Carter Bankshares, Inc. — 2021 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021, with comparisons primarily to 2020. Carter Bankshares is the holding company for Carter Bank & Trust, a Virginia-chartered bank operating 69 branches in Virginia and North Carolina. The company reported year-end assets of $4.13 billion and earns primarily from lending, securities and banking fees.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | $111.2 million | $105.1 million |
| Net interest margin | 2.80% (2.84% FTE) | 2.74% (2.80% FTE) |
| Provision for credit losses | $3.4 million | $18.0 million |
| Noninterest income | $28.9 million | $26.6 million |
| Noninterest expense | $102.3 million | $158.8 million |
| Net income (loss) | $31.6 million | $(45.9) million |
| Diluted earnings (loss) per share | $1.19 | $(1.74) |
| Operating cash flow | $77.5 million | $7.7 million |
- Balance sheet and liquidity: Assets were $4.13 billion, down 1.1% year over year. Deposits were $3.70 billion, up 0.4%; portfolio loans were $2.81 billion, down 4.6%; and available-for-sale securities were $922.4 million, up $143.7 million. Cash and cash equivalents ended at $277.8 million.
- Funding and capital: FHLB borrowings were $7.0 million at year-end, versus $35.0 million in 2020. The company reported $1.86 billion in identified liquidity sources, including $743.8 million of unpledged securities and $667.3 million of available FHLB borrowing capacity. The Bank’s CET1 ratio was 14.04%, total risk-based capital ratio 15.29%, and leverage ratio 10.49%; it was classified as well capitalized.
- Cash flows: Investing activities used $106.4 million, while financing activities provided $64.7 million. Cash and cash equivalents increased $35.9 million during the year.
Material changes versus 2020
- Net income rebounded from a loss to profit. The 2020 result included a $62.2 million noncash goodwill impairment charge; 2021 had no goodwill impairment.
- Net interest income rose 5.8%, mainly from lower deposit funding costs and enhanced returns and late fees on restructured loans. The FTE net interest margin increased four basis points to 2.84%, despite lower asset yields and commercial loan payoffs.
- Provision expense fell to $3.4 million, but net charge-offs rose to $23.1 million from $2.7 million. Nonperforming loans declined to $7.4 million from $32.0 million, or 0.26% of portfolio loans versus 1.09%.
- The allowance for credit losses was $95.9 million, or 3.41% of portfolio loans, compared with $54.1 million, or 1.83%, in 2020. The comparison is affected by adoption of CECL on January 1, 2021, which increased the allowance by $61.6 million and reduced retained earnings by $50.7 million after tax.
- Deposits shifted away from higher-cost CDs: CDs fell 16.7% to $1.34 billion, while core deposit categories increased. Total portfolio loans contracted amid approximately $312.3 million of large commercial payoffs, $62.2 million of loan sales and mortgage refinancing sold into the secondary market.
- Noninterest income increased 8.7%, partly as pandemic-related fee waivers ended and debit-card usage increased. Noninterest expense declined 35.6%, chiefly because the 2020 goodwill impairment did not recur; certain 2021 costs increased, including OREO write-downs and data processing.
Outlook, commentary and risks
- Management’s stated priorities are loan and deposit growth, a greater share of lower-cost core deposits, higher-yielding and more diversified assets, increased fee income, infrastructure modernization and operating efficiency. The filing provides no specific earnings or financial guidance.
- Management described pandemic conditions as improved but continued to flag possible effects from renewed outbreaks, borrower weakness, labor constraints and economic uncertainty. Hospitality exposure was approximately $418.6 million, or 14.9% of portfolio loans; commercial-purpose real estate exposure was $1.5 billion, or 51.7% of loans.
- Management sold loans totaling $62.2 million after workout efforts for previously deferred borrowers proved unsatisfactory. Hospitality borrowers had returned to contractual payments after deferrals ended June 30, 2021, but the sector remained exposed to travel demand, labor availability and property values.
- Interest-rate sensitivity modeling showed an estimated 11.4% increase in 12-month pretax net interest income under an immediate +100-basis-point shock and a 2.4% decrease under a -100-basis-point shock. These are model scenarios, not earnings guidance. Management noted the Federal Reserve had indicated an intention to raise rates in 2022.
- Other material risks include commercial real estate and construction credit concentration, CECL model uncertainty, interest-rate and deposit competition, cybersecurity and third-party service-provider disruptions, regulatory requirements, and the LIBOR transition. About 16.7% of the loan portfolio used LIBOR as its variable-rate index at year-end; the Bank stopped originating new LIBOR-indexed loans after December 31, 2021.
- The company reported no material pending or threatened legal proceedings outside the ordinary course of business. It paid no common dividend in 2021 and said there were no immediate plans to reinstate a quarterly dividend. A program authorized repurchases of up to 2 million shares through December 9, 2022; 30,407 shares had been repurchased by year-end for an average $15.22 per share.
- The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2021. The allowance for credit losses was identified as a critical audit matter.
Important facts for investors to verify
- How the $95.9 million CECL allowance—particularly the $61.7 million assigned to the “Other” loan segment—compares with subsequent credit performance, and whether reserve assumptions remain appropriate.
- Whether charge-offs, nonperforming loans and criticized assets continue to improve, and how the $418.6 million hospitality exposure performs as operating conditions evolve.
- Whether the loan contraction and large commercial payoffs are offset by new originations, and whether management’s core-deposit and asset-yield strategies improve recurring net interest income.
- How securities valuation changes, deposit pricing and interest-rate movements affect capital, liquidity and margins; the filing’s rate-shock results depend on model assumptions.
- Progress on LIBOR-linked contract conversion, branch-network optimization, cost control, share repurchases and any future dividend decision.