenance agreements related to the aforementioned core conversion and $2.8 million in other expenses primarily comprised of increased ancillary systems, subscriptions, employee training and higher marketing expenses related to our deposit acquisition strategy.

Financial Condition

Total assets were $4.0 billion at December 31, 2019 and 2018. Total portfolio loans increased $181.0 million, or 6.7%, to $2.9 billion as of December 31, 2019 as compared to December 31, 2018. Nonperforming loans decreased $8.6 million to $42.1 million, or 16.9% as of December 31, 2019 as compared to $50.7 million at December 31, 2018. OREO decreased $15.4 million at December 31, 2019 as compared to December 31, 2018 due to the sale of properties during 2019. Closed retail bank offices declined $3.8 million from December 31, 2018 and have a remaining book value of $3.0 million at December 31, 2019.

Federal Reserve Bank excess reserves decreased $145.5 million at December 31, 2019 as compared to December 31, 2018. This excess cash was deployed into higher yielding and diversified securities, funded loan growth, and also funded the planned decrease in high cost deposits.

The securities portfolio decreased $40.1 million and is currently 18.5% of total assets at December 31, 2019 as compared to 19.4% of total assets at December 31, 2018. The decrease is a result of loan growth and active balance sheet management. We have further diversified the securities portfolio as to bond types, maturities and interest rate structures.

Total deposits were $3.5 billion as of December 31, 2019 and $3.6 billion as of December 31, 2018. Noninterest-bearing deposits increased by $7.1 million, or 1.3%, to $554.9 million as of December 31, 2019 as compared to $547.8 million as of December 31, 2018, money market accounts increased $59.8 million, or 73.9%, due to recent special rate promotions during 2019 and interest-bearing demand deposits increased $32.5 million, or 12.8%. Offsetting these increases were decreases of $48.9 million, or 8.0%, in savings accounts and $137.4 million in certificates of deposits as compared to December 31, 2018. Noninterest-bearing deposits comprised 15.8% and 15.3% of total deposits at December 31, 2019 and 2018, respectively.

The allowance for loan losses was 1.34% of total portfolio loans as of December 31, 2019 as compared to 1.45% as of December 31, 2018. General reserves as a percentage of total portfolio loans were 1.13% at December 31, 2019 as compared to 1.26% as of December 31, 2018. The allowance for loan losses was 92.0% of nonperforming loans as of December 31, 2019 as compared to 77.3% of nonperforming loans as of December 31, 2018. 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 above the well-capitalized levels of federal banking regulatory agencies. The Bank's Tier 1 Capital ratio decreased to 13.56% as of December 31, 2019 as compared to 13.97% as of December 31, 2018. The Bank's leverage ratio was 10.41% at December 31, 2019 as compared to 9.69% as of December 31, 2018. The Bank's Total Risk-Based Capital ratio was 14.81% at December 31, 2019 as compared to 15.22% at December 31, 2018.

About Carter Bank & Trust

Headquartered in Martinsville, VA, Carter Bank & Trust is a state-chartered community bank in Virginia and trades on the Nasdaq Global Select Market under the symbol CARE. The Bank has $4.0 billion in assets and 101 branches in Virginia and North Carolina. For more information 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 Bank'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 Bank's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Bank. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Bank'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, 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
Wendy Bell, 276-656-1776
Senior Executive Vice President & Chief Financial Officer
wendy.bell@CBTCares.com

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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.

³Net interest income has been computed on a fully taxable equivalent basis ("FTE") using a 21% federal income tax rate for the 2019 and 2018 periods.

⁴Core Efficiency Ratio (Non-GAAP)