Business Context and Reporting Period
Carter Bankshares, Inc. (the "Company") is a bank holding company headquartered in Martinsville, Virginia, serving as the parent to Carter Bank & Trust. The Company was incorporated on October 7, 2020, and completed a reorganization on November 20, 2020, to become the holding company for the Bank. The Bank operates 92 branches across Virginia and North Carolina, offering retail and commercial banking services. This Form 10-K covers the fiscal year ended December 31, 2020.
Key Financial Metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total Assets | $4.18 billion | $4.01 billion |
| Total Portfolio Loans | $2.95 billion | $2.88 billion |
| Total Deposits | $3.68 billion | $3.50 billion |
| Net Interest Income | $105.1 million | $112.3 million |
| Net Interest Margin | 2.74% | 2.97% |
| Provision for Loan Losses | $18.0 million | $3.4 million |
| Net (Loss) Income | ($45.9 million) | $26.6 million |
| Earnings Per Share (Basic) | ($1.74) | $1.01 |
| Allowance for Loan Losses | $54.1 million | $38.8 million |
| Nonperforming Assets | $47.7 million | $60.5 million |
| Shareholders' Equity | $440.2 million | $473.1 million |
Material Changes Versus Prior Period
- Net Loss: The Company reported a net loss of $45.9 million in 2020, a decrease of $72.4 million from 2019 net income. This was primarily driven by a one-time goodwill impairment charge of $62.2 million recorded in the third quarter.
- Provision for Loan Losses: The provision increased significantly to $18.0 million (from $3.4 million in 2019) due to qualitative reserves added for economic uncertainties and specific concerns regarding the hospitality sector caused by the COVID-19 pandemic.
- Noninterest Expense: Total noninterest expense rose 62.0% to $158.8 million, largely due to the $62.2 million goodwill impairment. Excluding this charge, core operating expenses remained relatively stable.
- Deposits: Total deposits increased by $180.4 million, driven by growth in core deposits (noninterest-bearing, money market, and savings) which offset an intentional runoff of $345.6 million in higher-cost Certificates of Deposit (CDs).
- Loan Portfolio: Portfolio loans grew by $62.4 million, including $35.0 million in Paycheck Protection Program (PPP) loans. Commercial real estate and construction loans saw growth, while consumer loans decreased as part of a de-risking strategy.
Guidance, Outlook, and Risks
- Goodwill Impairment: The Company recorded a full impairment of its $62.2 million goodwill balance in Q3 2020 due to a decline in stock price and economic conditions related to the pandemic. This was a non-cash charge with no impact on regulatory capital.
- CECL Adoption: The Company elected to delay the adoption of the Current Expected Credit Losses (CECL) accounting standard under the CARES Act, with an intended adoption date of the first quarter of 2021.
- Hospitality Exposure: The Company has significant exposure to the hospitality industry ($497.2 million, or 16.9% of total portfolio loans). Management anticipates continued stress in this sector, with many borrowers operating at or below breakeven, which may impact collateral values and repayment ability.
- Dividends: The Board suspended quarterly cash dividends in 2016 to preserve capital. A special one-time dividend of $0.14 per share was paid in March 2020. There are no immediate plans to reinstate quarterly dividends.
- Branch Optimization: The Company is executing a branch network optimization plan. As of the filing date, 24 branches were announced for closure or sale, with transactions expected to close in the second quarter of 2021.
Investor Verification Checklist
- Verify the impact of the $62.2 million goodwill impairment on the Company's adjusted net income and future earnings projections.
- Monitor the adoption of CECL in Q1 2021 and its potential impact on the Allowance for Loan Losses and regulatory capital.
- Assess the credit quality and potential charge-offs within the $497.2 million hospitality loan portfolio given ongoing economic conditions.
- Review the progress of the branch optimization plan and the expected financial impact of closing or selling 24 branches.
- Confirm the Company's liquidity position and reliance on core deposits versus wholesale funding sources.