0001104659-20-128235.txt : 20201123 0001104659-20-128235.hdr.sgml : 20201123 20201123090659 ACCESSION NUMBER: 0001104659-20-128235 CONFORMED SUBMISSION TYPE: 8-K12B PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 20201120 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20201123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Carter Bankshares, Inc. CENTRAL INDEX KEY: 0001829576 IRS NUMBER: 853365661 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K12B SEC ACT: 1934 Act SEC FILE NUMBER: 001-39731 FILM NUMBER: 201334433 BUSINESS ADDRESS: STREET 1: 1300 KINGS MOUNTAIN ROAD CITY: MARTINSVILLE STATE: VA ZIP: 24112 BUSINESS PHONE: 276-656-1776 MAIL ADDRESS: STREET 1: 1300 KINGS MOUNTAIN ROAD CITY: MARTINSVILLE STATE: VA ZIP: 24112 8-K12B 1 tm2036036d1_8k12b.htm 8-K12B

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): November 20, 2020

 

CARTER BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Virginia   To Be Assigned*   85-3365661

(State or other jurisdiction
of incorporation)

  (Commission File Number)

(IRS Employer
Identification No.)

 

1300 Kings Mountain Road, Martinsville, Virginia   24112
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (276) 656-1776

 

n/a

(Former name or former address, if changed since last report)

 

*       This Current Report on Form 8-K is filed by Carter Bankshares, Inc., a Virginia corporation (the “Company”), as successor issuer to Carter Bank & Trust, a Virginia banking corporation (the “Bank”). The Bank’s common stock previously was registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, pursuant to Section 12(i) of the Exchange Act, the Bank’s periodic reports were filed with the Federal Deposit Insurance Corporation (the “FDIC”). The Company’s common stock is deemed to be registered under Section 12(b) of the Exchange Act by operation of Rule 12g-3(a) under the Exchange Act.

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $1.00 par value   CARE   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

 

Item 8.01Other Events.

 

Completion of Reorganization

 

Carter Bankshares, Inc. (the “Company”) was incorporated on October 7, 2020, by and at the direction of the board of directors of Carter Bank & Trust (the “Bank”), for the sole purpose of acquiring the Bank and serving as the Bank’s parent bank holding company pursuant to a corporate reorganization transaction (the “Reorganization”). On November 9, 2020, the Bank entered into an Agreement and Plan of Reorganization (the “Reorganization Agreement”) with the Company and CBT Merger Sub, Inc. (the “Merger Sub”), a wholly-owned subsidiary of the Company, pursuant to which the Reorganization would be effected. Effective at 7:00 p.m. on November 20, 2020 (the “Effective Time”), under the terms of the Reorganization Agreement and pursuant to Section 13.1-719.1 of the Virginia Stock Corporation Act (the “VSCA”), the Bank merged with the Merger Sub and survived such merger as a wholly-owned subsidiary of the Company. Prior to the Effective Time, the Company had no material assets and had not conducted any business or operations except for activities related to the Company’s organization and the Reorganization.

 

At the Effective Time, under the terms of the Reorganization Agreement and pursuant to Section 13.1-719.1 of the VSCA, each of the outstanding shares of the Bank’s common stock, par value $1.00 per share, formerly held by its shareholders was converted into and exchanged for one newly issued share of the Company’s common stock, par value $1.00 per share, and the Bank became the Company’s wholly-owned subsidiary. The shares of the Company’s common stock issued to the Bank’s shareholders were issued without registration under the Securities Act of 1933, as amended (the “Act”), pursuant to the exemption from registration provided by Section 3(a)(12) of the Act. Pursuant to Section 13.1-719.1 of the VSCA, the Reorganization did not require approval of the Bank’s shareholders.

 

Also at the Effective Time, the Company adopted and assumed the Bank’s 2018 Omnibus Equity Incentive Plan as its own (now, the Carter Bankshares, Inc. Amended and Restated 2018 Omnibus Equity Incentive Plan).

 

The Company’s directors are the same as those of the Bank. In the Reorganization, each shareholder of the Bank received securities of the same class, having substantially the same designations, rights, powers, preferences, qualifications, limitations and restrictions, as those that the shareholder held in the Bank, and the Company’s current shareholders own the same percentages of its common stock as they previously owned of the Bank’s common stock.

 

The conversion of shares of the Company’s common stock in the Reorganization occurred without an exchange of certificates. Accordingly, as of the Effective Time, certificates and book-entry positions formerly representing shares of outstanding common stock of the Bank are deemed to represent the same number of shares of the Company’s common stock.

 

Prior to the Effective Time, the Bank’s common stock was registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Bank was subject to the information requirements of the Exchange Act and, in accordance with Section 12(i) thereof, it filed annual and quarterly reports, proxy statements and other information with the FDIC. Upon consummation of the Reorganization, the Company’s common stock was deemed to be registered under Section 12(b) of the Exchange Act, pursuant to Rule 12g-3(a) promulgated thereunder. This Current Report on Form 8-K, among other things, serves as notice that the Company is the successor issuer to the Bank under Rule 12g-3(a) and is subject to the information requirements of the Exchange Act and will file reports, proxy statements and other information with the Securities and Exchange Commission. This Current Report on Form 8-K is the Company’s initial report under the Exchange Act.

 

Prior to the consummation of the Reorganization, the Bank’s common stock was traded on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “CARE”. Effective November 23, 2020, the Company’s common stock began trading on Nasdaq under the same ticker symbol.

 

The Company is a Virginia business corporation subject to the Bank Holding Company Act of 1956, as amended. As such, the Company is subject to supervision and examination by, and the regulations and reporting requirements of, the Board of Governors of the Federal Reserve System. The Bank has one wholly owned subsidiary, CB&T Investment Company, which was chartered effective April 1, 2019. The Company’s principal office is the same as the Bank’s principal office and is located at 1300 Kings Mountain Road, Martinsville, Virginia 24112. The Company’s telephone number at that address is (276) 656-1776.

 

The Bank is an insured, Virginia state-chartered commercial bank, which was incorporated in 2006 in connection with the merger of 10 separate banks. The Bank provides a full range of financial services with retail, commercial banking products and insurance products. The Bank will continue to exist, and to conduct its business, in the same manner and under the same name as it did before the Reorganization.

 

 

 

 

On November 23, 2020, the Company issued a press release to announce the effectiveness of the Reorganization. A copy of the press release is set forth as Exhibit 99.13 to this Current Report on Form 8-K.

 

Description of the Company’s Common Stock

 

A description of the Company’s common stock has been filed with this Current Report on Form 8-K as Exhibit 4.1 and is incorporated by reference into this Item 8.01. The description contained in Exhibit 4.1 is only a summary of the material terms of the Company’s Articles of Incorporation and Bylaws, which have been filed with this report as Exhibits 3.1 and 3.2, respectively, and applicable law.

 

Item 9.01Financial Statements and Exhibits. 

 

Exhibit No.   Description
     
  2.1   Agreement and Plan of Reorganization by and among Carter Bank & Trust, Carter Bankshares, Inc. and CBT Merger Sub, Inc., dated November 9, 2020.
     
  3.1   Articles of Incorporation of Carter Bankshares, Inc., effective October 7, 2020.
     
  3.2   Bylaws of Carter Bankshares, Inc., as adopted October 28, 2020.
     
  4.1 Description of Carter Bankshares, Inc. common stock.
     
99.1*   Carter Bank & Trust’s Annual Report on Form 10-K for the year ended December 31, 2019.
     
99.2*   Carter Bank & Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
     
99.3*   Carter Bank & Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
     
99.4*   Carter Bank & Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
     
99.5*   Carter Bank & Trust’s Current Report on Form 8-K filed February 11, 2020.
     
99.6*   Carter Bank & Trust’s Current Report on Form 8-K filed March 27, 2020.
     
99.7*   Carter Bank & Trust’s Current Report on Form 8-K filed April 16, 2020.
     
99.8*   Carter Bank & Trust’s Current Report on Form 8-K filed May 8, 2020.
     
99.9*   Carter Bank & Trust’s Current Report on Form 8-K filed May 18, 2020.
     
99.10*   Carter Bank & Trust’s Current Report on Form 8-K filed July 23, 2020.
     
99.11*   Carter Bank & Trust’s Current Report on Form 8-K filed October 28, 2020.
     
99.12*   Carter Bank & Trust’s Current Report on Form 8-K filed November 12, 2020.
     
99.13   Press release dated November 23, 2020.

 

*As originally filed by the Bank with the FDIC.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

   

Carter Bankshares, Inc.

(Registrant)

     
Date: November 23, 2020 By:   /s/ Wendy S. Bell  
   

Wendy S. Bell

Chief Financial Officer

 

 

 

EX-2.1 2 tm2036036d1_ex2-1.htm EXHIBIT 2.1

Exhibit 2.1

 

AGREEMENT AND PLAN OF REORGANIZATION AMONG
CARTER BANK & TRUST

CARTER BANKSHARES, INC.

AND

CBT MERGER SUB, INC.

 

This Agreement and Plan of Reorganization (this “Agreement”), dated as of November 9, 2020, is by and among Carter Bank & Trust, Martinsville, Virginia (“Bank”), Carter Bankshares, Inc. (“Company”), and CBT Merger Sub, Inc. (“Subsidiary”).

 

RECITALS:

 

WHEREAS, Bank is a Virginia chartered banking corporation and the sole direct parent of Company, with an authorized capitalization of one hundred million (100,000,000) shares of common stock, par value $1.00 per share (the “Bank Common Stock”), with 26,386,901 shares of Bank Common Stock issued and outstanding; and

 

WHEREAS, Company is a Virginia corporation, a wholly-owned subsidiary of Bank and the sole direct parent of Subsidiary, with an authorized capitalization of one hundred million (100,000,000) shares of common stock, par value $1.00 per share (the “Company Common Stock”), with 10 shares of Company Common Stock issued and outstanding; and

 

WHEREAS, Subsidiary is a Virginia corporation and wholly-owned subsidiary of Company with an authorized capitalization of 5,000 shares of common stock, no par value per (“Subsidiary Common Stock”), of which 10 shares are issued and outstanding; and

 

WHEREAS, Bank, Company and Subsidiary desire to reorganize, and Bank and Subsidiary desire to merge, on the terms and conditions herein provided, and the Board of Directors of each of Bank, Company and Subsidiary has determined that the transactions set forth herein are in the best interests of Bank, Company and Subsidiary, respectively, and has authorized entry into this Agreement, and the Board of Directors of each of Bank and Subsidiary have authorized and approved the merger of Bank and Subsidiary (the “Merger”), with Bank surviving as a wholly-owned subsidiary of Company.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, Company, Bank and Subsidiary, intending to be legally bound, agree as follows:

 

ARTICLE 1
TERMS OF THE MERGER

 

Section 1.1           The Merger.

 

At the Effective Time (as defined herein), Bank shall merge with Subsidiary pursuant to the laws of the Commonwealth of Virginia and with the effect set forth in Sections 13.1-719.1 and 13.1-721 of the Virginia Stock Corporation Act (the “VSCA”). Bank shall be the surviving corporation of the Merger (the “Surviving Corporation”) as a wholly-owned subsidiary of Company, and shall continue its corporate existence under the laws of the Commonwealth of Virginia, and the separate corporate existence of Subsidiary shall cease. The parties shall file Articles of Merger meeting the requirements of Section 13.1-719.1 and 13.1-720 of the VSCA (the “Articles of Merger”) with the Virginia State Corporation Commission (the “SCC”).

 

 1 

 

 

Section 1.2           Effects of the Merger.

 

At the Effective Time , the Merger shall have the effects set forth in Sections 13.1-719.1 and 13.1-721 of the VSCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the Surviving Corporation shall be considered the same business and corporate entity as Bank and Subsidiary, and all the property, rights, privileges, powers and franchises of Bank and Subsidiary shall be vested in the Surviving Corporation, and all debts, liabilities and duties of Bank and Subsidiary shall be the debts, liabilities and duties of the Surviving Corporation.

 

Section 1.3           Closing; Effective Time.

 

The closing of the Merger will take place at such time and date as Bank and Subsidiary may mutually determine, but in no case prior to the date on which all of the conditions precedent to the consummation of the Merger specified in this Agreement shall have been satisfied or duly waived by the party entitled to satisfaction thereof. Subject to applicable law, the Merger shall become effective (such date and time, the “Effective Time”) upon the issuance of a certificate of merger by the SCC, or at such later time as may be specified by mutual agreement of the parties in the certificate of merger issued by the SCC.

 

Section 1.4           Articles of Incorporation; Bylaws.

 

At the Effective Time, the articles of incorporation and bylaws of Bank in effect immediately prior to the Effective Time shall, to the extent required by Section 13.1-719.1(B)(2) of the VSCA, become the articles of incorporation and bylaws of the Surviving Corporation, and remain substantially identical to the articles of incorporation and bylaws of the Bank, in each case until altered, amended or repealed in accordance with their terms and applicable law.

 

Section 1.5           Corporate Title; Offices.

 

The name of the Surviving Corporation shall be “Carter Bank & Trust.” The business of the Surviving Corporation shall be that of a Virginia chartered banking corporation. The headquarters and principal executive offices of the Surviving Corporation shall be located in Martinsville, Virginia. The business of the Surviving Corporation shall be conducted at such headquarters and principal executive offices, at all duly authorized and operating branches of Bank as of the Effective Time, and at all other offices and facilities of Bank established as of the Effective Time.

 

Section 1.6           Directors and Executive Officers.

 

The directors of Bank immediately prior to the Effective Time shall constitute all of the directors of the Surviving Corporation and shall continue to serve in such capacity until earlier of their respective death, resignation or removal or the time at which a successor is duly elected or appointed and qualified in accordance with the bylaws of the Bank or the VSCA. The officers of Bank immediately prior to the Effective Time shall constitute the officers of the Surviving Corporation immediately following the Effective Time. All officers of the Surviving Corporation shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board of Directors of the Surviving Corporation or an appropriately authorized committee thereof.

 

 2 

 

 

ARTICLE 2
EFFECT OF THE MERGER ON SHARES OF CAPITAL STOCK

 

Section 2.1           Conversion of Shares.

 

At the Effective Time, pursuant to Section 13.1-719.1 of the VSCA, by virtue of the Merger and without any action on the part of Bank, Subsidiary, Company, or any holder of any of the following securities:

 

(a)               each share of Company Common Stock issued and outstanding immediately prior to the Effective Time shall automatically be cancelled and shall cease to exist and no consideration shall be delivered in exchange therefor;

 

(b)              each share or fraction of a share of Bank Common Stock issued and outstanding immediately prior to the Effective Time shall be converted automatically and exchanged for a share or equal fraction of a share of validly issued, fully paid and nonassessable Company Common Stock;

 

(c)               each right to acquire shares of Bank Common Stock outstanding immediately prior to the Effective Time shall be converted in the Merger into a right to acquire shares of Company Common Stock having the same preferences, rights, and limitations as the right to acquire shares of Bank Common Stock being converted in the merger; and

 

(d)               each share of Subsidiary Common Stock issued and outstanding prior to the Merger shall remain issued and outstanding and, at and after the Effective Time, shall represent a share of Bank Common Stock. The stock transfer book of Subsidiary shall be closed as of the Effective Time and, thereafter, no transfer of any shares of Subsidiary capital stock shall be recorded therein.

 

Section 2.2           Abandoned Property.

 

Any other provision of this Agreement notwithstanding, neither the Surviving Corporation nor Company shall be liable to a holder of Subsidiary capital stock or Bank Common Stock for any amounts paid or property delivered in good faith to a public official pursuant to any applicable abandoned property law.

 

Section 2.3           Surrender and Exchange of Certificates.

 

Outstanding certificates that represented shares of Bank Common Stock prior to the Effective Time will thereafter represent an equal number of shares of Company Common Stock. Each holder of Company Common Stock, upon the surrender of his, her or its certificates representing shares of Bank capital stock to Company, validly executed and indorsed in accordance with the instructions thereto, will be entitled to receive in exchange therefor a certificate or certificates representing an equivalent number of shares of Company Common Stock. Company may, however, on a date and at a time following the Effective Time, require that all certificates formerly representing Bank Common Stock be surrendered and exchanged for certificates representing, or evidence of issuance in book-entry form of, shares of Company Common Stock.

 

 3 

 

 

Section 2.4           Lost Certificates.

 

A holder of Bank Common Stock whose certificates have been lost, destroyed, stolen or are otherwise missing shall be entitled to receive shares of Company capital stock, and dividends or distributions to which such shareholder shall be entitled, if any, upon compliance with reasonable conditions imposed by the Surviving Corporation and Company pursuant to applicable law and as required in accordance with the Surviving Corporation’s and Company’s respective standard policies (including the requirement that the shareholder furnish an affidavit of lost certificate, surety bond or other customary indemnity).

 

ARTICLE 3
CONDITIONS PRECEDENT, COVENANTS AND ADDITIONAL ACTIONS

 

Section 3.1           Conditions Precedent.

 

The Merger and the obligations of the parties under this Agreement, including to consummate the Merger, shall be subject to the fulfillment of each of the following conditions prior to the Effective Time:

 

(a)               This Agreement has been approved by Board of Directors of Bank at a meeting thereof duly called and held or by written consent or consents in lieu thereof;

 

(b)               Articles of merger to be filed with the SCC in connection with the Merger shall include a statement that this Agreement did not require approval by the shareholders of Bank or by the Board of Directors or shareholders of Subsidiary because the Merger was authorized pursuant to Section 13.1-719.1(D) of the VSCA, and that the conditions specified in subsection 13.1-719.1(B) thereof have been satisfied;

 

(c)               Approvals of the Merger shall have been obtained from all governmental agencies having jurisdiction necessary for the lawful consummation of the transactions set forth in this Agreement, including but not limited to, as applicable, the SCC, including the Bureau of Financial Institutions, the Federal Deposit Insurance Corporation (“FDIC”), and the Board of Governors of the Federal Reserve System (including any Federal Reserve Bank acting pursuant to delegated authority) (the “Federal Reserve”), and such approvals shall be in full force and effect, and all related waiting periods shall have expired, and all material consents, approvals, permissions and authorizations of, filings and registrations with, and notifications to, all governmental authorities required for consummation of the Merger shall have been obtained or made and shall be in full force and effect and all waiting periods required by law shall have expired;

 

 4 

 

 

(d)               Bank has received an opinion of counsel to Bank and Company as to the tax-free nature of the transactions set forth in this Agreement; and

 

(e)               No jurisdiction or governmental authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the Merger.

 

Section 3.2           Covenants.

 

From the date of this Agreement to the Effective Time, Bank, Company and Subsidiary agree to use all reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Bank, Company and Subsidiary shall proceed expeditiously and cooperate fully in the preparation and submission of such applications or other filings for the Merger with the FDIC, the Federal Reserve, and the SCC, including the Bureau of Financial Institutions, as may be required by applicable laws and regulations.

 

Section 3.3           Additional Actions.

 

If, at any time after the Effective Time, the Surviving Corporation or Company shall determine that any further assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its rights, title or interest in, to or under any of the rights, properties or assets of Bank or Subsidiary acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger, or (b) otherwise carry out the purposes of this Agreement, Bank and Subsidiary and their respective proper officers and directors shall be deemed to have granted to the Surviving Corporation and to Company, and the proper officers and directors of the Surviving Corporation and Company, an irrevocable power of attorney to (i) execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation and (ii) otherwise to carry out the purposes of this Agreement. The proper officers and directors of the Surviving Corporation and Company are fully authorized in the name of Bank, Company or Subsidiary to take any and all such action.

 

Section 3.4           Effect on Stock Incentive Plans.

 

At the Effective Time, Company shall adopt and assume all equity compensation plans of Bank, including but not limited to the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan, which shall thereafter be plans of Company only.

 

ARTICLE 4
GENERAL PROVISIONS

 

Section 4.1           Authorization; Binding Effect.

 

Each of the parties hereto represents and warrants that this Agreement has been duly authorized, executed and delivered by such party and, assuming the due authorization, execution and delivery by all other parties to this Agreement, constitutes the legal, valid and binding obligation of such party, enforceable against it in accordance with the terms hereof.

 

 5 

 

 

Section 4.2           Amendment.

 

Subject to applicable law, this Agreement may be amended, modified or supplemented by written agreement of Company, Bank and Subsidiary at any time prior to the Effective Time.

 

Section 4.3           Waiver.

 

Any of the terms or conditions of this Agreement may be waived at any time by whichever of the parties hereto is entitled to the benefit thereof by action taken by the Board of Directors of such waiving party

 

Section 4.4           Assignment.

 

This Agreement may not be assigned by Company, Bank or Subsidiary (whether by operation of law or otherwise) without the prior written consent of the other party.

 

Section 4.5           Termination.

 

This Agreement may be terminated by written mutual agreement of Company, Bank and Subsidiary at any time prior to the Effective Time.

 

Section 4.6           Governing Law.

 

This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia applicable to agreements made and to be performed wholly within such state.

 

Section 4.7           Counterparts.

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one agreement.

 

[remainder of page intentionally blank; signature page follows]

 

 6 

 

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by their duly authorized officers, as of the day and year first above written.

 

 

  CARTER BANK & TRUST  
       
       
  By: /s/ Litz H. Van Dyke  
  Name: Litz H. Van Dyke  
  Title: Chief Executive Officer  
       
       
  CARTER BANKSHARES, INC.  
       
       
  By: /s/ Litz H. Van Dyke  
  Name: Litz H. Van Dyke  
  Title: Chief Executive Officer  
       
       
  CBT MERGER SUB, INC.  
       
       
  By: /s/ Litz H. Van Dyke  
  Name: Litz H. Van Dyke  
  Title: President and Chief Executive Officer  

  

[Signature Page to Agreement]

  

 7 

EX-3.1 3 tm2036036d1_ex3-1.htm EXHIBIT 3.1

 

Exhibit 3.1

 

ARTICLES OF INCORPORATION

OF

CARTER BANKSHARES, INC.

 

ARTICLE I
NAME

 

The name of the Corporation is: Carter Bankshares, Inc.

 

ARTICLE II
PURPOSES

 

The purpose of the Corporation is to act as a bank holding company and to transact any and all lawful business, not required to be specifically stated in the Articles of Incorporation, for which corporations may be incorporated under the Virginia Stock Corporation Act, as amended from time to time.

 

ARTICLE III
AUTHORIZED STOCK

 

1.       Number. The Corporation shall have authority to issue one hundred million (100,000,000) shares of Common Stock, par value $1.00 per share.

 

2.       Voting. Each share of Common Stock shall entitle the record holder thereof to one vote.

 

ARTICLE IV
ELECTION OF DIRECTORS

 

The management, control and government of the Corporation shall be vested in the Board of Directors, which shall be composed of no fewer than five (5) nor more than thirty (30) directors which minimum and maximum number of directors may not be changed except by amendment to the Articles of Incorporation. The Directors shall be elected for a term of one (1) year and shall remain in office until their successors have been duly elected by the shareholders and qualified.

 

ARTICLE V
INDEMNIFICATION AND ELIMINATION OF LIABILITY

 

1.       Indemnification of Directors and Officers. Except as provided in Section 2 of this Article, the Corporation shall indemnify every individual made a party to a proceeding because he is or was a director or officer against liability incurred in the proceeding if: (i) he conducted himself in good faith; and (ii) he believed, in the case of conduct in his official capacity with the Corporation, that his conduct was in its best interests and, in all other cases, that his conduct was at least not opposed to its best interests (or in the case of conduct with respect to an employee benefit plan, that his conduct was for a purpose he believed to be in the interests of the participants of and beneficiaries of the plan); and (iii) he had no reasonable cause to believe, in the case of any criminal proceeding, that his conduct was unlawful.

 

2.       Indemnification Not Permitted. The Corporation shall not indemnify any individual against his willful misconduct or a knowing violation of the criminal law or against any liability incurred by him in any proceeding charging improper personal benefit to him, whether or not by or in the right of the Corporation or involving action in his official capacity, in which he was adjudged liable by a court of competent jurisdiction on the basis that personal benefit was improperly received by him.

 

1

 

 

3.       Effect of Judgment or Conviction. The termination of a proceeding by judgment, order, settlement or conviction is not, of itself, determinative that an individual did not meet the standard of conduct set forth in Section 1 of this Article or that the conduct of such individual constituted willful misconduct or a knowing violation of the criminal law.

 

4.       Determination and Authorization. Unless ordered by a court of competent jurisdiction, any indemnification under Section 1 of this Article shall he made by the Corporation only as authorized in the specific case upon a determination that indemnification of the individual is permissible in the circumstances because.: (i) he met the standard of conduct set forth in Section 1 of this Article and, with respect to a proceeding by or in the right of the Corporation in which such individual was adjudged liable to the Corporation, he is fairly and reasonably entitled to indemnification in view of all of the relevant circumstances even though he was adjudged liable; and (ii) the conduct of such individual did not constitute willful misconduct or a knowing violation of the criminal law.

 

Such determination shall be made: (i) by the board of directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding; or (ii) if such a quorum cannot be obtained, by a majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; or (iii) by special legal counsel selected by the board of directors or its committee in the manner heretofore provided or, if such a quorum of the board of directors cannot be obtained and such a committee cannot be designated, selected by a majority vote of the board of directors (in which selection directors who are parties may participate); or (iv) by the shareholders, but shares owned by or voted under the control of individuals who are at the time parties to the proceeding may not be voted on the determination. Authorization of indemnification, evaluation as to reasonableness of expenses and determination and authorization of advancements for expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those selecting such counsel.

 

5.       Advance for Expenses. The Corporation may pay for or reimburse the reasonable expenses incurred by any individual who is a party to a proceeding in advance of final disposition of the proceeding if: (i) he furnished the Corporation a written statement of his good faith belief that he has met the standard of conduct described in Section 1 of this Article and a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that indemnification of such individual in the specific case is not permissible; and (ii) a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article. An undertaking furnished to the Corporation in accordance with the provisions of this Section shall be an unlimited general obligation of the individual furnishing the same but need not be secured and may be accepted by the Corporation without reference to financial ability to make repayment.

 

6.       Indemnification of Employees and Agents. The Corporation may, but shall not be required to, indemnify and advance expenses to employees and agents of the Corporation to the same extent as provided in this Article with respect to directors and officers.

 

7.       Elimination of Liability of Directors and Officers. Except as provided in Section 8 of this Article, in any proceeding brought by or in the right of the Corporation or brought by or on behalf of shareholders of the Corporation, a director or officer of the Corporation shall not be liable in any monetary amount for damages arising out of or resulting from a single transaction, occurrence or course of conduct.

 

8.       Liability of Directors and Officers Not Eliminated. The liability of a director or officer shall not be eliminated in accordance with the provisions of Section 7 of this Article if the director or officer engaged in willful misconduct or a knowing violation of the criminal law or of any federal or state securities law, including without limitation, any claim of unlawful insider trading or manipulation of the market for any security.

 

2

 

 

9.             Definitions. In this Article:

 

“Director” and “officer” mean an individual who is or was a director or officer of the Corporation, as the case may be, or who, while a director or officer of the Corporation is or was serving at the Corporation's request as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. A director or officer shall be considered to be serving an employee benefit plan at the Corporation's request if his duties to the Corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan.

 

“Individual” includes, unless the context requires otherwise, the estate, heirs, executors, personal representatives and administrators of an individual.

 

“Corporation” means Carter Bankshares, Inc., and any domestic or foreign predecessor entity thereof in a merger or other transaction in which the predecessor's existence ceased upon the consummation of the transaction.

 

“Expenses” includes but is not limited to counsel fees.

 

“Liability” means the obligation to pay a judgment, settlement, penalty, fine, including any excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding.

 

“Official capacity” means: (i) when used with respect to a director, the office of director in the Corporation; (ii) when used with respect to an officer, the office in the Corporation held by him; or (iii) when used with respect to an employee or agent, the employment or agency relationship undertaken by him on behalf of the Corporation. “Official capacity” does not include service for any foreign or domestic corporation or other partnership, joint venture, trust, employee benefit plan or other enterprise.

 

“Party” includes an individual who was, is or is threatened to be made a named defendant or respondent in a proceeding.

 

“Proceeding” means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal.

 

10.               Provisions Not Exclusive. As authorized by the Virginia Stock Corporation Act, the provisions of this Article are in addition to and not in limitation of the specific powers of a corporation to indemnify directors and officers set forth therein. If any provision of this Article shall be adjudicated invalid or unenforceable by a court of competent jurisdiction, such adjudication shall not be deemed to invalidate or otherwise affect any other provision hereof or any power of indemnity which the Corporation may have under the Virginia Stock Corporation Act or other laws of the Commonwealth of Virginia.

 

ARTICLE VI
REGISTERED OFFICE AND REGISTERED AGENT

 

The initial registered office of the Corporation is 1001 Haxall Point, Richmond, Virginia, 23219, which is located in the City of Richmond, Virginia. The initial registered agent is Jacob A. Lutz, III, whose business address is the same as the initial registered office and who is a resident of Virginia and a member of the Virginia State Bar.

 

[remainder of page intentionally blank; signature page to follow]

 

3

 

 

IN WITNESS WHEREOF, the undersigned Incorporator has executed these Articles of Incorporation as of the date set forth below.

 

DATE: October 5, 2020
 
  /s/ Seth A. Winter, Esq.
 
  Seth A. Winter, Esq.
  Incorporator

 

4

 

 

EX-3.2 4 tm2036036d1_ex3-2.htm EXHIBIT 3.2

 

Exhibit 3.2

 

BYLAWS
OF
CARTER BANKSHARES, INC.

 

(as adopted by the Board of Directors on October 28, 2020)

 

ARTICLE I

STOCKHOLDERS’ MEETINGS

 

Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix. Unless the Board has otherwise provided, the Chairman shall designate on or before March 1 of each year a date on or before June 30 of that year as the date for the annual meeting of stockholders, and provide the notices required by law and these Bylaws.

 

Section 2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board, the President, or by a majority of the Board of Directors. Business transacted at all special meetings shall be confined only to business within the purpose or purposes described in the meeting notice.

 

Section 3. Notice. Notice of the date, time, and place of the annual meeting of stockholders shall be given by mailing a written or printed notice of the same at least ten (10) days, but not more than sixty (60) days, prior to the meeting, except that notice of a stockholder’s meeting to act on an amendment of the Articles of Incorporation, plan of merger or share exchange, a proposed sale of assets or the dissolution of the Corporation shall be given not less than twenty-five (25) days nor more than sixty (60) days before the meeting date. Only notice of a special meeting must state the purpose or purposes for which the meeting was called.

 

Notice shall be mailed, postage prepaid, to each stockholder of record of the Corporation entitled to vote at such meeting and addressed to the stockholder’s last-known post office address or to the address appearing on the corporate books of the Corporation. All meetings shall be held at that date, time, and place fixed by the Board of Directors.

 

Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation, under any provision of the Code of Virginia, 1950, as amended, the Articles of Incorporation or these Bylaws, shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation.

 

Section 4. Voting. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than eleven (11) months prior to said meeting, unless said instrument provides for a longer period. Each stockholder shall have one vote on each matter voted on at a stockholders’ meeting for each share of stock having voting power registered in the stockholder’s name on the books of the Corporation.

 

 

 

Section 5. Quorum. A quorum at any annual or special meeting of stockholders shall consist of stockholders representing, either in person or by proxy, a majority of the outstanding Common Stock of the Corporation entitled to vote at such meeting, except as otherwise provided by law. Once a share is represented as present at a meeting, either in person or by proxy, it is deemed present for quorum purposes for the remainder of the meeting and for adjournment of that meeting unless a new date is set of record for adjournment of that meeting.

 

Section 6. Closing Transfer Books and Record Date. The transfer books for shares of Common Stock of the Corporation may be closed by order of the Board of Directors for no more than seventy (70) days next preceding any stockholder’s meeting for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or in order to make a determination of stockholders for any other proper purpose. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date to be not more than seventy (70) days preceding the date on which the particular action requiring such determination of the stockholders is to be taken.

 

Section 7. Conduct of Meetings. The Chairman shall preside over all meetings of the stockholders. If the Chairman is not present, the Vice-Chairman shall become the presiding officer. If the Chairman is not present and if there is no Vice-Chairman, then the President shall become the presiding officer. If none of such officers are present, those persons present at the meeting shall elect a Chairman from among them. The Secretary of the Corporation shall act as secretary of all meetings if the Secretary is present. If the Secretary is not present, the Chairman shall appoint a Secretary of the meeting. The Chairman of the meeting may appoint one or more inspectors of the election to determine the qualification of voters, the validity of proxies, and the results of ballots. The Chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such officer, are appropriate for the proper conduct of the meeting.

 

Section 8. Consent. Any action that may be taken by the stockholders in a meeting may be taken by unanimous written consent of all stockholders entitled to vote on the action.

 

Section 9. Stockholder Proposals.

 

(a)        For any stockholder proposal to be presented in connection with an annual meeting of stockholders of the Corporation (including proposals made under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), including any nomination or proposal relating to the nomination of a director to be elected to the Board of Directors of the Corporation, the stockholders must have given timely notice thereof in writing to the Secretary of the Corporation.

 

(b)        To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than ninety (90) days or more than one hundred twenty (120) days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than thirty (30) days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which notice of the date of annual meeting was mailed or public announcement of the date of such meeting is first made. No adjournment or postponement of an annual meeting shall commence a new period for the giving of notice of a stockholder proposal hereunder.

 

2

 

 

(c)        Such stockholder’s notice shall set forth: (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and of the beneficial owner, if any, on whose behalf the nomination or proposal is made, (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner and (B) the class and number of shares of stock of the Corporation which are owned beneficially and of record by such stockholders and such beneficial owner; and (iii) a written representation and agreement (in the form provided by the Corporation upon written request) that the stockholder is not and will not become a party to any written or oral agreement, arrangement or understanding with any other party or stockholder regarding the subject matter of the stockholder’s proposal.

 

Section 10. Adjournments. A majority of the votes entitled to be cast at any meeting, represented in person or by proxy, even though less than a quorum, may adjourn the meeting to a fixed time and place. The presiding officer of a meeting may adjourn or recess any meeting of stockholders, at any time or for any reason, without a vote of the stockholders.

 

ARTICLE II

BOARD OF DIRECTORS

 

Section 1. Number, Election, and Terms. The management of all the affairs, property, and business of the Corporation shall be vested in a Board of Directors, consisting of no fewer than five (5) nor more than thirty (30) persons, the exact number which shall be fixed by the Board of Directors prior to each annual meeting of stockholders. The directors shall be elected for a term of one (1) year and will serve until their successors are elected and qualified.

 

At all times, except in the case of a vacancy, a majority of the Board of Directors shall be Independent Directors (as hereinafter defined). For purposes of these Bylaws, “Independent Director” shall mean a director of the Corporation who meets the independence requirements under the rules and regulations of the stock exchange upon which the Corporation’s common stock is then listed and the Securities and Exchange Commission, in each case as then in effect and applicable to the Corporation.

 

Candidates for the office of director may be nominated by the Board, its Nominating Committee, if established, or by a stockholder, pursuant to the requirements of Article I, Section 9 of the Bylaws.

 

At any time when the Chairman of the Board is not an Independent Director, a lead Independent Director shall be designated by majority vote of the Independent Directors.

 

Section 2. Quorum. A quorum at all meetings of the Board of Directors shall consist of a majority of the whole Board. If less than a quorum is present at a meeting, a majority of those present may postpone the meeting to a subsequent date without any further notice to any of the directors.

 

Section 3. Removal and Vacancies. The stockholders entitled to vote may remove any director, with or without cause, and fill the vacancy. The stockholders may remove a director only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes of the meeting, is removal of the director. Any vacancy arising among the directors including vacancies created by an increase in the number of directors occurring between stockholders’ meetings may be filled by the stockholders or by the remaining directors, even if the remaining directors constitute less than a quorum.

 

3

 

 

Section 4. Meetings and Notices. Meetings of the Board of Directors shall be held at times fixed by resolution of the board, or upon the call of the Chairman. The Board of Directors may permit any or all directors to participate in a meeting of the directors by, or conduct the meeting through the use of, conference telephone or any other means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by such means shall be deemed to be present in person at the meeting. Notice of any such meeting not held at a time fixed by a resolution of the Board shall be given to each director at least twenty-four (24) hours before the meeting at the director’s residence or business address or by delivering such notice to the director or by telephone or electronic delivery to the director at least twenty-four (24) hours before the meeting. Any such notice shall contain the time and place of the meeting, but need not contain the purpose of any meeting. Meetings may be held without notice if all of the directors are present or those not present waive notice before or after the meeting.

 

Section 5. Executive Sessions. Executive sessions of the Independent Directors will be held at least twice a year without management participation. The Chairman of the Board will generally chair the executive sessions. If the Chairman of the Board of Directors is not an Independent Director, the lead Independent Director will generally chair the executive sessions.

 

Section 6. Consent. Any action that may be taken by the directors in a meeting may be taken by unanimous written consent of all directors.

 

Section 7. Confidentiality. Each director shall hold all Confidential Information in the strictest confidence and shall take all appropriate measures to ensure that no other person shall have access to the Confidential Information. No director shall disclose any Confidential Information to any person outside the Corporation, either during or after his or her service as a director, except with authorization of the Board of Directors or as may be required or permitted by law. For the avoidance of doubt, the foregoing shall also apply to any director who serves on the Board of Directors as the designee of a stockholder of the Corporation, and such director shall not disclose any Confidential Information to such stockholder or any of its officers, directors, managers, members partners, employees, attorneys, accountants, advisors, agents, consultants or other representatives. “Confidential Information” shall mean all non-public information (whether or not oral, written, or electronic, or material to the Corporation) entrusted to or obtained by a director by reason of his or her position as a director of the Corporation. Confidential Information shall not include information that is or becomes publicly disclosed, unless such disclosure occurs in violation of this Section 7 of Article II.

 

ARTICLE III

COMMITTEES

 

The Board of Directors may create one or more Committees and appoint members of the Board of Directors to serve on them. Each Committee may have two or more members, who serve at the pleasure of the Board of Directors. The composition of each committee, including the total number of members and the number of Independent Directors, shall at all times comply with the listing requirements and rules and regulations of the stock exchange upon which the Corporation’s common stock is then listed and the rules and regulations of the Securities and Exchange Commission, in each case as then in effect and applicable to the Corporation. The creation of a Committee and the appointment of members to it shall be approved by the greater number of (a) a majority of all the directors in office when the action is taken, or (b) the number of directors required herein to take action. The Board of Directors shall specify the powers and authorities of the Committee in the resolution creating the Committee, except that a committee may not (i) approve or recommend to the stockholders any action which requires stockholder approval, (ii) fill vacancies on the Board or any other Committees, (iii) amend the Articles of Incorporation, (iv) adopt, amend, or repeal the Bylaws, (v) approve a plan of merger not requiring stockholder approval, (vi) authorize or approve distributions which do not conform to general formula or method prescribed by the Board of Directors, or (vii) authorize or approve the issuance, sale, or contract for sale of shares of stock, or determine the designation and relative rights, preferences and limitation of a class or series of shares of stock, except as the Board of Directors may authorize a Committee, or a senior executive officer of the Corporation, to do so within the limits specifically prescribed by the Board of Directors. Each Committee shall report its actions to the Board of Directors at the next meeting of the Board.

 

4

 

 

ARTICLE IV

OFFICERS

 

The Board of Directors promptly after its election in each year, shall elect a Chairman of the Board, a Vice Chairman of the Board and a President and shall also elect a Secretary and a Cashier, and may elect or appoint one or more Executive Vice Presidents, Senior Vice-Presidents, Vice Presidents, or such other officers as it may deem proper. Any officer may hold more than one office simultaneously. All officers shall serve for a term of one year until their respective successors are elected and qualified but any officer may be removed summarily with or without cause at any time. The directors shall fill any vacancies among the officers. The officers of the Corporation shall have such powers and duties as generally pertain to their respective offices as well as such powers and duties as from time to time may be delegated to them by the Board of Directors.

 

ARTICLE V

INDEMNIFICATION AND ADVANCES

 

Subject to the terms and conditions of Article V of the Articles of Incorporation of the Corporation, which shall control, the Corporation will reimburse the reasonable expenses incurred by a director, officer, employee or agent who is party to a proceeding in advance of final disposition of the proceeding if: (i) the director, officer, employee, or agent furnishes the Corporation with written statement of his or her good faith belief that he or she has met the standard of conduct described in § 13.1-697 of the Code of Virginia, 1950, as amended, (ii) the director, officer, employee, or agent furnishes to the Corporation a written undertaking, executed personally, or on his or her behalf, to repay the advance if it is ultimately determined that indemnification of such individual in the specific case is not permissible and (iii) a determination is made that the facts then known to those making the determination would not preclude indemnification under this Section. Determination and authorization of advancements for expenses and evaluation as to reasonableness of expenses shall be made in accordance with Section 4, Article V of the Articles of Incorporation of the Corporation.

 

ARTICLE VI

STOCK

 

Section 1. Form. The shares of the stock of the Corporation may be certificated or uncertificated under Virginia law, and shall be entered in the stock transfer books of the Corporation and registered as they are issued.

 

When shares are represented by certificates, such certificates shall represent and certify the number and kind and class of shares owned by the stockholder in the Corporation. Each certificate shall be issued in numerical order and each stockholder shall be entitled to a certificate or certificates of stock in such form as may be required by law and approved by the Board of Directors and that are signed by the President and Secretary with the corporate seal impressed thereon.

 

5

 

 

Blank share certificates shall be kept by the Secretary or by a transfer agent or by a registrar or by any other officer or agent designated by the Board of Directors.

 

Section 2. Replacements. In case of the loss, mutilation, or destruction of a certificate of stock, the Corporation may require the holder of record to furnish proof of such loss, destruction or mutilation, to give a bond of indemnity to the Corporation in such form and in such sum as the Board of Directors may direct, and to comply with any other terms the Board of Directors may lawfully prescribe, provided that the Board of Directors may elect not to require any bond when, in the judgment of the Board of Directors, it is proper so to do. Upon satisfactory completion by the holder of record of the requirements imposed by the Board of Directors, the Corporation shall deliver to the holder of record either a duplicate certificate for such shares or evidence of the holder’s ownership of such shares in uncertificated form.

 

Section 3. Stock Transfer Books and Transfer of Shares. The Corporation, or its designated transfer agent or other agent, shall keep a book or set of books to be known as the stock transfer books of the Corporation, containing the name of each stockholder of record, together with such stockholder’s address and the number and class or series of shares held by such stockholder. Such information may be stored or retained on discs, tapes, cards or any other approved storage device relating to data processing equipment; provided that such device is capable of reproducing all information contained therein in legible and understandable form, for inspection by stockholders or for any other corporate purpose. Transfers of the Corporation’s shares shall be made and recorded on the stock transfer books of the Corporation upon the receipt of proper transfer instructions as prescribed by the Board of Directors, and, in the case of transfers of shares which are represented by one or more certificates, only upon receipt of such certificate(s) with proper endorsement, from the holder of record or from such holder’s duly authorized attorney in fact, who shall furnish proper evidence of authority to transfer to the Secretary of the Corporation or its designated transfer agent or other agent. In the event a certificate representing shares to be transferred cannot be surrendered because it has been lost, mutilated or destroyed, the transferor shall comply with the requirements imposed by the Board of Directors as set forth in Section 2 of this Article VI in lieu of surrendering a properly endorsed certificate. Upon satisfactory completion by the transferor of the requirements set forth in this Section 3, all certificates for the transferred shares shall be cancelled, new certificates representing the transferred shares (or evidence of the transferee’s ownership of the transferred shares in uncertificated form) shall be delivered to the transferee, and the transaction shall be recorded on the stock transfer books of the Corporation. Except as otherwise provided by law, no transfer of shares shall be valid as against the Corporation, its stockholders or creditors, for any purpose, until it shall have been entered in the stock transfer books of the Corporation by an entry showing from and to whom transferred.

 

Section 4. Restrictions on Transfer. A transfer of shares shall be made only in accordance with any provisions of the Articles of Incorporation, these Bylaws, or an agreement among the stockholders or between the stockholders and the Corporation that impose restrictions on the transfer of shares.

 

Section 5. Transfer Agent and Registrar; Regulations. The Board of Directors may also appoint one or more Transfer Agents or Registrars for its stock and may require stock certificates to be both countersigned by a Transfer Agent and Registrar, the signature thereon of the officers of the Corporation and seal of the Corporation thereon may be facsimiles, engraved, or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or person who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. The Board of Directors may make, or authorize such Agent(s) and Registrar(s) to make, all rules and regulations deemed expedient concerning the issue, transfer and registration of shares of stock, whether or not such shares are represented by certificates.

 

6

 

 

ARTICLE VII

SEAL

 

The seal of the Corporation shall be a flat-faced circular die (of which there may be any number of counterparts) with the words “SEAL” and “VIRGINIA”.

 

ARTICLE VIII

VOTING OF STOCK HELD

 

Unless otherwise provided by a vote of the Board of Directors, the President may either appoint attorneys to vote any stock of any other corporation owned by this Corporation or may attend any meeting of the holders of stock of such other corporation and vote such shares in person.

 

ARTICLE IX

SIGNATURES

 

Checks, notes, drafts, and other orders for the payment of money shall be signed by such persons as the Board of Directors from time to time may authorize. The signature of any such person may be a facsimile when authorized by the Board of Directors.

 

ARTICLE X

ALTERATION, AMENDMENT, OR REPEAL

 

The Board of Directors may amend, alter, supplement, or repeal the Bylaws, in whole or in part, by the affirmative vote of a majority of the whole Board of Directors, at any regular or special meeting.

 

ARTICLE XI

FORUM FOR ADJUDICATION OF DISPUTES

 

To the fullest extent permitted by law, and unless the Corporation consents in writing to the selection of an alternative forum, the United States District Court for the Western District of Virginia, Roanoke Division or, in the event that court lacks jurisdiction to hear such action, the Circuit Court of the City of Martinsville, Virginia, shall be the sole exclusive forum for (i) any derivative action or proceeding brought in the name or right of the Corporation or on its behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by a director, officer, employee or other agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action arising or asserting a claim arising pursuant to any provision of the Virginia Stock Corporation Act (Va. Code Ann. § 13.1-601, et seq.) or any provision of the Articles of Incorporation or these Bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of the Articles of Incorporation or these Bylaws, in each case subject to such court having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and have consented to the provision in this Article XI.

 

[remainder of page intentionally blank; certification to follow]

 

7

 

 

Certification of Bylaws by Officer

 

The undersigned officer of the Corporation certifies that the foregoing Bylaws have been adopted as the initial bylaws of the Corporation, in accordance with the requirements of the corporation law of the Commonwealth of Virginia.

 

  CARTER BANKSHARES, INC.,
  a Virginia corporation.
 
Date:            October 28, 2020                         By: /s/ James W. Haskins
  Its: Chairman of the Board of Directors

 

 

 

 

 

EX-4.1 5 tm2036036d1_ex4-1.htm EXHIBIT 4.1

 

Exhibit 4.1

 

DESCRIPTION OF COMMON STOCK

 

The following is a summary description of the material features of the common stock, par value $1.00 per share, of Carter Bankshares, Inc. (the “Company”), based on the Company’s Articles of Incorporation and Bylaws and relevant provisions of the laws of the Commonwealth of Virginia (“Virginia law”). This summary is not complete and is qualified in its entirety by reference to the provisions of the Company’s Articles of Incorporation and Bylaws and Virginia law. The Company’s Articles of Incorporation and Bylaws are included as exhibits to the Current Report on Form 8-K, of which this exhibit is a part.

 

The Company’s Articles of Incorporation authorize 100,000,000 shares of common stock, par value $1.00 per share. The Company’s common stock is traded on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “CARE.”

 

Holders of the Company’s common stock are entitled to receive dividends if, as and when declared by the Company’s Board of Directors. Holders of the Company’s common stock are entitled to one vote per share on each matter submitted to a vote of shareholders. A majority of the outstanding shares of common stock of the Company entitled to vote constitutes a quorum for a meeting of shareholders. If a quorum exits, action on a matter, other than the election of directors, is approved if the votes cast in favor of the matter exceed the votes opposing the matter, unless Virginia law or the Company’s Articles of Incorporation require a greater number of affirmative votes. The Company’s Articles of Incorporation and Bylaws provide for a single class of directors to be elected annually. Directors are elected by a plurality of the votes cast at a meeting at which a quorum exists. There are no cumulative voting rights in the election of directors.

 

Unless otherwise provided for in the Company’s Articles of Incorporation, the Company’s shareholders have no preemptive rights to purchase additional shares of the Company’s common stock in order to preserve their proportionate ownership interest in the Company if the Company issues shares that might dilute the ownership interests of existing shareholders. Holders of the Company’s common stock have no conversion, redemption or sinking fund rights. The outstanding shares of the Company’s common stock are fully paid and nonassessable.

 

Except as limited by Virginia law or the Company’s Articles of Incorporation, the Company’s Bylaws vest the power to amend the Bylaws in the Board of Directors by a majority vote of the total number of directors.

 

With regard to indemnification and elimination of liability, the Company shall indemnify every individual made a party to a proceeding because he or she is or was a director or officer against liability incurred in the proceeding if: (i) he or she conducted himself or herself in good faith; and (ii) he or she believed, in the case of conduct in his or her official capacity with the Company, that his or her conduct was in the best interests of the Company and, in all other cases, that his or her conduct was at least not opposed to the Company’s best interests (or with respect to an employee benefit plan, that his or her conduct was for a purpose he or she believed to be in the interests of the participants of and beneficiaries of the plan); and (iii) he or she had no reasonable cause to believe, in the case of any criminal proceeding, that his or her conduct was unlawful. The Company shall not indemnify any individual against his or her willful misconduct, a knowing criminal violation, or any liability incurred in any proceeding charging improper personal benefit to him or her, whether or not by or in the right of the Company or involving action in an official capacity, in which he or she was adjudged liable by a court of competent jurisdiction on the basis that personal benefit was improperly received by him or her.

 

Except as provided in the Company’s Articles of Incorporation, in any proceeding brought by or in the right of the Company or by or on behalf of its shareholders, a director or officer shall not be liable for monetary damages arising out of or resulting from a single transaction, occurrence or course of conduct. The Company’s Articles of Incorporation provide that the liability of a director or officer shall not be so eliminated if he or she engaged in willful misconduct or a knowing criminal violation or violation of any federal or state securities law, including any claim of unlawful insider trading or manipulation of the market for any security.

 

 

 

 

Virginia law contains business combination statutes that protect domestic corporations from hostile takeovers, and from actions following such a takeover, by restricting the voting rights of shares acquired by a person who has gained a significant holding in the Company. The Company’s Articles of Incorporation and Bylaws are silent with respect to these business combination statues; therefore, Virginia law applies.

 

In the event of any liquidation, dissolution or winding up of the Company, the holders of the Company’s common stock will be entitled to receive, in cash or in kind, the assets of the Company available for distribution remaining after payment or provision for payment of the Company’s debts and liabilities.

 

 

 

EX-99.1 6 tm2036036d1_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to

 

Commission file number: N/A

 

CARTER BANK & TRUST

(Exact name of registrant as specified in its charter)

 

Virginia   20-5539935
(State or other jurisdiction of
incorporation or organization)
 

(I.R.S. Employer

Identification No.)

     
1300 Kings Mountain Road, Martinsville, Virginia   24112

(Address of principal executive offices)

  (Zip Code)

 

Registrant’s telephone number, including area code: (276) 656-1776

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $1 par value CARE Nasdaq Global Select Market

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer       ¨ Accelerated filer                    x Emerging growth company   ¨
Non-accelerated filer         ¨ Smaller reporting company   ¨  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes ¨ No x

 

The aggregate market value of Carter Bank & Trust’s common stock held by non-affiliates, computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of June 30, 2019 was $484,136,451.

 

There were 26,384,801 shares of common stock of Carter Bank & Trust outstanding as of June 2, 2020.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I
       
Item 1. Business.   3
Item 1A. Risk Factors.   15
Item 1B. Unresolved Staff Comments.   28
Item 2. Properties.   28
Item 3. Legal Proceedings.   28
Item 4. Mine Safety Disclosures.   28
       
PART II
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   29
Item 6. Selected Financial Data.   31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.   73
Item 8. Financial Statements and Supplementary Data.   75
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.   129
Item 9A. Controls and Procedures.   129
Item 9B. Other Information.   130
       
PART III
       
Item 10. Directors, Executive Officers and Corporate Governance.   131
Item 11. Executive Compensation.   137
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   153
Item 13. Certain Relationships and Related Transactions, and Director Independence.   154
Item 14. Principal Accounting Fees and Services.   156
       
PART IV
       
Item 15. Exhibits, Financial Statement Schedules.   157
Item 16. Form 10-K Summary.   159

 

 2 

 

 

CARTER BANK & TRUST

PART I

ITEM 1. BUSINESS

 

General

 

Carter Bank & Trust (the “Bank”) is a non-member state Bank headquartered in Martinsville, Virginia with assets of $4.0 billion at December 31, 2019.  The Bank operates branches in Virginia and North Carolina and is the fourth largest state chartered commercial banks headquartered in Virginia, operating 101 branches across both states.

 

The Bank provides a full range of financial services with retail, commercial banking products and insurance products. Our common stock began trading on Nasdaq Global Select Market (“NASDAQ”) effective March 25, 2019, under the ticker symbol “CARE.” Prior to March 25, 2019, our common stock traded on the Over the Counter (“OTCQX”) Best Market under the ticker symbol “CARE.”

 

The Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. The Bank incurs expenses for the cost of deposits, provision for loan losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

 

Our mission is that the Bank strives to be the preferred lifetime financial partner for our customers and shareholders, and the employer of choice in the communities the Bank is privileged to serve. Our strategic plan focuses on restructuring the balance sheet to provide more diversification and higher yielding assets and to change the mix of deposits to increase the net interest margin. Another area of focus is the transformation of our infrastructure of the Bank to provide a foundation for operational efficiency and provide new products and services for our customers that will ultimately increase noninterest income.

 

Our focus continues to be on loan and deposit growth with a shift in the composition of deposits to more low cost core deposits with less dependence on higher cost certificates of deposits. Additionally, the Bank is implementing strategies to increase fee income while closely monitoring our operating expenses. The Bank is focused on executing our strategy to successfully build our brand and grow our business in our markets. The Bank’s net interest margin has improved due to our strategy to deploy our excess cash into higher yielding and diversified investment securities and loan growth, as well as the runoff of higher cost deposits.

 

The Bank offers a full range of deposit services including LIFETIME FREE CHECKING, interest checking accounts, savings accounts, retirement accounts and other deposit accounts of various types, ranging from money market accounts to longer-term certificates of deposits. These products and services are available to our personal and business customers. The transaction accounts and time certificates of deposits are tailored to each of the Bank's principal markets at competitive rates. All deposit accounts are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the maximum amount allowed by law. The Dodd-Frank Act, signed into law on July 21, 2010, makes permanent the $250,000 limit for federal deposit insurance and the coverage limit applies per depositor, per insured depository institution for each account ownership.

 

The Bank also offers a full range of commercial and personal loans. Commercial loans include both secured and unsecured loans. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, education and personal investments. The Bank also makes real estate construction and acquisition loans, and originates and holds fixed and variable rate mortgage loans. In addition, the Bank now offers home equity lines of credit to its customers.

 

 3 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

The Bank's lending activities are subject to a variety of lending limits imposed by federal law. While differing limits apply in certain circumstances based on the type of loan or the nature of the borrower (including the borrower's relationship to the Bank), in general the Bank is subject to a “loan to one” borrower limit of an amount equal to 15% of the Bank's unimpaired capital and surplus. The Bank may not make loans to any director, officer, employee or 10% shareholder of the Bank unless the loan is approved by the Board of Directors and is made on terms not more favorable than are made available to a person not affiliated with the Bank.

 

Other bank services include safe deposit boxes, direct deposit of payroll and social security checks, online banking, bill pay, mobile banking, debit cards, e-statements, and automated drafts for various accounts. Treasury services are also available to our business customers. The Bank has no current plans to exercise trust powers.

 

The Bank has one wholly owned subsidiary, CB&T Investment Company (“the investment company”), which was chartered effective April 1, 2019. The investment company was formed to hold and manage a group of investments previously owned by the Bank and to provide additional latitude to purchase other investments. Formerly, the Bank owned Mortgage Company of Virginia who owned 100% of Bank Services of Virginia and Bank Services Insurance, Inc. Mortgage Company of Virginia was terminated and dissolved on December 11, 2018. Bank Services of Virginia was terminated and dissolved on July 10, 2018. Bank Services Insurance, Inc. was sold in January of 2018.

 

Employees

 

As of December 31, 2019, the Bank and its subsidiary had 977 full-time equivalent employees.

 

Competition

 

The Bank experiences significant competition in attracting depositors and borrowers. Competition in lending activities comes principally from other commercial banks, savings associations, insurance companies, governmental agencies, credit unions, and brokerage firms. Competition for deposits comes from other commercial banks, savings associations, money market and mutual funds, credit unions, insurance companies and brokerage firms. Some of the financial organizations competing with the Bank have greater financial resources than the Bank. Certain of these financial organizations also have greater geographic coverage and some offer bank and bank-related services which the Bank does not offer.

 

Supervision and Regulation

 

General. Financial institutions are extensively regulated under federal and state law. Consequently, the growth and earnings performance of the Bank can be affected not only by management decisions and general economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities including, but not limited to, the Virginia Bureau of Financial Institutions (the “Bureau”), the FDIC, the Federal Reserve Board (“FRB”), the Internal Revenue Service (“IRS”), federal and state taxing authorities, and the Securities and Exchange Commission (“SEC”). The effect of such statutes, regulations and policies can be significant, and cannot be predicted with a high degree of certainty.

 

 4 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

The Bank is subject to supervision, regulation and examination by the Bureau and the Bank’s primary federal regulator, the FDIC. Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends.

 

The system of supervision and regulation applicable to the Bank establishes a comprehensive framework for its operations and is intended primarily for the protection of the FDIC’s deposit insurance funds and the depositors, rather than the shareholders of the Bank.

 

Finally, the Bank is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, including, but not limited to, filing annual, quarterly and other current reports with the FDIC. The Bank is not a member of the FRB System.

 

The following references to material statutes and regulations affecting the Bank are brief summaries and do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations. Any change in applicable law or regulations may have a material effect on the business of the Bank.

 

Regulatory Reform. The financial crisis of 2008, including the downturn of global economic, financial and money markets and the threat of collapse of numerous financial institutions, and other events led to the adoption of numerous laws and regulations that apply to, and focus on, financial institutions. The most significant of these laws is the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was enacted on July 21, 2010 and, in part, was intended to implement significant structural reforms to the financial services industry.

 

The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape, including changes that have significantly affected the business of all bank holding companies and banks, including the Bank. Some of the rules that have been proposed and, in some cases, adopted to comply with the Dodd-Frank Act's mandates are discussed further below. In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “EGRRCPA”) was enacted to reduce the regulatory burden on certain banking organizations, including community banks, by modifying or eliminating certain federal regulatory requirements. While the EGRRCPA maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion as well as for larger banks with assets above $50 billion. In addition, the EGRRCPA included regulatory relief for community banks regarding regulatory examination cycles, call reports, application of the Volcker Rule (proprietary trading prohibitions), mortgage disclosures, qualified mortgages, and risk weights for certain high-risk commercial real estate loans. However, federal banking regulators retain broad discretion to impose additional regulatory requirements on banking organizations based on safety and soundness and U.S. financial system stability considerations.

 

The Bank continues to experience ongoing regulatory reform. These regulatory changes could have a significant effect on how the Bank conducts its business. The specific implications of the Dodd-Frank Act, the EGRRCPA, and other potential regulatory reforms cannot yet be fully predicted and will depend to a large extent on the specific regulations that are to be adopted in the future. Certain aspects of the Dodd-Frank Act and the EGRRCPA are discussed below in more detail.

 

 5 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

Regulatory Capital Requirements. All financial institutions are required to maintain minimum levels of regulatory capital. The FDIC establishes risk-based and leveraged capital standards for the financial institutions they regulate. The FDIC also may impose capital requirements in excess of these standards on a case-by-case basis for various reasons, including financial condition or actual or anticipated growth.

 

As of December 31, 2019 and 2018, the Bank qualified as a “well capitalized” institution (see Note 19 of the Notes to Consolidated Financial Statements filed herewith). Under the risk-based capital requirements, through December 31, 2015, the Bank was required to maintain a minimum ratio of total capital to risk-weighted assets of at least 8%. At least half of the total capital was required to be “Tier 1 capital,” which consists principally of common and certain qualifying preferred shareholders’ equity, less certain intangibles and other adjustments. The remainder, “Tier 2 capital,” consists of a limited amount of subordinated and other qualifying debt (including certain hybrid capital instruments) and a limited amount of the general loan loss reserve.

 

The federal regulatory agencies established a minimum leveraged capital ratio (Tier 1 capital to period end total average assets). These guidelines provided for a minimum leverage capital ratio of 4%. The guidelines also provided that banking organizations experiencing internal growth or making acquisitions were expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

 

Basel III Capital Framework. The FRB and the FDIC have adopted rules to implement the Basel III capital framework as outlined by the Basel Committee on Banking Supervision and standards for calculating risk-weighted assets and risk-based capital measurements (collectively, the “Basel III Final Rules”) that apply to banking institutions they supervise. For the purposes of the Basel III Final Rules, (i) common equity tier 1 capital (CET1) consists principally of common stock (including surplus) and retained earnings; (ii) Tier 1 capital consists principally of CET1 plus non-cumulative preferred stock and related surplus, and certain grandfathered cumulative preferred stocks and trust preferred securities; and (iii) Tier 2 capital consists of other capital instruments, principally qualifying subordinated debt and preferred stock, and limited amounts of an institution’s allowance for loan losses. Each regulatory capital classification is subject to certain adjustments and limitations, as implemented by the Basel III Final Rules. The Basel III Final Rules also establish risk weightings that are applied to many classes of assets held by community banks, importantly including applying higher risk weightings to certain commercial real estate loans.

 

The Basel III Final Rules and minimum capital ratios required to be maintained by banks were effective January 1, 2015. The Basel III Final Rules also include a requirement that banks maintain additional capital (the “capital conservation buffer”), which was phased in beginning January 1, 2016 and was fully phased-in effective January 1, 2019. The Basel III Final Rules and fully phased-in capital conservation buffer require banks to maintain a:

 

·minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the minimum CET1 ratio, effectively resulting in a required ratio of CET1 to risk-weighted assets of at least 7%);

 

·minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (effectively resulting in a required Tier 1 capital ratio of 8.5%);

 

 6 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

·minimum ratio of total capital (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (effectively resulting in a required total capital ratio of 10.5%); and

 

·minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average total assets, subject to certain adjustments and limitations.

 

The Basel III Final Rules provide deductions from and adjustments to regulatory capital measures, primarily to CET1, including deductions and adjustments that were not applied to reduce CET1 under historical regulatory capital rules.

 

For example, mortgage servicing rights, deferred tax assets dependent upon future taxable income, and significant investments in non-consolidated financial entities must be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

 

As of December 31, 2019, the Bank meets all capital adequacy requirements under the Basel III Final Rules, including the capital conservation buffer on a fully phased-in basis as if such requirements were in effect as of that date.

 

Community Bank Leverage Ratio. As a result of the EGRRCPA, the federal banking agencies were required to develop a Community Bank Leverage Ratio (the ratio of a bank’s tangible equity capital to average total consolidated assets) for banking organizations with assets of less than $10 billion, such as the Bank. On October 29, 2019, the federal banking agencies issued a final rule that implements the Community Bank Leverage Ratio Framework (the “CBLRF”). To qualify for the CBLRF, a bank must have less than $10 billion in total consolidated assets, limited amounts of off-balance sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9%. A bank that elects the CBLRF and has a leverage ratio greater than 9% will be considered to be in compliance with Basel III capital requirements and exempt from the complex Basel III calculations. A bank that falls out of compliance with the CBLRF will have a two-quarter grace period to come back into full compliance, provided its leverage ratio remains above 8% (a bank will be deemed well-capitalized during the grace period). The CBLRF will be available for banking organizations to use as of March 31, 2020 (with the flexibility for banking organizations to subsequently opt into or out of the CBLRF, as applicable).

 

Insurance of Accounts, Assessments and Regulation by the FDIC. Deposits with the Bank are insured through the Deposit Insurance Fund (“DIF”) of the FDIC. As a DIF-insured institution, the Bank is subject to FDIC rules and regulations as administrator of the DIF. The Dodd-Frank Act made permanent the current standard maximum deposit insurance amount of $250,000. The FDIC coverage applies per depositor, per insured depository institution, for each account ownership category. The FDIC is authorized to conduct examinations of and to require reporting by DIF-insured institutions.

 

The FDIC is authorized to prohibit any DIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat to the insurance fund. Also, the FDIC may initiate enforcement actions against banks after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may terminate the deposit insurance of any depository institution, including the Bank, if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed in writing by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If deposit insurance is terminated, the deposits at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that could result in termination of the Bank’s deposit insurance.

 

 7 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

The actual assessment to be paid by each DIF member is based on the institution’s assessment risk classification and whether the institution is considered by its supervisory agency to be financially sound or to have supervisory concerns.

 

The DIF is funded by assessments on banks and other depository institutions calculated based on average consolidated total assets minus average tangible equity (defined as Tier 1 capital). As required by the Dodd-Frank Act, the FDIC has adopted a large-bank pricing assessment scheme, set a target “designated reserve ratio” (described in more detail below) of 2% for the DIF and, in lieu of dividends, provides for a lower assessment rate schedule when the reserve ratio reaches 2% and 2.5%. An institution's assessment rate is based on a statistical analysis of financial ratios that estimates the likelihood of failure over a three-year period, which considers the institution’s weighted average CAMELS component rating, and is subject to further adjustments including those related to levels of unsecured debt and brokered deposits (not applicable to banks with less than $10 billion in assets). At December 31, 2019, total base assessment rates for institutions that have been insured for at least five years range from 1.5 to 30 basis points applying to banks with less than $10 billion in assets.

 

The Dodd-Frank Act transferred to the FDIC increased discretion with regard to managing the required amount of reserves for the DIF, or the “designated reserve ratio.” The Federal Deposit Insurance Act (“FDIA”) requires that the FDIC consider the appropriate level for the DIF on at least an annual basis. As of December 31, 2019, the DIF was 2% and the minimum DIF was 1.35%.

 

Banks with less than $10 billion in total consolidated assets (such as the Bank) receive credits to offset the portion of their assessments that help to raise the reserve ratio to 1.35%. The FDIC will automatically apply such a bank’s credits to reduce its regular DIF assessment up to the entire amount of the assessment. The FDIC will remit any such remaining credits in a lump sum to the appropriate bank following application to the bank’s regular DIF assessment for four quarterly assessment periods. The Bank received and utilized its entire $1.1 million credit during the third quarter of 2019.

 

CFPB Regulation and Supervision. The Consumer Financial Protection Bureau (the “CFPB”) is the federal regulatory agency responsible for implementing, examining and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets and, to a lesser extent, smaller institutions. The CFPB supervises and regulates providers of consumer financial products and services, and has rulemaking authority in connection with numerous federal consumer financial protection laws (for example, but not limited to, the Truth-in-Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”)).

 

Because the Bank is a smaller institution (i.e., with assets of $10 billion or less), most consumer protection aspects of the Dodd-Frank Act will continue to be applied to the Bank by the FDIC. However, the CFPB may include its own examiners in regulatory examinations by a smaller institution’s principal regulators and may require smaller institutions to comply with certain CFPB reporting requirements. In addition, regulatory positions taken by the CFPB and administrative and legal precedents established by CFPB enforcement activities, including in connection with supervision of larger banks, could influence how the FDIC applies consumer protection laws and regulations to financial institutions that are not directly supervised by the CFPB. The precise effect of the CFPB’s consumer protection activities on the Bank cannot be determined with certainty.

 

 8 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

Mortgage Banking Regulation. In connection with making mortgage loans, the Bank is subject to rules and regulations that, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers, in some cases restrict certain loan features and fix maximum interest rates and fees, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level. The Bank’s mortgage origination activities are subject to the Equal Credit Opportunity Act (“ECOA”), TILA, the Home Mortgage Disclosure Act, RESPA, the Home Ownership Equity Protection Act, and the regulations promulgated under these acts, among other additional state and federal laws, regulations and rules.

 

The Bank’s mortgage origination activities are also subject to Regulation Z, which implements TILA. Certain provisions of Regulation Z require mortgage lenders to make a reasonable and good faith determination, based on verified and documented information, that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Alternatively, a mortgage lender can originate “qualified mortgages”, which are generally defined as mortgage loans without negative amortization, interest-only payments, balloon payments, terms exceeding 30 years, and points and fees paid by a consumer equal to or less than 3% of the total loan amount. Under the EGRRCPA, most residential mortgage loans originated and held in portfolio by a bank with less than $10 billion in assets will be designated as “qualified mortgages.” Higher-priced qualified mortgages (e.g., sub-prime loans) receive a rebuttable presumption of compliance with ability-to-repay rules, and other qualified mortgages (e.g., prime loans) are deemed to comply with the ability-to-repay rules. The Bank predominantly originates mortgage loans that comply with Regulation Z’s “qualified mortgage” rules.

 

Brokered Deposits. Section 29 of the FDIA and FDIC regulations generally limit the ability of any bank to accept, renew or roll over any brokered deposit unless it is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” However, as a result of the EGRRCPA, the FDIC undertook a comprehensive review of its regulatory approach to brokered deposits, including reciprocal deposits, and interest rate caps applicable to banks that are less than “well capitalized.” On December 12, 2019, the FDIC issued a notice of proposed rulemaking to modernize its brokered deposit regulations. At this time, it is difficult to predict what changes, if any, to the brokered deposit regulations will actually be implemented or the effect of such changes on the Bank.

 

Prompt Corrective Action. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” These terms are defined under uniform regulations issued by each of the federal banking agencies regulating these institutions. An insured depository institution which is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight and is increasingly restricted in the scope of its permissible activities. As of December 31, 2019, the Bank was considered “well capitalized.”

 

Incentive Compensation. The federal banking agencies have issued regulatory guidance (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The FDIC will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Bank, that are not “large, complex banking organizations.” The findings will be included in reports of examination, and deficiencies will be incorporated into the organization’s supervisory ratings. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

 

 9 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

In 2016, the SEC and the federal banking agencies proposed rules that prohibit covered financial institutions (including bank holding companies and banks) from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risk taking by providing covered persons (consisting of senior executive officers and significant risk takers, as defined in the rules) with excessive compensation, fees or benefits that could lead to material financial loss to the financial institution. The proposed rules outline factors to be considered when analyzing whether compensation is excessive and whether an incentive-based compensation arrangement encourages inappropriate risks that could lead to material loss to the covered financial institution, and establishes minimum requirements that incentive-based compensation arrangements must meet to be considered to not encourage inappropriate risks and to appropriately balance risk and reward. The proposed rules also impose additional corporate governance requirements on the boards of directors of covered financial institutions and impose additional record-keeping requirements. The comment period for these proposed rules has closed and a final rule has not yet been published.

 

Community Reinvestment. The Community Reinvestment Act (the “CRA”) imposes on financial institutions, including the Bank an affirmative obligation to help meet the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. Each financial institution’s efforts in helping meet community credit needs currently are evaluated as part of the examination process pursuant to regulations adopted by the banking regulatory agencies. Under the regulation financial institution’s efforts in helping meet its community’s credit needs are evaluated, based on the particular institution’s total assets, according to a lending test, a community development test in addition to the lending test, or the three-pronged (lending, investment and service) test. The grade received by a bank is considered in evaluating mergers, acquisitions and applications to open a branch or facility. To the best knowledge of the Bank, it is meeting its obligations under the CRA. The Bank received a rating of “satisfactory” on its most recent CRA examination dated October 23, 2017.

 

Confidentiality and Required Disclosures of Customer Information. The Bank is subject to various laws and regulations that address the privacy of nonpublic personal financial information of consumers. The Gramm-Leach-Bliley Act and certain regulations issued thereunder protect against the transfer and use by financial institutions of consumer nonpublic personal information. A financial institution must provide to its customers, at the beginning of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated third parties unless the institution discloses to the customer that the information may be so provided and the customer is given the opportunity to opt out of such disclosure. Certain exceptions may apply to the requirement to deliver an annual privacy notice based on how a financial institution limits sharing of nonpublic personal information, and whether the institution’s disclosure practices or policies have changed in certain ways since the last privacy notice that was delivered.

 

 10 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

The Bank is also subject to various laws and regulations that attempt to combat money laundering and terrorist financing. The Bank Secrecy Act requires all financial institutions to, among other things, create a system of controls designed to prevent money laundering and the financing of terrorism, and imposes recordkeeping and reporting requirements. The USA Patriot Act added regulations to facilitate information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering, and requires financial institutions to establish anti-money laundering programs. The Office of Foreign Assets Control (“OFAC”), which is a division of the U.S Department of Treasury, is responsible for helping to ensure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. If the Bank finds the name of an “enemy” of the United States on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account or place transferred funds into a blocked account, and report it to OFAC.

 

Although these laws and programs impose compliance costs and create privacy obligations and, in some cases, reporting obligations, and compliance with all of the laws, programs, and privacy and reporting obligations may require significant resources of the Bank, these laws and programs do not materially affect the Bank’s products, services or other business activities.

 

Cybersecurity. The federal banking agencies have also adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial products and services. The federal banking agencies expect financial institutions to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack. If the Bank fails to meet the expectations set forth in this regulatory guidance, it could be subject to various regulatory actions and any remediation efforts may require significant resources of the Bank. In addition, all federal and state bank regulatory agencies continue to increase focus on cybersecurity programs and risks as part of regular supervisory exams.

 

In October 2016, the federal banking agencies issued proposed rules on enhanced cybersecurity risk-management and resilience standards that would apply to very large financial institutions and to services provided by third parties to these institutions. The comment period for these proposed rules has closed and a final rule has not been published. Although the proposed rules would apply only to bank holding companies and banks with $50 billion or more in total consolidated assets, these rules could influence the federal banking agencies’ expectations and supervisory requirements for information security standards and cybersecurity programs of smaller financial institutions, such as the Bank.

 

Stress Testing. The federal banking agencies have implemented stress testing requirements for certain large or risky financial institutions, including bank holding companies and state-chartered banks. Although these requirements do not apply to the Bank, the federal banking agencies emphasize that all banking organizations, regardless of size, should have the capacity to analyze the potential effect of adverse market conditions or outcomes on the organization’s financial condition. Based on existing regulatory guidance, the Bank will be expected to consider its interest rate risk management, commercial real estate loan concentrations and other credit-related information, and funding and liquidity management during this analysis of adverse market conditions or outcomes.

 

 11 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

Volcker Rule. The Dodd-Frank Act prohibits bank holding companies and their subsidiary banks from engaging in proprietary trading except in limited circumstances, and places limits on ownership of equity investments in private equity and hedge funds (the “Volcker Rule”). The EGRRCPA and final rules adopted to implement the EGRRCPA exempt all banks with less than $10 billion in assets (including their holding companies and affiliates) from the Volcker Rule, provided that the institution has total trading assets and liabilities of 5% or less of total assets, subject to certain limited exceptions. The Bank believes that its financial condition and its operations are not significantly affected by the Volcker Rule, amendments thereto, or it’s implementing regulations.

 

Call Reports and Examination Cycle. All institutions, regardless of size, submit a quarterly call report that includes data used by federal banking agencies to monitor the condition, performance, and risk profile of individual institutions and the industry as a whole. The EGRRCPA contained provisions expanding the number of regulated institutions eligible to use streamlined call report forms. In June 2019, the federal banking agencies issued a final rule to permit insured depository institutions with total assets of less than $5 billion that do not engage in certain complex or international activities to file the most streamlined version of the quarterly call report, and to reduce data reportable on certain streamlined call report submissions.

 

In December 2018, consistent with the provisions of the EGRRCPA, the federal banking agencies jointly adopted final rules that permit banks with up to $3 billion in total assets, that received a composite CAMELS rating of “1” or “2,” and that meet certain other criteria (including not having undergone any change in control during the previous 12-month period, and not being subject to a formal enforcement proceeding or order), to qualify for an 18-month on-site examination cycle.

 

Effect of Governmental Monetary Policies. As with other financial institutions, the earnings of the Bank are affected by general economic conditions as well as by the monetary policies of the FRB. Such policies, which include regulating the national supply of bank reserves and bank credit, can have a major effect upon the source and cost of funds and the rates of return earned on loans and investments. The FRB System exerts a substantial influence on interest rates and credit conditions, primarily through establishing target rates for federal funds, open market operations in U.S. Government securities, varying the discount rate on member bank borrowings and setting cash reserve requirements against deposits. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits, and rates received on loans and investment securities and paid on deposits. Fluctuations in the FRB’s monetary policies have had a significant impact on the operating results of the Bank and all financial institutions in the past and are expected to continue to do so in the future.

 

Dividend Limitations. The amount of dividends permitted to be paid by the Bank will depend upon its earnings and capital position, and is limited by federal and state law, regulations and policy. Virginia law imposes restrictions on the ability of all banks chartered under Virginia law to pay dividends. Under Virginia law, no dividend may be declared or paid that would impair a bank’s paid-in capital and payments must be made from retained earnings.

 

State and federal regulators have the general authority to limit dividends paid by the Bank if it is, or after making the distribution it would become, “undercapitalized” (as that term is defined in federal law). The FDIC has issued policy statements that provide that insured banks generally should pay dividends only from their current operating earnings, and, under the FDIA, no dividend may be paid by an insured bank while it is in default on any assessment due the FDIC. The Bank’s payment of dividends also could be affected or limited by other factors, such as events or circumstances which lead the FDIC to require that the Bank maintain capital in excess of regulatory guidelines, or the Bank’s failure to maintain an appropriate capital conservation buffer as discussed above.

 

 12 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

Legislative and Regulatory Responses to the COVID-19 Pandemic. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act provides for approximately $2.2 trillion in emergency economic relief measures including, among other things, loan programs for small and mid-sized businesses and other economic relief for impacted businesses and industries, including financial institutions. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of the Treasury, the FDIC, the FRB and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Bank.

 

Set forth below is a brief overview of certain provisions of the CARES Act and certain other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Such statutes, regulations, and policies are subject to ongoing review by U.S. Congress and federal regulatory authorities. Future amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Bank could have a material effect on the Bank. Many of the requirements called for in the CARES Act and related regulations and supervisory guidance will be implemented over time and most will be subject to implementing regulations over the course of the coming weeks. The Bank will continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

 

CARES Act

 

Paycheck Protection Program (“PPP”). Under the CARES Act, PPP is an amendment to the Small Business Administration (“SBA”) 7-A loan program. The Bank recently became an approved SBA 7-A lender. PPP is a guaranteed, unsecured loan program created to fund certain payroll and operating costs of eligible businesses, organizations and self-employed persons during COVID-19.  Initially, $349 billion were approved and designated for PPP in order for the SBA to guarantee 100% of collective loans made under the program to eligible small businesses, nonprofits, veteran’s organizations, and tribal businesses. The Bank participated in the initial round of funding though a referral relationship with a third-party, non-bank lender. When an additional $310 billion in funds were approved and designated for PPP, the Bank opted to stand up an internal, automated loan process utilizing its core system provider.

 

The FRB implemented a liquidity facility available to financial institutions participating in the PPP.  We believe we have sufficient liquidity sources to fund all pending PPP loans and to continue to provide this important service to local businesses.  These loans are fully guaranteed by the SBA and do not represent a credit risk.

 

Troubled Debt Restructuring and Loan Modifications for Affected Borrowers. The CARES Act permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as troubled debt restructurings (“TDRs”) and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs.

 

 13 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

Debt Guarantees, Account Insurance Increase, and Temporary Lending Limit Relief. The CARES Act also authorized several key initiatives directly applicable to federal bank regulatory authorities, including (i) the establishment of a program by the FDIC to guarantee the debt obligations of solvent insured depository institutions and their affiliates (including their holding companies) through December 31, 2020 and (ii) an increase by the FDIC and the National Credit Union Association to the insurance coverage on any noninterest-bearing transaction accounts through December 31, 2020.

 

FRB Programs and Initiatives

 

The CARES Act encourages the FRB, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities, including (i) a Midsize Business/Nonprofit Organization Program to provide financing to banks and other lenders to make direct loans to eligible businesses and nonprofit organizations with between 500 and 10,000 employees and (ii) the Municipal Liquidity Facility, to provide liquidity to the financial system that supports states and municipalities. On April 9, 2020, the FRB announced and solicited comments regarding the Main Street Lending Program, which would implement certain of these recommendations. Further action regarding the Main Street Lending Program is expected soon.

 

Separately and in response to COVID-19, the FRB’s Federal Open Market Committee (the “FOMC”) has set the federal funds target rate – i.e., the interest rate at which depository institutions such as the Bank lend reserve balances to other depository institutions overnight on an uncollateralized basis – to an historic low. On March 16, 2020, the FOMC set the federal funds target rate at 0-0.25%. Consistent with FRB policy, the FRB has committed to the use of overnight reverse repurchase agreements as a supplementary policy tool, as necessary, to help control the federal funds rate and keep it in the target range set by the FOMC.

 

In addition, the FRB has expanded the size and scope of three existing programs to mitigate the economic impact of the COVID-19 outbreak: (i) the Primary Market Corporate Credit Facility; (ii) the Secondary Market Corporate Credit Facility; and (iii) the Term Asset-Backed Securities Loan Facility. The FRB has also established two new program facilities – the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility – to broaden its support for the flow of credit to households and businesses during COVID-19.

 

Temporary Regulatory Capital Relief related to Impact of Current Expected Credit Losses (“CECL”)

 

Concurrent with enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement ASU 2016-13, Measurement of Credit Losses on Financial Instruments before the end of 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.

 

 14 

 

 

CARTER BANK & TRUST

ITEM 1. BUSINESS (continued)

 

Temporary Bank Secrecy Act (“BSA”) Reporting Relief

 

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has provided targeted relief from certain BSA reporting requirements and have provided updated guidance to financial institutions on complying with such requirements during COVID-19. Specifically, FinCEN has (i) granted targeted relief to financial institutions participating in the PPP, stating that PPP loans to existing customers will not require re-verification under applicable BSA requirements, unless re-verification is otherwise required under the financial institution’s risk-based BSA compliance program, (ii) acknowledged that there may be “reasonable delays in compliance” due to COVID-19, and (iii) temporarily suspended implementation if its February 2020 ruling, which would have entailed significant changes to currency transaction reporting filing requirements for transactions involving sole proprietorships and entities operating under a “doing business as” or other assumed name.

 

Future Regulation. From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Bank in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Bank cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on its financial condition or results of operations. A change in statutes, regulations or regulatory policies applicable to the Bank could have a material effect on its business.

 

Where You Can Find More Information

 

The Bank files quarterly, annual and periodic reports, proxy statements and insider filings with the FDIC (rather than the SEC). You may (i) obtain copies of the documents the Bank files with the FDIC by directing a request by telephone or mail to Investor Relations, Carter Bank & Trust, 1300 Kings Mountain Road, Martinsville, Virginia 24112; telephone number: (276) 656-1776, or (ii) obtain copies of these documents directly from the FDIC’s website at www.fdic.gov. The annual report and proxy statement will be available through our website at www.CBTCares.com under “Investor Relations” as of the date of the annual mailing to shareholders.

 

ITEM 1A. RISK FACTORS

 

An investment in the Bank’s securities involves risk. In addition to the other information set forth in this report, including the information under the heading “Important Notice Regarding Forward-Looking Statements,” investors in the Bank’s securities should consider the factors discussed below.

 

The Bank’s business is subject to interest rate risk and fluctuations in interest rates may adversely affect its earnings and capital levels.

 

The majority of the Bank’s assets are monetary in nature and, as a result, the Bank is subject to significant risk from changes in interest rates. Changes in interest rates can impact the Bank’s net interest income as well as the valuation of its assets and liabilities. Also, the Bank’s earnings are significantly dependent on its net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. The Bank expects that it will experience “gaps” in the interest rate sensitivities of its assets and liabilities, meaning that either its interest-bearing liabilities will be more sensitive to changes in market interest rates than its interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to the Bank’s position, this “gap” will work against it and its earnings may be negatively affected.

 

 15 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

During the calendar ending December 31, 2019, the Federal Open Market Committee (“FOMC”) announced three rate decreases for the target federal funds rate, which is the range of interest rates at which depository institutions lend reserve balances to other depository institutions overnight, which decreased from 2.25% to 1.50%. During March 2020, the FOMC took unprecedented measures to mitigated the potential disruption in the economy due to the COVID-19 pandemic and keep credit markets functioning properly by announced two additional rate decreases in the target federal funds rate of 0.50% and 1.00%, respectively, resulting in a target federal funds rate of 0.00% - 0.25%. On March 9, 2020, the ten-year US Treasury yield closed at an all-time low at 0.54%, down from its close of 1.92% at December 31, 2019. Treasury yields remain at historical lows across all maturities indicating an expected prolonged low rate environment on all points of the yield curve.

 

A decrease in the general level of interest rates may, among other things, lead to an increase in prepayments on loans and increased competition for deposits. Conversely, an increase in the general level of interest rates may also, among other things, reduce the demand for loans and the Bank’s ability to originate loans or increase the rate of default on existing loans. Accordingly, changes in the general level of market interest rates may affect net yield on interest-earning assets, loan origination volume, loan portfolios, and funding costs which impact the Bank’s overall results.

 

Although the Bank’s asset-liability management strategy is designed to control its risk from changes in the general level of market interest rates, market interest rates will be affected by many factors outside of its control, including inflation, recession, changes in unemployment, other economic conditions, money supply and international disorder and instability in domestic and foreign financial markets. It is possible that significant or unexpected changes in interest rates may take place in the future, and the Bank cannot always accurately predict the nature or magnitude of such changes or how such changes may affect its business.

 

The COVID-19 pandemic and resulting adverse economic conditions have already adversely impacted the Bank’s business and results, and could have a more material adverse impact on our business, financial condition and results of operations.

 

The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets. The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Almost all states, including Virginia, where the Bank is headquartered, and North Carolina, in which the Bank has significant operations, have issued “stay-at-home orders” and have declared states of emergency.

 

 16 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to the Bank’s business and could cause material disruptions to our business and operations in the future. Impacts to the Bank’s business have included decreased operating effectiveness due to additional health and safety precautions implemented at the Bank’s branches and the transition of 20% of the Bank’s workforce to home locations, decreases in customer traffic in the Bank’s branches and increases in requests for forbearance and loan modifications. Further, loan payment deferment programs implemented by the Bank or under government stimulus programs, like the PPP, may mask credit deterioration in our loan portfolio by making less applicable standard measures of developing financial weakness in a client or portfolio, such as past due monitoring and non-accrual assessments. To the extent that commercial and social restrictions remain in place or increase, the Bank’s expenses, delinquencies, charge-offs, foreclosures and credit losses could materially increase, and the Bank could experience reductions in interest and fee income. In addition, the Bank anticipates that potential declines in credit quality could significantly affect the adequacy of its allowance for loan losses, which the Bank expects could lead to increases in the provision for loan losses and related declines in the Bank’s net income.

 

Unfavorable economic conditions and increasing unemployment figures may also make it more difficult for the Bank to maintain deposit levels and loan origination volume and to obtain additional financing. Furthermore, such conditions have and may continue to cause the value of the Bank’s investment portfolio and of collateral associated with the Bank’s existing loans to decline. In addition, in March 2020, the FRB lowered the target range for the federal funds rate to a range from 0 to 0.25 percent in part as a result of the pandemic. A prolonged period of very low interest rates could reduce the Bank’s net interest income and have a material adverse impact on our cash flows and the market value of our investments or the manner in which we redeploy proceeds from maturing investments.

 

While the Bank has taken and is continuing to take precautions to protect the safety and well-being of its employees and customers, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can the Bank predict the level of disruption which will occur to its employees’ ability to provide customer support and service. The continued or renewed spread of COVID-19 could negatively impact the availability of key personnel necessary to conduct the Bank’s business, the business and operations of the Bank’s third-party service providers who perform critical services for the Bank’s business, or the businesses of many of the Bank’s customers and borrowers. If COVID-19 is not successfully contained, the Bank could experience a material adverse effect on its business, financial condition, results of operations and cash flow.

 

Among the factors outside the Bank’s control that are likely to affect the impact the COVID-19 pandemic will ultimately have on the Bank’s business are, without limitation:

 

·the pandemic’s course and severity;

 

·the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, the residential housing market, consumer spending and real estate and investment securities market values;

 

·political, legal and regulatory actions and policies in response to the pandemic, including the effects of restrictions on commerce and banking, such as current temporary or required continuing moratoria and other suspensions of collections, foreclosures, and related obligations;

 

·the timing, magnitude and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity;

 

 17 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

·effects on the Bank’s liquidity position due to changes in customers’ deposit and loan activity in response to the pandemic and its economic effects;

 

·the timing and availability of direct and indirect governmental support for various financial assets, including mortgage loans;

 

·the long-term effect of the economic downturn on the Bank’s intangible assets such as our deferred tax asset and goodwill;

 

·potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties;

 

·the ability of the Bank’s employees to work effectively during the course of the pandemic;

 

·the ability of the Bank’s third-party vendors to maintain a high-quality and effective level of service;

 

·the possibility of increased fraud, cybercrime and similar incidents, due to vulnerabilities posed by the significant increase in Bank employees and customers handling their banking interactions remotely from home, the quick roll-out of various government-sponsored lending programs, like the PPP, or otherwise;

 

·required changes to the Bank’s internal controls over financial reporting to reflect a rapidly changing work environment;

 

·potential longer-term shifts toward mobile banking, telecommuting and telecommerce; and

 

·geographic variation in the severity and duration of the COVID-19 pandemic, particularly in Virginia and North Carolina, where the Bank operates physically.

 

The ongoing COVID-19 pandemic has resulted in severe volatility in the financial markets and meaningfully lower stock prices for many companies, including the Bank’s common stock. Depending on the extent and duration of the COVID-19 pandemic, the price of the Bank’s common stock may continue to experience volatility and declines.

 

The Bank is continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on the Bank. However, if the COVID-19 pandemic continues to spread or otherwise result in a continuation or worsening of the current economic and commercial environments, the Bank’s business, financial condition, results of operations and cash flows could be materially adversely affected.

 

The Bank is subject to extensive government regulation and supervision.

 

Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, other sanctions by regulatory agencies, civil money penalties and/or reputational damage. In this regard, government authorities, including the bank regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures. See “Supervision and Regulation” included in Item 1. Business of this Report for a more detailed description of the certain regulatory requirements applicable to the Bank.

 

 18 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

The Bank’s profitability depends significantly on local economic conditions.

 

The Bank’s success depends primarily on the general economic conditions of the geographic markets in which it operates, primarily in Virginia and North Carolina. The local economic conditions in the areas where it operates have a significant impact on its commercial, real estate and construction loans, the ability of its borrowers to repay their loans and the value of the collateral securing these loans and on customer demand for loans, deposits and other bank products. A significant decline in general economic conditions, including a decline caused by the COVID-19 pandemic, inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic calamities, unemployment or other factors, all of which are beyond the Bank’s control, could impact these local economic conditions and negatively affect the Bank’s financial results.

 

The Basel III Final Rules require higher levels of capital and liquid assets, which could adversely affect the Bank’s net income and return on equity.

 

The Basel III Final Rules represent the most comprehensive overhaul of the U.S. banking capital framework in over two decades. This new capital framework and related changes to the standardized calculations of risk-weighted assets are complex and create additional compliance burdens, especially for community banks. The Basel III Final Rules require bank holding companies and their subsidiaries, such as the Bank, to maintain significantly more capital as a result of higher required capital levels and more demanding regulatory capital risk weightings and calculations. The stricter capital requirements were fully implemented on January 1, 2019. See “Supervision and Regulation” included in Item 1. Business of this Report for a more detailed description of the Basel III Final Rules applicable to the Bank.

 

As a result of the Basel III Final Rules, many community banks could be forced to limit banking operations, activities and growth of loan portfolios, in order to focus on retention of earnings to improve capital levels. The Bank believes that it maintains sufficient levels of Tier 1 and Common Equity Tier 1 capital to comply with the Basel III Final Rules. However, the Bank can offer no assurances with regard to the ultimate effect of the Basel III Final Rules, and satisfying increased capital requirements imposed by the Basel III Final Rules may require the Bank to limit its banking operations, raise additional capital, retain net income or reduce dividends to improve regulatory capital levels, which could negatively affect our business, financial condition and results of operations. In addition, the Bank could be subject to regulatory actions if it were unable to comply with such requirements.

 

 19 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

The Bank faces strong competition from financial services companies and other companies that offer banking services which could negatively affect its business.

 

The Bank conducts its banking operations primarily in Virginia and North Carolina, including Fredericksburg, Charlottesville, Lynchburg, Roanoke, Christiansburg, Martinsville, Danville, Greensboro, Fayetteville, and Mooresville. Increased competition in these markets may result in reduced loans and deposits. Ultimately, the Bank may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that the Bank offers in its service area. These competitors include national banks, regional banks and other community banks. The Bank also faces competition from many other types of financial institutions, including without limitation, savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, The Bank’s competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and ATMs, conduct extensive promotional and advertising campaigns and offer a wider range of products, services and technologies.

 

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits, and range and quality of products and services provided, including new technology-driven products and services. Technological innovation continues to contribute to greater competition in domestic and international financial services markets as technological advances enable more companies to provide financial services. The Bank also faces competition from out-of-state financial intermediaries that have opened low-end production offices or that solicit deposits in its market areas. If the Bank is unable to attract and retain banking customers, it may be unable to continue to grow its loan and deposit portfolios or may be required to increase the rates it pays on deposits or lower the rates it offers on loans and its results of operations and financial condition may otherwise be adversely affected.

 

A large percentage of the Bank’s loans are secured by real estate, and an adverse change in the real estate market may result in losses and adversely affect Carter Bank & Trust’s profitability.

 

Approximately 75% of the Bank’s loan portfolio as of December 31, 2019, was comprised of loans secured by real estate. An adverse change in the economy affecting values of real estate generally or in the market areas served by the Bank specifically could impair the value of the Bank’s collateral and its ability to sell the collateral upon foreclosure. In the event of a default with respect to any of these loans, the amounts the Bank receives upon sale of the collateral may be insufficient to recover outstanding principal and interest on the loan. As a result, the Bank’s profitability and financial condition could be negatively impacted by an adverse change in the real estate market.

 

 20 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

The Bank relies on independent appraisals to determine the value of the real estate which secures a significant portion of the Bank’s loans, and the values indicated by such appraisals may not be realizable if foreclose on such loans is forced.

 

A significant portion of the Bank’s loan portfolio consists of loans secured by real estate. We rely on independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment that adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of the loans may be more or less valuable than anticipated at the time the loans were made. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, the Bank may not be able to recover the outstanding balance of the loan.

 

The Bank’s level of credit risk is increased due to the level of commercial real estate loans in its portfolio.

 

Approximately 48% of the Bank’s loan portfolio as of December 31, 2019, was comprised of loans secured by commercial purpose real estate, including loans related to hotels, strip malls and apartments. These loans generally carry larger loan balances and involve a greater degree of financial and credit risk than loans secured by residential real estate. Repayment of these loans is often dependent on the success of the borrower’s underlying business and the borrower’s ability to generate a positive cash flow sufficient to service its debts. The increased financial and credit risk associated with these loans is a result of several factors, including the concentration of principal in a limited number of loans and to borrowers in similar lines of business, the size of the loan balances, general economic conditions affecting values of real estate, and the existence of a market for the subject collateral. The ongoing adverse economic effects of the COVID-19 pandemic will likely exacerbate the financial and credit risk associated with these loans.

 

The Bank’s exposure to hospitality at December 31, 2019 equated to approximately $499.4 million, or 17.3% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit with other financial institutions and adversely affect their ability to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

Allowance for loan losses may be insufficient.

 

All borrowers carry the potential to default and our remedies to recover may not fully satisfy money previously loaned. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is adequate to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan losses reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic conditions and unidentified losses in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different than those of management. An increase in the allowance for loan losses results in a decrease in net income or losses, and possibly risk-based capital, and may have a material adverse effect on our financial condition and results of operations.

 

 21 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

The adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, referred to as CECL, will result in a significant change in how the Bank recognizes credit losses. If the assumptions or estimates used in adopting the new standard are incorrect or needs to change, there may be a material adverse impact on the results of operations and financial condition.

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the 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 Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

CECL replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The measurement of expected credit losses is to be based on historical loss experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the incurred loss mode required under current GAAP, which delays recognition until it is probable a loss has been incurred. Upon origination of a loan, the estimate of expected credit losses, and any subsequent changes to such estimate, will be recorded through provision for loan losses in our Consolidated Statements of Income. The CECL model may create more volatility in the level of our allowance for loan losses.

 

The CECL model permits the use of judgment in determining the approach most appropriate for the Bank, based on facts and circumstances. Changes in economic conditions affecting borrowers, new information on our loans, and other factors, both within and outside of our control, may require an increase to the allowance for loan losses. We may underestimate our expected losses and fail to maintain an allowance for loan losses sufficient to account for these losses. We will continue to periodically review and update our CECL methodology, models and the underlying assumptions, estimates and assessments we use to establish our allowance for loan losses under the CECL standard to reflect our view of current conditions and reasonable and supportable forecasts. We will implement further enhancements or changes to our methodology, models and the underlying assumptions, estimates and assessments, as needed. If the assumptions or estimates we use in adopting the new standard are incorrect or we need to change our underlying assumptions and estimates, there may be a material adverse impact on our results of operation and financial condition. For further information on our anticipated adoption of the CECL standard, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.

 

 22 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

The Bank is dependent on its management team, and the loss of its senior executive officers or other key employees could impair its relationship with its customers and adversely affect its business and financial results.

 

We believe that our growth and future success will depend in large part on the skills of our executive officers. We also depend upon the experience of the senior officers and other key personnel and their relationship with the communities they serve. The loss of the services of one or more of these officers or key personnel could have an adverse impact on the business of the Bank because of their skills, knowledge of the market, years of industry experience and the difficulty promptly finding qualified replacement personnel.

 

A failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt the Bank’s businesses, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.

 

The Bank’s operational and security systems, infrastructure, including our computer systems, data management, and internal processes, as well as those of third parties, are integral to our business. We rely on our employees and third parties in our day-to-day and ongoing operations, who may, as a result of human error, misconduct or malfeasance, or failure or breach of third party systems or infrastructure, expose us to risk. We have taken measures to implement backup systems and other safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact. In addition, our ability to implement backup systems and other safeguards with respect to third party systems is more limited than with our own systems.

 

The Bank handles a substantial volume of customer and other financial transactions every day. Our financial, accounting, data processing, check processing, electronic funds transfer, loan processing, online and mobile banking, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. This could adversely affect our ability to process these transactions or provide these services. There could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale political or social matters, including terrorist acts, and cyber-attacks. We continuously update these systems to support our operations and growth. This updating entails significant costs and creates risk associated with implementing new systems and integrating them with existing ones. Operational risk exposures could adversely impact our results of operations, liquidity and financial condition, and cause reputational harm.

 

A cyber-attack, information or security breach, or a technology failure of ours or of a third party could adversely affect the Bank’s ability to conduct business or manage exposure to risk, resulting in the disclosure or misuse of confidential or proprietary information, increase costs to maintain and update our operational systems, security systems, and infrastructure, and adversely impact results of operations, liquidity and financial condition, as well as cause reputation harm.

 

The Bank’s business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with whom we interact. Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. Our operations rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. We rely on digital technologies, computer, database and email systems, software, and networks to conduct our operations. In addition, to access our network, products and services, our customers and third parties may use personal mobile devices or computing devices that are outside of our network environment.

 

 23 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

Financial services institutions have been subject to, and are likely to continue to be the target of, cyber-attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, its employees or customers or of third parties, or otherwise materially disrupt network access or business operations. For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers. We have not experienced cyber security incidents in the past, but there is no assurance that we will not experience an attack in the future. Technology failures, cyber-attacks or other information or security breaches can cause material losses or other material consequences.

 

In addition to external threats, insider threats also represent a risk to us. Insiders, having legitimate access to our systems and the information contained in them, have the opportunity to make inappropriate use of the systems and information. We have policies, procedures and controls in place designed to prevent or limit this risk, but we cannot guarantee that policies, procedures and controls fully mitigate this risk.

 

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Any of these matters could result in our loss of customers and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our confidential information and /or that of our customers, or damage to computers or systems of our customers and/or third parties, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs. In addition, any of the matters described above could adversely impact our results of operations and financial condition.

 

The Bank relies on third-party providers and other suppliers for a number of services that are important to our business. An interruption or cessation of an important service by any third-party could have a material adverse effect on our business.

 

The Bank is dependent for the majority of our technology, including our core operating system, on third party providers. If these companies were to discontinue providing services to us, we may experience significant disruption to our business. In addition, each of these third parties faces the risk of cyber-attack, information breach or loss, or technology failure. If any of our third party service providers experience such difficulties, or if there is any other disruption in our relationships with them, we may be required to find alternative sources of such services. We are dependent on these third party providers securing their information systems, over which we have no control, and a breach of their information systems could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of customer business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability. Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of operations.

 

 24 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could have a material adverse effect on the Bank’s results of operation and financial condition.

 

Effective internal controls over financial reporting and disclosure controls and procedures are necessary for the Bank to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. The Bank is required to establish and maintain an adequate internal control structure over financial reporting pursuant to FDIC regulations. If the Bank cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of the Bank’s ongoing monitoring of internal control, it may discover material weaknesses or significant deficiencies in its internal control that require remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

As disclosed in Part II, Item 9A, a material weakness was identified as of December 31, 2019, in our controls over the completeness and accuracy of impaired loans, including calculations and supporting information. A material weakness related to ineffective control of the valuation and existence of complex collateral associated with two collateral-dependent impaired loans. The Bank relied on stale appraisal information in order to support the underlying assumptions and methodologies to determine fair value and existence of the complex collateral. The appraisals were incomplete and did not adequately support the valuation and existence of the complex collateral which was identified and included in Management’s Report on Internal Control over Financial Reporting.

 

Management is committed to continuing efforts to improve the design and operation of our internal controls, including taking all necessary steps to remediate the material weakness identified above. We are addressing the material weakness by defining expectations for validating assumptions accompanying appraisals and plan to test in 2020.

 

The Bank’s inability to maintain the operating effectiveness of the controls described above could result in a material misstatement to the Bank’s financial statements or other disclosures, which could have an adverse effect on its business, financial condition or results of operations. In addition, any failure to maintain effective controls or to timely effect any necessary improvement of the Bank’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm the Bank’s reputation or cause investors to lose confidence in its reported financial information, all of which could have a material adverse effect on its results of operation and financial condition.

 

The market price of the Bank’s common stock may fluctuate significantly in response to a number of factors.

 

The Bank’s operating results may fluctuate due to a variety of factors, many of which are outside of our control, including the changing U.S. economic environment and changes in the commercial and residential real estate market, any of which may cause the Bank’s stock price to fluctuate. If the Bank’s operating results fall below the expectation of investors or securities analysts, the price of the Bank’s common stock could decline substantially.

 

 25 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

The Bank’s stock price can fluctuate significantly in response to a variety of factors including, among other things:

 

·volatility of stock market prices and volumes in general;

·changes in market valuations of similar companies;

·changes in the conditions of credit markets;

·changes in accounting policies or procedures as required by the Financial Accounting Standards Board, or other regulatory agencies;

·legislative and regulatory actions, including the impact of the Dodd-Frank Act and related regulations, that may subject the Bank to additional regulatory oversight which may result in increased compliance costs and/or require the Bank to change its business model;

·government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the FRB;

·additions or departures of key members of management;

·fluctuations in the Bank’s quarterly or annual operating results; and

·changes in analysts’ estimates of financial performance.

 

The Bank’s risk management framework may not be effective in mitigating risk and loss.

 

The Bank maintains an enterprise risk management program that is designed to identify, quantify, monitor, report and control the risks we face. These risks include, but are not limited to, interest rate, credit, liquidity, operational, reputation, legal, compliance, economic and litigation risk. Although we assess our risk management program on an ongoing basis and make identified improvements to it, the Bank can offer no assurances that this approach and risk management framework (including related controls) will effectively mitigate the risks listed above or limit losses that we may incur.

 

If our risk management program has flaws or gaps, or if our risk management controls do not function effectively, our results of operations, financial condition or business may be adversely affected.

 

The Bank’s real estate lending business can result in increased costs associated with Other Real Estate Owned (“OREO”).

 

Because the Bank originates loans secured by real estate, it may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate. The Bank uses methods for valuing collateral for impaired loans and OREO that are in compliance with ASC 310 (“Accounting Standards Codification 310”) Receivables. The methods require the use of assumptions that are subject to change based on events impacting real estate values. The amount that we may realize after a default is dependent upon factors outside of our control, including, but not limited to, general or local economic conditions, environmental cleanup liability, neighborhood values, interest rates, real estate tax rates, operating expenses of the mortgaged properties, and supply of and demand for properties. Certain expenditures associated with the ownership of income producing real estate, principally real estate taxes and maintenance costs, may adversely affect the net cash flows generated by the real estate. Therefore, the cost of operating income-producing real property may exceed the rental income earned from such property, and we may have to advance funds to protect our investment or we may be required to dispose of the real property at a loss.

 

 26 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

We rely substantially on deposits obtained from customers in our target markets to provide liquidity and support growth.

 

Our primary funding and liquidity source to support our business strategies is a stable customer deposit base. Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. If our deposit levels fall, we could lose a relatively low-cost source of funding and our interest expense would likely increase as we obtain alternative funding to replace lost deposits. If local customer deposits are not sufficient to fund our normal operations and growth, we will look to outside sources, such as Fed Funds lines with other financial institutions or additional borrowings with the Federal Home Loan Bank of Atlanta (“FHLB”). We may also seek to raise funds through the issuance of shares of our common stock, or other equity or equity-related securities, or debt securities including subordinated notes as additional sources of liquidity. If we are unable to access funding sufficient to support our business operations and growth strategies or are only able to access such funding on unattractive terms, we may not be able to implement our business strategies which may negatively affect our financial performance.

 

The Bank’s ability to meet contingency funding needs, in the event of a crisis that causes a disruption to our core deposit base, is dependent on access to wholesale markets, including funds provided by the FHLB of Atlanta.

 

The Bank owns stock in the FHLB of Atlanta, in order to qualify for membership in the FHLB system, which enables us to borrow on our line of credit with the FHLB that is secured by a blanket lien on select commercial loans, residential mortgages and investment securities available-for-sale and is estimated to be equal to 25% of the Bank’s assets approximating $1.0 billion, with available borrowing capacity subject to the amount of eligible collateral pledged at any given time. Changes or disruptions to the FHLB or the FHLB system in general may materially impact our ability to meet short and long-term liquidity needs or meet growth plans. Additionally, we cannot be assured that the FHLB will be able to provide funding to us when needed, nor can we be certain that the FHLB will provide funds specifically to us, should our financial condition and/or our regulators prevent access to our line of credit. The inability to access this source of funds could have a materially adverse effect on our ability to meet our customer’s needs. Our financial flexibility could be severely constrained if we were unable to maintain our access to funding or if adequate financing is not available at acceptable interest rates.

 

The Bank’s earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

 

The policies of the FRB affect the Bank significantly. The FRB regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine, to a significant extent, our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. FRB policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the FRB could reduce the demand for a borrower's products and services. This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on our financial condition and results of operations.

 

 27 

 

 

CARTER BANK & TRUST

ITEM 1A. RISK FACTORS (continued)

 

Our Bank may be adversely affected by a world-wide pandemic.

 

Certain of the Bank’s borrowers may be affected by the recent outbreak of COVID-19 (“coronavirus”), which originated in Wuhan, Hubei Province, China but has been reported in other countries. These effects could include disruptions or restrictions in our borrowers’ supply chains, closures of their facilities or decreases in demand for their products and services. If our borrowers are adversely affected, or if the virus leads to a worldwide health crisis that impacts economic growth, our financial condition and results of operations could be adversely affected, despite having no direct operations in China.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

Carter Bank & Trust’s principal executive office is located at 1300 Kings Mountain Road in Martinsville, Virginia. There are also two other corporate administrative locations that house its operations center and various other corporate functions. We offer our community banking services through 101 combined depository locations in Virginia and North Carolina at December 31, 2019. Seventy-six offices are located in Virginia and twenty-five are located in North Carolina. Four of these depository banking locations are held under lease contracts. In addition, the Bank leases a loan production office and a commercial banking office. Management believes the terms of the various leases are consistent with market standards and were arrived at through arm’s length bargaining. The leases are described in Note 8 of the Notes to Consolidated Financial Statements.

 

ITEM 3. LEGAL PROCEEDINGS

 

As of December 31, 2019, no material legal proceedings were pending or threatened against Carter Bank & Trust.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 28 

 

 

CARTER BANK & TRUST

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market for Common Stock and Dividends

 

Carter Bank & Trust’s common stock began trading on NASDAQ effective March 25, 2019, under the ticker symbol “CARE.” Prior to March 25, 2019, our common stock traded on the Over the Counter (“OTCQX”) Best Market under the ticker symbol “CARE.” While trading on the OTCQX Best Market, Raymond James and Associates and Boenning and Scattergood quoted a market in Carter Bank & Trust under the symbol “CARE” on the OTCQX Best Market. Those over-the-counter market quotations reflected inter-dealer prices, without retail mark-up, mark-down or commission and did not necessarily reflect actual transactions.

 

The Bank’s common stock last traded at $8.15 on June 4, 2020 the last completed trading day before the filing of this Report.

 

As of June 2, 2020, there were 26,384,801 shares of common stock of Carter Bank & Trust outstanding, held by 2,483 shareholders of record.

 

Dividends

 

On October 14, 2016, the Board of Directors (the "Board") of Carter Bank & Trust (the "Bank") determined that it was prudent not to declare a quarterly cash dividend on the Bank's common stock beginning in the fourth quarter of 2016. Given the Bank's history of paying a quarterly cash dividend on its common stock, this decision was an extremely difficult one and one that the Board did not take lightly. However, the Board believes this decision is necessary and appropriate as the Bank commits additional resources to assist with regulatory compliance and makes significant investments in new technology and human resources. While recognizing the importance of dividends to the Bank's shareholders, the Board determined that preservation of capital is of paramount importance at this time.

 

The Board of the Bank announced on February 11, 2020 the declaration of a special one-time cash dividend of $0.14 per share. This dividend was paid on March 3, 2020 to shareholders of record as of February 18, 2020. The Board emphasized that this was a one-time dividend and there are no immediate plans to reinstate a quarterly dividend. The amount and timing of future dividends, if any, remain subject to the discretion of the Bank’s Board and will depend upon a number of factors, including future earnings, financial condition, liquidity and capital requirements of the Bank, applicable governmental regulations and other factors deemed relevant by the Board. The Board believed that it was appropriate to return some of our excess capital to our shareholders since our recent strategy of capital retention has resulted in capital levels that are well above the well-capitalized levels of federal banking regulatory agencies.

 

 29 

 

 

CARTER BANK & TRUST

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (continued)

 

Five-Year Cumulative Total Return

 

The following chart compares the cumulative total shareholder return on our common stock with the cumulative total return of the NASDAQ Composite Index and SNL Bank and Thrift Index, which includes the stocks of banks, thrifts and bank and financial holding companies listed on all major exchanges (NYSE, AMEX, NASDAQ) S&P Global Market Intelligence’s coverage universe.

 

 

 

   Period Ending 
Index  12/31/14   12/31/15   12/31/16   12/31/17   12/31/18   12/31/19 
Carter Bank & Trust   100.00    109.72    110.53    145.96    124.75    197.27 
NASDAQ Composite Index   100.00    106.96    116.45    150.96    146.67    200.49 
SNL Bank and Thrift Index   100.00    102.02    128.80    151.45    125.81    170.04 

 

Repurchases of Shares of Common Stock

 

Carter Bank & Trust did not repurchase any shares of its common stock during 2019.

 

 30 

 

 

CARTER BANK & TRUST

ITEM 6. SELECTED FINANCIAL DATA

 

The tables below summarize selected consolidated financial data as of the dates or for the periods presented and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 and the Consolidated Financial Statements and Supplementary Data in Part II, Item 8 of this Report:

 

(Dollars in Thousands except per Share Data)  For the Year Ended December 31, 
Five-Year Selected Financial Data  2019   2018   2017   2016   2015 
Balance Sheet Summary                         
(At End of Period)                         
Total Assets  $4,006,108   $4,039,599   $4,112,292   $4,505,529   $4,893,968 
Securities Available-for-Sale, at Fair Value   742,617    782,758    947,201    -    - 
Securities Held-to-Maturity, at Cost   -    -    -    879,694    1,422,101 
Loans Held-for-Sale   19,714    2,559    517    -    - 
Portfolio Loans   2,884,766    2,703,792    2,684,445    2,731,783    2,638,852 
Allowance for Loan Losses   (38,762)   (39,199)   (35,318)   (34,500)   (26,990)
Goodwill and Other Intangibles   62,192    62,192    63,350    63,261    63,294 
Noninterest-Bearing Deposits   554,875    547,773    530,242    534,923    534,005 
Interest-Bearing Deposits   2,949,370    3,043,408    3,139,373    3,528,916    3,920,556 
Total Deposits   3,504,245    3,591,181    3,669,615    4,063,839    4,454,561 
Other Liabilities   28,752    12,204    10,551    7,040    12,858 
Total Liabilities   3,532,997    3,603,385    3,680,166    4,070,879    4,467,419 
Retained Earnings   304,158    277,835    265,930    266,214    258,113 
Accumulated Other Comprehensive Income (Loss)   127    (10,066)   (2,240)   -    - 
Total Shareholders' Equity   473,111    436,214    432,126    434,650    426,549 
                          
Summary of Earnings                         
Interest Income  $159,120   $152,019   $144,084   $147,648   $152,479 
Interest Expense   46,773    38,114    37,111    46,382    47,797 
Provision for Loan Losses   3,404    16,870    43,197    17,717    3,300 
Net Interest Income after Provision for Loan Losses   108,943    97,035    63,776    83,549    101,382 
Noninterest Income   16,870    16,986    12,591    12,494    14,685 
Noninterest Expense   98,029    99,713    94,579    78,419    66,668 
Net Income (Loss) before Taxes   27,784    14,308    (18,212)   17,624    49,399 
Income Tax Provision (Benefit)   1,209    2,403    (17,531)   1,645    10,241 
Net Income (Loss)  $26,575   $11,905   $(681)  $15,979   $39,158 
                          
Earnings (Loss) per Share                         
Basic and Diluted  $1.01   $0.45   $(0.03)  $0.61   $1.49 
Cash Dividends Declared per Share  $-   $-   $-   $0.30   $0.40 
                          
Selected Ratios                         
Return on average assets   0.65%   0.29%   -0.02%   0.33%   0.82%
Return on average equity   5.76%   2.75%   -0.15%   3.63%   9.51%
Equity to Assets   11.81%   10.80%   10.51%   9.65%   8.72%
Total Risk-based capital   14.71%   15.11%   14.05%   13.25%   11.94%
Leverage Ratio   10.33%   9.61%   9.25%   8.03%   7.54%
Dividend Payout   0.00%   0.00%   0.00%   49.30%   26.85%

 

 31 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This section reviews our financial condition for each of the past two years and results of operations for each of the past three years. Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. Some tables may include additional time periods to illustrate trends within our Consolidated Financial Statements. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.

 

Important Note Regarding Forward-Looking Statements

 

This Annual Report on Form 10-K contains or incorporates statements that we believe are “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; loan quality; levels of net charge-offs; changes in appraised values of collateral securing loans; the Bank’s liquidity and capital positions; interest rates; 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 Bank's borrowers to satisfy their obligations to the Bank, on the value of collateral securing loans, on the demand for the Bank's loans or its other products and services, on incidents of cyberattack and fraud, on the Bank’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Bank's business operations and on financial markets and economic growth; rates of customer loan payoffs; cyber-security concerns; rapid technological developments and changes; the impact of the information technology systems upgrade; efforts to restructure the balance sheet; 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; our ability to retain existing deposits and attract new deposits; 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; 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; and the risk factors discussed in Part I, Item 1A, Risk Factors of this Report or contained in any of our subsequent 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.

 

 32 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Explanation of Use of Non-GAAP Financial Measures

 

In addition to the results of operations presented in accordance with generally accepted accounting principles (“GAAP”) in the United States, management uses, and this annual report references, net interest income on a fully taxable equivalent, or (“FTE”), basis, which is a non-GAAP financial measure. Management believes this measure provides information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. Although management believes that this non-GAAP financial measure enhances an investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with similar non-GAAP measures which may be presented by other companies.

 

The Bank believes the presentation of net interest income on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Net interest income per the Consolidated Statements of Income (Loss) is reconciled to net interest income adjusted to an FTE basis in the Net Interest Income section of the "Results of Operations – Year ended December 31, 2019."

 

COVID-19 Subsequent Event and Recent Developments

 

In December 2019, in Wuhan, China, a novel strain of coronavirus causing a previously unknown disease (“COVID-19”) was reported in Wuhan, China. The World Health Organization (the “WHO”) declared the outbreak to constitute a Public Health Emergency of International Concern on January 30, 2020. Over the course of the first quarter of 2020, COVID-19 developed into a worldwide outbreak and, on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 13, 2020, President Trump issued a proclamation declaring a national state of emergency in response to COVID-19. During the final two weeks of March 2020, the governors of multiple U.S. states, including Virginia, where the Bank has its principal place of business, and North Carolina, where the Bank has significant operations, issued stay-at-home orders that directed the closing of non-essential businesses and restricted public gatherings. The COVID-19 pandemic continues to grow in the Bank’s areas of operation, the United States and across the globe. The pandemic has severely disrupted supply chains and adversely affected production, demand, sales and employee productivity across a range of industries and dramatically increased unemployment in the Bank’s areas of operation and nationally. These events have affected the Bank’s operations in the first quarter of 2020 and are expected to impact the Bank’s financial results throughout fiscal year 2020. The extent of the impact of the COVID-19 pandemic on the Bank’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the impact on the Bank’s customers, employees and vendors and the nature and effect of past and future federal and state governmental and private sector responses to the pandemic, all of which are uncertain and cannot be predicted.

 

 33 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Future developments with respect to COVID-19 are highly uncertain and cannot be predicted and new information may emerge concerning the severity of the outbreak and the actions to contain the outbreak or treat its impact, among others. Other national health concerns, including the outbreak of other contagious diseases or pandemics may adversely affect us in the future.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act is an emergency stimulus measure providing assistance and relief in a variety of ways to certain individuals, businesses, and industries. The CARES Act established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the paycheck protection program (“PPP”). In addition to the general impact of COVID-19, certain provisions of the CARES act as well as other legislative and regulatory relief efforts are expected to have a material impact on our operation. It is impossible to determine the extent of these impacts at the date of this filing; therefore, we are disclosing potentially material items of which we are aware.

 

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of the Treasury, the FDIC, the FRB and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Bank.

 

Set forth below is a brief overview of certain provisions of the CARES Act and certain other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Such statutes, regulations, and policies are subject to ongoing review by U.S. Congress and federal regulatory authorities. Future amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Bank could have a material effect on the Bank. Many of the requirements called for in the CARES Act and related regulations and supervisory guidance will be implemented over time and most will be subject to implementing regulations over the course of the coming weeks. The Bank will continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

 

FRB Reserve Programs and Initiatives

 

The CARES Act encourages the FRB, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities, including (i) a Midsize Business/Nonprofit Organization Program to provide financing to banks and other lenders to make direct loans to eligible businesses and nonprofit organizations with between 500 and 10,000 employees and (ii) the Municipal Liquidity Facility, provide liquidity to the financial system that supports states and municipalities. On April 9, 2020, the FRB announced and solicited comments regarding the Main Street Lending Program, which would implement certain of these recommendations. Further action regarding the Main Street Lending Program is expected soon.

 

 34 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Separately and in response to COVID-19, the FRB’s Federal Open Market Committee (the “FOMC”) has set the federal funds target rate – i.e., the interest rate at which depository institutions such as the Bank lend reserve balances to other depository institutions overnight on an uncollateralized basis – to an historic low. On March 16, 2020, the FOMC set the federal funds target rate at 0-0.25%. Consistent with FRB policy, the FRB has committed to the use of overnight reverse repurchase agreements as a supplementary policy tool, as necessary, to help control the federal funds rate and keep it in the target range set by the FOMC.

 

In addition, the FRB has expanded the size and scope of three existing programs to mitigate the economic impact of the COVID-19 outbreak: (i) the Primary Market Corporate Credit Facility; (ii) the Secondary Market Corporate Credit Facility; and (iii) the Term Asset-Backed Securities Loan Facility. The FRB has also established two new program facilities – the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility – to broaden its support for the flow of credit to households and businesses during COVID-19.

 

Temporary Regulatory Capital Relief related to Impact of CECL

 

Concurrent with the enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement CECL before the end of 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.

 

Temporary Bank Secrecy Act (“BSA”) Reporting Relief

 

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has provided targeted relief from certain BSA reporting requirements and have provided updated guidance to financial institutions on complying with such requirements during COVID-19. Specifically, FinCEN has (i) granted targeted relief to financial institutions participating in the PPP, stating that PPP loans to existing customers will not require re-verification under applicable BSA requirements, unless re-verification is otherwise required under the financial institution’s risk-based BSA compliance program, (ii) acknowledged that there may be “reasonable delays in compliance” due to COVID-19, and (iii) temporarily suspended implementation if its February 2020 ruling, which would have entailed significant changes to currency transaction reporting filing requirements for transactions involving sole proprietorships and entities operating under a “doing business as” or other assumed name.

 

Bank’s Response to COVID-19

 

Lending Operations

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the 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 Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

 35 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank quickly responded to the pandemic and the CARES Act, offering the option of payment deferrals, participation in the PPP, fee waivers and other relief actions to customers. Banks have been identified as essential services and have remained open during the order. The Bank continues to serve its customers through modified hours in both the drive-ins and branch services via appointment. Every opportunity is being taken to protect both customers and employees through enhanced cleaning services, social distancing and personal protective equipment requirements for both. Approximately 20% of the Bank’s workforce is working remotely.

 

Under the CARES Act, PPP is an amendment to the Small Business Administration (“SBA”) 7-A loan program. The Bank recently became an approved SBA 7-A lender. PPP is a guaranteed, unsecured loan program created to fund certain payroll and operating costs of eligible businesses, organizations and self-employed persons during COVID-19.  Initially, $349 billion were approved and designated for PPP in order for the SBA to guarantee 100% of collective loans made under the program to eligible small businesses, nonprofits, veteran’s organizations, and tribal businesses. The Bank participated in the initial round of funding though a referral relationship with a third-party, non-bank lender. When an additional $310 billion in funds were approved and designated for PPP, the Bank opted to stand up an internal, automated loan process utilizing its core system provider. As of May 31, 2020 we had processed 538 PPP loans totaling $44 million.

 

The FRB implemented a liquidity facility available to financial institutions participating in the PPP.  We believe we have sufficient liquidity sources to fund all pending PPP loans and to continue to provide this important service to local businesses.  These loans are fully guaranteed by the SBA and do not represent a credit risk.

 

The Bank is providing deferrals to customers under Section 4013 of the CARES Act. These deferrals typically provide deferrals of both principal and interest for up to 180 days. At the end of the deferral period, for loan terms, 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 May 31, 2020, we have had 651 commercial and consumer customers opt for deferrals with an aggregate principal balance of $1.2 billion with $30.0 million in deferred principal and interest payments. Approximately $465.9 million of these modifications were in the hospitality industry comprised of deferrals on 84 loans. The average deferment period for these customers has been 4.5 months.

 

   Number   Loan   Percent of   Aggregate Deferred Payments 
(Dollars in Thousands)  of Loans   Principal   Outstanding   Principal   Interest 
Commercial                    
Commercial Real Estate   245   $778,267    56.7%  $9,009   $13,481 
Commercial and Industrial   107    110,509    42.0%   1,577    1,166 
Obligations of State and Political Subdivisions                         
Commercial Construction   35    179,212    51.4%   762    2,199 
Total Commercial Loans   387    1,067,988    45.6%   11,348    16,846 
Consumer                         
Residential Mortgages   167    95,198    18.6%   522    1,150 
Other Consumer   97    873    1.2%   122    29 
Consumer Construction                         
Total Consumer Loans   264    96,071    16.0%   644    1,179 
Total Aggregate Deferred Payments   651   $1,164,059    39.6%  $11,992   $18,025 

 

 36 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Our interest income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

 

The Bank’s exposure to hospitality at December 31, 2019 equated to approximately $499.4 million, or 17.3% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit with other financial institutions and adversely affect their ability to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

The allowance for loan loss at March 31, 2020 includes a reserve build of $2.6 million, driven by the economic and market conditions as a result of COVID-19. The Bank 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 uncertainly 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.

 

Retail Operations

 

The Bank will continue to promote our digital banking options through our website. Customers are encouraged to utilize online and mobile banking tools, and our customer service and retail departments are fully staffed and available to assist customers remotely.

 

We have closed all branches to customer activity, except for drive-up and appointment only services. We continue to pay all employees according to their normal work schedule, even if their work has been reduced. No employees have been furloughed. Employees whose job responsibilities can be effectively carried out remotely are working from home. Employees whose critical duties require their continued presence on-site are observing social distancing and cleaning protocols.

 

Our fee income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees and account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact our fee income in future periods.

 

 37 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Capital Resources and Liquidity

 

As of March 31, 2020, all of the Bank’s capital ratios were in excess of all regulatory requirements. An extended economic recession brought about by COVID-19 could adversely impact our reported regulatory capital ratios.

 

We maintain access to multiple sources of liquidity. Funding sources accessible to the Bank include borrowing availability at the FHLB, equal to 25% of the Bank’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 $115.0 million and access to the institutional CD market through brokered CDs and QwickRate. In addition to the above resources, the Bank also has $605.4 million of unpledged available-for-sale securities as an additional source of liquidity at March 31, 2020. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

 

The Bank is monitoring and will continue to monitor the impact of the COVID-19 pandemic and has taken and will continue to take steps to mitigate the potential risks and impact on our liquidity and capital resources. Due to the economic uncertainty, we are taking a prudent approach to capital management and have established access to the FRB’s PPP Lending Facility.

 

Goodwill and Other Intangibles

 

As of March 31, 2020 goodwill and other intangible assets were not considered impaired; however, changing economic conditions that may adversely affect our performance and stock price could result in impairment, which could adversely affect earnings in future periods. As a result of our impairment analysis as of March 31, 2020, it was determined that the fair value of our goodwill exceeded its carrying value.

 

Critical Accounting Policies and Significant Accounting Estimates

 

Carter Bank & Trust’s accounting and reporting policies conform to GAAP and predominant practice in the banking industry. The preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Over time, these estimates, assumptions and judgments may prove to be inaccurate or vary from actual results and may significantly affect our reported results and financial position for the period presented or in future periods. We currently view the determination of the allowance for loan losses, fair value measurements, goodwill and income taxes to be critical because they are highly dependent on subjective or complex judgments, assumptions and estimates made by management.

 

Allowance for Loan Losses

 

We account for the credit risk associated with our lending activities through the allowance and provision for loan losses. The allowance represents management’s best estimate of probable incurred losses that have been incurred in our existing loan portfolio as of the balance sheet date. The provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of probable estimated losses.

 

 38 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Management determines and reviews with the Board of Directors the adequacy of the allowance on a quarterly basis in accordance with the methodology described below:

 

·Individual loans are selected for review in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310, “Receivables.” These are generally large balance commercial loans and commercial mortgages that are rated less than “satisfactory” based on our internal credit-rating process.

 

·We assess whether the loans identified for review in step one are “impaired,” which means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement, which generally represents loans that management has placed on nonaccrual status.

 

·For impaired loans we calculate the estimated fair value of the loans that are selected for review based on observable market prices, discounted cash flows or the value of the underlying collateral less costs to sell and record an allowance if needed. The Bank individually evaluates all impaired loans greater than $1.0 million for additional impairment. In addition, the Bank evaluates credits, which have complex loan structures, with balances less than $1.0 million for impairment. Impaired loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For collateral dependent loans, the first stage of our impairment analysis involves management’s inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal. In circumstances where the Bank feels confident in its ability to collect and analyze salient information on the subject collateral and its surrounding real estate market, an in-house valuation shall be utilized.

 

·We then select pools of homogeneous smaller balance loans, having similar risk characteristics, as well as unimpaired larger commercial loans, that have similar risk characteristics, for evaluation collectively under the provisions of FASB ASC Topic 450, “Contingencies.” These smaller balance loans generally include residential mortgages, consumer loans, installment loans and some commercial loans.

 

·FASB ASC Topic 450 loans are segmented into groups with similar characteristics and an allowance for loan losses is allocated to each segment based on recent loss history and other relevant information.

 

·We then review the results to determine the appropriate balance of the allowance for loan losses. This review includes consideration of additional factors, such as the mix of loans in the portfolio, the balance of the allowance relative to total loans and nonperforming assets, trends in the overall risk profile in the portfolio, trends in delinquencies and nonaccrual loans, and local and national economic information and industry data, including trends in the industries we believe are higher risk.

 

There are many factors affecting the allowance for loan losses; some are quantitative, while others require qualitative judgment. These factors require the use of estimates related to the amount and timing of expected future cash flows, appraised values on impaired loans, estimated losses for each loan category based on historical loss experience by category, loss emergence periods for each loan category and consideration of current economic trends and conditions, all of which may be susceptible to significant judgment and change. To the extent that actual outcomes differ from estimates, additional provisions for loan losses could be required that could adversely affect our earnings or financial position in future periods. The loan portfolio represents the largest asset category on our Consolidated Balance Sheets.

 

 39 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Fair Value Measurements

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

 

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair value:

 

Securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.

 

 40 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Impaired Loans: All loans with an outstanding balance greater than $1.0 million are evaluated for potential impairment when based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. At the time a loan is initially identified as impaired it is evaluated for potential impairment and is adjusted, if a shortfall exists, to fair value less costs to sell.

 

Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows using the loan’s existing rate if the loan is not determined to be collateral dependent.  All impaired loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

 

Fair value for collateral dependent loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 

Subsequent to the initial impairment date, existing impaired loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For collateral dependent loans, the first stage of our impairment analysis involves management’s inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal. In circumstances where the Bank feels confident in its ability to collect and analyze salient information on the subject collateral and its surrounding real estate market, an in-house valuation shall be utilized.  Factors which should be considered in an in-house valuation are timing of sale, location and neighborhood, size of the structure and land component, age of any improvements, and other attributes as warranted by the Bank.  This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and our assessment of deterioration of real estate values in the market in which the property is located. When the Bank feels it cannot collect and analyze salient information on the subject collateral or the collateral’s real estate market, a full appraisal will be utilized.

 

For non-collateral dependent loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

 

41

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Other Real Estate Owned (“OREO”): OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to revalue the assets, at minimum, once every twenty-four months based on the size of the exposure. At December 31, 2019 Carter Bank’s OREO assets were in compliance with the Bank’s OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third party real estate brokers.

 

At this time, we are unable to project the breadth that the economic impact of COVID-19 may have on the Bank’s current impaired loans or the susceptibility of the loan portfolio to future loan impairment.

 

Goodwill and Other Intangibles

 

Goodwill and other intangible assets with indefinite useful lives are tested for impairment at least annually and written down and charged to results of operations only in periods in which the recorded value is more than the estimated fair value. Intangible assets that have finite useful lives will continue to be amortized over their useful lives and are periodically evaluated for impairment.

 

As of December 31, 2019, goodwill and other intangible assets were not considered impaired; however, changing economic conditions that may adversely affect our performance and stock price could result in impairment, which could adversely affect earnings in future periods. As a result of our impairment analysis as of December 31, 2019, it was determined that the fair value of our goodwill exceeded its carrying value.

 

Income Taxes

 

We estimate income tax expense based on amounts expected to be owed to the tax jurisdictions where we conduct business. On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current estimate of the amount and components of net income, tax credits and the applicable statutory tax rates expected for the full year.

 

Deferred income tax assets and liabilities are determined using the asset and liability method and are reported in the Consolidated Balance Sheets. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management assesses all available positive and negative evidence on a quarterly basis to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. The amount of future taxable income used in management’s valuation is based upon management approved forecasts, evaluation of historical earnings levels, proven ability to raise capital to support growth or during times of economic stress and consideration of prudent and feasible potential tax strategies. If future events differ from our current forecasts, a valuation allowance may be required, which could have a material impact on our financial condition and results of operations.

 

42

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Accrued taxes payable or receivable represent the net estimated amount due to or due from taxing jurisdictions and are reported in other liabilities and other assets, respectively, in the Consolidated Balance Sheets. Management evaluates and assesses the relative risks and appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other information and maintains tax accruals consistent with its evaluation of these relative risks and merits. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to statutory, judicial and regulatory guidance. These changes, when they occur, can affect deferred taxes and accrued taxes, as well as the current period’s income tax expense and can be significant to our operating results.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Bank does not expect the adoption of ASU 2018-13 to have a material impact on our consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are not SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Bank did not early adopt ASU 2017-04 and does not expect the adoption of ASU 2017-04 to have a material impact on our consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, universally referred to as CECL. The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For periodic report filers that are not smaller reporting companies, such as the Bank, this standard (ASC 326) is effective as of January 1, 2020.

 

43

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the CECL accounting method under FASB Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326). However, the Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

The Bank’s CECL Committee, which includes members from Credit Administration, Accounting/Finance, Risk Management and Internal Audit, has oversight by the Chief Executive Officer, Chief Financial Officer, and Chief Credit Officer. We have engaged a third-party to assist us in developing our CECL model and to assist with evaluation of data and methodologies related to this standard.

 

As part of its process of adopting CECL, management implemented a third party software solution and determined appropriate loan segments, methodologies, model assumptions and qualitative components. Our CECL model includes portfolio loan segmentation based upon similar risk characteristics and contains both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables. Our implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls. Management had a third party independent consultant to review and validate our CECL model.

 

Parallel runs utilizing data from the first and fourth quarters of 2020 and 2019, respectively, incorporate elements of our operational procedures and internal controls. Our current parallel run includes the composition, characteristics and quality of our loan portfolio as well as current market economic conditions and forecasts as of the adoption date.

 

In addition, ASU 2016-13 amends the accounting for credit losses on certain debt securities. Based upon the nature and characteristics of our securities portfolio at the adoption date, management does not expect to record any allowance for credit losses on its debt securities as a result of adopting ASU 2016-13.

 

The ultimate impact of adopting ASU 2016-13, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available-for-sale securities portfolio, along with other management judgments. The transition adjustment to record the allowance for loan losses will be applied using a cumulative effect adjustment to retained earnings.

 

Executive Overview

 

Carter Bank & Trust (the “Bank”) is a state non-member Bank headquartered in Martinsville, Virginia with assets of $4.0 billion at December 31, 2019.  The Bank operates branches in Virginia and North Carolina. The Bank provides a full range of financial services with retail, commercial banking, and insurance products. Our common stock began trading on NASDAQ effective March 25, 2019, under the ticker symbol “CARE.” Prior to March 25, 2019, our common stock traded on the Over the Counter (“OTCQX”) Best Market under the ticker symbol “CARE.”

 

The Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. The Bank incurs expenses for the cost of deposits, provision for loan losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

 

44

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Our mission is that the Bank strives to be the preferred lifetime financial partner for our customers and shareholders, and the employer of choice in the communities the Bank is privileged to serve. Our strategic plan focuses on restructuring the balance sheet to provide more diversification and higher yielding assets to increase the net interest margin. Another area of focus is the transformation of the infrastructure of the Bank to provide a foundation for operational efficiency and provide new products and services for our customers that will ultimately increase noninterest income.

 

Our focus continues to be on loan and deposit growth with a shift in the composition of deposits to more low cost core deposits with less dependence on higher cost certificates of deposits. Additionally, the Bank is implementing strategies to increase fee income while closely monitoring our operating expenses. The Bank is focused on executing our strategy to successfully build our brand and grow our business in our markets. The Bank’s net interest margin has improved due to our strategy to deploy our excess cash into higher yielding and diversified investment securities and loan growths, as well as, the runoff of higher cost deposits.

 

Earnings Summary

 

Net interest income decreased $1.6 million to $112.3 million in 2019 from $113.9 million in 2018. The decrease in net interest income is driven by an increase in interest income of $7.1 million, offset by an increase of $8.7 million in interest expense during 2019 as compared to 2018. The increase in interest income is primarily due to growth in average loan balances and more active balance sheet management. The increase in interest expense is due to recent money market and certificates of deposits promotions, partially offset by the intentional runoff of higher cost certificates of deposits.

 

Net interest income, on a FTE basis, decreased $2.3 million to $115.4 million in 2019 from $117.7 million in 2018. The net interest margin, on a FTE 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 Bank’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

 

The provision for loan losses decreased $13.5 million to $3.4 million in 2019 compared to $16.9 million in 2018. The decrease in provision expense in 2019 as compared to 2018 is primarily attributable to a reduction in net charge-offs in the loan portfolio. The reduction in net charge-offs was due to a $10.1 million charge-off of a legacy commercial real estate relationship in the third quarter of 2018 as a result of a new appraisal. Net charge-offs were $3.8 million in 2019 as compared to $13.0 million in 2018.

 

45

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Noninterest income decreased $1.1 million, or 6.7%, to $14.7 million, excluding net securities gains, in 2019 as compared to 2018. This decrease in 2019 was primarily due to lower rental income from OREO, $2.0 million, due to the sale of several large commercial properties during 2019 and insurance income also decreased by $0.6 million, or 34.0%. Offsetting these decreases were increases in service charges, commissions, and fees, debit card interchange fees, and BOLI income in the amounts of $0.9 million, $0.4 million, and $0.3 million, respectively, in the year over year comparison. Securities gains of $2.2 million and $1.3 million were realized during the years ended December 31, 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%, in 2019 to $98.0 million as compared to $99.7 million in 2018. Losses on sales and write-downs of OREO decreased by $3.5 million and OREO expense decreased by $1.7 million in 2019 as compared to 2018 due to fewer properties under management during 2019. Tax credit amortization decreased by $1.8 million in the year over year comparison. FDIC insurance expense decreased $1.7 million, or 57.5%, and professional and legal fees decreased by $0.8 million in 2019 as compared to 2018 Offsetting these decreases were increases in salaries and employee benefits, occupancy expense, data processing, and other expenses. Occupancy expense increased $1.5 million and data processing expense increased by $0.6 million in 2019 as compared to 2018. Other expenses increased by $2.8 million, or 38.4%, in 2019 over 2018 and are primarily comprised of increased ancillary systems, subscriptions, employee training and higher marketing expenses related to our deposit acquisition strategy. Investments continue to be made in the appropriate infrastructure to support the Bank in the future. There have not been any permanent or temporary reductions in employees as a result of COVID-19.

 

The provision for income taxes was a tax provision of $1.2 million for 2019 and pretax income of $27.8 million compared to a tax provision of $2.4 million in 2018 and pretax income of $14.3 million. The decrease in provision for income taxes was due to the utilization of a deferred tax asset benefit and higher general business credits in 2019.

 

The effective tax rate was 4% in 2019 and 17% in 2018. The Bank ordinarily generates an annual effective tax rate that is less than the federal statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects due to the aforementioned deferred tax asset utilization and higher tax credit projects during 2019.

 

46

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

RESULTS OF OPERATIONS

Year Ended December 31, 2019

 

Net Interest Income

 

Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or (“ALCO”), in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Bank believes is an acceptable level of net interest income.

 

The interest income on interest-earning assets and the net interest margin are presented on a FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the applicable federal statutory tax rate for each period (which was 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017) and the dividend-received deduction for equity securities. The Bank believes this FTE presentation provides a relevant comparison between taxable and non-taxable sources of interest income.

 

The following table reconciles net interest income per the Consolidated Statements of Income (Loss) to net interest income on a FTE basis for the periods presented:

 

   Years Ended December 31, 
(Dollars in Thousands)  2019   2018   2017 
Total Interest Income  $159,120   $152,019   $144,084 
Total Interest Expense   46,773    38,114    37,111 
Net Interest Income   112,347    113,905    106,973 
Adjustment to FTE Basis   3,046    3,816    8,505 
Net Interest Income (FTE) (non-GAAP)  $115,393   $117,721   $115,478 
Net Interest Margin   2.97%   3.00%   2.59%
Adjustment to FTE Basis   0.08    0.10    0.21 
Net Interest Income (FTE) (non-GAAP)   3.05%   3.10%   2.80%

 

Average Balance Sheet and Net Interest Income Analysis (FTE)

 

Net interest income, on a fully FTE basis, decreased $2.3 million, or 2.0%, to $115.4 million in 2019 as compared to $117.7 million in 2018. The decrease in net interest income is driven by a $6.4 million increase in interest income, offset by an $8.7 million increase in interest expense during 2019 as compared to 2018. The increase in interest income is primarily due to growth in average loan balances, but are muted by lower replacement yields due to legacy loan pay-downs during 2018. The increase in interest expense is due to recent money market and certificates of deposits promotions, partially offset by the intentional runoff of higher cost certificates of deposits. The net interest margin, on a FTE 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.

 

47

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the years ended December 31:

 

   2019   2018   2017 
(Dollars in Thousands)  Average
Balance
   Income/
Expense
   Rate   Average
Balance
   Income/
Expense
   Rate   Average
Balance
   Income/
Expense
   Rate 
ASSETS                                             
Interest-Bearing Deposits with Banks  $123,946   $2,750    2.22%  $134,406   $2,682    2.00%  $481,128   $5,184    1.08%
Tax-Free Investment Securities   63,641    2,352    3.70%   153,036    5,375    3.51%   126,287    7,530    5.96%
Taxable Investment Securities   730,500    17,826    2.44%   753,023    15,421    2.05%   806,353    14,911    1.85%
Tax-Free Loans   379,090    12,154    3.21%   419,981    12,794    3.05%   451,100    16,771    3.72%
Taxable Loans   2,489,105    126,940    5.10%   2,331,165    119,563    5.13%   2,259,438    108,193    4.79%
Federal Home Loan Bank Stock   2,352    144    6.12%   -    -    -    -    -    - 
Total Interest-Earning Assets  $3,788,634   $162,166    4.28%  $3,791,611   $155,835    4.11%  $4,124,306   $152,589    3.70%
                                              
LIABILITIES                                             
Deposits:                                             
Interest-Bearing Demand  $249,086   $2,004    0.80%  $246,592   $1,959    0.79%  $244,919   $1,587    0.65%
Money Market   134,676    1,671    1.24%   96,068    694    0.72%   141,438    788    0.56%
Savings   582,195    1,388    0.24%   663,801    2,027    0.31%   727,182    3,568    0.49%
Certificates of Deposit   2,054,077    41,593    2.02%   2,090,103    33,414    1.60%   2,199,263    31,168    1.42%
Total Interest-Bearing Deposits  $3,020,034   $46,656    1.54%  $3,096,564   $38,094    1.23%  $3,312,802   $37,111    1.12%
Borrowings:                                             
Federal Funds Purchased   -    -    -    681    20    2.94%   -    -    - 
FHLB Borrowings   2,329    38    1.63%   -    -    -    -    -    - 
Other Borrowings   1,042    79    7.58%   -    -    -    -    -    - 
Total Borrowings   3,371    117    3.47%   681    20    2.94%   -    -    - 
Total Interest-Bearing Liabilities  $3,023,405   $46,773    1.55%  $3,097,245   $38,114    1.23%  $3,312,802   $37,111    1.12%
Net Interest Income       $115,393             $117,721             $115,478      
Net Interest Margin             3.05%             3.10%             2.80%

 

Interest income, on a FTE basis, increased $6.4 million, or 4.1%, in 2019 compared to 2018. The increase is primarily due to increases in taxable loan volumes. The average balance of taxable loans increased $157.9 million in 2019 as compared to 2018. Interest income earned on these loans increased $7.4 million in the same comparison as the average balance. Average tax-free investment securities and average taxable investment securities decreased $89.4 million and $22.5 million, respectively, in the 2019 year-to-date comparison to 2018. The change in investment securities is the result of loan growth and active balance sheet management as our portfolio has been diversified as to bond types, maturities, and interest rate structures. The rate earned on total interest-earning assets increased by 17 basis points in 2019 as compared to 2018.

 

Interest expense increased $8.7 million, or 22.7%, in 2019 compared to 2018. The increase was primarily due to an increase in money market accounts and certificates of deposits as a result of recent special rate promotions. The average balance of money market accounts increased $38.6 million and interest expense on these deposits increased $1.0 million in the year over year comparison. The average balance of certificates of deposits decreased $36.0 million; however, interest expense on these deposits increased $8.2 million in the year over year comparison. The intentional runoff of higher cost certificates of deposits has now surpassed the increase in these deposits from recent special rate promotions. Savings balances decreased in conjunction with the increases noted above due to customer preferences in converting to higher rate deposit products. The rate on total interest-bearing deposits and total interest-bearing liabilities increased 31 and 32 basis points, respectively, in 2019 as compared to 2018.

 

48

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:

 

         
   2019 Compared to 2018   2018 Compared to 2017 
(Dollars in Thousands)  Increase/
(Decrease)
   Rate   Volume   Increase/
(Decrease)
   Rate   Volume 
ASSETS                              
Interest-Bearing Deposits with Banks  $68   $287   $(219)  $(2,502)  $2,693   $(5,195)
Tax-Free Investment Securities   (3,023)   268    (3,291)   (2,155)   (3,527)   1,372 
Taxable Investment Securities   2,405    2,878    (473)   510    1,536    (1,026)
Tax-Free Loans   (640)   648    (1,288)   (3,977)   (2,878)   (1,099)
Taxable Loans   7,377    (681)   8,058    11,370    7,860    3,510 
Federal Home Loan Bank Stock   144    -    144    -    -    - 
Total Interest-Earning Assets  $6,331   $3,400   $2,931   $3,246   $5,684   $(2,438)
                               
LIABILITIES                              
Deposits:                              
Interest-Bearing Demand  $45   $25   $20   $372   $361   $11 
Money Market   977    626    351    (94)   198    (292)
Savings   (639)   (409)   (230)   (1,541)   (1,252)   (289)
Certificates of Deposit   8,179    8,764    (585)   2,246    3,848    (1,602)
Total Interest-Bearing Deposits  $8,562   $9,006   $(444)  $983   $3,155   $(2,172)
Borrowings:                              
Federal Funds Purchased   (20)   (10)   (10)   20    -    20 
FHLB Borrowings   38    -    38    -    -    - 
Other Borrowings   79    -    79    -    -    - 
Total Borrowings   97    (10)   107    20    -    20 
Total Interest-Bearing Liabilities  $8,659   $8,996   $(337)  $1,003   $3,155   $(2,152)
Net Interest Income  $(2,328)  $(5,596)  $3,268   $2,243   $2,529   $(286)

 

49

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Provision for Loan Losses

 

The following table summarizes the activity in the ALL for the periods presented:

 

(Dollars in Thousands)  2019   2018   2017   2016   2015 
Balance Beginning of Year  $39,199   $35,318   $34,500   $26,990   $24,142 
Provision for Loan Losses   3,404    16,870    43,197    17,717    3,300 
Charge-offs:                         
Real Estate Loans   659    11,924    42,813    9,687    310 
Consumer Loans   4,401    2,710    465    510    177 
Commercial Loans   22    20    31    257    20 
Total Charge-offs   5,082    14,654    43,309    10,454    507 
Recoveries:                         
Real Estate Loans   639    1,415    720    131    - 
Consumer Loans   602    250    210    110    55 
Commercial Loans   -    -    -    6    - 
Total Recoveries   1,241    1,665    930    247    55 
Total Net Charge-offs   3,841    12,989    42,379    10,207    452 
Balance End of Year  $38,762   $39,199   $35,318   $34,500   $26,990 
                          
Net Charge-offs to Average loans   0.13%   0.47%   1.56%   0.38%   0.02%
Allowance for Loan Losses to Portfolio loans   1.34%   1.45%   1.32%   1.26%   1.03%

 

The provision for loan losses is the amount to be added to the allowance for loan losses, or (“ALL”), after considering loan charge-offs and recoveries, to bring the ALL to a level determined to be appropriate in management's judgment to absorb probable incurred losses inherent in the loan portfolio.

 

The provision for loan losses decreased $13.5 million to $3.4 million in 2019 compared to $16.9 million in 2018. The decrease in provision expense in 2019 as compared to 2018 is primarily attributable to a reduction in net charge-offs in the loan portfolio. The reduction in net charge-offs was due to a $10.1 million charge-off of a legacy commercial real estate relationship in the third quarter of 2018 as a result of a new appraisal. Net charge-offs were $3.8 million in 2019 as compared to $13.0 million in 2018.

 

Net charge-offs decreased $9.2 million to $3.8 million in 2019 compared to $13.0 million for 2018. Net loan charge-offs to average loans were 0.13% and 0.47% in 2019 and 2018, respectively. Specific reserves were $6.2 million at December 31, 2019 and $5.2 million at December 31, 2018.

 

Nonperforming loans decreased at December 31, 2019 by $8.6 million, to $42.1 million as compared to $50.7 million at 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. Management is aggressively taking steps to address problem loan relationships.

 

The ALL at December 31, 2019 was $38.8 million compared to $39.2 million at December 31, 2018. The ALL as a percentage of total portfolio loans was 1.34% at December 31, 2019 and 1.45% at December 31, 2018.

 

50

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Noninterest Income

 

   Years Ended December 31, 
(Dollars in Thousands)  2019   2018   $ Change   % Change 
Gains on Sales of Securities, net  $2,205   $1,271   $934    73.5%
Service Charges, Commissions and Fees   4,962    4,081    881    21.6%
Debit Card Interchange Fees   5,160    4,750    410    8.6%
Insurance   1,225    1,855    (630)   (34.0)%
Bank Owned Life Insurance Income   1,436    1,161    275    23.7%
Other Real Estate Owned Income   689    2,692    (2,003)   (74.4)%
Other   1,193    1,176    17    1.4%
Total Noninterest Income  $16,870   $16,986   $(116)   (0.7)%
                     
NM - percentage not meaningful                    

 

Noninterest income decreased $1.1 million, or 6.7%, to $14.7 million, excluding net securities gains, in 2019 as compared to 2018. This decrease in 2019 as compared to 2018 was primarily due to lower rental income from OREO, or $2.0 million, due to the sale of several large commercial properties over the last 12 months that generated income beginning in the first quarter of 2018. This rental income is shown as Other Real Estate Owned Income in the noninterest income section of the Consolidated Statements of Income (Loss). Net losses on the sale of OREO are included in Losses on Sales and Write-downs of Other Real Estate Owned, net in the noninterest expense section of the Consolidated Statements of Income (Loss). Insurance income also decreased by $0.6 million, or 34.0%, due to bank owned life insurance (“BOLI”) commissions received in 2018 with the purchase of $50.0 million of BOLI in the first quarter of 2018. Offsetting these decreases were increases in service charges, commissions, and fees, debit card interchange fees, and BOLI income in the amounts of $0.9 million, $0.4 million, and $0.3 million, respectively, in the year over year comparison. Securities gains of $2.2 million and $1.3 million were realized during the years ended December 31, 2019 and 2018, respectively, to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Noninterest Expense

 

   Years Ended December 31, 
(Dollars in Thousands)  2019   2018   $ Change   % Change 
Salaries and Employee Benefits  $52,879   $49,958   $2,921    5.8%
Occupancy Expense, net   11,785    10,312    1,473    14.3%
FDIC Insurance Expense   1,270    2,985    (1,715)   (57.5)%
Other Taxes   2,847    2,571    276    10.7%
Telephone Expense   2,202    2,466    (264)   (10.7)%
Professional and Legal Fees   4,507    5,288    (781)   (14.8)%
Data Processing   2,083    1,505    578    38.4%
Losses on Sales and Write-downs of Other Real Estate Owned, net   4,732    8,201    (3,469)   (42.3)%
Losses on Sales and Write-downs of Bank Premises, net   188    186    2    1.1%
Debit Card Expense   2,753    2,785    (32)   (1.1)%
Tax Credit Amortization   2,265    4,060    (1,795)   (44.2)%
Other Real Estate Owned Expense   474    2,139    (1,665)   (77.8)%
Other   10,044    7,257    2,787    38.4%
Total Noninterest Expense  $98,029   $99,713   $(1,684)   (1.7)%
                     
NM - percentage not meaningful                    

 

51

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Total noninterest expense decreased $1.7 million, or 1.7%, in 2019 to $98.0 million as compared to $99.7 million in 2018. Losses on sales and write-downs of OREO decreased by $3.5 million and OREO expense decreased by $1.7 million in 2019 as compared to 2018 due to fewer properties under management during 2019. Tax credit amortization decreased by $1.8 million in the year over year comparison. Tax credit amortization declined because two tax credits were fully amortized in 2018. FDIC insurance expense decreased $1.7 million, or 57.5%, in 2019 as compared to 2018 due to a lower rate assessment and the one-time credit for the deposit insurance funds taken in the third quarter of 2019. Professional and legal fees decreased by $0.8 million due to regulatory and compliance reviews which were completed as of September 30, 2018. Offsetting these decreases were increases in salaries and employee benefits, occupancy expense, data processing, and other expenses. Salaries and employee benefits increased $2.9 million, or 5.8%, in 2019 as compared to 2018. The increase in salaries and benefits expense was primarily due to increased salaries and benefits due to infrastructure buildout, a full year of restricted stock compensation expense and the new 401-K match, offset by a decrease in the deferral of loan fees and costs. There have not been any permanent or temporary reductions in employees as a result of COVID-19. Occupancy expense increased $1.5 million due to higher depreciation for hardware and software and amortization of maintenance agreements related to the core conversion completed in November 2018. Data processing expense increased by $0.6 million in 2019 as compared to 2018 due to the aforementioned core conversion. Other expenses increased by $2.8 million, or 38.4%, in 2019 over 2018 and are primarily comprised of increased ancillary systems, subscriptions, employee training and higher marketing expenses related to our deposit acquisition strategy. Investments continue to be made in the appropriate infrastructure to support the Bank in the future.

 

Provision for Income Taxes

 

The provision for income taxes was a tax provision of $1.2 million for 2019 and pretax income of $27.8 million compared to a tax provision of $2.4 million in 2018 and pretax income of $14.3 million. The decrease in provision for income taxes was due to the utilization of a deferred tax asset benefit and higher general business credits in 2019.

 

The effective tax rate was 4% in 2019 and 17% in 2018. The Bank ordinarily generates an annual effective tax rate that is less than the federal statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects due to the aforementioned deferred tax asset utilization and higher tax credit projects during 2019.

 

Financial Condition

December 31, 2019

 

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.

 

52

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

FRB 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.

 

During 2019, the Bank joined the Federal Home Loan Bank of Atlanta (“FHLB”). The FHLB is a low cost funding source and provides low cost products and services. The FHLB requires members to purchase and hold a specified level of FHLB stock based on the member’s asset value, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. FHLB stock is evaluated for other-than-temporary impairment (“OTTI”) on a quarterly basis. At December 31, 2019, the Bank had $4.1 million of FHLB stock.

 

Deposits are our primary source of funds. The Bank believes that our deposit base is stable and that the Bank has the ability to attract new depositors while diversifying the deposit composition. Total deposits were $3.5 billion as of December 31, 2019 and $3.6 billion as of December 31, 2018. Noninterest-bearing deposits increased $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%, to $140.6 million due to recent special rate promotions during 2019 and a renewed focus on lower cost non-maturing deposit account acquisition. Interest-bearing demand deposits increased $32.5 million, or 12.8%, to $286.6 million at December 31, 2019 as compared to December 31, 2018. 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. The decrease in certificates of deposits from 2018 to 2019 is part of an ongoing strategic initiative by the Bank to transition the funding mix from higher cost certificates of deposits to lower cost non-maturing deposits. Noninterest-bearing deposits comprised 15.8% and 15.3% of total deposits at December 31, 2019 and December 31, 2018, respectively.

 

The allowance for loan losses was 1.34% of portfolio loans as of December 31, 2019 as compared to 1.45% as of December 31, 2018. General reserves as a percentage of 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 incurred losses inherent in the loan portfolio.

 

The Bank remains well capitalized. The Bank’s Tier 1 Capital ratio decreased to 13.46% as of December 31, 2019 as compared to 13.86% as of December 31, 2018. The Bank’s leverage ratio was 10.33% at December 31, 2019 as compared to 9.61% as of December 31, 2018. The Bank’s Total Risk-Based Capital ratio was 14.71% at December 31, 2019 as compared to 15.11% at December 31, 2018.

 

As of March 31, 2020, all of the Bank’s capital ratios were in excess of all regulatory requirements. An extended economic recession brought about by COVID-19 could adversely impact our regulatory capital ratios.

 

53

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Securities

 

The following table presents the composition of available-for-sale securities for the periods presented:

 

(Dollars in Thousands)  December 31, 2019   December 31, 2018   $ Change 
U.S. Government Agency Securities  $-   $270,388   $(270,388)
Residential Mortgage-Backed Securities   52,644    70,871    (18,227)
Commercial Mortgage-Backed Securities   19,006    21,792    (2,786)
Asset Backed Securities   109,639    58,861    50,778 
Collateralized Mortgage Obligations   292,224    76,819    215,405 
Small Business Administration   105,736    89,238    16,498 
States and Political Subdivisions   148,480    167,474    (18,994)
Corporate Notes   14,888    27,315    (12,427)
Total Debt Securities  $742,617   $782,758   $(40,141)

 

The balances and average rates of our securities portfolio are presented below as of December 31:

 

   2019   2018   2017 
(Dollars in Thousands)  Balance   Weighted-
Average
Yield
   Balance   Weighted-
Average
Yield
   Balance   Weighted-
Average
Yield
 
U.S. Government Agency Securities  $-    0.00%  $270,388    1.44%  $298,665    1.42%
Residential Mortgage-Backed Securities   52,644    2.72%   70,871    2.37%   60,380    1.98%
Commercial Mortgage-Backed Securities   19,006    2.53%   21,792    2.59%   24,908    2.58%
Asset Backed Securities   109,639    3.05%   58,861    3.46%   16,867    2.28%
Collateralized Mortgage Obligations   292,224    2.49%   76,819    2.84%   61,594    2.45%
Small Business Administration   105,736    3.23%   89,238    3.59%   68,260    2.73%
States and Political Subdivisions   148,480    2.94%   167,474    3.45%   306,963    4.42%
Corporate Notes   14,888    4.08%   27,315    3.62%   109,564    1.75%
Total Securities Available for Sale  $742,617    2.82%  $782,758    2.49%  $947,201    2.66%

 

The Bank invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the ALCO to diversify and reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to the Bank. Security purchases are subject to our investment policy approved annually by our Board of Directors and administered through ALCO and our treasury function.

 

The securities portfolio decreased by $40.1 million at December 31, 2019 as compared to December 31, 2018. Securities comprise 18.5% of total assets at December 31, 2019 as compared to 19.4% 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.

 

54

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

On July 26, 2017, the Bank reclassified its entire held-to-maturity portfolio to the available-for-sale portfolio. This allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exist. At the time of reclassification, the investments had an amortized cost of $863.8 million. At December 31, 2019, total gross unrealized gains in the available-for-sale portfolio were $6.2 million offset by $6.0 million of gross unrealized losses. At December 31, 2018, total gross unrealized gains in the available-for-sale portfolio were $0.5 million offset by $13.2 million of gross unrealized losses.

 

Management evaluates the securities portfolio for OTTI on a quarterly basis. During the years ended December 31, 2019 and 2018 the Bank did not record any OTTI. The performance of the debt and equity securities markets could generate impairments in future periods requiring realized losses to be reported.

 

The following table sets forth the maturities of securities at December 31, 2019 and the weighted average yields of such securities. Taxable-equivalent adjustments (using a 21% federal income tax rate) for 2019 have been made in calculating yields on obligations of state and political subdivisions.

 

Available-for-Sale Securities

 

   Maturing 
           After One But
Within
   After Five But
Within
         
   Within One Year   Five Years   Ten Years   After Ten Years 
(Dollars in Thousands)  Amount   Yield   Amount   Yield   Amount   Yield   Amount   Yield 
Residential Mortgage-Backed Securities   -    0.00%   83    4.38%   -    0.00%   52,561    2.71%
Commercial Mortgage-Backed Securities   -    0.00%   -    0.00%   16,881    2.54%   2,125    2.46%
Asset Backed Securities   -    0.00%   -    0.00%   5,939    3.33%   103,700    3.03%
Collateralized Mortgage Obligations   -    0.00%   3,073    2.58%   106,433    2.45%   182,718    2.51%
Small Business Administration   -    0.00%   1,100    3.91%   54,198    3.20%   50,438    3.25%
States and Political Subdivisions   5,316    2.40%   3,931    3.46%   23,888    2.95%   115,345    2.95%
Corporate Notes   1,500    2.83%   8,388    2.99%   5,000    6.25%   -    0.00%
Total  $6,816        $16,575        $212,339        $506,887      
Weighted Average Yield        2.50%        3.10%        2.82%        2.81%

 

Weighted -average yields are calculated on a taxable-equivalent basis using the federal statutory tax rate of 21 percent.                                                                

 

55

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Loan Composition

 

The following table summarizes our loan portfolio as of the periods presented:

 

   December 31, 
(Dollars in Thousands)  2019   2018   2017   2016   2015 
Commercial                         
Commercial Real Estate  $1,365,310   $1,359,036   $1,479,765   $1,527,552   $1,407,951 
Commercial and Industrial   621,667    661,870    804,592    835,131    851,083 
Commercial Construction   292,827    201,240    118,786    199,551    203,718 
Total Commercial Loans   2,279,804    2,222,146    2,403,143    2,562,234    2,462,752 
Consumer                         
Residential Mortgages   514,538    397,280    193,328    138,657    145,331 
Other Consumer   73,688    73,058    79,980    20,724    22,810 
Consumer Construction   16,736    11,308    7,994    10,168    7,959 
Total Consumer Loans   604,962    481,646    281,302    169,549    176,100 
Total Portfolio Loans   2,884,766    2,703,792    2,684,445    2,731,783    2,638,852 
Loans Held-for-Sale   19,714    2,559    517    -    - 
Total Loans  $2,904,480   $2,706,351   $2,684,962   $2,731,783   $2,638,852 

 

Our loan portfolio represents our most significant source of interest income. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay.

 

Total portfolio loans increased $181.0 million, or 6.7%, as of December 31, 2019 as compared to December 31, 2018. Commercial loans increased $57.7 million, or 2.6%. Consumer loans increased $123.3 million, or 25.6%. The increase in consumer loans is a result of the Bank’s new mortgage division, which began making a significant impact during 2018.

 

Total commercial loans represented 79% of total portfolio loans at December 31, 2019 and 82% of total portfolio loans at December 31, 2018. Within our commercial portfolio, the CRE and Commercial Construction portfolios combined comprised $1.7 billion or 73% of total commercial loans and 57% of total portfolio loans at December 31, 2019 and comprised $1.6 billion or 70% of total commercial loans and 58% of total portfolio loans at December 31, 2018. Net deferred costs included in the portfolio balances above were $5.1 million and $3.2 million at December 31, 2019 and 2018, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $250 thousand and zero at December 31, 2019 and 2018, respectively.

 

The commercial portfolio is monitored for potential concentrations of credit risk by market, type of lending, CRE property type, C&I and owner-occupied CRE by industry, investment CRE dependent on common tenants and industries or property types that are similarly impacted by external factors.

 

56

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank’s exposure to hospitality at December 31, 2019 equated to approximately $499.4 million, or 17.3% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit with other financial institutions and adversely affect their ability to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

Portfolio loans originated to our top 10 credit relationships were $746.8 million at December 31, 2019. These loans are in the hospitality, golf course, agricultural, land holdings, commercial real estate (multi-family and office/retail), energy, land development and lumber industries.

 

From time to time, the Bank has loans held-for-sale from two sources. First, the Bank purchases mortgage loans from another financial institution with fully executed contracts with investors. Secondly, the Bank originates and closes mortgages with fully executed contracts with investors to purchase shortly after closing. The Bank then holds the loans from both sources until funded by the investor, typically a two-week period. Loans held-for-sale were $19.7 million and $2.6 million as of December 31, 2019 and December 31, 2018, respectively.

 

The following tables present the maturity schedule of selected loan types at December 31, 2019:

 

   Maturity     
       After One         
   Within   But Within   After     
(Dollars in Thousands)  One Year   Five Years   Five Years   Total 
Fixed interest rates  $58,748   $100,337   $8,169   $167,254 
Variable interest rates   16,377    109,938    15,994    142,309 
Total Construction Loans (1)  $75,125   $210,275   $24,163   $309,563 

 

(1) Totals to Commercial Construction and Consumer Construction in the loan composition table above.

 

       Maturity         
       After One         
(Dollars in Thousands)  One Year   Five Years   Five Years   Total 
Fixed interest rates  $4,200   $32,704   $43,241   $80,145 
Variable interest rates   15,083    82,278    78,787    176,148 
Total Commercial, Industrial  & Agricultural (2)  $19,283   $114,982   $122,028   $256,293 

 

(2) This amount is included in the Commercial and Industrial total in the loan composition table above, combined with the Bank’s municipal loans.

 

57

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Credit Quality

 

On a monthly basis, a criticized asset committee meets to review all special mention and substandard loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to us. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral.

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and interest risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods.

 

Unsecured loans pose a higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses, operate with low financial and operating leverage and demonstrate an ability to clear the outstanding balance on lines of credit for at least thirty consecutive days annually. The repayment capacity of the borrower should exceed all policy and guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

On a quarterly basis, the Credit Risk Committee of the Board of Directors meets to review our loan portfolio metrics, segmentation guidelines, and loan review findings from the previous quarter. Annually, this same committee reviews credit related policies and policy enhancements as they become available.

 

Additional credit risk management practices include periodic review and update of our lending policies and procedures to support sound underwriting practices and portfolio management through portfolio stress testing. Our loan review serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all corporate lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms.

 

58

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank has a loan review policy and annual scope report that details the level of loan review for commercial loans in a given year. During 2019, the Bank used a four step approach for loan review in the following segments:

 

·Top 20 largest loan relationships, which is defined as any relationship with an aggregate outstanding balance of $2.0 million or more;

·New loans and renewals;

·Large loan relationships that are not part of the top 20; and

·Concentration focus reviews of the 16 segments sampling 20% of the balances in each segment.

 

Nonperforming assets (“NPAs”) consist of nonaccrual loans, nonaccrual TDRs and other real estate owned (”OREO”). The following table summarizes nonperforming assets for the dates presented:

 

   December 31, 
(Dollars in Thousands)  2019   2018   2017   2016   2015 
Nonperforming Loans                         
Real Estate  $7,084   $3,289   $51,047   $96,143   $92,944 
Consumer   267    65    47    1    40 
Commercial   77    606    -    1    - 
Total Nonperforming Loans   7,428    3,960    51,094    96,145    92,984 
Nonperforming Troubled Debt Restructurings                         
Real Estate   34,315    46,771    41,804    23,319    7,920 
Consumer   -    -    -    -    - 
Commercial   390    -    -    -    - 
Total Nonperforming Troubled Debt Restructurings   34,705    46,771    41,804    23,319    7,920 
Total Nonperforming Loans and Troubled Debt Restructurings   42,133    50,731    92,898    119,464    100,904 
Other Real Estate Owned   18,324    33,681    39,793    23,558    43,422 
Total Nonperforming Assets  $60,457   $84,412   $132,691   $143,022   $144,326 
                          
Nonperforming Loans and Troubled Debt Restructurings to Total
Portfolio Loans
   1.46%   1.88%   3.46%   4.37%   3.82%
Nonperforming Assets to Total Portfolio Loans plus OREO   2.08%   3.08%   4.87%   5.19%   5.38%

 

Nonperforming assets decreased to $60.5 million at December 31, 2019 as compared to December 31, 2018. The decrease was due to an $8.6 million decline in nonperforming loans and a $15.4 million net decrease in OREO. The decrease in nonperforming loans is primarily due to principal curtailments, offset by draws due to minimal commitments remaining on the credits. The decrease in OREO was due to the sale of properties during the year ended 2019. The book value of closed retail offices, included in OREO, declined $3.8 million from December 31, 2018 and have a remaining book value of $3.0 million at December 31, 2019. During the second quarter of 2019, one retail office building with a book value of $0.7 million was closed and transferred to OREO. During the fourth quarter of 2019, three retail office buildings with a book value of $1.0 million were closed and transferred to OREO.

 

The CARES Act permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. At this time, it is uncertain what future impact loan and lease modifications related to COVID-19 will have on the Bank’s financial condition, results of operations and allowance for loan losses.

 

59

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table summarizes past due loans for the dates presented:

 

   December 31, 
(Dollars in Thousands)  2019   2018   2017   2016   2015 
Loans 90 Days or More Past Due and Still Accruing                         
Real Estate  $-   $-   $493   $592   $418 
Consumer   -    -    59    26    5 
Commercial   -    -    4    -    - 
Total Loans 90 Days or More Past Due  $-   $-   $556   $618   $423 

 

   December 31, 
(Dollars in Thousands)  2019   2018   2017   2016   2015 
Loans 30 to 89 Days Past Due                         
Real Estate  $2,390   $6,046   $5,443   $9,158   $43,062 
Consumer   1,283    1,510    392    197    329 
Commercial   397    62    161    23    75 
Total Loans 30 to 89 Days Past Due  $4,070   $7,618   $5,996   $9,378   $43,466 

 

Loans past due 90 days or more and still accruing were zero at December 31, 2019 and 2018. With the implementation of the Bank’s new core system, loans past due 90 days are automatically transferred to nonaccrual status. Loans past due 30 to 89 days or more and still accruing decreased $3.5 million to $4.1 million at December 31, 2019 compared to $7.6 million at December 31, 2018.

 

Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments. Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including early stage delinquencies of 30 to 89 days past due for early identification of potential problem loans.

 

TDRs are loans that we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise grant. The Bank strives to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extension of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant.

 

60

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical performance for a reasonable period before the modification. All TDRs are considered to be impaired loans and will be reported as impaired loans for their remaining lives, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and we fully expect that the remaining principal and interest will be collected according to the restructured agreement. The Bank individually evaluates all impaired loans, which includes TDRs, greater than $1.0 million for additional impairment. In addition, the Bank evaluates credits with balances less than $1.0 million for impairment that may have complex loan structures. Nonaccrual TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

 

As an example, consider a substandard commercial construction loan that is currently 90 days past due where the loan is restructured to extend the maturity date for a period longer than would be considered an insignificant period of time. The post-modification interest rate given to the borrower is considered to be lower than the current market rate for new debt with similar risk and all other terms remain the same according to the original loan agreement. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted due to the long extension, resulting in payment delay as well as the rate being lower than current market rate for new debt with similar risk. The loan will be reported as a nonaccrual TDR and an impaired loan. In addition, the loan could be charged down to the fair value of the collateral if a confirmed loss exists. If the loan subsequently performs, by means of making on-time principal and interest payments according to the newly restructured terms for a period of six months, and it is expected that all remaining principal and interest will be collected according to the terms of the restructured agreement, the loan will be returned to accrual status and reported as an accruing TDR. The loan will remain an impaired loan for the remaining life of the loan because the interest rate was not adjusted to be equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk.

 

The following table summarizes the restructured loans as of the dates presented:

 

   December 31, 2019   December 31, 2018 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Real Estate  $109,265   $34,315   $143,580   $114,806   $46,771   $161,577 
Consumer   -    -    -    -    -    - 
Commercial   -    390    390    -    -    - 
Total TDRs  $109,265   $34,705   $143,970   $114,806   $46,771   $161,577 

 

TDRs decreased $17.6 million to $144.0 million at December 31, 2019 compared to 161.6 million at December 31, 2018. The decrease is primarily due to principal payoffs and pay-downs totaling $19.6 million, charge-offs in the amount of $0.4 million offset by recoveries of $0.6 million, all offset by draws on commitments in the amount of $1.2 million and new accruing TDRs of $0.6 million. Total TDRs of $34.7 million and $46.8 million were on nonaccrual at December 31, 2019 and December 31, 2018, respectively. At December 31 2019, there were minimal commitments to lend additional funds on one loan relationship identified as a TDR.

 

61

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank had one loan modified as a TDR during the twelve months ending December 31, 2019 totaling $0.6 million in post-modified recorded balances. The TDR modification was a result of several key factors. The borrower is experiencing financial difficulties due to negative cash flows and being dependent upon collateral to repay the loan. The most recent appraisal suggests that the borrower would have to sell the lots in this lot development project at a price higher than the appraisal for this project to be profitable. In addition, when comparing the complete value versus the cost to complete, the loan would not currently fit our standards for underwriting a lot development loan. The current rate on the loan is below market rate and there are other terms and conditions that would not be offered to a comparable borrower. There were no TDR payment defaults during the year ended December 31, 2019 for TDRs with outstanding principal balances at year end 2019. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

 

The Bank had seven loans modified as TDR’s for the twelve months ending December 31, 2018 totaling $137.9 million in post-modified recorded balances. Three TDRs in the amount of $98.3 were real estate loans and one TDR in the amount of $32.3 was a commercial and industrial loan. One TDR in the amount of $57.9 million involved modifying the terms of the note from contractual principal and interest payments to a single pay loan structure with interest and principal due at maturity. The modification was a result of the borrower experiencing financial difficulties and the single pay structure allows the borrower adequate time to liquidate the collateral and satisfy the Bank’s outstanding loan balance. One TDR in the amount of $32.3 million involved the customer offering additional collateral as part of a forbearance agreement to cure a collateral deficiency in exchange for the Bank renewing the loan and extending the maturity, a transaction the Bank would not agree to enter into without additional collateral. Two TDRs totaling $40.4 million involved the borrower offering additional collateral and entering into a forbearance agreement with the Bank which established a formal liquidation plan for the borrower to market and sell the collateral and satisfy the Bank’s outstanding loan balance. There were three additional TDRs in the amount of $7.3 million modified during the year ended 2018. Two of the three TDRs were related to one relationship and totaled $7.0 million in post modification balances. The concessions under this first TDR relationship included the installation of a forbearance agreement in which the Bank agreed to lend additional funds on a previously delinquent project, a reduction in the current contractual interest rate and the potential for partial debt forgiveness should the borrowers be able to perform all additional obligations under the restructured loan agreement including a timely liquidation of collateral and principal curtailment. In return, the borrowers granted the Bank a cross-collateralization agreement with other performing loans at the Bank to ensure that an adequate collateral margin is maintained going forward. The modification was a result of the borrower experiencing financial difficulties due to project cost overruns and the newly modified loan terms allow the borrower adequate time to liquidate the underlying collateral. The remaining $0.3 million TDR was related to one existing relationship that was reworked as a TDR in previous quarters. There were no TDR payment defaults during the year ended December 31, 2018 for TDRs with outstanding principal balances at year end 2018. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

 

62

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following tables represent credit exposures by internally assigned grades as of December 31, 2019 and 2018:

 

               Obligations     
(Dollars in Thousands)      Consumers &   Commercial   Of States and     
December 31, 2019  Real Estate   Other Loans   & Industrial   Political Sub.   Total 
Pass  $1,845,040   $73,345   $167,326   $364,869   $2,450,580 
Special Mention   4,022    9    203    -    4,234 
Substandard   340,349    334    89,269    -    429,952 
Doubtful   -    -    -    -    - 
Loss   -    -    -    -    - 
Total Loans  $2,189,411   $73,688   $256,798   $364,869   $2,884,766 
                          
Performing Loans  $2,148,012   $73,421   $256,331   $364,869   $2,842,633 
Non-Accrual Loans   41,399    267    467    -    42,133 
Total Loans  $2,189,411   $73,688   $256,798   $364,869   $2,884,766 

 

               Obligations     
(Dollars in Thousands)      Consumers &   Commercial   Of States and     
December 31, 2018  Real Estate   Other Loans   & Industrial   Political Sub.   Total 
Pass  $1,592,124   $72,907   $134,002   $432,402   $2,231,435 
Special Mention   10,765    45    70    -    10,880 
Substandard   365,975    106    95,396    -    461,477 
Doubtful   -    -    -    -    - 
Loss   -    -    -    -    - 
Total Loans  $1,968,864   $73,058   $229,468   $432,402   $2,703,792 
                          
Performing Loans  $1,918,804   $72,993   $228,862   $432,402   $2,653,061 
Non-Accrual Loans   50,060    65    606    -    50,731 
Total Loans  $1,968,864   $73,058   $229,468   $432,402   $2,703,792 

 

Special mention, substandard and doubtful loans at December 31, 2019 decreased by $38.2 million to $434.2 million compared to $472.4 million at December 31, 2018, with a decrease of $6.7 million in special mention and a decrease of $31.5 million in substandard.

 

At this time, it is uncertain what impact COVID-19 will have on the Bank’s current impaired loans or the susceptibility of the loan portfolio to future loan impairment.

 

63

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Allowance for Loan Losses

 

The Bank maintains an ALL at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ALL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ALL has two main components: evaluation and impairment tests of individual loans and evaluation and impairment tests of certain groups of homogeneous loans with similar risk characteristics.

 

Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes probable, regardless of the delinquency status of the loan. The Bank may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to:

 

• The status of a bankruptcy proceeding

 

• The value of collateral and probability of successful liquidation; and/or

 

• The status of adverse proceedings or litigation that may result in collection

 

Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.

 

The following summarizes our allowance for loan loss experience at December 31 for each of the years presented below:

 

(Dollars in Thousands)  2019   2018   2017   2016   2015 
Balance Beginning of Year  $39,199   $35,318   $34,500   $26,990   $24,142 
Provision for Loan Losses   3,404    16,870    43,197    17,717    3,300 
Charge-offs:                         
Real Estate Loans   659    11,924    42,813    9,687    310 
Consumer Loans   4,401    2,710    465    510    177 
Commercial Loans   22    20    31    257    20 
Total Charge-offs   5,082    14,654    43,309    10,454    507 
Recoveries:                         
Real Estate Loans   639    1,415    720    131    - 
Consumer Loans   602    250    210    110    55 
Commercial Loans   -    -    -    6    - 
Total Recoveries   1,241    1,665    930    247    55 
Total Net Charge-offs   3,841    12,989    42,379    10,207    452 
Balance End of Year  $38,762   $39,199   $35,318   $34,500   $26,990 
                          
Net Charge-offs to Average Loans   0.13%   0.47%   1.56%   0.38%   0.02%
Allowance for Loan Losses to Portfolio Loans   1.34%   1.45%   1.32%   1.26%   1.03%

 

64

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Net charge-offs were $3.8 million in 2019 as compared to $13.0 million in 2018. The reduction in net charge-offs was due to a $10.1 million charge-off of a legacy commercial real estate relationship in the third quarter of 2018 as a result of a new appraisal. This reduction in net charge-offs is the primary reason for the $13.5 million decrease in the provision for loan losses for the year ended December 31, 2019 as compared to December 31, 2018.

 

An inherent risk to the loan portfolio as a whole is the condition of the economy in our markets. In addition, each loan segment carries with it risks specific to the segment. The Bank develops and documents a systematic ALL methodology based on the following portfolio segments: 1) Commercial Real Estate (“CRE”), 2) Commercial & Industrial (“C&I”), 3) Consumer, and 4) Obligations of States and Political Subdivisions. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ALL.

 

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

 

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

 

Consumer loans are made to individuals and may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

 

Obligations of States and Political Subdivision loans are made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. This segment of loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Bank. The primary repayment source for these loans include the tax basis of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Bank’s loan portfolio.

 

65

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following is the ALL balance by segment as of December 31 for the years presented below:

 

   2019   2018   2017   2016   2015 
       % of       % of       % of       % of       % of 
       Loans       Loans       Loans       Loans       Loans 
       in each       in each       in each       in each       in each 
       Category       Category       Category       Category       Category 
       to Total       to Total       to Total       to Total       to Total 
(Dollars in Thousands)  Amount   Loans   Amount   Loans   Amount   Loans   Amount   Loans   Amount   Loans 
Real Estate  $31,873    76%  $35,422    73%  $33,367    67%  $32,476    69%  $16,584    67%
Consumer & Other Loans   3,299    2%   2,728    3%   288    3%   82    1%   6,098    1%
Commercial & Industrial   3,225    9%   617    8%   1,203    12%   1,480    13%   4,308    17%
Obligations of States and Political Sub.   365    13%   432    16%   460    18%   462    17%   -    15%
Balance End of Year  $38,762    100%  $39,199    100%  $35,318    100%  $34,500    100%  $26,990    100%

 

Significant to our ALL is a higher concentration of commercial loans. The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.

 

The following table summarizes the ALL balance as of December 31 for the years presented below:

 

(Dollars in Thousands)  2019   2018   2017   2016   2015 
Collectively Evaluated for Impairment  $32,593   $34,000   $35,286   $34,256   $26,440 
Individually Evaluated for Impairment   6,169    5,199    32    244    550 
Total Allowance for Loan Losses  $38,762   $39,199   $35,318   $34,500   $26,990 

 

The ALL was $38.8 million, or 1.34% of total portfolio loans at December 31, 2019 compared to $39.2 million, or 1.45% of total portfolio loans at December 31, 2018.

 

66

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The decrease in the ALL of $0.4 million was primarily due to a $1.0 million increase in the specific reserve for impaired loans, offset by a $1.4 million decrease for loans collectively evaluated for impairment at December 31, 2019 compared to December 31, 2018. Please reference Note 6-Allowance for Loan Losses for additional information. The $1.4 million decrease since December 31, 2018 in the reserve for collectively evaluated loans is primarily related to a decrease in historical losses due to legacy credit charge-offs that occurred in the fourth quarter of 2016 that are now outside of the 36 month look-back period, offset by increased provision due to higher portfolio loan volumes. Qualitative adjustment factors in the calculation were down slightly down from the prior year due to overall stable economic and business conditions in our primary markets and in segments represented in the portfolio.

 

Deposits

 

The following tables present the composition of deposits at December 31:

 

(Dollars in Thousands)  2019   2018   $ Change   % Change 
Noninterest-Bearing Demand  $554,875   $547,773   $7,102    1.3%
Interest-Bearing Demand   286,561    254,015    32,546    12.8%
Money Market   140,589    80,835    59,754    73.9%
Savings   561,814    610,757    (48,943)   (8.0)%
Certificates of Deposits   1,960,406    2,097,801    (137,395)   (6.5)%
Total  $3,504,245   $3,591,181   $(86,936)   (2.4)%

 

   For the Year Ended December 31, 
   Average Balance   Average Cost Rate 
(Dollars in Thousands)  2019   2018   2017   2019   2018   2017 
Noninterest-Bearing Demand Deposits  $557,505   $551,124   $550,496    -    -    - 
Interest-Bearing Transaction Accounts   249,086    246,592    244,919    0.80%   0.79%   0.65%
Money Market   134,676    96,068    141,438    1.24%   0.72%   0.56%
Savings   582,195    663,801    727,182    0.24%   0.31%   0.49%
Certificates of Deposit   2,054,077    2,090,103    2,199,263    2.02%   1.60%   1.42%
Total Interest-Bearing Deposits   3,020,034    3,096,564    3,312,802    1.54%   1.23%   1.12%
Total Deposits  $3,577,539   $3,647,688   $3,863,298    1.30%   1.04%   0.96%

 

Deposits are our primary source of funds. The Bank believes that our deposit base is stable and that the Bank has the ability to attract new depositors while diversifying the deposit composition. Total deposits at December 31, 2019 decreased $86.9 million, or 2.4%, from 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 at December 31, 2018. Money market accounts increased $59.8 million, or 73.9%, at year-end 2019 as compared to year-end 2018, due to recent special rate promotions during 2019 and a renewed focus on lower cost non-maturing deposit account acquisition. Interest-bearing demand deposits increased $32.5 million, or 12.8%, to $286.6 million at December 31, 2019 as compared to December 31, 2018. Offsetting these increases were decreases of $48.9 million, or 8.0%, in savings accounts and $137.4 million in certificates of deposits in the 2019 to 2018 comparison. The decrease in certificates of deposits from 2018 to 2019 is part of an ongoing strategic initiative by the Bank to transition the funding mix from higher cost certificates of deposits to lower cost non-maturing deposits. Noninterest-bearing deposits comprised 15.8% and 15.3% of total deposits at December 31, 2019 and December 31, 2018, respectively.

 

67

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table summarizes the maturities of our certificates of deposits:

 

(Dollars in Thousands)   2019 
2020   $1,034,098 
2021    332,864 
2022    153,255 
2023    294,547 
2024    143,666 
Thereafter     1,976 
TOTAL   $1,960,406 

 

Maturities of CDs of $250,000 or more outstanding at December 31, 2019 are summarized as follows:

 

(Dollars in Thousands)  Amount   Percent 
Three Months or Less  $40,691    20.84%
Over Three Months Through Twelve Months   68,386    35.02%
Over Twelve Months Through Three Years   39,301    20.12%
Over Three Years   46,918    24.02%
Total  $195,296    100%

 

Long-Term Borrowings

 

Borrowings are an additional source of liquidity for the Bank. Long-term borrowings are for terms greater than one year and consist of FHLB advances. FHLB Borrowings were $10.0 million and zero at December 31, 2019 and December 31, 2018, respectively. FHLB borrowings are fixed rate advances for various terms and are secured by a blanket lien on select residential mortgages and investment securities available-for-sale. Total loans pledged as collateral were $284.6 million at December 31, 2019. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $242.2 million based upon qualifying collateral, to a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of December 31, 2019.

 

Information pertaining to long-term borrowings at December 31 is summarized in the table below:

 

(Dollars in Thousands)  2019   2018   2017 
Balance at December 31  $10,000   $-   $- 
Average Balance during Year   2,329    -    - 
Average Interest Rate during the Year   1.63%   0.00%   0.00%
Maximum Month-end Balance during the Year   10,000    -    - 
Average Interest Rate at December 31   1.63%   0.00%   0.00%

 

68

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank held FHLB Atlanta stock of $4.1 million and zero at December 31, 2019 and December 31, 2018, respectively. Dividends received on this restricted stock were $144 thousand for the year ended December 31, 2019 and zero for 2018 and 2017. The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Atlanta. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. The Bank reviewed and evaluated FHLB stock for OTTI at December 31, 2019. The Bank reviews factors such as earnings, capital ratios, and dividend paying capacity in its evaluation of impairment. The Bank believes that there is sufficient evidence to conclude that there is no impairment at December 31, 2019 or subsequently at March 31, 2020.

 

Capital Resources

 

The following table summarizes ratios for the Bank for December 31:

 

Risk-based capital ratios          

 

   2019   2018   2017   2016   2015 
Common Equity Tier 1   13.46%   13.86%   12.82%   12.12%   11.27%
Tier 1 Ratio   13.46%   13.86%   12.82%   12.12%   11.27%
Total Risk-Based Capital Ratio   14.71%   15.11%   14.05%   13.25%   11.94%
Leverage Ratio   10.33%   9.61%   9.25%   8.03%   7.54%

 

Shareholders’ equity increased $36.9 million, or 8.5%, to $473.1 million at December 31, 2019 as compared to $436.2 million at December 31, 2018. The increase in shareholders’ equity is primarily due to net income of $26.6 million in 2019 and other comprehensive income in the amount of $10.2 million. The change in other comprehensive income of $10.2 million was primarily due to the increase in net unrealized gains on securities available-for-sale driven by a decrease in interest rates during the period.

 

The Bank continues to maintain its capital position with a leverage ratio of 10.33% as compared to the regulatory guideline of 5.0% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 13.46% compared to the regulatory guideline of 6.5% to be well-capitalized. Our risk-based Tier 1 and Total Capital ratios were 13.46% and 14.71%, respectively, which places the Bank about the federal bank regulatory agencies’ well-capitalized guidelines of 8.0% and 10.0%, respectively. We believe that we have the ability to raise additional capital, if necessary.

 

In July 2013 the federal banking agencies issued a final rule to implement Basel III (which were agreements reached in July 2010 by the international oversight body of the Basel Committee on Banking Supervision to require more and higher quality capital) and the minimum leverage and risk-based capital requirements of the Dodd-Frank Act. The final rule established a comprehensive capital framework and went into effect on January 1, 2015 for smaller banking organizations such as the Bank. The rule also required the Bank to maintain a capital conservation buffer composed of Common Equity Tier 1 capital in an amount greater than 2.50% of total risk-weighted assets beginning in 2019. The capital conservation buffer is scheduled to phase in over several years. The capital conservation buffer was .25% in 2016, .50% in 2017, .75% in 2018, and increased to 1.00% in 2019 and beyond. As a result, starting in 2019, the Bank must maintain a Common Equity Tier I risk-based capital ratio greater than 7.0%, a Tier 1 risk-based capital ratio greater than 8.5%, and a Total risk-based capital ratio greater than 10.5%; otherwise, the Bank will be subject to restrictions on capital distributions and discretionary bonus payments. Now that the new rule is fully phased in, the minimum capital requirements plus the capital conservation buffer exceeds the regulatory capital ratios required for an insured depository institution to be well-capitalized under the FDIC’s prompt corrective action framework.

 

69

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Federal regulators periodically propose amendments to the regulatory capital rules and the related regulatory framework and consider changes to the capital standards that could significantly increase the amount of capital needed to meet applicable standards. The timing of adoption, ultimate form and effect of any such proposed amendments cannot be predicted.

 

Contractual Obligations

 

Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent contractual liabilities for which we cannot reasonably predict future payments. We have various financial obligations, including contractual obligations and commitments that may require future cash payments. The following table presents as of December 31, 2019, significant fixed and determinable contractual obligations to third parties by payment date:

 

   Payments Due In 
(Dollars in Thousands)   2020    2021-2022    2023-2024    Later Years    Total 
Deposits without a Stated Maturity (1)  $1,543,839   $-   $-   $-   $1,543,839 
Certificates of Deposits (1)   1,034,098    486,119    438,213    1,976    1,960,406 
Operating and Capital Leases   375    534    472    826    2,207 
Purchase Obligations   4,967    9,835    5,539    10,617    30,958 
Total  $2,583,279   $496,488   $444,224   $13,419   $3,537,410 

 

(1) Excludes Interest

 

Lease contracts are described in Note 8, Premises and Equipment, to the Consolidated Financial Statements included in Part II, Item 8 of this Report. Purchase obligations primarily represent obligations under agreement with a third party data processing vendor and communications charges.

 

Off-Balance Sheet Arrangements

 

In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event the customer does not satisfy the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

 

70

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table sets forth the commitments and letters of credit as of December 31:

 

(Dollars in Thousands)  2019   2018 
Commitments to Extend Credit  $488,864   $387,695 
Standby Letters of Credit   39,575    34,354 
Total  $528,439   $422,049 

 

Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

 

Our allowance for unfunded commitments is determined using a methodology similar to that used to determine the ALL. Amounts are added to the allowance for unfunded commitments through a charge to current earnings in noninterest expense. The balance in the allowance for unfunded commitments was $0.4 million and $0.3 million at December 31, 2019 and December 31, 2018, respectively.

 

Liquidity

 

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or of borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk our Board of Directors has delegated authority to the Asset Liability Committee (“ALCO”) for formulation, implementation and oversight of liquidity risk management for the Bank. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and by having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

 

Our primary funding and liquidity source is a stable customer deposit base. We believe we have the ability to retain existing deposits and attract new deposits, mitigating any funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Bank has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Bank include borrowing availability at the FHLB, equal to 25% of the Bank’s assets approximating $1.0 billion, subject to the amount of eligible collateral pledged, federal funds lines with six other correspondent financial institutions in the amount of $115.0 million, and the brokered deposit market. In addition to the lines referenced above, the Bank also has its available-for-sale investment securities portfolio as an additional source of liquidity.

 

 71 

 

 

CARTER BANK & TRUST

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. At December 31, 2019, the Bank had $696.2 million in highly liquid assets, which consisted of $45.1 million in interest-bearing deposits in other financial institutions, $39.3 million in FRB Excess Reserves, $592.1 million in unpledged securities and $19.7 million in loans held-for-sale. This resulted in a highly liquid assets to total assets ratio of 17.4% at December 31, 2019.

 

If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

 

The following table provides detail of liquidity sources as of the periods presented:

 

(Dollars in Thousands)  March 31, 2020   December 31, 2019 
Cash and Due From Banks  $50,879   $85,628 
Interest Bearing Deposits   1,493    914 
Excess Reserves   11,028    39,270 
Unpledged Investment Securities   605,432    592,065 
Excess Pledged Securities   29,018    16,030 
FHLB Borrowing Availability   217,626    242,188 
Unsecured Lines of Credit   115,000    115,000 
Total Liquidity Sources  $1,030,477   $1,091,094 

 

Inflation

 

Management is aware of the significant effect inflation has on interest rates and can have on financial performance. Our ability to cope with this is best determined by analyzing our capability to respond to changing interest rates and our ability to manage noninterest income and expense. We monitor the mix of interest-rate sensitive assets and liabilities through ALCO in order to reduce the impact of inflation on net interest income. We also control the effects of inflation by reviewing the prices of our products and services, by introducing new products and services and by controlling overhead expenses.

 

 72 

 

 

CARTER BANK & TRUST

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk

 

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.

 

The ALCO utilizes an asset liability model (“ALM”) to monitor and manage market risk through net interest income simulation for various rate shock scenarios and economic value of equity (“EVE”), simulation for various rate shock scenarios. The rate shock scenarios used in the ALM span over multiple time horizons and yield curve shapes and include parallel and non-parallel shifts to ensure the ALCO can mitigate future earnings and market value fluctuations due to changes in market interest rates.

 

Within the context of the ALM, net interest income rate shock simulations explicitly measure the exposure to earnings from changes in market rates of interest over a defined time horizon. These robust simulations include assumptions of how the balance sheet will react in different rate environments including loan pre-payment speeds, average life of non-maturing deposits, and how sensitive each interest-earning asset and interest-bearing liability is to changes in market rates (betas). Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. Reviewing these various measures provides us with a more comprehensive view of our interest rate risk profile.

 

Net interest income rate shock simulation results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 months and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static and growth balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. Our policy guidelines limit the change in pretax net interest income over a 12 month horizon using rate shocks of +/- 100, 200, 300 and 400 basis points. We have temporarily suspended the -300 and -400 basis point rate shock analyses. Due to the low interest rate environment, we believe the impact to net interest income when evaluating the -300 and -400 basis point rate shock scenarios does not provide meaningful insight into our interest rate risk position.

 

In order to monitor interest rate risk beyond the 24 month time horizon of rate shocks, we also perform EVE analyses. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. EVE rate change results are compared to a base case to determine the impact that market rate changes may have on our EVE. As with rate shock analysis, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and the behavior and value of non-maturity deposit products. Our policy guidelines limit the change in EVE given changes in rates of +/- 100, 200, 300 and 400 basis points. We have also temporarily suspended the EVE -300 and -400 basis point scenarios due to the low interest rate environment.

 

 73 

 

 

CARTER BANK & TRUST

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

 

The tables below reflect the net interest income rate shock analyses and EVE analyses results for the periods presented utilizing a static balance sheet. All percentage changes presented are within prescribed ranges set by management.

 

  December 31, 2019 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
 400    24.12%   1.43%
 300    19.09%   2.17%
 200    13.35%   2.94%
 100    7.08%   2.49%
 (100)   -8.63%   -6.96%
 (200)  -15.90%   -14.13%

 

    December 31, 2018 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
 400    26.47%   3.94%
 300    20.28%   3.93%
 200    13.98%   3.64%
 100    7.08%   2.51%
 (100)   -7.29%   -4.98%
 (200)   -16.31%   -13.14%

 

The results from the net interest income rate shock analysis are consistent with having an asset sensitive balance sheet, when adjusted for repricing correlations (betas). The above table indicates that in a rising interest rate environment, the Bank is positioned to have increased pretax net interest income for the same asset base due to the balance sheet composition, related maturity structures and repricing correlations to market interest rates for assets and liabilities. Conversely, in a declining interest rate environment the Bank is positioned to have decreased pretax net interest income for the same reasons discussed above.

 

In addition to rate shocks and EVE analyses, sensitivity analyses are performed to help us identify which model assumptions are critical and cause the greatest impact on pretax net interest income. Sensitivity analyses include changing prepayment behavior of loans and securities with optionality, repricing correlations, and the impact of interest rate changes on non-maturity deposit products (decay rates).

 

 74 

 

 

CARTER BANK & TRUST

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Consolidated Financial Statements

Consolidated Balance Sheets 76
   
Consolidated Statements of Income (Loss) 77
   
Consolidated Statements of Comprehensive Income (Loss) 78
   
Consolidated Statements of Changes in Shareholders’ Equity 79
   
Consolidated Statements of Cash Flows 80
   
Notes to Consolidated Financial Statements 82
   

Report of Crowe LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements

125
   

Report of Crowe LLP, Independent Registered Public Accounting Firm, on Effectiveness of Internal Control Over Financial Reporting

126
   
Report of Yount, Hyde & Barbour, Independent Registered Public Accounting Firm, on Consolidated Financial Statements 128

 

 75 

 

 

CARTER BANK & TRUST

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED BALANCE SHEETS

 

(Dollars in Thousands Except Per Share Data)  December 31,   December 31, 
ASSETS  2019   2018 
Cash and Due From Banks  $41,386   $47,413 
Interest-Bearing Deposits in Other Financial Institutions   45,156    61,612 
FRB Excess Reserves   39,270    184,798 
     Total Cash and Cash Equivalents   125,812    293,823 
Securities Available-for-Sale, at Fair Value   742,617    782,758 
Loans Held-for-Sale   19,714    2,559 
Portfolio Loans   2,884,766    2,703,792 
Allowance for Loan Losses   (38,762)   (39,199)
     Portfolio Loans, net   2,846,004    2,664,593 
Bank Premises and Equipment, net   85,942    85,841 
Other Real Estate Owned, net   18,324    33,681 
Federal Home Loan Bank Stock, at Cost   4,113    - 
Goodwill   62,192    62,192 
Bank Owned Life Insurance   52,597    51,161 
Other Assets   48,793    62,991 
Total Assets  $4,006,108   $4,039,599 
           
LIABILITIES          
Deposits:          
     Noninterest-Bearing Demand  $554,875   $547,773 
     Interest-Bearing Demand   286,561    254,015 
     Money Market   140,589    80,835 
     Savings   561,814    610,757 
     Certificates of Deposit   1,960,406    2,097,801 
          Total Deposits   3,504,245    3,591,181 
Federal Home Loan Bank Borrowings   10,000    - 
Other Liabilities   18,752    12,204 
Total Liabilities   3,532,997    3,603,385 
           
SHAREHOLDERS' EQUITY          
Common Stock, Par Value $1 Per Share, Authorized 100,000,000          
Shares; 26,334,229 Outstanding in 2019 and 26,270,174 in 2018   26,334    26,270 
Additional Paid-in-Capital   142,492    142,175 
Retained Earnings   304,158    277,835 
Accumulated Other Comprehensive Income (Loss)   127    (10,066)
Total Shareholders' Equity   473,111    436,214 
Total Liabilities and Shareholders' Equity  $4,006,108   $4,039,599 

 

See accompanying notes to audited consolidated financial statements.

 

 76 

 

 

CARTER BANK & TRUST

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

 

   Years Ended December 31, 
(Dollars in Thousands except Per Share Data)  2019   2018   2017 
INTEREST INCOME               
Loans, including fees               
   Taxable  $126,939   $119,563   $108,193 
   Non-Taxable   9,603    10,107    10,901 
Investment Securities               
   Taxable   17,826    15,421    14,911 
   Non-Taxable   1,858    4,246    4,895 
FRB Excess Reserves   1,484    1,589    4,617 
Interest on Bank Deposits   1,266    1,093    567 
Dividend Income   144    -    - 
Total Interest Income   159,120    152,019    144,084 
Interest Expense               
Interest Expense on Deposits   46,656    38,094    37,111 
Interest Expense on Federal Funds Purchased   -    20    - 
Interest on Other Borrowings   117    -    - 
Total Interest Expense   46,773    38,114    37,111 
NET INTEREST INCOME   112,347    113,905    106,973 
Provision for Loan Losses   3,404    16,870    43,197 
Net Interest Income After Provision for Loan Losses   108,943    97,035    63,776 
NONINTEREST INCOME               
Gain on Sales of Securities, net   2,205    1,271    1,186 
Service Charges, Commissions and Fees   4,962    4,081    2,920 
Debit Card Interchange Fees   5,160    4,750    4,854 
Insurance   1,225    1,855    2,582 
Bank Owned Life Insurance Income   1,436    1,161    - 
Other Real Estate Owned Income   689    2,692    448 
Other   1,193    1,176    601 
Total Noninterest Income   16,870    16,986    12,591 
NONINTEREST EXPENSE               
Salaries and Employee Benefits   52,879    49,958    42,711 
Occupancy Expense, net   11,785    10,312    9,780 
FDIC Insurance Expense   1,270    2,985    3,890 
Other Taxes   2,847    2,571    1,907 
Telephone Expense   2,202    2,466    1,699 
Professional and Legal Fees   4,507    5,288    6,856 
Data Processing Licensing Fee   2,083    1,505    5,631 
Losses on Sales and Write-downs of Other Real Estate Owned, net   4,732    8,201    9,909 
Loss on Sales and Write-downs of Bank Premises   188    186    714 
Debit Card Expense   2,753    2,785    2,436 
Tax Credit Amortization   2,265    4,060    - 
Tax Credit Impairment   -    -    3,259 
Other Real Estate Owned Expense   474    2,139    791 
Other   10,044    7,257    4,996 
Total Noninterest Expense   98,029    99,713    94,579 
Income (Loss) Before Taxes   27,784    14,308    (18,212)
Income Tax Provision (Benefit)   1,209    2,403    (17,531)
Net Income (Loss)  $26,575   $11,905   $(681)
Earnings (Loss) per Common Share               
      Basic Earnings (Loss) per Common Share  $1.01   $0.45   $(0.03)
      Diluted Earnings (Loss) per Common Share  $1.01   $0.45   $(0.03)
      Average Shares Outstanding-Basic   26,323,899    26,259,223    26,257,761 
      Average Shares Outstanding-Diluted   26,339,085    26,259,234    26,257,761 

 

See accompanying notes to audited consolidated financial statements.

 

 77 

 

 

CARTER BANK & TRUST

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

   Years Ended December 31, 
(Dollars in Thousands)  2019   2018   2017 
Net Income (Loss)  $26,575   $11,905   $(681)
Other Comprehensive Income (Loss):               
Net Unrealized Gains (Losses) on Securities Available-for-Sale:               
            Net Unrealized Gains (Losses) Arising during the Period   15,108    (8,636)   (7,249)
            Transfer of Held-to-Maturity Securities to Available-for-Sale Securities   -    -    5,600 
             Reclassification Adjustment for Gains included in Net Income (Loss)   (2,205)   (1,271)   (1,186)
Net Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss)   12,903    (9,907)   (2,835)
Tax Effect   (2,710)   2,081    992 
Other Comprehensive Income (Loss):   10,193        (7 ,826)    (1,843)
Comprehensive Income (Loss)  $36,768   $4,079   $(2,524)

 

See accompanying notes to audited consolidated financial statements.

 

 78 

 

 

CARTER BANK & TRUST

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

   Years Ended December 31, 
(Dollars in Thousands)  Common
Stock
   Additional
Paid-in-
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income (Loss)
   Total
Shareholder's
Equity
 
Balance December 31, 2016  $26,258   $142,178   $266,214   $-   $434,650 
Net Loss   -    -    (681)   -    (681)
Other Comprehensive Loss   -    -    -    (1,843)   1,843)
Reclassification of Certain Tax Effects from Change in Tax Rate   -    -    397    (397)   - 
Balance December 31, 2017  $26,258   $142,178   $265,930   $(2,240)  $432,126 
Net Income   -    -    11,905    -    11,905 
Other Comprehensive Loss   -    -    -    (7,826)   (7,826)
Issuance of Restricted Stock (12,413 shares)   12    (12)   -    -    - 
Recognition of Restricted Stock Compensation Expense   -    9    -    -    9 
Balance December 31, 2018  $26,270   $142,175   $277,835   $(10,066)  $436,214 
Cumulative Effect of Adopting New Lease Standard             (252)        (252)
Balance December 31, 2018 adjusted for Cumulative Effect  $26,270   $142,175   $277,583   $(10,066)  $435,962 
Net Income   -    -    26,575    -    26,575 
Other Comprehensive Income   -    -    -    10,193    10,193 
Issuance of Restricted Stock (64,458 shares)   64    (64)   -    -    - 
Recognition of Restricted Stock Compensation Expense   -    381    -    -    381 
Balance December 31, 2019  $26,334   $142,492   $304,158   $127   $473,111 

 

See accompanying notes to audited consolidated financial statements.

 

 79 

 

 

CARTER BANK & TRUST

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Years Ended December 31, 
(Dollars in Thousands)  2019   2018   2017 
OPERATING ACTIVITIES               
Net Income (Loss)  $26,575   $11,905   $(681)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities               
Provision for Loan Losses   3,404    16,870    43,197 
Origination of Loans Held-for-Sale   (329,932)   (29,307)   (45,900)
Proceeds From Loans Held-for-Sale   312,777    27,265    45,383 
Depreciation/Amortization of Bank Premises and Equipment   5,335    3,682    3,150 
(Benefit) Provision for Deferred Taxes   (76)   4,850    (10,371)
Net Amortization of Securities   3,953    4,704    1,332 
Tax Credit Impairment   -    -    3,259 
Tax Credit Amortization   2,265    4,060    - 
Gains on Sales of Securities, net   (2,205)   (1,271)   (1,186)
Write-downs of Other Real Estate Owned   4,457    8,714    9,967 
Losses (Gains) on Sales of Other Real Estate Owned, Net   275    (513)   (58)
Losses on Sales and Write-downs of Bank Premises   188    186    714 
Increase in the Value of Life Insurance Contracts   (1,436)   (1,161)   - 
Stock Compensation Expense   381    9    - 
Decrease (Increase) in Other Assets   10,094    (2,244)   (8,053)
Increase in Other Liabilities   2,231    1,653    3,511 
Net Cash Provided By Operating Activities   38,286    49,402    44,264 
INVESTING ACTIVITIES               
Securities Held-to-Maturity:               
Proceeds from Maturities and Redemptions   -    -    57,330 
Purchases   -    -    (41,436)
Securities Available-for-Sale:               
Proceeds from Sales   390,548    133,120    123,920 
Proceeds from Maturities, Redemptions, and Pay-downs   198,154    219,223    183,197 
Purchases   (534,136)   (201,240)   (393,499)
Purchase of Bank Premises and Equipment, Net   (8,453)   (14,613)   (3,540)
Proceeds from Sales of Bank Premises and Equipment, net   1,135    -    - 
Purchase of Federal Home Loan Bank Stock   (4,113)   -    - 
Loan Originations and Payments, net   (185,117)   (59,655)   (5,606)
Purchases of Bank Owned Life Insurance   -    (50,000)   - 
Other Real Estate Owned Improvements   -    (1,272)   (372)
Proceeds from Sales of Other Real Estate Owned   12,621    28,679    3,802 
Net Cash (Used In) Provided By Investing Activities   (129,361)   54,242    (76,204)
FINANCING ACTIVITIES               
Net Change in Demand, Money Markets and Savings Accounts   50,459    (121,986)   (66,225)
(Decrease) Increase in Certificates of Deposits   (137,395)   43,552    (327,999)
Proceeds from Federal Home Loan Bank Borrowings   10,000    -    - 
Net Cash Used In Financing Activities   (76,936)   (78,434)   (394,224)
Net (Decrease) Increase in Cash and Cash Equivalents   (168,011)   25,210    (426,164)
Cash and Cash Equivalents at Beginning of Period   293,823    268,613    694,777 
Cash and Cash Equivalents at End of Period  $125,812   $293,823   $268,613 

 

See accompanying notes to audited consolidated financial statements.

 

 80 

 

 

CARTER BANK & TRUST

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

 

   Years Ended December 31, 
(Dollars in Thousands)  2019   2018   2017 
SUPPLEMENTARY DATA               
Cash Interest Paid  $46,170   $37,918   $37,824 
Cash Paid for Income Taxes   220    175    1,675 
Transfer from Loans to Other Real Estate Owned   302    28,212    17,912 
Loans Provided for Sales of Other Real Estate Owned   -    893    7,347 
Transfer from Fixed Assets to Other Real Estate Owned   1,694    2,177    19,009 
Security (Purchases) Sales Settled in Subsequent Period   (3,270)   -    - 
Right-of-use Asset Recorded in Exchange for Lease Liabilities   1,659    -    - 

 

See accompanying notes to audited consolidated financial statements.

 

 81 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands in Charts Except for Per Share Data)

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations: Carter Bank & Trust (the “Bank”) is a banking institution, incorporated under Virginia law, with headquarters located in Martinsville, Virginia. The Bank is a non-member state bank, regulated by the FDIC and State Bureau of Financial Institutions. The Bank has one wholly owned subsidiary, CB&T Investment Company, which was chartered effective April 1, 2019. Formerly, Carter Bank & Trust owned Mortgage Company of Virginia who owned 100% of Bank Services of Virginia and Bank Services Insurance, Inc. Mortgage Company of Virginia was terminated and dissolved on December 11, 2018. Bank Services of Virginia was terminated and dissolved on July 10, 2018. Bank Services Insurance, Inc. was sold in January of 2018.

 

Accounting Policies: Our financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods then ended. Actual results could differ from those estimates. Our significant accounting policies are described below.

 

Principles of Consolidation: The Consolidated Financial Statements include the accounts of Carter Bank & Trust and its wholly owned subsidiary. All significant intercompany transactions have been eliminated in consolidation.

 

Reclassification: Amounts in prior years' period financial statements and footnotes are reclassified whenever necessary to conform to the current year’s presentation. Reclassifications had no material effect on prior year net income or shareholders’ equity.

 

Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, including COVID-19-related changes, and changes in the financial condition of borrowers.

 

The Bank could experience a material adverse effect on its business as a result of the impact of the COVID-19 pandemic, and the resulting governmental actions to curtail its spread. It is at least reasonably possible that information which was available at the date of the financial statements will change in the near term due to the COVID-19 pandemic and that the effect of the change would be material to the financial statements. The extent to which the COVID-19 pandemic will impact our estimates and assumptions is highly uncertain and we are unable to make an estimate, at this time.

 

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Bank-wide basis, and operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

 

 82 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Cash and Cash Equivalents: The Bank considers all cash on hand, amounts due from banks, federal funds sold, and Federal Reserve Bank (“FRB”) excess reserves as cash equivalents for the purposes of the consolidated statements of cash flows with all items having maturities fewer than 90 days. Federal funds are customarily sold for one-day periods. The FRB pays the target fed funds rate on the FRB excess reserves.

 

Restrictions on Cash: Cash on hand or on deposit with the FRB is required to meet regulatory reserve and clearing requirements.

 

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

 

Comprehensive Income (Loss): Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, net of tax.

 

Securities: The Bank classifies securities into either the held-to-maturity or available-for-sale categories at the time of purchase. All securities are classified as available-for-sale at December 31, 2019 and December 31, 2018. During 2017, management transferred all investment securities previously classified as held-to-maturity to available-for-sale. See further information on this transfer within Note 4. Held-to-maturity securities are those which the Bank has the positive intent and ability to hold until maturity and are reported at amortized cost. Securities classified as available-for-sale include securities, which can be sold for liquidity, investment management, or similar reasons even if there is not a present intention of such a sale. Available-for-sale securities are reported at fair value, with unrealized gains or losses included in other comprehensive income (loss), net of tax.

 

Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses are recognized upon the sale of specific identified securities on the completed trade date.

 

Other-Than-Temporary Impairments of Securities: Management evaluates debt securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Bank has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

When an OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based upon the difference of the present value of cash flows expected be collected and the amortized cost basis and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

 

 83 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Loans Held-for-Sale: From time to time, the Bank has loans held-for-sale from two sources. First, the Bank purchases mortgage loans from another financial institution with fully executed contracts with investors. Secondly, the Bank originates and closes mortgages with fully executed contracts with investors to purchase shortly after closing. The Bank then holds the loans from both sources until funded by the investor, typically a two-week period. Gains and losses on sales of loans held-for-sale are determined using the specific identification method and are included in other noninterest income in the Consolidated Statements of Net Income (Loss).

 

Loans and Allowance for Loan Losses: Loans that management have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, discounts, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

 

A loan is considered impaired when it is probable that the Bank will be unable to collect all principal and interest amounts when due according to the contractual terms of the loan agreement. A performing loan may be considered impaired. The allowance for loan losses related to loans identified as impaired is primarily based on the excess of the loan's current outstanding principal balance compared to the estimated fair value of the related collateral, less cost to sell. For a loan that is not collateral-dependent, the allowance is recorded at the amount by which the outstanding principal balance exceeds the current estimate of the future cash flows on the loan discounted at the loan's original effective interest rate.

 

Loans, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days based on contractual terms, unless such loans are well-secured and in the process of collection. If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan is generally classified as nonaccrual. Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual, if repayment in full of principal and/or interest is unlikely. All interest accrued but not received for loans placed on non-accrual status is reversed against interest income.

 

While a loan is classified as nonaccrual and the probability of collecting the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. Payments collected on a nonaccrual loan are first applied to principal, secondly to any existing charge-offs, thirdly to interest, and lastly to any outstanding fees owed to the Bank.

 

Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower in accordance with the contractual terms of interest and principal.

 

 84 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The allowance for loan losses is a valuation allowance for probable incurred losses inherent in the loan portfolio as determined by management taking into consideration historical loan loss experience, diversification of the loan portfolio, amounts of secured and unsecured loans, banking industry standards and averages, and general economic conditions. Loan losses are charged against the allowance when management believes the un-collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Ultimate losses may vary from current estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the periods in which they become reasonably estimable.

 

During the quarterly evaluation of the allowance for loan losses, particular characteristics associated with a segment of the loan portfolio are also considered. These characteristics are detailed below:

 

·Commercial loans not secured by real estate carry risks associated with the successful operation of a business, and the repayments of these loans depend on the profitability and cash flows of the business. Additional risk relates to the value of collateral upon which depreciation occurs and the valuation is less precise.

 

·Loans secured by commercial real estate also carry risks associated with the success of the business and the ability to generate a positive cash flow sufficient to service debts. Real estate security diminishes risks only to the extent that a market exists for the subject collateral.

 

·Residential real estate loans carry risks associated with the continued credit-worthiness of the borrower and changes in the value of the collateral. In instances where construction is in process, these loans carry risks that a project will not be completed as scheduled and budgeted and that the value of the collateral may, at any point be less than the principal amount of the loan. Additional risks may occur if the general contractor, who may not be a loan customer, is unable to finish the project as planned due to financial pressures unrelated to the project.

 

·Consumer loans carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral, such as automobiles, which may depreciate more rapidly than other assets. In addition, these loans may be unsecured. Consumer loans are more likely than real estate loans to be immediately affected in an adverse manner by job loss, divorce, illness, or personal bankruptcy. Consumer loans are further segmented into automobile and recreational vehicle loans and other consumer loans.

 

·Loans to tax-exempt state and political subdivisions carry risks associated with changes in budget constraints or revenue bases of the particular municipality or entity. These loans are dependent on the cash flow from the tax-exempt entity and often times have collateral upon which depreciation occurs and valuation is less than precise.

 

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans over $1.0 million are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

 

 85 

 

 

CARTER BANK & TRUST 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The general component covers loans that are collectively evaluated for impairment. Large groups of homogeneous loans are collectively evaluated for impairment, and accordingly, they are not included in the separately identified impairment disclosures. The general allowance component also includes loans that are not individually identified for impairment evaluation, such as those loans that fall below the individual evaluation threshold. The general component is based on historical loss experience adjusted for current factors. These factors may include consideration for the following: levels of delinquency and delinquency trends; migration of loans to the classification of special mention, substandard or doubtful; trends in volume and terms of loans; effects of changes in underwriting standards; changes in lending policies, procedures, and practices; national and local economic trends and conditions; industry conditions, and effects of credit concentrations.

 

Our charge-off policy for loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes probable, regardless of the delinquency status of the loan. The Bank may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to:

 

• The status of a bankruptcy proceeding

• The value of collateral and probability of successful liquidation; and/or

• The status of adverse proceedings or litigation that may result in collection

 

Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.

 

Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments. Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including early stage delinquencies of 30 to 89 days past due for early identification of potential problem loans.

 

Troubled Debt Restructurings: In situations where, for economic or legal reasons related to a borrower's financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a troubled debt restructuring (“TDR”). Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms have historically included interest only periods, extended amortization periods beyond what management would typically offer for a similar loan or a below market interest rate when compared to management's underwriting standards for a similar loan type. These concessions are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest, management measures any impairment on the restructuring as noted above for impaired loans.

 

 86 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Concentration of Credit Risk: The majority of the Bank's loans, commitments and lines of credit have been granted to customers in the Bank's market area. The concentrations of credit by loan classification are set forth in Note 5.

 

Advertising Costs: We expense all marketing-related costs, including advertising costs, as incurred. Advertising expense was $1.4 million, $876 thousand, and $191 thousand for the years ended 2019, 2018, and 2017, respectively.

 

Bank Owned Life Insurance: The Bank has purchased life insurance policies on certain executive officers and employees. We receive the cash surrender value of each policy upon its termination or benefits are payable to us upon the death of the insured. Changes in net cash surrender value are recognized in noninterest income in the Consolidated Statements of Income (Loss).

 

Bank Premises and Equipment: Bank premises and equipment acquired are stated at cost, less accumulated depreciation. Depreciation is charged to operating expenses over the estimated useful life of the assets by the straight-line method. Land is carried at cost. Costs of maintenance or repairs are charged to expense as incurred and improvements are capitalized. Upon retirement or disposal of an asset, the asset and related allowance account are eliminated. Any gain or loss on such transactions is included in current operations. Depreciation has been included under occupancy expense in the Consolidated Statements of Income (Loss) totaling $5.3 million in 2019, $3.7 million in 2018, and $3.2 million in 2017. The estimated useful life for bank premises ranges from 5 to 40 years and equipment depreciates over a 3 to 10 year period.

 

Federal Home Loan Bank Stock (“FHLB”): The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors such as asset base. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Cash dividends are reported as dividend income on the Consolidated Statements of Income (Loss).

 

Earnings per Share: Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive common shares had been issued, as well as any adjustment to income resulting from the assumed issuance. Non-vested shares of restricted stock are included in the computation of basic and diluted earnings per share because the holder has voting rights and shares in non-forfeitable dividends during the vesting period.

 

Other Real Estate Owned (“OREO”): Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at fair value less estimated selling cost at the date of foreclosure, which establishes a new cost basis. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. In addition, any retail branch locations closed for branch operations and marketed for sale are also moved to OREO from bank premises and equipment. This real estate is initially valued based on recent comparative market values received from a real estate broker and any necessary write-downs are charged to operations. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and any write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its carrying value or fair value less cost to sell. OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure. Operating costs after acquisition are expensed.

 

 87 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, operating losses, and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the Consolidated Statements of Income (Loss).

 

The Bank is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved new market and historic rehabilitation projects. These investments are included in other assets on the Consolidated Balance Sheets. These partnership investments may generate a return through the realization of federal income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. The investments are accounted for under the equity method, with the expense included within noninterest expense on the Consolidated Statements of Income (Loss). All of the Bank's tax credit investments are evaluated for impairment at the end of each reporting period.

 

Transfer of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity, or the ability to unilaterally cause the transferee to return specific assets.

 

Retirement Benefits: The Bank has established an employee benefit plan as described in Note 14. The Bank does not provide any other post-retirement benefits.

 

 88 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Goodwill and Intangible Assets: Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Bank has outsourced its annual impairment testing to an independent third party and has selected October 1st as the impairment testing date. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our consolidated balance sheet.

 

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 7. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

 

Derivative Instruments and Hedging Activities: The Bank uses derivative instruments such as interest rate swaps for commercial loans with our customers. Upon entering into swaps with the borrower, The Bank entered into offsetting positions with counterparties to minimize risk to the Bank. The back-to-back swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with borrower and counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the customer or counterparty, and, therefore, has no risk.

 

The Bank also enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans to be held for sale are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 15 to 90 days. The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Bank commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on rate lock commitments dues to changes in interest rates.

 

Stock-Based Compensation: Compensation cost is recognized for restricted stock awards issued to employees and non-employee directors, based on the fair value of these awards at the date of the grant. The market price of the Bank’s common stock at the date of the grant is the fair value of the award.

 

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Bank recognizes forfeitures as they occur.

 

 89 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

 

Newly Adopted Pronouncements: The Bank adopted ASU 2016-02, “Leases (Topic 842),” on January 1, 2019, the effective date of the guidance, using the practical expedient transition method whereby we did not revise comparative period information or disclosure. The Bank recorded a one-time cumulative effect adjustment to the retained earnings component of equity as of the implementation date. The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. We also elected certain optional practical expedients including the hindsight practical expedient under which we considered the actual outcomes of lease renewals and terminations when measuring the lease term at adoption, and we made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. We have lease agreements with lease and non-lease components, and we have elected the practical expedient to account for these as a single lease component.

 

We evaluate our contracts at inception to determine if an arrangement is or contains a lease. Right-of-use (“ROU”) assets are included in other assets and lease liabilities are included in other liabilities in our Consolidated Balance Sheets.

 

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any initial direct costs and prepaid lease payments made less any lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

 

Our operating leases relate primarily to bank branches and office space. In conjunction with the adoption on January 1, 2019, we recognized operating lease liabilities of $1.0 million and related lease assets of $0.7 million on our Consolidated Balance Sheet. The difference between the lease assets and lease liabilities primarily consists of deferred rent liabilities reclassified upon adoption to reduce the measurement of the lease assets. The standard did not materially impact our consolidated net income and had no impact on cash flows.

 

NOTE 2 – EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the two-class method. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For all periods presented, the dilutive effect on average shares outstanding is the result of unvested restricted stock grants.

 

 90 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented:

 

   Years ended December 31, 
(Dollars in Thousands, except share and per share data)  2019   2018   2017 
Numerator for Earnings per Share- Basic:               
Net Income (Loss) Allocated to Common Shareholders  $26,575   $11,905   $(681)
Numerator for Earnings per Share- Diluted:               
Net Income (Loss) Allocated to Common Shareholders  $26,575   $11,905   $(681)
Denominators:               
Weighted Average Shares Outstanding- Basic   26,323,899    26,259,223    26,257,761 
Add: Average Participating Shares Outstanding   15,186    11    - 
Denominator for Two-Class Method-Diluted   26,339,085    26,259,234    26,257,761 
Earnings (Loss) per Common Share-Basic  $1.01   $0.45   $(0.03)
Earnings (Loss) per Common Share-Diluted  $1.01   $0.45   $(0.03)

 

There were two shares not included in the average participating shares outstanding because they would be considered to be anti-dilutive for the year ended December 31, 2019. There were no weighted average shares considered anti-dilutive in the calculations for the years ended December 31, 2018 or 2017.

 

NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

 

The Board of Governors of the FRB System imposes certain reserve requirements on all depository institutions. These reserves are maintained in the form of vault cash or as an interest-bearing balance with the FRB. The required reserves averaged $44.3 million for 2019, $42.4 million for 2018, and $40.4 million for 2017.

 

NOTE 4 - INVESTMENT SECURITIES

 

The following tables present the amortized cost and fair value of available-for-sale securities as of the dates presented:

 

   December 31, 2019 
(Dollars in Thousands)  Amortized Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
Residential Mortgage-Backed Securities  $51,600   $1,136   $(92)  $52,644 
Commercial Mortgage-Backed Securities   18,972    147    (113)   19,006 
Asset Backed Securities   110,943    285    (1,589)   109,639 
Collateralized Mortgage Obligations   291,139    2,425    (1,340)   292,224 
Small Business Administration   106,485    347    (1,096)   105,736 
States and Political Subdivisions   148,596    1,669    (1,785)   148,480 
Corporate Notes   14,721    167    -    14,888 
Total Debt Securities  $742,456   $6,176   $(6,015)  $742,617 

 

 91 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

   December 31, 2018 
(Dollars in Thousands)  Amortized Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
U.S. Government Agency Securities  $274,998   $-   $(4,610)  $270,388 
Residential Mortgage-Backed Securities   72,295    4    (1,428)   70,871 
Commercial Mortgage-Backed Securities   22,322    -    (530)   21,792 
Asset Backed Securities   59,368    62    (569)   58,861 
Collateralized Mortgage Obligations   78,107    10    (1,298)   76,819 
Small Business Administration   90,673    50    (1,485)   89,238 
States and Political Subdivisions   170,229    329    (3,084)   167,474 
Corporate Notes   27,508    -    (193)   27,315 
Total Debt Securities  $795,500   $455   $(13,197)  $782,758 

 

The Bank did not have securities classified as held-to-maturity at December 31, 2019 or December 31, 2018.

 

The following table shows the composition of gross and net realized gains and losses for the periods presented:

 

   Years ended December 31, 
(Dollars in Thousands)  2019   2018   2017 
Gross Realized Gains  $4,172   $1,899   $1,253 
Gross Realized Losses   (1,967)   (628)   (67)
Net Realized Gains  $2,205   $1,271   $1,186 
Tax Impact  $463   $267   $415 

 

Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold. The net realized gains above reflect reclassification adjustments in the calculation of other comprehensive income (loss). The net realized gains are included in noninterest income as gains on sales of securities, net in the Consolidated Statements of Income (Loss). The tax impact is included in income tax provision (benefit) in the Consolidated Statements of Income (Loss).

 

The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

 

(Dollars in Thousands)  Amortized   Fair 
December 31, 2019  Cost   Value 
     Due in One Year or Less  $6,805   $6,816 
     Due after One Year through Five Years   13,195    13,419 
     Due after Five Years through Ten Years   82,610    83,086 
     Due after Ten Years   167,192    165,783 
     Residential Mortgage-Backed Securities   51,600    52,644 
     Commercial Mortgage-Backed Securities   18,972    19,006 
     Collateralized Mortgage Obligations   291,139    292,224 
     Asset Backed Securities   110,943    109,639 
Total Securities  $742,456   $742,617 

 

 92 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

(Dollars in Thousands)  Amortized   Fair 
December 31, 2018  Cost   Value 
     Due in One Year or Less  $139,169   $138,056 
     Due after One Year through Five Years   195,808    191,962 
     Due after Five Years through Ten Years   47,320    46,846 
     Due after Ten Years   181,111    177,551 
     Residential Mortgage-Backed Securities   72,295    70,871 
     Commercial Mortgage-Backed Securities   22,322    21,792 
     Collateralized Mortgage Obligations   78,107    76,819 
     Asset Backed Securities   59,368    58,861 
Total Securities  $795,500   $782,758 

 

At December 31, 2019 and December 31, 2018, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S. Government and its Agencies, in an amount greater than 10% of shareholders’ equity. The carrying value of securities pledged for various regulatory and legal requirements was $150.6 million at December 31, 2019 and $176.3 million at December 31, 2018.

 

 93 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Available-for-sale securities with unrealized losses at December 31, 2019 and 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 

   December 31, 2019 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
 
Residential Mortgage-Backed Securities   5   $9,972   $92    1   $2   $-    6   $9,974   $92 
Commercial Mortgage-Backed Securities   3    7,713    113       -    -    -    3    7,713    113 
Asset Backed Securities   22    50,530    549    16    39,153    1,040    38    89,683    1,589 
Collateralized Mortgage Obligations   37    144,543    1,051    6    18,107    289    43    162,650    1,340 
Small Business Administration   13    25,380    91    69    47,616    1,005    82    72,996    1,096 
States and Political Subdivisions   37    70,678    1,785    -    -    -    37    70,678    1,785 
Total Debt Securities   117   $308,816   $3,681    92   $104,878   $2,334    209   $413,694   $6,015 

 

   December 31, 2018 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
 
U.S. Government Agency Securities   -   $-   $-    12   $270,388   $4,610    12   $270,388   $4,610 
Residential Mortgage-Backed Securities   1    3,220    71    30    62,112    1,357    31    65,332    1,428 
Commercial Mortgage-Backed Securities   -    -    -    8    21,792    530    8    21,792    530 
Asset Backed Securities   16    40,812    560    1    2,242    9    17    43,054    569 
Collateralized Mortgage Obligations   8    20,073    111    21    52,073    1,187    29    72,146    1,298 
Small Business Administration   25    39,766    291    54    41,830    1,194    79    81,596    1,485 
States and Political Subdivisions   4    10,674    129    77    130,371    2,955    81    141,045    3,084 
Corporate Notes   8    20,368    136    1    1,947    57    9    22,315    193 
Total Debt Securities   62   $134,913   $1,298    204   $582,755   $11,899    266   $717,668   $13,197 

 

 

94

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Securities are evaluated for other-than-temporary impairment (“OTTI”) quarterly and more frequently if economic or market concerns warrant. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, the credit quality of the issuer, and whether the Bank intends to sell the security or may be required to sell the security prior to maturity. The Bank has reviewed all securities for OTTI.

 

As of December 31 2019, no OTTI has been identified for any investment securities in the Bank’s portfolio. The Bank does not believe any individual unrealized loss as of December 31, 2019 represents other-than-temporary impairment, or OTTI. At December 31, 2019 there were 209 securities in an unrealized loss position and at December 31, 2018 there were 266 debt securities in an unrealized loss position. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities are determined to be investment grade and are paying principal and interest according to the contractual terms of the security. The Bank generally does not intend to sell and it is not more likely than not that the Bank will be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.

 

NOTE 5 – LOANS AND LOANS HELD-FOR-SALE

 

The composition of the loan portfolio by dollar amount is shown in the table below:

 

   December 31, 
(Dollars in Thousands)  2019   2018 
Commercial          
Commercial Real Estate  $1,365,310   $1,359,036 
Commercial and Industrial   621,667    661,870 
Commercial Construction   292,827    201,240 
Total Commercial Loans   2,279,804    2,222,146 
Consumer          
Residential Mortgages   514,538    397,280 
Other Consumer   73,688    73,058 
Consumer Construction   16,736    11,308 
Total Consumer Loans   604,962    481,646 
Total Portfolio Loans  $2,884,766   $2,703,792 

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods.

 

95

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Unsecured loans pose higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses, operate with low financial and operating leverage and demonstrate an ability to clear the outstanding balance on lines of credit for at least thirty consecutive days annually. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

Total commercial loans represented 79% of total portfolio loans at December 31, 2019 and 82% of total portfolio loans at December 31, 2018. Within our commercial portfolio, the CRE and Commercial Construction portfolios combined comprised $1.7 billion or 73% of total commercial loans and 57% of total portfolio loans at December 31, 2019 and comprised $1.6 billion or 70% of total commercial loans and 58% of total portfolio loans at December 31, 2018. Net deferred costs included in the portfolio balances above were $5.1 million and $3.2 million at December 31, 2019 and 2018, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $250 thousand and zero at December 31, 2019 and 2018, respectively.

 

Loans held-for-sale were $19.7 million and $2.6 million as of December 31, 2019 and December 31, 2018, respectively.

 

Troubled Debt Restructurings

 

The following table summarizes the restructured loans as of the dates presented:

 

   December 31, 2019   December 31, 2018 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Real Estate  $109,265   $34,315   $143,580   $114,806   $46,771   $161,577 
Consumer   -    -    -    -    -    - 
Commercial   -    390    390    -    -    - 
Total TDRs  $109,265   $34,705   $143,970   $114,806   $46,771   $161,577 

 

In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized when there is a reasonable chance that an appropriate modification would allow our client to continue servicing the debt. A loan is a troubled debt restructuring (“TDR”) if both of the following exist: 1) the debtor is experiencing financial difficulties, and 2) a creditor has granted a concession to the debtor that it would not normally grant. Nonaccrual loans that are modified can be placed back on accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement. There were minimal commitments to lend additional funds for loans identified as TDRs.

 

The Bank had one loan modified as a TDR during the twelve months ending December 31, 2019 totaling $0.6 million in post-modified recorded balances. The loan is classified as a TDR because there are concessions present that would not be offered to a comparable borrower. There were no TDR payment defaults during the year ended December 31, 2019 for TDRs with outstanding principal balances at year end 2019. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

 

96

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The Bank had seven loans modified as TDR’s for the twelve months ending December 31, 2018 totaling $137.9 million in post-modified recorded balances. One TDR involved modifying the terms of the note from contractual principal and interest payments to a single pay loan structure with interest and principal due at maturity. Five TDRs involved the installation of forbearance agreements for various concessions. The last TDR was related to one relationship that was reworked as a TDR in previous quarters. There were no TDR payment defaults during the year ended December 31, 2018 for TDRs with outstanding principal balances at year end 2018. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

 

At December 31, 2019 and December 31, 2018 the Bank had $34.7 million and $46.8 million in loans, respectively, modified as TDR’s in previous years which had experienced a payment default subsequent to the rework date and were classified as nonperforming. During the first quarter of 2018 the Bank foreclosed on $29.9 million in loans that were classified as nonperforming TDR’s at December 31, 2017.

 

The specific reserve portion of the allowance for loan losses on TDRs, if required, is determined by discounting the restructured cash flow at the original effective rate of the loan before modification or is based on the fair value of the collateral less cost to sell, if repayment of the loan is collateral dependent. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance as a component of the allowance for loan losses or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. As of December 31, 2019, there were specific reserves on two credit relationships allocated in the amount of $6.2 million. As of December 31, 2018, there were two specific reserves allocated in the amount of $5.2 million.

 

Loans to principal officers, directors and their affiliates during 2019 were as follows:

 

(Dollars in Thousands)  2019 
Beginning Balance  $23,409 
New Loans   27,664 
Repayments   (11,393)
Balance at End of Year  $39,680 

 

NOTE 6 - ALLOWANCE FOR LOAN LOSSES

 

We maintain an allowance for loan losses (“ALL”) at a level determined to be adequate to absorb estimated probable incurred losses inherent in the loan portfolio as of the balance sheet date. We develop and document a systematic ALL methodology based on the following portfolio segments: 1) Commercial Real Estate (“CRE”), 2) Commercial & Industrial (“C&I”), 3) Consumer, and 4) Obligations of States and Political Subdivisions. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ALL.

 

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

 

97

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

 

Consumer loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

 

Obligations of States and Political Subdivision loans are made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. This segment of loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Bank. The primary repayment source for these loans include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Bank’s loan portfolio.

 

98

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following tables present, by portfolio segment, the changes in the allowance for loan losses and the allocation of the allowance for loan losses for the years ended December 31, 2019, 2018, and 2017:

 

       Consumer       Obligations     
(Dollars in Thousands)  Real   & Other   Commercial   Of States and     
December 31, 2019  Estate   Loans   & Industrial   Political Sub.   Total 
Allowance for Loan Losses:                         
Balance: Beginning of Year  $35,413   $2,728   $626   $432   $39,199 
Provision Charged to Expense   (3,531)   4,370    2,632    (67)   3,404 
Losses Charged Off   (659)   (4,401)   (22)       (5,082)
Recoveries   639    602            1,241 
Balance, End of Year  $31,862   $3,299   $3,236   $365   $38,762 

 

       Consumer       Obligations     
(Dollars in Thousands)  Real   & Other   Commercial   Of States and     
December 31, 2018  Estate   Loans   & Industrial   Political Sub.   Total 
Allowance for Loan Losses:                         
Balance: Beginning of Year  $33,360   $288   $1,210   $460   $35,318 
Provision Charged to Expense   12,562    4,900    (564)   (28)   16,870 
Losses Charged Off   (11,924)   (2,710)   (20)       (14,654)
Recoveries   1,415    250            1,665 
Balance, End of Year  $35,413   $2,728   $626   $432   $39,199 

 

       Consumer       Obligations     
(Dollars in Thousands)  Real   & Other   Commercial   Of States and     
December 31, 2017  Estate   Loans   & Industrial   Political Sub.   Total 
Allowance for Loan Losses:                         
Balance: Beginning of Year  $32,476   $82   $1,480   $462   $34,500 
Provision Charged to Expense   42,977    461    (239)   (2)   43,197 
Losses Charged Off   (42,813)   (465)   (31)       (43,309)
Recoveries   720    210    -        930 
Balance, End of Year  $33,360   $288   $1,210   $460   $35,318 

 

Credit Quality Indicators:

 

The Bank’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Bank’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.

 

99

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The Bank has a loan review policy and annual scope report that details the level of loan review for commercial loans in a given year. During 2019, the Bank used a four step approach for loan review in the following segments:

 

·Top 20 largest relationships, which is defined as any relationship with an aggregate outstanding balance of $2.0 million or more;

·New loans and renewals;

·Large loan relationships that are not part of the top 20; and

·Concentration focus reviews of the top 16 segments sampling 20% of the balances in each segment.

 

The Bank’s internally assigned grades are as follows:

 

Pass – The loan is currently performing and is of high quality.

 

Special Mention – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

 

Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

 

Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

 

The following tables represent credit exposures by internally assigned grades as of December 31, 2019 and 2018:

 

               Obligations     
(Dollars in Thousands)      Consumers &   Commercial   Of States and     
December 31, 2019  Real Estate   Other Loans   & Industrial   Political Sub.   Total 
Pass  $1,845,040   $73,345   $167,326   $364,869   $2,450,580 
Special Mention   4,022    9    203    -    4,234 
Substandard   340,349    334    89,269    -    429,952 
Doubtful   -    -    -    -    - 
Loss   -    -    -    -    - 
Total Loans  $2,189,411   $73,688   $256,798   $364,869   $2,884,766 
                          
Performing Loans  $2,148,012   $73,421   $256,331   $364,869   $2,842,633 
Non-Accrual Loans   41,399    267    467    -    42,133 
Total Loans  $2,189,411   $73,688   $256,798   $364,869   $2,884,766 

 

100

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

               Obligations     
(Dollars in Thousands)      Consumers &   Commercial   Of States and     
December 31, 2018  Real Estate   Other Loans   & Industrial   Political Sub.   Total 
Pass  $1,592,124   $72,907   $134,002   $432,402   $2,231,435 
Special Mention   10,765    45    70    -    10,880 
Substandard   365,975    106    95,396    -    461,477 
Doubtful   -    -    -    -    - 
Loss   -    -    -    -    - 
Total Loans  $1,968,864   $73,058   $229,468   $432,402   $2,703,792 
                          
Performing Loans  $1,918,804   $72,993   $228,862   $432,402   $2,653,061 
Non-Accrual Loans   50,060    65    606    -    50,731 
Total Loans  $1,968,864   $73,058   $229,468   $432,402   $2,703,792 

 

The Bank individually evaluates all substandard and nonaccrual loans greater than $1.0 million for impairment. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Our methodology for evaluating whether a loan is impaired includes risk-rating credits on an individual basis and consideration of the borrower’s overall financial condition, payment history and available cash resources. In measuring impairment, the Bank primarily utilizes fair market value of the collateral; however, the Bank also uses the discounted cash flow method for loans that are not deemed to be collateral dependent at the time of impairment. Troubled debt restructurings, or (“TDRs”), whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that the Bank would not otherwise grant. The Bank strives to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant.

 

101

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following tables present the balances in the ALL and the recorded investment in the loan balances based on impairment method as of December 31, 2019 and 2018.

 

       Consumer       Obligations     
(Dollars in Thousands)  Real   & Other   Commercial   Of States and     
December 31, 2019  Estate   Loans   & Industrial   Political Sub.   Total 
Allowance for Loan Losses:                         
Individually Evaluated for Impairment  $5,779   $   $390   $   $6,169 
Collectively Evaluated for Impairment   26,083    3,299    2,846    365    32,593 
                          
Total Loans:                         
Individually Evaluated for Impairment  $145,275   $   $390   $   $145,665 
Collectively Evaluated for Impairment   2,044,136    73,688    256,408    364,869    2,739,101 

 

       Consumer       Obligations     
(Dollars in Thousands)  Real   & Other   Commercial   Of States and     
December 31, 2018  Estate   Loans   & Industrial   Political Sub.   Total 
Allowance for Loan Losses:                         
Individually Evaluated for Impairment  $5,199   $   $   $   $5,199 
Collectively Evaluated for Impairment   30,214    2,728    626    432    34,000 
                          
Total Loans:                         
Individually Evaluated for Impairment  $161,577   $   $   $   $161,577 
Collectively Evaluated for Impairment   1,807,287    73,058    229,468    432,402    2,542,215 

 

The recorded investment in loans excludes accrued interest receivable.

 

102

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table includes the recorded investment and unpaid principal balance for impaired loans with the associated allowance, if applicable, at December 31, 2019, 2018 and 2017:

 

(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Interest Income 
December 31, 2019  Balance   Balance   Allowance   in Impaired Loans   Recognized 
Loans without a Specific Valuation Allowance:                         

Real Estate

  $116,506   $116,506   $-   $122,522   $9,049 
                          
Loans with a Specific Valuation Allowance:                         
Real Estate   28,769    28,769    5,779    32,917    - 
Commercial and Industrial   390    390    390    434    - 
                          
Total by Category:                         
Real Estate   145,275    145,275    5,779    155,439    9,049 
Commercial and Industrial   390    390    390    434    - 
Total Impaired Loans  $145,665   $145,665   $6,169   $155,873   $9,049 

 

(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Estimated Interest 
December 31, 2018  Balance   Balance   Allowance   in Impaired Loans   Income Recognized 
Loans without a Specific Valuation Allowance:                         

Real Estate

  $131,198   $131,198   $-   $128,694   $3,946 
Commercial and Industrial   -    -    -    187,978    - 
                          
Loans with a Specific Valuation Allowance:                         
Real Estate   30,379    30,379    5,199    23,126    20 
                          
Total by Category:                         
Real Estate   161,577    161,577    5,199    151,820    3,966 
Commercial and Industrial   -    -    -    187,978    - 
Total Impaired Loans  $161,577   $161,577   $5,199   $339,798   $3,966 

 

103

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Estimated Interest 
December 31, 2017  Balance   Balance   Allowance   in Impaired Loans   Income Recognized 
Loans without a Specific Valuation Allowance:                         

Real Estate

  $229,894   $229,894   $-   $252,714   $6,660 
Consumer   21    21    -    64    - 
Commercial and Industrial   215,802    215,802    -    301,649    14,932 
                          
Loans with a Specific Valuation Allowance:                         
Real Estate   981    981    32    879    45 
                          
Total by Category:                         
Real Estate   230,875    230,875    32    253,593    6,705 
Consumer   21    21    -    64    - 
Commercial and Industrial   215,802    215,802    -    301,649    14,932 
Total Impaired Loans  $446,698   $446,698   $32   $555,306   $21,637 

 

For the years ended December 31, 2019, 2018 and 2017, interest income recognized on impaired loans was $9.0 million, $4.0 million, and $21.6 million, respectively.

 

104

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Age Analysis of Past-Due Loans by Class

 

The following table includes an aging analysis of the recorded investment of past-due loans as of December 31, 2019 and 2018:

 

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
December 31, 2019  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Real Estate Loans  $1,302   $1,088   $-   $2,390   $2,145,622   $41,399   $2,189,411   $- 
Consumer Loans   894    389    -    1,283    72,138    267    73,688    - 
C & I Loans   146    15    -    161    256,170    467    256,798    - 
States and Political Sub.   236    -                -    236    364,633    -    364,869    - 
Total  $2,578   $1,492   $-   $4,070   $2,838,563   $42,133   $2,884,766   $            - 

 

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
December 31, 2018  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Real Estate Loans  $678   $5,368   $-   $6,046   $1,912,758   $50,060   $1,968,864   $- 
Consumer Loans   1,053    457    -    1,510    71,483    65    73,058    - 
C & I Loans   39    23                -    62    228,800    606    229,468    - 
States and Political Sub.   -    -    -    -    432,402    -    432,402    - 
Total  $1,770   $5,848   $-   $7,618   $2,645,443   $50,731   $2,703,792   $            - 

 

As of December 31, 2019 or 2018, there were no nonaccrual or past due loans related to loans held-for-sale.

 

NOTE 7 - FAIR VALUE MEASUREMENTS

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

 

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair value:

 

105

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.

 

Impaired Loans: All loans with an outstanding balance greater than $1.0 million are evaluated for potential impairment when based on current information and events, it is probable that CB&T will be unable to collect all amounts due according to the contractual terms of the loan agreement. At the time a loan is initially identified as impaired it is evaluated for potential impairment and is adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows using the loan’s existing rate if the loan is not determined to be collateral dependent.  All impaired loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

 

Fair value for collateral dependent loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 

Subsequent to the initial impairment date, existing impaired loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For collateral dependent loans, the first stage of our impairment analysis involves management’s inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal. In circumstances where the Bank feels confident in its ability to collect and analyze salient information on the subject collateral and its surrounding real estate market, an in house valuation shall be utilized.  Factors which should be considered in an in house valuation are timing of sale, location and neighborhood, size of the structure and land component, age of any improvements, and other attributes as warranted by the Bank.  This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and our assessment of deterioration of real estate values in the market in which the property is located. When the Bank feels it cannot collect and analyze salient information on the subject collateral or the collateral’s real estate market, a full appraisal will be utilized.

 

106

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

For non-collateral dependent loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

 

OREO: OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure. At December 31, 2019 Carter Bank’s OREO assets were in compliance with the Bank’s OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third party real estate brokers.

 

Financial assets measured at fair value on a recurring basis at December 31, 2019 are summarized below:

 

       Quoted Prices In         
       Active Markets for   Significant Other   Significant  
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $742,617   $   $737,617   $5,000 
Derivatives   626        626     
Total  $743,243   $   $738,243   $5,000 
Liabilities                    
Derivatives  $675   $   $675   $ 
Total  $675   $       —   $675   $ 

 

Financial assets measured at fair value on a recurring basis at December 31, 2018 are summarized below:

 

       Quoted Prices In         
       Active Markets for   Significant Other   Significant  
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $782,758   $   $777,758   $5,000 
Derivatives   282        282     
Total  $783,040   $   $778,040   $5,000 
Liabilities                    
Derivatives  $309   $   $309   $ 
Total  $309   $       —   $309   $ 

 

There were no transfers between Level 1 and Level 2 during 2019 or 2018.

 

107

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Financial assets measured at fair value on a non-recurring basis at December 31, 2019 and 2018 are summarized below:

 

(Dollars in Thousands)                
December 31, 2019  Level 1   Level 2   Level 3   Fair Value 
OREO  $   $       –   $18,324   $18,324 
Impaired Loans  $           –   $   $22,989   $22,989 

 

December 31, 2018  Level 1   Level 2   Level 3   Fair Value 
OREO  $   $   $33,681   $33,681 
Impaired Loans  $       –   $       –   $25,180   $25,180 

 

Impaired loans had a carrying amount of $23.0 million at December 31, 2019 with a valuation allowance of $6.2 million, resulting in a $1.0 million increase in provision for loan losses for the year ended December 31, 2019. Impaired loans had a carrying amount of $25.2 million at December 31, 2018 with a valuation allowance of $5.2 million, resulting in a $5.2 million increase in provision for loan losses for the year ended December 31, 2018.

 

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $18.3 million as of December 31, 2019, compared with $33.7 million at December 31, 2018, respectively. Write-downs of $4.5 million were recorded on OREO for the year ended December 31, 2019 compared to $8.7 million for the year ended December 31, 2018, respectively.

 

The following tables summarize the Bank’s assets that were measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018:

 

(Dollars in Thousands)                  
December 31, 2019  Fair   Valuation  Unobservable  Weighted     
Assets  Value   Technique  Inputs  Range   Average 
Impaired Loans  $2,700   Purchase Contract  Pending Close of Contract, Net of Closing Costs   25.0%   25.0%
Impaired Loans   20,289   Discounted Appraisals  Management’s Disc. & Selling Costs   2.6 – 84.6%   24.1%
Total Impaired Loans  $22,989                 
                      
Other Real Estate Owned  $13,596   Appraisals  Selling Costs   6.0 – 10.0%   6.4%
Other Real Estate Owned   1,735   Discounted Cash Flow  Discount Rate   6.3%   6.3%
Other Real Estate Owned   2,993   Internal Valuations  Selling Costs   5.0%   5.0%
Total Other Real Estate Owned  $18,324                 

 

(Dollars in Thousands)                  
December 31, 2018  Fair   Valuation  Unobservable  Weighted     
Assets  Value   Technique  Inputs  Range   Average 
Impaired Loans  $24,801   Discounted Appraisals  Management’s Disc. & Selling Costs   0.0 – 100.0%   25.5%
Impaired Loans   379   Net Present Value  Discount Rate   5.5%   5.5%
Total Impaired Loans  $25,180                 
                      
Other Real Estate Owned  $24,644   Appraisals  Selling Costs   3.0 – 10.0%   6.2%
Other Real Estate Owned   2,282   Discounted Cash Flow  Discount Rate   6.3%   6.3%
Other Real Estate Owned   1,796   Internal Valuations  Selling Costs   5.0%   5.0%
Other Real Estate Owned   4,959   Discounted Internal Valuations  Management’s Disc. & Selling Costs   16.9 – 62.1%   44.4%
Total Other Real Estate Owned  $33,681                 

 

108

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The carrying values and estimated fair values of the Bank’s financial instruments at December 31, 2019 and December 31, 2018 are presented in the following tables. Fair values for December 31, 2019 and December 31, 2018 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

 

(Dollars in Thousands)      Fair Value Measurements at December 31, 2019 
Financial Assets:  Carrying
Value
   Level 1   Level 2   Level 3   Total 
Cash and Cash Equivalents  $125,812   $41,386   $84,426   $-   $125,812 
Securities Available-for-Sale   742,617    -    737,617    5,000    742,617 
Loans Held-for-Sale   19,714    -    -    19,714    19,714 
Portfolio Loans   2,884,766    -    -    2,857,986    2,857,986 
Federal Home Loan Bank Stock, at Cost   4,113    -    -    N/A    N/A 
Other Assets- Interest Rate Derivatives   626    -    626    -    626 
Accrued Interest Receivable   13,751    -    3,018    10,733    13,751 

 

Financial Liabilities:                    
Deposits  $3,504,245   $554,875   $988,964   $1,967,563   $3,511,402 
Other Liabilities- Interest Rate Derivatives   675    -    675    -    675 
FHLB Borrowings   10,000    -    -    9,886    9,886 
Accrued Interest Payable   3,001    -    -    3,001    3,001 

 

(Dollars in Thousands)      Fair Value Measurements at December 31, 2018 
Financial Assets: 

Carrying

Value

   Level 1   Level 2   Level 3   Total 
Cash and Cash Equivalents  $293,823   $47,413   $246,410   $-   $293,823 
Securities Available-for-Sale   782,758    -    777,758    5,000    782,758 
Loans Held-for-Sale   2,559    -    -    2,559    2,559 
Portfolio Loans   2,703,792    -    -    2,585,579    2,585,579 
Other Assets- Interest Rate Derivatives   282    -    282    -    282 
Accrued Interest Receivable   18,740    -    4,623    14,117    18,740 

 

Financial Liabilities:                    
Deposits  $3,591,181   $547,773   $3,022,117   $-   $3,569,890 
Other Liabilities- Interest Rate Derivatives   309    -    309    -    309 
Accrued Interest Payable   2,398    -    2,398    -    2,398 

 

NOTE 8 - PREMISES AND EQUIPMENT

 

Premises and equipment are stated at cost less accumulated depreciation as follows:

 

   December 31, 
(Dollars in Thousands)  2019   2018 
Bank Premises (including land of $28,526 on December 31, 2019 and $29,729 on December 31, 2018)  $87,687   $87,458 
Furniture and Equipment   28,783    25,934 
Leasehold Improvements   702    586 
    117,172    113,978 
Accumulated Depreciation   (31,230)   (28,137)
Total  $85,942   $85,841 

 

109

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Depreciation has been included under occupancy expense in the Consolidated Statements of Income (Loss) totaling $5.3 million in 2019, $3.7 million in 2018, and $3.2 million in 2017.

 

Real estate on closed branches was valued based on recent comparative market values received from a real estate broker. Write-downs in the amount of $1.0 million, $3.5 million and $5.3 million were recognized during 2019, 2018 and 2017, respectively. The net remaining carrying value of $3.0 million and $6.8 million is classified as held-for-sale in OREO in the Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively. The disposition of the remaining 12 properties is expected to be completed during 2020.

 

The Bank leases offices from non-related parties under various terms, some of which contain contingent rentals tied to a price index. Rental expense for these leases was $156 thousand in 2019, $211 thousand in 2018, and $142 thousand for 2017.

 

The Bank currently has four depository locations, a loan production office, and a commercial banking office under lease contracts. The lease for our Lexington office has already been extended into its last renewal period and expires November 1, 2020. The lease for our Amherst office expired September 30, 2018, but was renewed effective October 1, 2018 for a period of two years which ends on September 30, 2020. The Bank also leases its Waynesboro office, whose original term expired July 31, 2007. The lease provides an option to extend for three additional six-year terms and is currently in its third renewal period. In addition, the Bank also leases a loan production office in Roanoke, whose initial three year term commenced on November 1, 2018. At the end of the initial term on October 31, 2021, the Bank has the option to extend for three additional five-year terms. The Bank’s commercial banking office in Greensboro has a lease contract whose initial five-year term commenced November 1, 2019, with an option to extend for three additional five-year terms. The lease for our Harrisonburg office commenced on July 1, 2019 with an initial term of twenty-four months. There are no extension terms included in the original lease agreement. The Bank formerly leased its Weyers Cave office, whose original term expired August 31, 2018. The Bank chose not to renew its lease and closed its location.

 

The Bank has included $1.2 million in right-of-use assets in other assets and $1.5 million in lease liabilities in other liabilities on its Consolidated Balance Sheets at December 31, 2019.

 

110

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 9 - OTHER REAL ESTATE OWNED

 

The following table presents OREO owned activity as of the dates presented:

 

   Year Ended December 31, 
(Dollars in Thousands)  2019   2018   2017 
Beginning Balance  $33,681   $39,793   $23,558 
Loans Transferred to Other Real Estate Owned   302    28,212    17,912 
Loans to Finance the Sale of Other Real Estate Owned   -    (893)   (7,347)
Transfer of Closed Retail Offices to Other Real Estate Owned   1,694    2,177    19,009 
Capitalized Expenditures   -    1,272    372 
Direct Write-Downs   (4,457)   (8,714)   (9,967)
Cash Proceeds from Pay-downs   (580)   -    - 
Sales of Other Real Estate Owned   (12,316)   (28,166)   (3,744)
End of Year  $18,324   $33,681   $39,793 

 

At December 31, 2019, 2018, and 2017, the balance of OREO includes $15.3 million, $26.9 million, and $26.1 million, respectively, of foreclosed properties recorded as a result of obtaining physical possession of the asset. At December 31, 2019 and 2018, the recorded investment of foreclosed residential real estate was $69 thousand and $267 thousand, respectively. At December 31, 2019 and 2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds are in process is $290 thousand and $296 thousand, respectively.

 

Income and expenses applicable to foreclosed assets include the following:

 

   Year Ended December 31, 
(Dollars in Thousands)  2019   2018   2017 
Provision for Losses  $4,457   $8,714   $9,967 
Operating Expenses, net of rental income   (215)   (553)   343 
Net Loss (Gain) on Sales   275    (513)   (58)
Other Real Estate Owned Expense  $4,517   $7,648   $10,252 

 

NOTE 10 – GOODWILL AND OTHER INTANGIBLES

 

The Bank has selected October 1st as the impairment testing date. Based upon the testing, no impairment was identified. No events or circumstances since the October 1, 2019 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exits.

 

The following table presents goodwill as of December 31:

 

(Dollars in Thousands)  2019   2018 
Balance as of January 1  $62,192   $63,228 
Change due to Sale of Subsidiary   -    (1,036)
Impairment Losses   -    - 
Balance as of December 31  $62,192   $62,192 

 

111

 

 

CARTER BANK & TRUST 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table presents other intangibles as of December 31:

 

   2019   2018 
Balance as of January 1  $-   $122 
Change due to Sale of Subsidiary   -    (122)
Impairment Losses   -    - 
Balance as of December 31  $-   $- 

 

NOTE 11 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The following table indicated the amounts representing the value of derivative assets and derivative liabilities at December 31:

 

   Fair Values of Derivative Instruments 
   Asset Derivatives (Included in Other Assets) 
   Number of    Notional    2019    2018 
(Dollars in Thousands)   Transactions    Amount    Fair Value    Fair Value 
Derivatives not Designated as Hedging Instruments                    
Interest Rate Lock Commitments – Mortgage Loans   5   $937   $1   $1 
Interest Rate Swap Contracts – Commercial Loans   2    18,773    625    281 
Total Derivatives not Designated as Hedging Instruments            $626   $282 

 

   Fair Values of Derivative Instruments 
   Liability Derivatives (Included in Other Liabilities) 
   Number of    Notional    2019    2018 
(Dollars in Thousands)   Transactions    Amount    Fair Value    Fair Value 
Derivatives not Designated as Hedging Instruments                    
Forward Sale Contracts – Mortgage Loans   5   $937   $1   $1 
Interest Rate Swap Contracts – Commercial Loans   2    18,773    674    308 
Total Derivatives not Designated as Hedging Instruments            $675   $309 

 

The following table indicates the gain or loss recognized in income on derivatives for the years ended December 31:

 

(Dollars in Thousands)  2019   2018   2017 
Derivatives not Designated as Hedging Instruments               
Interest Rate Lock Commitments – Mortgage Loans  $-   $1   $- 
Forward Sale Contracts – Mortgage Loans   -    (1)   - 
Interest Rate Swap Contracts – Commercial Loans   (22)   (27)   - 
Total Derivative Loss  $(22)  $(27)  $- 

 

112

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

 

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at December 31:

 

   Asset Derivatives (Included in
Other Assets)
   Liability Derivatives
(Included in Other
Liabilities)
 
(Dollars in Thousands)  2019   2018   2019   2018 
Derivatives not Designated as Hedging Instruments                    
Gross Amounts Recognized  $625   $281   $674   $308 
Gross Amounts Offset   -    -    -    - 
Net Amounts Presented in the Consolidated Balance Sheets   625    281    674    308 
Gross Amounts Not Offset (1)   -    -    (860)   (260)
Net Amount  $625   $281   $(186)  $48 

 

(1)  Amounts represent collateral posted for the periods presented.

 

NOTE 12 – DEPOSITS

 

The following table presents the composition of deposits at December 31:

 

(Dollars in Thousands)  2019   2018   $ Change   % Change 
Noninterest-Bearing Demand  $554,875   $547,773   $7,102    1.3%
Interest-Bearing Demand   286,561    254,015    32,546    12.8%
Money Market   140,589    80,835    59,754    73.9%
Savings   561,814    610,757    (48,943)   (8.0)%
Certificates of Deposits   1,960,406    2,097,801    (137,395)   (6.5)%
Total  $3,504,245   $3,591,181   $(86,936)   (2.4)%

 

All deposit accounts are insured by the FDIC up to the maximum amount allowed by law. The Dodd-Frank Act, signed into law on July 21, 2010, makes permanent the $250,000 limit for federal deposit insurance and the coverage limit applies per depositor, per insured depository institution for each account ownership. Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at year-end 2019 and 2018 were $195.3 million and $203.5 million, respectively.

 

Certificates of Deposit maturing as of December 31:

 

(Dollars in Thousands)  2019 
2020  $1,034,098 
2021   332,864 
2022   153,255 
2023   294,547 
2024   143,666 
Thereafter   1,976 
   TOTAL  $1,960,406 

 

113

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Overdrafts reclassified to loans at December 31, 2019 and 2018 were $0.7 million and $0.2 million, respectively.

 

Total deposit dollars from executive officers, directors, and their related interests at December 31, 2019 and 2018, respectively, were $7.5 million and $3.7 million.

 

NOTE 13 – LONG-TERM BORROWINGS

 

Long-term borrowings are for original terms greater than or equal to one year and are comprised of Federal Home Loan Bank (“FHLB”) advances. Our long-term borrowings at the Atlanta FHLB were $10.0 million as of December 31, 2019 and zero as of December 31, 2018. FHLB borrowings are secured by a blanket lien on select residential mortgages and investment securities available-for-sale. Total loans pledged as collateral were $284.6 million at December 31, 2019. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $242.2 million based upon qualifying collateral, to a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of December 31, 2019.

 

The following table represents the balance of long-term borrowings, the weighted average interest rate, and interest expense for the years ended December 31:

 

(Dollars in Thousands)  2019   2018   2017 
Long-term Borrowings  $10,000   $-   $- 
Weighted Average Interest Rate   1.63%   0.00%   0.00%
Interest Expense   38    -    - 

 

Scheduled annual maturities and average interest rates for all of our long-term debt for each of the five years subsequent to December 31, 2019 and thereafter are as follows:

 

        Weighted 
(Dollars in Thousands)   Balance   Average Rate 
2020   $-    0.00%
2021    3,000    1.68%
2022    4,000    1.60%
2023    -    0.00%
2024    3,000    1.63%
Thereafter    -    0.00%
Total FHLB Advances   $10,000    1.63%

 

NOTE 14 - EMPLOYEE BENEFIT PLANS

 

The Bank has adopted an integrated profit sharing plan, which allows for elective deferrals and non-elective contributions. Employees participate in the profit sharing plan following completion of six (6) months of service and upon reaching the age of twenty years and six months as of January 1. Vesting is based on years of service to the Bank, with a year being any year an employee works a minimum of 1,000 hours.

 

114

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table details the vesting schedule based on years of service for participants:

 

1 Year of Service    0% Vested 
2 Years of Service    20% Vested 
3 Years of Service    40% Vested 
4 Years of Service    60% Vested 
5 Years of Service    100% Vested 

 

Any participant who has reached the age of 62 is fully vested regardless of length of service. Each participant in the plan (who has not reached age 62) becomes 100% vested after five (5) years of service. The non-elective contribution to the plan is determined each year by the Board of Directors and thus may fluctuate in amount from year to year. The contribution by the Bank, which includes contributions to the non-qualified plan discussed below, was $1.4 million in 2019, $1.7 million in 2018, and zero in 2017. These amounts are included in salaries and employee benefits in the Consolidated Statements of Income (Loss).

 

Beginning in 2019, our integrated profit sharing plan includes a Bank match based upon an employee’s elective deferral. This elective deferral is subject to dollar limits announced annually by the Internal Revenue Service (“IRS”). Elective deferrals are matched equal to 100% of the first 3% deferred and 50% of the next 2%, producing a maximum 4% match. Expense for this deferral match was $1.1 million for the year ended December 31, 2019. There was no expense for the calendar years ended 2018 or 2017.

 

Carter Bank & Trust (the “Bank”) entered into a Non-Qualified Profit Sharing Plan originally on December 30, 1996, which was subsequently amended and restated effective December 20, 2007. The purpose of the Plan was to provide additional benefits to be paid to the Executive upon the occurrence of a Distributable Event, which is either termination or death. The Board of the Bank approved the amended plan on December 20, 2007. Since inception of the Plan, the Bank’s former Chairman and Chief Executive Officer was the only Executive who participated in the Plan. In April 2017, a distributable event occurred, in which distributions will occur over 45 quarterly payments. The value of the plan was $1.1 million as of December 31, 2019, and was solely comprised of cash. The quarterly distributions began on January 1, 2018 and will continue to be paid out in equal quarterly installments approximating $30 thousand.

 

NOTE 15 – INCENTIVE AND RESTRICTED STOCK PLAN

 

The Board of Directors of the Bank adopted the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Plan”) on March 29, 2018 based on the recommendation of the Nominating and Compensation Committee (the “Committee”). The Plan became effective on June 27, 2018 and reserves 2,000,000 shares of common stock for issuance. The Plan provides for the grant to key employees and non-employee directors of awards that may include one or more of the following: stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units and performance cash awards (collectively, the “awards”). Subject to accelerated vesting under certain circumstances, the Plan requires a minimum vesting period of one year for awards subject to time-based conditions and a minimum performance period of one year for awards subject to achievement or satisfaction of performance goals. These minimums are applicable to awards other than those granted as part of a retainer for the service of non-employee directors. The Committee will set the vesting period on the awards. No awards may be granted under the Plan more than ten years from the effective date of the Plan.

 

115

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Restricted Stock

 

The Bank periodically issues restricted stock to non-employee directors, executive officers and employees pursuant to our Plan. As of December 31, 2019, 76,871 restricted shares have been granted under the Plan and 403 restricted shares have been forfeited.

 

The Bank granted 47,309 and 12,413 restricted shares of common stock to key personnel under the Plan during the years ended 2019 and 2018, respectively. These grants were approved by the Committee as compensation for substantial contributions to Bank performance, including contribution during our recent core systems conversion. These key personnel restricted shares fully vest three years after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

During 2019, there were 17,149 restricted shares of common stock issued to non-employee directors under the Plan. During 2018, there were no restricted shares of common stock issued to non-employee directors under the Plan. These grants were approved by the Committee as compensation for Bank performance. These restricted shares were originally approved to fully vest three years after the grant date. However, the Committee approved accelerated vesting of these non-employee director restricted shares in January 2020 to fully vest one year after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

If any award granted under this Plan terminates, expires, or lapses for any reason other than by virtue of exercise or settlement of the award, or if shares issued pursuant to awards are forfeited, any stock subject to such award again shall be available for future awards under the Plan.

 

Compensation expense for restricted shares of stock is recognized ratably over the period of service, generally the entire vesting period, based on fair value on the grant date. The Bank recognized compensation expense of $381 thousand $9 thousand for the years ended 2019 and 2018, respectively.

 

As of December 31, 2019 and 2018, there was $946 thousand and $213 thousand, respectively, of total unrecognized compensation cost related to restricted stock that will be recognized as compensation expense over a weighted average period of 2.13 years and 2.88 years, respectively.

 

The following table provides information about restricted stock granted under the Plan for the years ended December 31:

 

        Weighted Average 
    Restricted Shares   Grant Date Fair Value 
Non-vested at December 31, 2017    -   $- 
Granted     12,413    17.86 
Vested     -    - 
Forfeited    -    - 
Non-vested at December 31, 2018    12,413    17.86 
Granted     64,458    17.39 
Vested     (3,995)   17.86 
Forfeited    (403)   17.86 
Non-vested at December 31, 2019    72,473   $17.44 

 

116

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 16 - FEDERAL AND STATE INCOME TAXES

 

The components of the provision (benefit) for income tax expense were as follows:

 

(Dollars in Thousands)  2019   2018   2017 
Current  $1,285   $(2,447)  $(7,160)
Deferred   (76)   4,850    (10,371)
Income Tax Provision (Benefit)  $1,209   $2,403   $(17,531)

 

The following is a reconciliation of the differences between the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate (21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017) to income before taxes:

 

   2019   2018   2017 
(Dollars in Thousands)  Amount   Percent   Amount   Percent   Amount   Percent 
Federal Income Tax at Statutory Rate  $5,835    21.0%  $3,006    21.0%  $(6,374)   35.0%
State Income Tax, net of Federal Benefit   220    0.8%   190    1.3%   -    0.0%
Tax-exempt Interest, net of Disallowance   (2,128)   (7.7)%   (2,629)   (18.4)%   (5,173)   28.4%
Federal Tax Credits, net of Basis Reduction   (2,032)   (7.3)%   (1,375)   (9.6)%   (5,868)   32.2%
Change in Valuation Allowance (excluding the effect of the Act)   (424)   (1.5)%   (384)   (2.7)%   3,010    (16.5)%
Income from Bank Owned Life Insurance   (302)   (1.1)%   (244)   (1.7)%   -    0.0%
Enactment of Federal Tax Reform   -    0.0%   -    0.0%   2,798    (15.4)%
True-up of Book and Tax Basis Differences   8    0.0%   3,742    26.1%   (5,206)   28.6%
Other   32    0.2%   97    0.8%   (718)   4.0%
Income Tax Provision (Benefit) and Effective Income Tax Rate  $1,209    4.4%  $2,403    16.8%   (17,531)   96.3%

 

 

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Act”), was signed into law. The Act includes many provisions that will affect our income tax expense, including reducing our federal tax rate from 35% to 21% effective January 1, 2018. As a result of the rate reduction, we are required to re-measure, through income tax expense in the period of enactment, our deferred tax assets and liabilities using the enacted rate at which we expect them to be recovered or settled. The re-measurement of our net deferred tax asset resulted in additional income tax expense of $2.8 million in 2017.

 

Also on December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Act in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB 118 allowed for a measurement period not to extend beyond one year from the Act’s enactment date to complete the necessary accounting.

 

We recorded provisional amounts of deferred income taxes using reasonable estimates in one area where information necessary to complete the accounting was not available, prepared, or analyzed. Our deferred tax asset for temporary differences associated with equity investments in partnerships was awaiting receipt of Schedules K-1 from outside preparers, which was necessary to determine our 2017 tax impact from these investments.

 

117

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

We completed and recorded the income tax effects of these provisional items during the third quarter of 2018 when the information became available.

 

Realization of deferred tax assets is dependent upon the generation of future taxable income. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities and the projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management recorded a valuation allowance on deferred tax assets related to its equity investments in partnerships that will generate capital losses upon exiting the investments. The Bank has not identified prudent and feasible strategies to generate future capital gains to offset the capital losses. Management has determined that it is more likely than not that all other deferred tax assets will be realized in future periods so no additional valuation allowance is necessary at December 31, 2019 and 2018.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of the Bank’s deferred tax assets and liabilities are as follows:

 

(Dollars in Thousands)        
Deferred Tax Assets  2019   2018 
Allowance for Loan Losses  $8,301   $8,389 
Net Unrealized Loss on Available-for-Sale Securities   -    2,676 
Acquisition-Related Fair Value Adjustments   -    - 
Valuation Adjustments on Other Real Estate Owned   1,556    1,225 
Tax Credit Carryforwards   5,120    3,004 
Equity Investment in Partnerships   1,212    1,187 
Accrued Interest on Nonaccrual Loans   889    - 
Operating Lease Liabilities   323    - 
Other   1,280    1,351 
Gross Deferred Tax Assets   18,681    17,832 
Less: Valuation Allowance   (1,212)   (1,636)
Total Deferred Tax Assets  $17,469   $16,196 

 

Deferred Tax Liabilities  2019   2018 
Fixed Asset Depreciation  $(5,715)  $(2,616)
Acquisition-Related Fair Value Adjustments   (4,386)   (5,018)
Deferred Loan Income   (1,088)   - 
Operating Lease Right-of-Use Assets   (263)   - 
Net Unrealized Gain on Available-for-Sale Securities   (34)   - 
Other   (55)   - 
Total Deferred Tax Liabilities   (11,541)   (7,634)
Net Deferred Tax Assets  $5,928   $8,562 

 

The Bank had federal tax credit carryforward of $5.1 million at December 31, 2019 and $3.0 million at December 31, 2018. The federal tax credits consist primarily of new markets credits and historic rehabilitation credits that, if not used, will expire from 2037 to 2039.

 

 118 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

At December 31, 2019 and 2018, the Bank had no ASC 740-10 unrecognized tax benefits or accrued interest and penalties recorded. The Bank does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Bank recognizes interest and penalties on unrecognized tax benefits in income tax expense.

 

The Bank is subject to U.S. federal income tax as well as various other state and local jurisdictions. The Bank is generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2013.

 

NOTE 17 - OFF BALANCE SHEET ACTIVITIES AND COMMITMENTS

 

Commitments to extend credit, which amounted to $488.9 million at December 31, 2019 and $387.7 million at December 31, 2018, represent agreements to lend to customers with fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements. Standby letters of credit are conditional commitments issued by the Bank guaranteeing the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The Bank had outstanding letters of credit totaling $39.5 million in 2019 and $34.3 million in 2018.

 

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and unconditional obligations as it does for on balance sheet instruments. Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.

 

Our allowance for unfunded commitments is determined using a methodology similar to that used to determine the ALL. Amounts are added to the allowance for unfunded commitments through a charge to current earnings in noninterest expense. The balance in the allowance for unfunded commitments was $0.4 million and $0.3 million at December 31, 2019 and 2018, respectively. The allowance for unfunded commitments in included in other liabilities in the Consolidated Balance Sheets. The reserve is calculated by applying historical loss rates to our unfunded commitments.

 

NOTE 18 – REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions and return on investment. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Bank’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

 

 119 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Service Charges on Deposit Accounts: Service charges on deposit accounts consist of overdraft fees, service charges on returned checks, stop payment fees, check chargeback fees, minimum balance fees, and other deposit account related fees. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on returned checks are recognized at the point in time that a check is returned. Transaction-based fees, which include services such as stop payment fees, check chargeback fees, and other deposit account related fees are recognized at the point in time the Bank fulfills the customer’s request. Minimum balance fees are system-assessed at the point in time that a customer’s balance is below the required minimum for the product. Service charges on deposits are withdrawn from the customer’s account balance.

 

Other Fees and Other Income: Other fees and other income consists of safe deposit rents, money order fees, check cashing and cashiers’ check fees, wire transfer fees, letter of credit fees, check order income, and other miscellaneous fees. These fees are largely transaction-based; therefore, the Bank’s performance obligation is satisfied and the resultant revenue is recognized at the point in time the service is rendered. Payments for transaction-based fees are generally received immediately or in the following month by a direct charge to a customer’s account.

 

Debit Card Interchange Fees: The Bank earns interchange fees from debit cardholder transactions conducted through a card payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

 

Insurance: Commission income is earned based on customer transactions. The commission income is recognized when the transaction is complete. The Bank also receives a return on its investment in Bankers Insurance, LLC on an annual basis based on the income of the insurance company and percentage of ownership.

 

OREO Income: The Bank owns properties acquired through foreclosure that are included in other real estate owned, net on the Consolidated Balance Sheet. If the Bank rents any of those properties, the resultant income is recognized at the point of receipt since the performance obligation has been satisfied. The rents are generally received monthly.

 

Gains/Losses on Sales of OREO: The Bank records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Bank finances the sale of OREO to the buyer, the Bank assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Bank adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

 

 120 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table summarizes the point of revenue recognition and the income recognized for each of the revenue streams for the years ended December 31:

 

   Point of Revenue        
(Dollars in Thousands)  Recognition  2019   2018 
In-Scope Revenue Streams             
Service Charges on Deposit Accounts  At  a point in time  $3,919   $3,127 
Other Fees and Other Income  At  a point in time   1,842    1,756 
Debit Card Interchange Fees  At  a point in time   5,160    4,750 
Insurance             
    Customer Commissions  At  a point in time   120    625 
    Annual Commission on Investment  Over time   1,105    1,230 
Other Real Estate Owned Income  At  a point in time   689    2,692 
Gains (Losses) on Sales of Other Real Estate Owned  At  a point in time    ***      ***  
     Total In-Scope Revenue Streams      12,835    14,180 
              
Out of Scope Revenue Streams             
Gain on Sales of Securities, net      2,205    1,271 
Bank Owned Life Insurance Income      1,436    1,161 
Other      394    374 
     Total Noninterest Income     $16,870   $16,986 

 

 

***Reported net with Losses on Sales and Write-downs of Other Real Owned in Noninterest Expense  

 

NOTE 19 - CAPITAL ADEQUACY

 

The Bank is subject to capital regulations in accordance with Basel III, as administered by banking regulators.  Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. The Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (“Basel III rules”) became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in at the rate of 0.625% per year and was 2.5% on January 1, 2019. Management believes as of December 31, 2019, the Bank meets all capital adequacy requirements to which it is subject.

 

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2019 and 2018, the most recent regulatory notifications categorized the Bank as well- capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institutions category.

 

 121 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

       Well-   December 31, 2019   December 31, 2018 
(Dollars in Thousands)  Minimum
Value (1)
   Capitalized
(2)
   Amount   Ratio   Minimum
Amount (1)
   Amount   Ratio   Minimum
Amount (1)
 
Tier 1 Leverage Ratio   4.00%   5.00%  $410,793    10.33%   158,993   $384,088    9.61%  $159,811 
Common Equity Tier 1 Capital Ratio   4.50%   6.50%   410,793    13.46%   137,333    384,088    13.86%   124,707 
Tier 1 Capital Ratio   6.00%   8.00%   410,793    13.46%   183,110    384,088    13.86%   166,277 
Total Risk-Based Capital Ratio   8.00%   10.00%   448,953    14.71%   244,147    418,789    15.11%   221,702 

 

(1) Minimum requirements to remain adequately capitalized.

(2) Well-capitalized under prompt corrective action regulations.              

 

NOTE 20 - QUARTERLY FINANCIAL DATA (Unaudited)

 

The following summarizes the quarterly results of operations for the years ended December 31:

 

(Dollars in Thousands)  First   Second   Third   Fourth 
2019  Quarter   Quarter   Quarter   Quarter 
Total Interest Income  $39,139   $40,068   $40,154   $39,759 
Total Interest Expense   11,243    12,113    12,084    11,333 
Net Interest Income   27,896    27,955    28,070    28,426 
Provision for Loan Losses   1,627    1,369    1,390    (982)
Net Interest Income after Provision for Loan Losses   26,269    26,586    26,680    29,408 
Total Non-Interest Income   3,804    4,579    4,156    4,509 
Total Non-Interest Expense   22,110    22,834    22,777    30,486 
Income Before Income Taxes   7,963    8,331    8,059    3,431 
Income Tax Expense (Benefit)   422    504    458    (175)
Net Income  $7,541   $7,827   $7,601   $3,606 
Earnings Per Share  $0.29   $0.30   $0.29   $0.14 

 

(Dollars in Thousands)  First   Second   Third   Fourth 
2018  Quarter   Quarter   Quarter   Quarter 
Total Interest Income  $35,588   $38,362   $38,207   $39,862 
Total Interest Expense   8,151    9,111    10,079    10,773 
Net Interest Income   27,437    29,251    28,128    29,089 
Provision for Loan Losses   1,515    1,730    13,743    (118)
Net Interest Income after Provision for Loan Losses   25,922    27,521    14,385    29,207 
Total Non-Interest Income   4,731    4,741    4,610    3,832 
Total Non-Interest Expense   22,559    23,022    25,360    29,700 
Income (Loss) Before Income Taxes   8,094    9,240    (6,365)   3,339 
Income Tax (Benefit) Expense   (735)   2,041    1,164    (67)
Net Income (Loss)  $8,829   $7,199   $(7,529)  $3,406 
Earnings (Loss) Per Share  $0.34   $0.27   $(0.29)  $0.13 

 

 122 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

(Dollars in Thousands)  First   Second   Third   Fourth 
2017  Quarter   Quarter   Quarter   Quarter 
Total Interest Income  $36,353   $36,084   $35,050   $36,597 
Total Interest Expense   9,844    9,476    9,122    8,669 
Net Interest Income   26,509    26,608    25,928    27,928 
Provision for Loan Losses   3,880    12,742    13,890    12,685 
Net Interest Income after Provision for Loan Losses   22,629    13,866    12,038    15,243 
Total Non-Interest Income   2,947    2,521    3,930    3,436 
Total Non-Interest Expense   17,804    20,605    20,963    35,450 
Income (Loss) Before Income Taxes   7,772    (4,218)   (4,995)   (16,771)
Income Tax Expense (Benefit)   1,470    (2,735)   (4,566)   (11,700)
Net Income (Loss)  $6,302   $(1,483)  $(429)  $(5,071)
Earnings (Loss) Per Share  $0.24   $(0.06)  $(0.02)  $(0.19)

 

NOTE 21 – SUBSEQUENT EVENT

 

In December 2019, in Wuhan, China, a novel strain of coronavirus causing a previously unknown disease (“COVID-19”) was reported in Wuhan, China. The World Health Organization (the “WHO”) declared the outbreak to constitute a Public Health Emergency of International Concern on January 30, 2020. Over the course of the first quarter of 2020, COVID-19 developed into a worldwide outbreak and, on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 13, 2020, President Trump issued a proclamation declaring a national state of emergency in response to COVID-19. During the final two weeks of March 2020, the governors of multiple U.S. states, including Virginia, where the Bank has its principal place of business, and North Carolina, where the Bank has significant operations, issued stay-at-home orders that directed the closing of non-essential businesses and restricted public gatherings. The COVID-19 pandemic continues to grow in the Bank’s areas of operation, the United States and across the globe. The pandemic has severely disrupted supply chains and adversely affected production, demand, sales and employee productivity across a range of industries and dramatically increased unemployment in the Bank’s areas of operation and nationally. These events have affected the Bank’s operations in the first quarter of 2020 and are expected to impact the Bank’s financial results throughout fiscal year 2020. The extent of the impact of the COVID-19 pandemic on the Bank’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the impact on the Bank’s customers, employees and vendors and the nature and effect of past and future federal and state governmental and private sector responses to the pandemic, all of which are uncertain and cannot be predicted.

 

Future developments with respect to COVID-19 are highly uncertain and cannot be predicted and new information may emerge concerning the severity of the outbreak and the actions to contain the outbreak or treat its impact, among others. Other national health concerns, including the outbreak of other contagious diseases or pandemics may adversely affect us in the future.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act is an emergency stimulus measure providing assistance and relief in a variety of ways to certain individuals, businesses, and industries. The CARES Act established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the paycheck protection program (“PPP”). In addition to the general impact of COVID-19, certain provisions of the CARES act as well as other legislative and regulatory relief efforts are expected to have a material impact on our operation. It is impossible to determine the extent of these impacts at the date of this filing, we are disclosing potentially material items of which we are aware.

 

 123 

 

 

CARTER BANK & TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of the Treasury, the FDIC, the FRB and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Bank.

 

Bank’s Response to COVID-19

 

Lending Operations

 

The Bank quickly responded to the pandemic and the CARES Act, offering the option of payment deferrals, participation in the PPP, fee waivers and other relief actions to customers. Banks have been identified as essential services and have remained open during the order. The Bank continues to serve its customers through modified hours in both the drive-ins and branch services via appointment. Every opportunity is being taken to protect both customers and employees through enhanced cleaning services, social distancing and personal protective equipment requirements for both. Approximately 20% of the Bank’s workforce is working remotely.

 

Under the CARES Act, PPP is an amendment to the Small Business Administration (“SBA”) 7-A loan program. The Bank recently became an approved SBA 7-A lender. PPP is a guaranteed, unsecured loan program created to fund certain payroll and operating costs of eligible businesses, organizations and self-employed persons during COVID-19.  Initially, $349 billion were approved and designated for PPP in order for the SBA to guarantee 100% of collective loans made under the program to eligible small businesses, nonprofits, veteran’s organizations, and tribal businesses. The Bank participated in the initial round of funding though a referral relationship with a third-party, non-bank lender. When an additional $310 billion in funds were approved and designated for PPP, the Bank opted to stand up an internal, automated loan process utilizing its core system provider.

 

The FRB implemented a liquidity facility available to financial institutions participating in the PPP.  We believe we have sufficient liquidity sources to fund all pending PPP loans and to continue to provide this important service to local businesses.  These loans are fully guaranteed by the SBA and do not represent a credit risk.

 

The Bank is providing deferrals to customers under Section 4013 of the CARES Act. These deferrals typically provide deferrals of both principal and interest for up to 180 days. At the end of the deferral period, for loan terms, 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.

 

 124 

 

 

  

Crowe LLP

Independent Member Crowe Global

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Shareholders and the Board of Directors of Carter Bank & Trust

Martinsville, Virginia

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Carter Bank & Trust (the "Bank") as of December 31, 2019, the related consolidated statements of income (loss), comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2019, and the results of its operations and its cash flows for the year then ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Bank’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 5, 2020 expressed an adverse opinion.

 

Basis for Opinion

 

These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on the Bank's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

  
  Crowe LLP

 

We have served as the Bank's auditor since 2019.

 

Washington, D.C.

June 5, 2020

 

 125 

 

 

  

Crowe LLP

Independent Member Crowe Global

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Shareholders and the Board of Directors of Carter Bank & Trust

Martinsville, Virginia

 

Opinion on Internal Control Over Financial Reporting

 

We have audited Carter Bank & Trust’s (the “Bank”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effects of the material weakness discussed in the following paragraph, the Bank has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the bank’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to ineffective control of the valuation and existence of complex collateral associated with two collateral-dependent impaired loans. The Bank relied on stale appraisal information in order to support the underlying assumptions and methodologies to determine fair value and existence of the complex collateral. The appraisals were incomplete and did not adequately support the valuation and existence of the complex collateral which was identified and included in Management’s Report on Internal Control over Financial Reporting.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Bank as of December 31, 2019, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the "financial statements") and our report dated June 5, 2020 expressed an unqualified opinion. We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2019 financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.

 

Basis for Opinion

 

The Bank’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Bank’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

 126 

 

 

Definition and Limitations of Internal Control Over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

  
  Crowe LLP

 

Washington, D.C.

June 5, 2020

 

 127 

 

 

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders 

Carter Bank & Trust 

Martinsville, Virginia

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Carter Bank & Trust and subsidiaries’ (the “Bank”) as of December 31, 2018, the related consolidated statements of income (loss), comprehensive income, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2018, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on the Bank’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Bank in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Yount, Hyde & Barbour, P.C.

 

Roanoke, Virginia 

March 14, 2019

 

128

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

 

None

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of Bank’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of the Bank’s disclosure controls and procedures as of December 31, 2019. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to the Company’s management, including our CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.

 

Management, with the participation of the Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the design and operation of the Bank’s disclosure controls and procedures as of December 31, 2019. Based on this evaluation, the Bank’s Chief Executive Officer and Chief Financial Officer have concluded, as of and for the end of the period covered by this report, that such disclosure controls and procedures were ineffective due to the Corporation’s late filing of its Annual Report on Form 10-K for the year ended December 31, 2019.  The Corporation attributes the delay in the filing to the evaluation of collateral supporting one impaired loan relationship. The Bank’s evaluation of the collateral was dependent, in part, on the results of an independent appraisal regarding the collateral. Due to the effects of the COVID-19 pandemic, the process of obtaining the independent appraisal and evaluating the collateral was slowed, and, consequently, the Bank was unable to complete preparation of the Annual Report and file with the FDIC within the deadline prescribed by the SEC’s rules. We have since taken appropriate steps to remediate this deficiency in our disclosure controls and procedures.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, (as defined in Exchange Act Rule 13a-15(f)). Our internal control over financial reporting is a process designed by or under the supervision of, our CEO and CFO to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A Bank’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Bank; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Bank are being made only in accordance with authorizations of management and directors of the Bank; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Bank’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of specific controls or internal control over financial reporting overall to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

129

 

 

As of December 31, 2019, management including the CEO and CFO, assessed the effectiveness of the Bank’s internal control over financial reporting based on the criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Based upon this assessment, management determined that, as of December 31, 2019, the control deficiency described in the following paragraph constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Bank’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

As of December 31, 2019, we did not maintain effective controls over the completeness and accuracy of impaired loans, including calculations and supporting information.  A material weakness existed related to ineffective control of the valuation and existence of unique, complex collateral associated with two collateral-dependent impaired loans that are part of the same relationship. The Bank relied on stale appraisal information in order to support the underlying assumptions and methodologies to determine fair value and existence of the complex collateral. The appraisals were incomplete and did not adequately support the valuation and existence of the complex, unique collateral.

 

As a result of this material weakness, we concluded that the Bank did not maintain effective internal control over financial reporting as of December 31, 2019, based on the criteria established in “Internal Control—Integrated Framework” issued by COSO.

 

Crowe LLP, our independent registered public accounting firm, has issued an adverse opinion on the effectiveness of Bank’s internal control over financial reporting as of December 31, 2019, which is included herein.

 

Plan for Remediation of Material Weakness that Existed as of December 31, 2019

 

Management is committed to continuing efforts to improve the design and operation of our internal controls, including taking all necessary steps to remediate the material weakness identified above. We are addressing the material weakness by defining expectations for validating assumptions accompanying appraisals and plan to test in 2020.

 

Changes in Internal Control Over Financial Reporting

 

Other than the material weakness which was identified as a result of an error that occurred during the quarter ended December 31, 2019, there have been no other changes in Bank’s internal control over financial reporting that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Banks’s internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

130

 

 

PART III

  

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

DIRECTORS

 

The exact size of the Board of Directors shall be fixed by the Board of Directors prior to each annual meeting. As established in the Bylaws, the number of Directors shall at no time be less than 5 nor more than 30. On April 14, 2020, Director George W. Lester, II notified the Board of Directors of his decision to not stand for re-election to the Board of Directors at the 2020 Annual Meeting of Shareholders (the “Annual Meeting”). Mr. Lester will continue to serve as a member of the Board of Directors through the end of his current term, which ends at the Annual Meeting. The Board has approved decreasing the size of the Board of Directors from 13 to 12 Directors, effective as of the end of the Annual Meeting.

 

The Board of Directors is not aware of any family relationship between any Director, executive officer or person nominated by the Bank to become a Director; nor is the Board of Directors aware of any involvement in legal proceedings that would be material to an evaluation of the ability or integrity of any Director, executive officer or person nominated to become a Director.

 

The following paragraphs provide information regarding each Director’s specific experience, qualifications, attributes and skills that led to the conclusion that he or she should serve as a Director. We also believe that all of our Directors have a reputation for honesty and adherence to high ethical standards.

 

Michael R. Bird has more than 30 years of experience in the long-term care industry. He retired from Virginia Lutheran Homes Inc., which owns and operates a continuing care retirement community and nursing and rehabilitation center in Roanoke, Virginia and subsidized apartments with supportive services in New Market, Virginia, in April 2020 where he had held the position of Chief Financial Officer since May 2013. Prior to this, he served as Chief Financial Officer of Waveny LifeCare Network, a provider of long-term care, assisted living, independent living and home healthcare in New Canaan, Connecticut. He earned his Bachelor’s Degree in Accounting from Central Connecticut State University in New Britain, Connecticut and MBA from Sacred Heart University in Fairfield, Connecticut. Mr. Bird chairs the Board’s Audit and Compliance Committee as well as the CECL Committee and is a member of the Executive and Governance Committee. Mr. Bird was appointed to the Board of Directors of the Bank in January 2018. Mr. Bird is qualified to serve as a Director and Chair of the Audit and Compliance and CECL Committees due to his broad experience in finance and accounting.

 

Robert W. Conner is retired Clerk of Circuit Court of Halifax County. Mr. Conner is a long-time farmer in Halifax County. He also served as an organizing director of Community National Bank from 1985 until the merger into Carter Bank & Trust and as a director of Bank Building Corporation from 1995 until its merger with Carter Bank & Trust. He served as a director of CB&T Real Estate Holdings, Inc. from 2008 to 2016. Mr. Conner is a qualified candidate as a Director, as well as Chair of the Credit Risk Committee and as a member of the Nominating and Compensation Committee, due to his skills and knowledge of the business community.

 

Gregory W. Feldmann is President of Skyline Capital Strategies, LLC, a management consultancy group providing advisory services in the areas of corporate finance, private equity, business and financial strategy, mergers and acquisitions, and performance related studies. He is former President and Director of StellarOne Bank. Mr. Feldmann was appointed to the Board of Directors of the Bank in February 2017. Mr. Feldmann is qualified to serve as a Director and Chair of the Investment/Interest Rate Risk Committee, as well as the Nominating and Compensation Committee and is a member of the Executive and Governance Committee due to his business and banking background in commercial banking, investment banking and brokerage and private equity and experience in other executive and leadership roles, both in private and public companies.

 

131

 

 

Chester A. Gallimore is President of Wills Ridge Supply. He also served as an organizing director of Blue Ridge Bank, N. A. from 1978 until the merger into Carter Bank & Trust. Mr. Gallimore is a qualified candidate to serve on the Board, as well as the Audit and Compliance Committee, due to his strong business background, knowledge and service as a Director of the Bank and its predecessors for over 41 years.

 

Charles E. Hall is a farmer. He also served as an organizing director of Blue Ridge Bank, N.A. from 1978 until the merger into Carter Bank & Trust and of Bank Building Corporation since 1995 until its merger with Carter Bank & Trust. He served as a director of CB&T Real Estate Holdings, Inc. from 2008 to 2016. Mr. Hall is qualified to serve as a Director and as a member of the Credit Risk Committee due to his knowledge of the banking industry and the business community.

 

James W. Haskins is an attorney and principal in the law firm of Young, Haskins, Mann, Gregory and Wall, P. C., Martinsville, Virginia. He also served as a director of Mountain National Bank from 1996 until the merger into Carter Bank & Trust and of Patrick Henry National Bank from 1982 until the merger into Carter Bank & Trust. Mr. Haskins was appointed as Chairman of the Board of Directors in April 2017; prior to that appointment, he served as Vice Chairman of the Board. Mr. Haskins is qualified to serve on the Board as well as Chair of the Executive and Governance Committee, due to his legal expertise and his prominence in the Bank’s market area.

 

Phyllis Q. Karavatakis is Senior Executive Vice President for Special Projects of Carter Bank & Trust. Prior to serving in this role, she served as President and Chief Banking Officer. Prior to that role, she served as Executive Vice President and Chief Lending Officer and various other roles in her over 41 years employed with the Bank. Ms. Karavatakis was appointed to the Board of Directors of the Bank in February 2017 and was appointed Vice Chairman in April 2017. Ms. Karavatakis is qualified to serve as a Director and member of the Credit Risk Committee due to her business experience along with in-depth knowledge of the banking industry.

 

Lanny A. Kyle, O. D. is a retired Optometrist. He formerly was Owner and President of Piedmont Optometric Association. He also served as a director of Mountain National Bank from 2003 until the merger into Carter Bank & Trust. Dr. Kyle is qualified to serve as a Director and member of the Nominating and Compensation Committee due to his management and financial skills.

 

George W. Lester, II is Chairman of the Lester Group, Inc., a forest products company in Martinsville, Virginia. He also served as an organizing director of Patrick Henry National Bank from 1976 until the merger into Carter Bank & Trust and Shenandoah National Bank from 1996 until the merger into Carter Bank & Trust. He served as a director of CB&T Real Estate Holdings Inc. from 2008 to 2016. Mr. Lester is considered to be a qualified candidate to serve on the Board, as well as the Audit and Compliance Committee, due to his strong business background and knowledge, broad community development, and service as a Director of the Bank and its predecessors for over 43 years.

 

E. Warren Matthews is an attorney in the firm of Harris, Matthews & Crowder, P.C. He also served as a director of Community National Bank from 1998 until the merger into Carter Bank & Trust. Mr. Matthews is considered to be a qualified candidate for service on the Board, as well as the Audit and Compliance, Nominating and Compensation and CECL Committees, due to his legal expertise and his prominence in the Bank’s market area.

 

Catharine L. Midkiff worked for more than 20 years as an Executive with General Electric Capital Corporation in risk management, operations, and finance in its Asia, Europe, and United States markets. Prior to this, she served as Vice President and Director in other General Electric entities located in the United States, Japan, Korea, Thailand and Hong Kong. A Certified Public Accountant, Ms. Midkiff has a Bachelor’s Degree in Commerce with a specialization in Finance and Accounting from the University of Virginia. She is certified in Six Sigma as a master black belt, the highest level credential in management techniques to improve business processes, primarily by reducing risks, and has completed numerous specialty programs, such as an asset-based finance program from the University of Pennsylvania’s Wharton School and the Commercial Finance Association. Ms. Midkiff was appointed to the Board of Directors of the Bank in January 2018. Ms. Midkiff is qualified to serve as a Director and member of the Audit and Compliance, Investment/Interest Rate Risk, Credit Risk, Executive and Governance and CECL Committees due to her broad based experience in accounting, risk management and finance with executive roles in public companies.

 

132

 

 

Joseph E. Pigg is President of Stoneville Lumber Company Inc. and has been for more than five years. He also served as an organizing director of Patrick Henry National Bank from 1976 until the merger into Carter Bank & Trust and Shenandoah National Bank from 1996 until the merger into Carter Bank & Trust. His financial experience and prior service of over 43 years as a bank board member qualifies him to be a Director and member of the Investment/Interest Rate Risk Committee.

 

Litz H. Van Dyke is Chief Executive Officer of Carter Bank & Trust and previously served as Executive Vice President. Prior to joining Carter Bank & Trust in 2016, Mr. Van Dyke was a Practice Manager for CCG Catalyst Consulting Group based in Phoenix, Arizona, assisting banks with strategic advisory services. He served as Chief Operating Officer for StellarOne Corporation from 2008 to 2012. Mr. Van Dyke was appointed to the Board of Directors of the Bank in April 2017. Mr. Van Dyke is a qualified candidate as a Director and member of the Investment/Interest Rate Risk, Credit Risk and Executive and Governance Committees due to his prior experience in senior executive roles with a number of Virginia-based banking institutions with responsibilities including credit administration, regulatory risk management, information technology, operations, marketing, and facilities as well as extensive work with commercial, retail, and mortgage lines of business.

 

Independence and Committee Memberships

 

The following individuals are Directors of Carter Bank & Trust. Ages are given as of May 15, 2020:

 

 

*Indicates year first served as a director of one of the 10 banking institutions that were merged into and created Carter Bank & Trust in 2006 (each a “Merged Bank” and collectively, the “Merged Banks”). The Merged Banks were Blue Ridge Bank, N.A., Central National Bank, Community National Bank, First National Bank, First National Exchange Bank, Mountain National Bank, Patrick Henry National Bank, Patriot Bank, N.A., Peoples National Bank and Shenandoah National Bank.

 

133

 

 

Information About Our Executive Officers

 

The following individuals are executive officers of Carter Bank & Trust. Ages are given as of May 15, 2020:

 

Name  Age  Position  Business Experience During Past Five Years
A. Loran Adams  59  Executive Vice President and Director of Regulatory Risk Management since 2018  Prior to 2018, Senior Vice President and Director of Regulatory Risk Management since 2017; prior to joining Carter Bank & Trust, Director of Internal Audit, Georgia Bank & Trust from 2009 to 2016.
Wendy S. Bell  56  Senior Executive Vice President and Chief Financial Officer since 2020  Executive Vice President and Chief Financial Officer from 2017 to 2019; prior to joining Carter Bank & Trust, Senior Vice President and Senior Finance Officer, First Commonwealth Financial Corporation from 2010 to 2017.
Jane Ann Davis  57  Executive Vice President and Chief Administrative Officer since 2017  Prior to 2017, Executive Vice President and Chief Financial Officer and Chief Operating Officer.
Tony E. Kallsen  52  Executive Vice President and Chief Credit Officer since 2018  Prior to joining Carter Bank & Trust, Senior Vice President and Senior Credit Officer, First Commonwealth Financial Corporation from 2010 to 2017.
Phyllis Q. Karavatakis  64  Senior Executive Vice President for Special Projects since 2020  Prior to 2020, President and Chief Banking Officer since 2017, President and Chief Administrative Officer since 2016, Executive Vice President and Chief Lending Officer since 2014.
Bradford N. Langs  54  President and Chief Strategy Officer since 2020  Prior to 2020, Executive Vice President and Chief Strategy Officer from 2017 to 2019; prior to joining Carter Bank & Trust, Chief Risk Officer, Chief Credit Officer and Treasurer, Coastal States Bank from 2009 to 2017.
Matthew M. Speare  53  Executive Vice President and Chief Information Officer since 2017  Prior to joining Carter Bank & Trust, Executive Vice President and Chief Information Officer, Regions Bank from 2013 to 2017.
Litz H. Van Dyke  56  Chief Executive Officer since 2017  Prior to 2017, Executive Vice President since July 2016; prior to joining Carter Bank & Trust, Practice Manager, CCG Catalyst Group from 2012 to 2016 and Chief Operating Officer, StellarOne Corporation from 2008 to 2012.

 

DELINQUENT SECTION 16(a) REPORTS

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires that Directors and executive officers, and persons who beneficially own more than 10% of the Bank’s equity securities, file reports of ownership and reports of changes in ownership of the Bank’s outstanding equity securities. Based on a review of these reports filed by the Bank’s officers and Directors, the Bank believes that its officers and Directors complied with all filing requirements under Section 16(a) of the Exchange Act during 2019, except that Mr. Adams, Ms. Bell, Ms. Davis, Mr. Kallsen, Ms. Karavatakis, Mr. Langs, Mr. Speare and Mr. Van Dyke each reported one transaction on a Form 4 late in relation to restricted stock awards. In addition, with respect to the Directors, Mr. Lester reported three transactions late on two Form 4s and Mr. Pigg reported one transaction late on a Form 4.

 

134

 

 

 

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

 

The Board of Directors held twelve regular meetings during 2019. During 2019, each member of the Board of Directors attended at least 75% of the aggregate of: (1) the Bank’s Board meetings held during the period and (2) the number of meetings of all committees on which he or she served for the Bank.

 

The Board of Directors meets regularly once a month. Carter Bank & Trust has not adopted a formal policy on Board members’ attendance at annual meetings of shareholders, although all Board members are encouraged to attend. All Directors attended the 2019 Annual Meeting of Shareholders on June 26, 2019.

 

Carter Bank & Trust has created and designated a separate committee of its Board of Directors as the Audit and Compliance Committee. Current members of the Bank’s Audit and Compliance Committee are Messrs. Chester A. Gallimore, E. Warren Matthews, Michael R. Bird (Chairman) and Ms. Catharine Midkiff, each of whom is an Independent Director for this purpose according to Nasdaq listing standards and the regulations of the SEC. During 2019, each member of the Audit and Compliance Committee satisfied the independence requirements of the Nasdaq listing standards and the regulations of the SEC. The Audit and Compliance Committee engages the Bank’s independent registered public accounting firm, approves the scope of the independent registered public accounting firm’s audit, reviews the reports of examination by the applicable Bank regulatory agencies and the independent registered public accountant, and the internal auditor, and reports to the Board of Directors periodically. The Audit and Compliance Committee also provides oversight related to the internal audit function and the Chief Audit Executive. The Audit and Compliance Committee met five times during 2019. The Audit and Compliance Committee operates pursuant to a written charter that has been adopted by the Board and is reviewed periodically by the Audit and Compliance Committee for changes to recommend to the Board for approval. The charter is available on the Bank’s website at www.CBTCares.com under “Investor Relations”.

 

The Board of Directors has determined that Catharine L. Midkiff and Michael R. Bird each qualify as an “audit committee financial expert” within the meaning of applicable regulations of the SEC, promulgated pursuant to the Sarbanes-Oxley Act of 2002.

 

The Nominating and Compensation Committee consists of four Directors. The current members of the Committee are Chairman Gregory W. Feldmann, and Messrs. Robert W. Conner, Lanny A. Kyle, O.D and E. Warren Matthews. Each Director satisfies the independence requirements of the Nasdaq listing standards. During 2019, each member of the Nominating and Compensation Committee, except for Chairman James W. Haskins, satisfied the independence requirements of the Nasdaq listing standards. A company that lists its stock on Nasdaq in connection with transferring from a market that did not have substantially similar corporate governance requirements, such as the OTCQX on which Carter Bank & Trust was previously listed, is eligible to use applicable Nasdaq transition rules to phase in compliance with certain Nasdaq listing standards over a period of one year from the date of listing its stock on Nasdaq. The Bank relied on this phase-in period with respect to the independence of members of the Nominating and Compensation Committee and adjusted the composition of the committee such that all members satisfied the independence requirements of the Nasdaq listing standards by the end of the phase-in period. Additional information regarding the function of the Committee is provided on the prior page and in the “Compensation Discussion & Analysis” section.

 

The Nominating and Compensation Committee evaluates Director candidates and recommends to the Board of Directors nominees for election to the Board. The Board has no prescribed minimum qualifications for nominees and will consider recommendations to the Board from shareholders as appropriate. The Committee also administers the annual incentive plan discussed above along with the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Equity Plan”) and grants equity awards under the plan. In addition to its compensation-related responsibilities, the Committee makes recommendations to the Board of Directors regarding individuals to be nominated to serve on the Board of Directors. The Nominating and Compensation Committee operates pursuant to a written charter, most recently approved by the Board of Directors on August 22, 2019. This charter is reviewed periodically by the Nominating and Compensation Committee for changes to recommend to the Board of Directors for approval. A copy of this charter can be found on the Bank’s website at www.CBTCares.com under “Investor”. The Nominating and Compensation Committee met 11 times during 2019.

 

 135 

 

 

Generally, nominees for Director are identified and suggested by the members of the Board or management using their business networks. The Board has not retained any executive search firms or other third parties to identify or evaluate Director candidates in the past and does not intend to in the near future. In evaluating candidates, the Nominating and Compensation Committee considers all appropriate factors, which may include high level leadership experience, knowledge of issues affecting the Bank, availability for meetings and consultation on Bank matters, strength of character, mature judgment, independence of thought and an ability to work collegially. The Nominating and Compensation Committee may also consider the extent to which a candidate would fill a present need on the Board.

 

Although the Bank has no formal policy regarding diversity, as a matter of practice in its evaluation of candidates, the Nominating and Compensation Committee, may consider whether the Board of Directors, as a whole, is diverse and includes individuals with various backgrounds, career experience, technical skills, industry knowledge and experience financial expertise and local or community ties.

 

The Board has not established any specific minimum qualifications that a candidate for Director must meet in order to be nominated for Board membership. Rather the Board will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations and needs and make a determination regarding whether a candidate should be nominated for election by the shareholders as a Director.

 

The Nominating and Compensation Committee will evaluate Director recommendations from shareholders if made in writing. Director candidates recommended by shareholders will be considered on the same basis as Director candidates referred from other sources. While there are no formal procedures for shareholders to submit Director candidate recommendations, written recommendations of Director candidates should include the name, address and telephone number of the recommended candidate, along with a brief statement of the candidate’s qualifications to serve as a Director. All such shareholder recommendations should be submitted to the Secretary of the Bank, c/o Executive Assistant, at the address provided on the first page of this Annual Report on Form 10-K, by January 31, 2021 in order to be considered by the Nominating and Compensation Committee, for the next annual election of directors. In addition, in accordance with the Bank’s Articles of Incorporation and/or Bylaws, nominations for election to the Board of Directors may be made by any shareholder of any outstanding class of capital stock of the Bank entitled to vote for the election of Directors. Notices of nominations, other than those made by or on behalf of the existing Board of Directors of the Bank, must be made in writing and be delivered to the Secretary of the Bank, c/o Executive Assistant, at the address provided on the first page of this Annual Report on Form 10-K, not less than 90 days or more than 120 days before the first anniversary of the prior year’s annual meeting; provided that if the annual meeting is changed by more than 30 days from the first anniversary of the prior year’s annual meeting, the notice must be delivered no earlier than 120 days before the annual meeting and no later than 90 days before the annual meeting or the tenth day after notice of the annual meeting was mailed.

 

Such notice shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each nominee; (b) the name and residence address of the notifying shareholder; (c) the number of shares of capital stock of the Bank owned by the notifying shareholder; (d) a description of all arrangements or understandings between the notifying shareholder and any other person or persons (including their names) in connection with the nomination and any material interest of the notifying shareholder in the nomination; (e) a brief description of the background and credentials of the person being nominated for Director including name, age, business address and residence address, principal occupation or employment, number of shares of capital stock of the Bank owned by the nominee; (f) any other information relating to such nominee required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act, including the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (g) a written representation and agreement by the notifying shareholder that the shareholder is not and will not become a party to any agreement, arrangement or understanding with any other party or shareholder regarding the nomination. Nominations not made in accordance with these requirements may, in his discretion, be disregarded by the chairman of the meeting, and upon his instructions, the judges of election may disregard all votes cast for each such nominee.

 

 136 

 

 

Code of Ethics

 

The Bank has adopted a Code of Ethics (the “Code”) that applies to its directors, executive officers and employees and is available on the Bank’s website at www.CBTCares.com under “Investor Relations.” The Bank intends to provide any required disclosure of any amendment to or waiver of the Code that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on www.CBTCares.com under “Investor Relations” promptly following the amendment or waiver. The Bank may elect to disclose any such amendment or waiver in a report on Form 8-K filed with the FDIC either in addition to or in lieu of the website disclosure. The information contained on or connected to the Bank’s website is not incorporated by reference in this report and should not be considered part of this or any other report that we file or furnish to the FDIC.

 

ITEM 11.  EXECUTIVE COMPENSATION

 

EXECUTIVE COMPENSATION
Compensation Discussion & Analysis

 

The Bank’s compensation program is designed to offer competitive compensation to employees based on each individual’s contribution to the Bank’s overall success. As such, the program provides a competitive compensation package to attract and retain capable employees.

 

The compensation and benefits program consists of salary, annual incentive opportunity, equity compensation, a qualified profit sharing plan, life, health and disability insurance and limited perquisites. The Bank has a single health insurance plan for all officers and full-time employees who meet the eligibility requirements. There is also a group life insurance plan and short-term disability plan for officers and full-time employees. In 2017, the Bank entered into employee agreements with its named executive officers, which are further described under “Employment Agreements,” and in connection therewith granted phantom stock incentive awards to the named executive officers. Three of these agreements were amended in 2019 as described below.

 

 137 

 

 

The Nominating and Compensation Committee (formerly, the Nominating, Governance and Compensation Committee) (for purposes of this section, the “Committee”) has the responsibility for administering the Bank’s overall compensation program and for setting the salaries and incentive opportunities for the Bank’s senior officers. In setting the compensation of the Bank’s senior officers, the Committee generally relies on the recommendations of the Chairman and Chief Executive Officer and the Board members’ own significant personal knowledge of the compensation provided to other, similarly situated, executives in banking and other industries in the local area, as well as recommendations from the Committee’s independent compensation consultant, Pearl Meyer. Pearl Meyer annually recommends a peer group of financial institutions with reasonably similar market capitalization and business strategy to the Bank and conducts an external market study for the Nominating and Compensation Committee using the peer group to assess the competitiveness of current pay opportunities for our named executive officers. For 2019 compensation determinations, the peer companies consisted of twenty-seven regional U.S. commercial banks ranging in asset size from approximately $1.8 to $6.8 billion. As of December 31, 2018, the Bank had $4.0 billion in total assets versus the peer group median of $4.0 billion, and $394 million in market capitalization versus the peer group mean of $621 million. The following financial institutions were included in the 2019 peer group:

 

American National Bankshares Danville, VA
Summit Financial Group Moorefield, WV
First Community Bancshares Bluefield, VA
SmartFinancial Knoxville, TN
Southern National Bancorp of Virginia McLean, VA
Old Line Bancshares Bowie, MD
Capital City Bank Group Tallahassee, FL
First Bancshares Hattiesburg, MS
CNB Financial Clearfield, PA
Stock Yards Bancorp Louisville, KY
HomeTrust Bancshares, Inc. Asheville, NC
Bar Harbor Bankshares Bar Harbor, ME
Carolina Financial Corporation Charleston, SC
Peoples Bancorp Marietta, OH
Community Trust Bancorp Pikeville, KY
Franklin Financial Network Franklin, TN
Bryn Mawr Bank Bryn Mawr, PA
Great Southern Bancorp Springfield, MO
City Holding Charleston, WV
QCR Holdings Moline, IL
Univest Financial Souderton, PA
Washington Trust Bancorp Westerly, RI
FB Financial Corporation Nashville, TN
Republic Bancorp Louisville, KY
First Bancorp (NC) Troy, NC
Southside Bancshares Tyler, TX
Seacoast Banking Corp of Florida Stuart, FL

 

In 2019, the Nominating and Compensation Committee engaged Pearl Meyer to assist in an evaluation of the competitiveness of the executive compensation program and to provide information on executive compensation at these peer banks, including market trends and developments in executive compensation. The Committee reviews each executive’s performance and contribution to the overall Bank goals, as well as recommendations of Pearl Meyer, in determining the level of salary and other compensation for the coming year. The Committee considers the peer data to ensure that the Bank’s compensation programs are competitive and close to the median of market practices of the peer companies, although for certain positions the Bank’s executive compensation remains below the median of the peer group.

 

When setting compensation for fiscal 2019 and in determining compensation policies, the Committee also took into account the results of the shareholder advisory vote on executive compensation that took place in June 2017. In that vote, which is advisory and non-binding, shareholders approved the compensation of our named executive officers as disclosed in the proxy statement for the 2017 Annual Meeting of Shareholders. A substantial majority (96%) of votes cast approved the executive compensation program described in the Bank’s proxy statement for the 2017 Annual Meeting of Shareholders. The vote results were taken into consideration when setting the compensation for 2019 and the new say-on-pay vote results will be taken into consideration by the Board when setting the compensation for 2020. The next advisory vote to approve executive compensation will occur at this Annual Meeting, as described above in Proposal 2, “Advisory Vote on Executive Compensation.”

 

 138 

 

 

The Committee established the compensation paid to the Bank’s non-employee directors in 2019; beginning in December 2019, however, the Committee reviews and recommends to the Board of Directors for approval the compensation of the Bank’s non-employee directors.

 

Analysis of Risk Associated with Compensation Policies and Practices

 

The Committee oversees an annual review of our compensation programs to determine whether such programs encourage excessive risk-taking by our employees. The most recent review was conducted in December 2019. Management and the Committee participated in the review, which included identification of the relevant compensation policies and practices, review of potential related risks, and analysis of risk-mitigating factors, including the Bank’s system of internal controls and oversight. The Committee determined that the potential risks arising from our compensation programs are not reasonably likely to have a material adverse effect on the Bank. In making this determination, the Committee took into account the structure of our compensation programs, the amount of cash compensation available to employees in the form of base salary, the involvement of the Committee in setting compensation for executive officers and in particular for those individuals who can commit the Bank’s capital or who manage the Company’s risk, and the oversight of the Board of Directors in monitoring certain risk tolerances and internal controls.

 

Employment Agreements

 

The Bank has entered into employment agreements with Mr. Van Dyke, Ms. Bell, Ms. Karavatakis, Mr. Speare and Mr. Langs. The terms of the agreements are substantially similar to each other as described below.

 

Van Dyke Employment Agreement

 

Mr. Van Dyke and the Bank entered into an employment agreement, dated as of September 29, 2017 (the “Van Dyke Agreement”), pursuant to which Mr. Van Dyke continues to serve as Chief Executive Officer of the Bank with an initial term of two years, beginning October 1, 2017. The employment term automatically renewed on October 1, 2019 and will automatically renew on each subsequent two-year anniversary for an additional two-year term unless either party provides at least 60 days’ advance notice of non-renewal.

 

Pursuant to the Van Dyke Agreement, Mr. Van Dyke’s initial annual base salary is $500,000, subject to increase by the Bank’s Board of Directors at its discretion. Mr. Van Dyke received a phantom stock award with an initial value of $150,000 to be settled in cash, which vests on the third anniversary of the grant date, subject to continued employment by Mr. Van Dyke. He also receives $700 per month as an automobile allowance. Mr. Van Dyke is eligible to participate in the Bank’s annual bonus plan, employee benefit plans and programs on terms offered to similarly situated employees.

 

The Bank may terminate Mr. Van Dyke’s employment with or without cause (as defined in the Van Dyke Agreement), with or without notice. Mr. Van Dyke also may voluntarily terminate his employment with the Bank at any time for Good Reason (as defined in the Van Dyke Agreement). In the event the Bank terminates Mr. Van Dyke’s employment without cause or Mr. Van Dyke terminates his employment for Good Reason, Mr. Van Dyke will receive any unpaid base salary, any annual bonus compensation earned and awarded but not yet paid, and any vested benefits (collectively, the “Accrued Obligations”). He will also receive a monthly severance payment equal to one-twelfth of his annual base salary for 18 months and continued employee health insurance coverage for 18 months. Payment of these severance benefits is subject to receipt by the Bank of a signed release and waiver of claims and satisfaction of other requirements, conditions, and limitations set forth in the Van Dyke Agreement, including covenants regarding confidentiality, non-competition, non-piracy and non-solicitation.

 

 139 

 

 

In the event the Bank terminates Mr. Van Dyke’s employment without cause or Mr. Van Dyke terminates his employment for Good Reason within two years after a Change of Control (as defined in the Van Dyke Agreement), Mr. Van Dyke will receive the Accrued Obligations, plus a lump sum severance payment equal to 2.99 times his annual base salary, continued employee health insurance coverage for 18 months and a lump sum payment equal to Mr. Van Dyke’s highest annual bonus earned from the Bank for the three years prior to termination. The Van Dyke Agreement provides for these Change of Control severance benefits on a “best net” approach, under which Mr. Van Dyke’s Change of Control benefits will be reduced to avoid the golden parachute excise tax under Section 280G of the Internal Revenue Code unless without such a reduction he would receive more after-tax compensation than with a reduction. Payment of these severance benefits is subject to receipt by the Bank of a signed release and waiver of claims and satisfaction of other requirements, conditions, and limitations set forth in the Van Dyke Agreement, including covenants regarding confidentiality, non-competition, non-piracy and non-solicitation.

 

In the event of a termination for Cause, Mr. Van Dyke will be entitled to receive his Accrued Obligations. If he dies while employed by the Bank, the Bank will pay Mr. Van Dyke’s spouse, if his spouse survives him, or, if not, his estate, his Accrued Obligations and an amount equal to his base salary from the date of his death through the end of the month in which his death occurs.

 

Bell Employment Agreement

 

On June 19, 2017, the Bank and Ms. Bell entered into an employment agreement, which was amended on December 17, 2019, pursuant to which Ms. Bell serves as Senior Executive Vice President, Chief Financial Officer of the Bank (as amended, the “Bell Agreement”). The terms of the Bell Agreement are substantially the same as the Van Dyke Agreement, except as follows. The initial term of the Bell Agreement was two years, beginning on July 27, 2017. The employment term automatically renewed on July 24, 2019 and will automatically renew on each subsequent anniversary for an additional one-year term unless either party provides at least 60 days’ advance notice of non-renewal.

 

Pursuant to the Bell Agreement, Ms. Bell’s initial annual base salary is $330,000, subject to increase by the Bank’s Board of Directors in its discretion. She also received a signing bonus in the amount of $80,000, which was payable $50,000 in 2017 and $30,000 in 2018 and was subject to repayment to the Bank if Ms. Bell were terminated for Cause (as defined in the Bell Agreement) or resigned without Good Reason (as defined in the Bell Agreement) within 12 months of receipt. Ms. Bell also received a phantom stock award with an initial value of $99,000 to be settled in cash, which vests on the third anniversary of the grant date, subject to continued employment by Ms. Bell. Ms. Bell was entitled to up to $20,000 in relocation expenses and up to $1,500 per month for up to six months in temporary housing expenses. She was also entitled to a real estate commission reimbursement of up to $35,000 in connection with the sale of her existing current residence and reimbursement of legal expenses of up to $3,500 in connection with the review and negotiation of the Bell Agreement. She also receives $500 per month as an automobile allowance.

 

In the event the Bank terminates Ms. Bell’s employment without cause or Ms. Bell terminates her employment for Good Reason, in addition to the Accrued Obligations, she will also receive a monthly severance payment equal to one-twelfth of her annual base salary for 12 months and continued employee health insurance coverage for 12 months. In the event the Bank terminates Ms. Bell’s employment without cause or Ms. Bell terminates her employment for Good Reason within two years after a Change of Control (as defined in the Bell Agreement), Ms. Bell will receive the Accrued Obligations, plus a lump sum severance payment equal to 24 months of her annual base salary, continued employee health insurance coverage for 18 months and a lump sum payment equal to Ms. Bell’s highest annual bonus earned from the Bank for the three years prior to termination.

 

 140 

 

 

Karavatakis Employment Agreement

 

On December 16, 2019, the Bank and Ms. Karavatakis entered into an amended and restated employment agreement, which replaced her September 29, 2017 employment agreement (the “Amended and Restated Karavatakis Agreement”). Pursuant to the Amended and Restated Karavatakis Agreement, Ms. Karavatakis is employed by the Bank as Senior Executive Vice President for Special Projects. The terms of the Amended and Restated Karavatakis Agreement are substantially the same as the Van Dyke Agreement, except as follows. The initial term of the Amended and Restated Karavatakis Agreement is one year, beginning on January 1, 2020. The employment term automatically renews on January 1, 2021 and on each subsequent anniversary for an additional one-year term unless either party provides at least 60 days’ advance notice of non-renewal.

 

Pursuant to the Amended and Restated Karavatakis Agreement, Ms. Karavatakis’ annual base salary is $250,000, subject to increase by the Bank’s Board of Directors in its discretion. Pursuant to the Amended and Restated Karavatakis Agreement, Ms. Karavatakis is not required to work a full-time schedule. She will regularly work at least 30 hours per week and will receive time off with pay for vacation and sickness as mutually agreed by the Bank and Ms. Karavatakis. She also receives $500 per month as an automobile allowance.

 

In the event the Bank terminates Ms. Karavatakis’ employment without cause or Ms. Karavatakis terminates her employment for Good Reason, in addition to the Accrued Obligations, she will receive a monthly severance payment equal to one-twelfth of her annual base salary for 12 months and continued employee health insurance coverage for 12 months. In the event the Bank terminates Ms. Karavatakis’ employment without Cause or she terminates her employment for Good Reason within two years after a Change of Control (as defined in the Amended and Restated Karavatakis Agreement), Ms. Karavatakis will receive the Accrued Obligations, plus a lump sum severance payment equal to two times her annual base salary, continued employee health insurance coverage for 18 months and a lump sum payment equal to Ms. Karavatakis’ highest annual bonus earned from the Bank for the three years prior to termination.

 

Speare Employment Agreement

 

On June 15, 2017, the Bank and Mr. Speare entered into an employment agreement pursuant to which Mr. Speare serves as Executive Vice President and Chief Information Officer of the Bank (the “Speare Agreement”). The terms of the Speare Agreement are substantially the same as the Van Dyke Agreement, except as follows. The initial term of the Speare Agreement was one year, beginning on July 3, 2017. The employment term automatically renewed on July 3, 2019 and will automatically renew on each subsequent anniversary for an additional one-year term unless either party provides at least 60 days’ advance notice of non-renewal.

 

Pursuant to the Speare Agreement, Mr. Speare’s initial annual base salary is $325,000, subject to increase by the Bank’s Board of Directors in its discretion. He also received a signing bonus in the amount of $50,000, which was payable $25,000 in 2017 and $25,000 in 2018 and was subject to repayment to the Bank if Mr. Speare were terminated for Cause (as defined in the Speare Agreement) or resigned without Good Reason (as defined in the Speare Agreement) within 12 months of receipt. Mr. Speare also received a phantom stock award with an initial value of $97,500 to be settled in cash, which vests on the third anniversary of the grant date, subject to continued employment by Mr. Speare. Mr. Speare was entitled to up to $20,000 in relocation expenses and up to $1,500 per month for up to six months in temporary housing expenses. He was also entitled to a real estate commission reimbursement of up to $35,000 in connection with the sale of his existing current residence and reimbursement of legal expenses of up to $2,500 in connection with the review and negotiation of the Speare Agreement. He also receives $500 per month as an automobile allowance.

 

 141 

 

 

In the event the Bank terminates Mr. Speare’s employment without Cause or Mr. Speare terminates his employment for Good Reason, in addition to the Accrued Obligations, he will also receive a monthly severance payment equal to one-twelfth of his annual base salary for 12 months and continued employee health insurance coverage for 12 months. In the event the Bank terminates Mr. Speare’s employment without Cause or Mr. Speare terminates his employment for Good Reason within two years after a Change of Control (as defined in the Speare Agreement), Mr. Speare will receive the Accrued Obligations, plus a lump sum severance payment equal to 24 months of his annual base salary, continued employee health insurance coverage for 18 months and a lump sum payment equal to Mr. Speare’s highest annual bonus earned from the Bank for the three years prior to termination.

 

Langs Employment Agreement

 

On May 31, 2017, the Bank and Mr. Langs entered into an employment agreement, which was amended on December 17, 2019, pursuant to which Mr. Langs serves as President, Chief Strategy Officer of the Bank (as amended, the “Langs Agreement”). The terms of the Langs Agreement are substantially the same as the Van Dyke Agreement, except as follows. The initial term of the Langs Agreement was one year, beginning on June 19, 2017. The employment term automatically renewed on June 19, 2019 and will automatically renew on each subsequent anniversary for an additional one-year term unless either party provides at least 60 days’ advance notice of non-renewal.

 

Pursuant to the Langs Agreement, Mr. Langs’ initial annual base salary is $297,500, subject to increase by the Bank’s Board of Directors in its discretion. He also received a signing bonus in the amount of $125,000, which was payable $50,000 in 2017 and $75,000 in 2018 and was subject to repayment to the Bank if Mr. Langs were terminated for Cause (as defined in the Langs Agreement) or resigned without Good Reason (as defined in the Langs Agreement) within 12 months of receipt. Mr. Langs also received a phantom stock award with an initial value of $85,500 to be settled in cash, which vests on the third anniversary of the grant date, subject to continued employment by Mr. Langs. Mr. Langs was entitled to up to $20,000 in relocation expenses and up to $1,500 per month for up to six months in temporary housing expenses. He also receives $500 per month as an automobile allowance.

 

In the event the Bank terminates Mr. Langs’ employment without cause or Mr. Langs terminates his employment for Good Reason, in addition to the Accrued Obligations, he will also receive a monthly severance payment equal to one-twelfth of his annual base salary for 12 months and continued employee health insurance coverage for 12 months. In the event the Bank terminates Mr. Langs’ employment without Cause or Mr. Langs terminates his employment for Good Reason within two years after a Change of Control (as defined in the Langs Agreement), Mr. Langs will receive the Accrued Obligations, plus a lump sum severance payment equal to 24 months of his annual base salary, continued employee health insurance coverage for 18 months and a lump sum payment equal to Mr. Langs’ highest annual bonus earned from the Bank for the three years prior to termination.

 

Base Salaries

 

Base salaries provide appropriate fixed cash compensation necessary to attract and retain executive talent. Base salaries are intended to be competitive. The Nominating and Compensation Committee reviews the base salaries of our named executive officers on an annual basis as well as at the time of any promotion or other material change in responsibilities. In addition to engaging independent compensation consultant, Pearl Meyer on base salaries, our Nominating and Compensation Committee also considers the following when setting base salaries: (a) the individual executive’s overall performance and contribution to the Bank’s performance, (b) overall Bank performance and (c) the individual’s base salary relative to other executive officers. While the named executive officers did not receive a base salary increase in 2019, the Committee approved base salary increases for everyone except Ms. Karavatakis in January 2020, effective February 3, 2020.

 

 142 

 

 

Executive 

2019 Base Salary

($)

  

2018 Base Salary

($)(1)

   % Increase 
Litz H. Van Dyke   570,000    570,000    0%
Wendy S. Bell   350,000    350,000    0%
Phyllis Q. Karavatakis   335,000    335,000    0%
Matthew M. Speare   345,000    345,000    0%
Bradford N. Langs   335,000    335,000    0%

 

(1)Base Salaries for all named executive officers were effective as of November 26, 2018.

 

Annual Incentive Plan

 

On November 15, 2018, with assistance from its independent compensation consultant, the Governance & Compensation Committee (which became the “Nominating and Compensation Committee” in August 2019) adopted an annual incentive plan for the purpose of awarding annual bonuses to certain employees of the Bank based upon the achievement of annual performance objectives established each year under the plan. The annual incentive plan covers the Bank’s executive officers and certain executive vice presidents (each, a “Participant”), which includes all of the Bank’s named executive officers. The goal of the annual incentive plan is to motivate Participants to maximize shareholder value by achieving performance while limiting risk appropriately and maintaining the safety and soundness of the Bank.

 

The plan is an annual incentive plan that is approved each year with a performance year running from January 1 through December 31. The Nominating and Compensation Committee oversees the administration of the plan, as well as plan design, determination of performance measures, goals and weightings and award payouts, partly based on input from the Bank’s CEO.

 

At the beginning of each year, the Nominating and Compensation Committee develops a bonus template for each Participant. The primary elements of each template are:

 

·Percentage of base salary opportunity,

 

·Performance measures and goals selected from the Bank’s approved budget numbers for the year or other objective measure, and

 

·Weightings assigned to the selected performance measures.

 

Under the annual incentive plan, a Participant can earn a bonus of up to a specific percentage of the Participant’s base salary. For 2019, these percentages are as follows:

 

Participant  % of Base Salary 
CEO, CFO, CBO, CSO   50%
All Other Participants   35%

 

Performance measures under the plan are determined each year, in the categories of profitability, capital effectiveness and safety and soundness. The performance measures, goals and weightings assigned to them may change from year to year, and will likely be the same for all Participants in any given year, although that is subject to change. The amount of bonus earned by a Participant each year will depend on the Bank’s achievement with respect to the performance measure goals selected for that year, multiplied by the applicable weightings, multiplied by the Participant’s base salary and percentage of base salary opportunity.

 

 143 

 

 

Bonus amounts earned based on the Bank’s performance for a year are reviewed and certified by the Nominating and Compensation Committee and paid to the Participant between January 1 and March 15 of the following year, generally shortly after the year’s results have been finalized and the Bank’s earnings for the year have been announced. The plan has both short-term and long-term elements to it, as the bonus amounts will be paid 2/3 in cash and 1/3 in shares of restricted common stock of the Bank, with time-based vesting in three annual installments.

 

For 2019, the Nominating and Compensation Committee selected the same performance measure goals and weightings for each of the named executive officers. The following table shows the performance measure goals for the annual incentive plan for 2019, as well as the weightings of these goals and the achievement with respect to each goal:

 

Performance Measure  Weighting   Maximum Performance
Goal
   Performance Achieved 
Core Earnings per Share (1)   20%  $1.32    16%
Core ROAA (1)   20%   0.83%   14%
Core ROATCE (1)   15%   8.79%   6%
Core Efficiency (1)   15%   68.0%   7%
Loan Growth   20%   $3.10 Billion    13%
Regulatory Rating   10%   confidential    7%
Weighted Average Bonus Amount Earned             63%

 

(1)  Core earnings per share, core return on average assets, core return on average tangible common equity and core efficiency are calculated excluding all extraordinary items, whether positive or negative.

 

The Nominating and Compensation Committee reviewed the Bank’s performance with respect to these goals for 2019, and bonus amounts were determined under the plan based on the achievement of the performance goals, multiplied by the named executive officer’s base salary and percentage of base salary opportunity. As noted above, the bonus amounts were paid in early 2020, 2/3 in cash and 1/3 in shares of restricted common stock of the Bank, with time-based vesting in three annual installments, granted under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan, which is discussed further below. The bonus amounts earned by the named executive officers for 2019 performance under this plan are reported as “Non-Equity Incentive Plan Compensation” for 2019 in the Summary Compensation Table.

 

Equity Compensation

 

On June 27, 2018, the Bank’s shareholders approved the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Equity Plan”). The Equity Plan authorizes the issuance of up to 2,000,000 shares of common stock for awards to key employees and non-employee directors as determined by the Nominating and Compensation Committee, which has been appointed by the Board of Directors to administer the Equity Plan. The Equity Plan authorizes the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units and performance cash awards. With respect to executive compensation, the purpose of the Equity Plan is to provide incentive to certain key employees to associate their personal interests with the long-term financial success of the Bank and with growth in shareholder value, consistent with the Bank’s risk management practices. In November 2018, the Bank granted restricted stock awards to several employees, including Mr. Speare, in connection with their contributions to the successful conversion of the Bank’s core systems. In February 2019, the Bank granted restricted stock awards to several employees, including all of the named executive officers, in connection with the annual incentive plan bonus payouts for 2018 performance. The restricted stock vests in equal installments on each of the first, second and third anniversaries of the grant date, subject to accelerated vesting in certain circumstances.

 

 144 

 

 

As discussed above, the Nominating and Compensation Committee anticipates granting future awards of restricted stock to employees, including the named executive officers, in connection with the annual incentive plan and may also grant other equity awards under the Equity Plan as part of the Bank’s compensation program.

 

LIMITATIONS ON HEDGING AND SPECULATIVE TRANSACTIONS

 

The Board has approved the Carter Bank & Trust Insider Trading Policy that applies to all directors, officers and employees of the Bank and, among other goals, helps ensure that the Bank’s personnel bear the full risks and benefits of stock ownership. Under this policy, Bank personnel may not sell Carter Bank & Trust stock “short,” trade in Carter Bank & Trust stock in or through a margin account, or other engage in hedging transactions or speculative or short-term trading of Carter Bank & Trust stock.

 

NOMINATING AND COMPENSATION COMMITTEE REPORT

 

The Nominating and Compensation Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion & Analysis included above. Based upon such review, the related discussions and such other matters deemed relevant and appropriate by the Committee, the Committee has recommended to the Board of Directors the inclusion of the Compensation Discussion & Analysis in this Annual Report on Form 10-K.

 

MEMBERS OF THE NOMINATING AND COMPENSATION COMMITTEE

 

Robert W. Conner
Gregory W. Feldmann, Chair
E. Warren Matthews
Lanny A. Kyle, O.D.

 

CEO PAY RATIO

 

The Bank determined that the 2019 annual total compensation of the median compensated employee of all its employees, other than the CEO, as of December 31, 2019 was $30,659; the CEO’s 2019 annual total compensation was $798,989; and the ratio of these amounts was 26:1.

 

The Bank identified a new median employee for 2019 due to changes in the Bank’s compensation program since 2018. To do this, we utilized the following methodology. As of December 31, 2019, the Bank’s total population consisted of 994 employees, all of whom work in the United States. This population consisted of all of its full-time and part-time employees. To identify the median compensated employee, we used a Consistently Applied Compensation Measure defined as gross wages as reported on each employee’s 2019 Internal Revenue Service (“IRS”) Form W-2. We further annualized pay for those individuals not employed for a full year in 2019, but who were employed as of December 31, 2019.

 

Once we identified our median compensated employee, we calculated the median compensated employee’s and our CEO’s 2019 annual total compensation in accordance with the requirements of the Summary Compensation Table.

 

This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

 

 145 

 

 

SUMMARY COMPENSATION TABLE

 

Fiscal 2017 - 2019

 

The table below reflects compensation received by each named executive officer.

 

Name and Principal Position with
Carter Bank & Trust
  Year   Salary
($)
   Bonus
(1)
($)
  

Stock
Awards
(2)

($)

   Option
Awards
($)
   Non-equity
Incentive Plan
Compensation
(3)
($)
   Change
in
Pension
Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
   All Other
Compensation(4)
($)
   Total ($) 
Litz H. Van Dyke  2019   $570,000               $      178,979            —   $               50,010   $798,989 
Chief Executive Officer (5)  2018   $497,051   $25,000           $185,483       $27,911   $735,445 
   2017   $440,000   $25,000           $150,000       $16,353   $631,353 
                                              
Wendy S. Bell  2019   $350,000               $109,892       $46,685   $506,577 
 Senior Executive Vice President and Chief Financial Officer (6)  2018   $326,039   $30,000           $122,419       $22,715   $501,173 
   2017    $145,962   $50,000           $99,000       $18,709   $313,671 
                                              
Phyllis Q. Karavatakis  2019   $335,000               $105,185       $44,617   $484,802 
Senior Executive Vice President for Special Projects  2018   $320,353   $40,000           $120,564       $22,149   $503,066 
   2017    $280,000   $40,000           $97,500       $9,734   $427,234 
                                              
Matthew M. Speare  2019   $335,000               $73,630       $42,663   $451,293 

Executive Vice President and

Chief Information Officer (7)

  2018   $320,353   $41,250   $29,255       $84,395       $19,027   $494,280 
   2017    $162,500   $25,000           $97,500       $58,649   $343,649 
                                             
Bradford N. Langs  2019   $335,000               $105,185       $45,474   $485,659 

President and

Chief Strategy Officer (8)

  2018   $315,769   $75,000           $120,564       $21,035   $532,368 
   2017    $162,099   $50,000           $85,500       $20,878   $318,477 

 

(1)The amounts in the “Bonus” column represent the first installment (paid in 2017) and second installment (paid in 2018) of the sign-on bonuses granted to the named executive officer in connection with entering into an employment agreement with the Bank.

 

(2)The amount in this column reflects the grant date fair value for restricted stock granted during 2018 pursuant to the Equity Plan, calculated in accordance with ASC Topic 718, based on the closing price of the Bank’s common stock on the date of grant. This column does not include the portion of the annual incentive plan bonus payouts for 2018 and 2019 performance paid in restricted stock, which were granted in February 2019 and February 2020.

 

(3)The amounts in this column for 2018 and 2019 reflect the bonus amounts earned for 2018 and 2019 performance under the annual incentive plan and include both the portion of the bonus paid in cash and the portion paid in shares of restricted stock that were granted in February 2019 and February 2020. In each case, the cash portion and the portion paid in restricted shares of these bonus amounts were paid in the year following the year in which the performance criteria was achieved. The amounts in this column for 2017 reflect the starting value of the phantom stock awarded to the named executive officers in connection with the entering into of employment agreements with the Bank. Each phantom stock award will be settled in cash in an amount equal to the product of the following: (A) the total number of shares of the Bank’s common stock that could be purchased for the target amount stated on the grant date, based on the average of the closing price for the Bank’s common stock during the 30-day period preceding the grant date, multiplied by (B) the average of the closing price for the Bank’s common stock during the 30-day period immediately preceding the third anniversary of the grant date.

 

(4)The amount of compensation properly categorized in this column, including perquisites and other personal benefits that total more than $10,000, is listed in the chart below for 2019.

 

 146 

 

 

The following table shows information on all other compensation to the named executive officers during 2019:

 

Name   Medical     Qualified Profit
Sharing Plan
Matching/Profit
Sharing
Contributions
    Disability
Insurance
    Life
Insurance

Premiums
    Car
Allowance
    Gross Ups
Car Allowance
    Total  
Litz H. Van Dyke   $ 11,905     $ 21,878     $ 726     $ 3,242     $ 8,400     $ 3,859     $ 50,010  
Wendy S. Bell   $ 12,079     $ 21,878     $ 726     $ 3,242     $ 6,000     $ 2,760     $ 46,685  
Phyllis Q. Karavatakis   $ 8,952     $ 21,878     $ 726     $ 4,484     $ 6,000     $ 2,577     $ 44,617  
Matthew M. Speare   $ 9,108     $ 21,878     $ 726     $ 2,162     $ 6,000     $ 2,789     $ 42,663  
Bradford N. Langs   $ 12,079     $ 21,878     $ 726     $ 2,162     $ 6,000     $ 2,629     $ 45,474  

 

(5)Mr. Van Dyke transitioned from Executive Vice President to Chief Executive Officer on April 18, 2017.

(6)Ms. Bell became Chief Financial Officer on July 24, 2017.

(7)Mr. Speare became Chief Information Officer on July 3, 2017.

(8)Mr. Langs became Chief Strategy Officer on June 19, 2017.

 

The table below reflects information regarding the restricted stock awards and annual incentive plan opportunities granted to the named executive officers during or for the year ended December 31, 2019.

 

Grants of Plan-Based Awards 

Fiscal 2019

 

The following table shows information on plan-based awards and restricted stock to the named executive officers during 2019:

  

       Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards
(1)
   All Other
Stock
Awards:
Number
of Shares
of Stock 
   Grant Date
Fair Value of
Stock and
Option 
 
   Grant    Threshold   Target   Maximum   or Units   Awards 
Name  Date   ($)   ($)   ($)   (#)   ($) 
Litz H. Van Dyke                                                      
Annual Incentive Plan        --    --   $285,000    --    -- 
Restricted Stock        --    --    --    --   $-- 
Wendy S. Bell                              
Annual Incentive Plan        --    --   $175,000    --    -- 
Restricted Stock        --    --    --    --   $-- 
Phyllis Q. Karavatakis                              
Annual Incentive Plan                 $167,500    --    -- 
Restricted Stock        --    --    --    --   $-- 
Matthew M. Speare                              
Annual Incentive Plan                 $120,750    --    -- 
Restricted Stock        --    --    --    --   $-- 
Bradford N. Langs                              
Annual Incentive Plan                 $167,500    --    -- 
Restricted Stock        --    --    --    --   $-- 

 

(1)Reflects the maximum bonus that each named executive officer could earn for 2019 performance under the annual incentive plan. The annual incentive plan does not have threshold or target performance levels. The actual amounts earned by the named executive officers for 2019 performance under this plan, which were paid partly in cash and partly in shares of restricted stock with a three-year vesting period, are reported as “Non-Equity Incentive Plan Compensation” for 2019 in the Summary Compensation Table.

 

147

 

 

Outstanding Equity Awards at Fiscal 2019 Year-End

 

The table below reflects certain information regarding the phantom stock awards and restricted stock awards held by each named executive officer as of December 31, 2019. None of the named executive officers held any other equity awards as of December 31, 2019.

 

Stock Awards

 

Name  Grant
Date
  Number of
Shares or
Units of Stock
That Have Not
Vested (#) (1)
   Market Value
of Shares or
Units of Stock
That Have Not
Vested ($) (2)
   Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)
   Equity Incentive
Plan Awards:
Market or Payout
Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested ($)(3)
 
Litz H. Van Dyke  10/1/17              $206,285 
   2/21/19   3,579   $84,893         
Wendy S. Bell  7/24/17              $150,999 
   2/21/19   2,362   $56,026         
Phyllis Q. Karavatakis  10/1/17              $134,085 
   2/21/19   2,327   $55,196         
Matthew M. Speare  7/3/17              $150,161 
  11/19/18   1,092   $25,902         
   2/21/19   1,629   $38,639         
Bradford N. Langs  6/19/17              $131,949 
   2/21/19   2,327   $55,196         

 

(1)These awards of restricted stock were granted pursuant to the Equity Plan. The restricted stock vests in equal 1/3 installments on the first, second and third anniversaries of the grant date, subject to accelerated vesting under certain circumstances.

 

(2)The amounts in this column represent the fair market value of the restricted stock as of December 31, 2019. The closing price of the Bank’s common stock was $23.72 on that date.

 

(3)The amounts in this column reflect the value of each phantom stock award as of December 31, 2019, based on the closing price of the Bank’s common stock on December 31, 2019. The phantom stock awards vest on the third anniversary of the grant date, subject to the named executive officer’s continued employment on such date and will be settled in cash.

 

OPTION EXERCISES AND STOCK VESTED 

FISCAL 2019

 

The table below reflects information regarding restricted stock held by each named executive officer that vested during 2019. None of the named executive officers held any stock options or had any phantom stock vest in 2019.

 

Stock Awards
Name  Number of shares acquired on
vesting (#)
   Value realized on vesting ($)(1) 
Litz H. Van Dyke        
Wendy S. Bell        
Phyllis Q. Karavatakis        
Matthew M. Speare   546   $11,384 
Bradford N. Langs        

 

(1)The value realized on vesting is the market value based on the closing price of the Bank’s common stock on the vesting date multiplied by the number of shares that vested.

 

148

 

 

Qualified Profit Sharing Plan

 

The Qualified Profit Sharing Plan covers all full-time employees that have been employed for six (6) months and have reached the age of 20-1/2 as of the first day of the plan year. Persons who have reached the age of 62 are fully vested regardless of length of service. For eligibility and vesting purposes, employees receive credit for previous employment with any of the Merged Banks, the Mortgage Company of Virginia, Bank Services of Virginia, Inc. and Bank Services Insurance, Inc. Vesting is based on the number of Years of Service.

 

The vesting schedule is as follows:

 

Years of Service  Vested Percentage   Forfeitable Percentage 
1   0%   100%
2   20%   80%
3   40%   60%
4   60%   40%
5   100%   0%

 

Each year the Board of Directors determines what amount, if any, is to be allocated to the plan out of accumulated or current earnings of the Bank. These profit sharing contributions to the plan were $1.4 million in 2019, $1.7 million in 2018, and none in 2017.

 

Beginning in 2019, the Qualified Profit Sharing Plan also includes a Bank match based upon an employee’s elective deferral. This elective deferral is subject to dollar limits announced annually by the IRS. Elective deferrals are matched equal to 100% of the first 3% deferred and 50% of the next 2%, producing a maximum 4% match. Expense for this deferral match was $1.1 million for the year ended December 31, 2019. Each of the named executive officers participates in the Qualified Profit Sharing Plan.

 

The Bank also has a Non-Qualified Profit Sharing Plan. The purpose of the plan was to provide additional benefits to be paid to an executive upon the occurrence of a distributable event, which is either termination or death. Since inception of the plan, the Bank’s former Chairman and Chief Executive Officer was the only executive who participated in the plan. None of the named executive officers participate in the Non-Qualified Profit Sharing Plan.

 

The Bank did not have any deferred compensation plans during 2019.

 

Potential Payments upon Termination or Change of Control

 

The following table shows the estimated payments to or benefits that would have been received by each of the named executive officers upon the following termination events or upon a change of control of the Bank, in each case assuming that each termination event or the change of control occurred on December 31, 2019, and assuming a stock price of $23.72 which was the closing stock price of the Bank’s common stock on December 31, 2019. The amounts reflected in the following table are estimates, as the actual amounts that would have been paid to or received by a named executive officer can only be determined at the time of termination or change of control.

 

The following table reports only amounts that are increased, accelerated or otherwise paid or payable as a result of the applicable termination or change of control event and, as a result, excludes amounts accrued through December 31, 2019, such as accrued but unpaid salary and annual bonus compensation amounts for completed performance periods and vested account balances under the Qualified Profit Sharing Plan and other plans. The table also excludes any amounts that are available generally to all salaried employees and in a manner that does not discriminate in favor of the Bank’s executive officers.

 

149

 

 

Payments and
Benefits
  Death   Termination
Due to
Incapacity
   Termination
Without
Cause
or for Good
Reason Not in
Connection
with Change
of Control
(1)(2)
   Termination
Without
Cause
or for Good
Reason within
2 Years
Following a
Change of
Control
(3)(4)(5)
   Termination
For Cause or
Without Good
Reason
   Change of
Control with
no Related
Termination
of
Employment
 
Litz H. Van Dyke                                       
Cash Severance  $   $   $855,000   $1,889,783   $   $ 
Equity Vesting (6)   84,893    84,893                84,893 
Health Care Coverage          $17,858   $17,858         
Total  $84,893   $84,893   $872,858   $1,907,641   $   $84,893 
                               
Wendy S. Bell                              
Cash Severance  $   $   $350,000   $822,419   $   $ 
Equity Vesting (6)   56,026    56,026                56,026 
Health Care Coverage          $12,079   $18,119         
Total  $56,026   $56,026   $362,079   $840,538   $   $56,026 
                               
Phyllis Q. Karavatakis                          
Cash Severance  $   $   $335,000   $790,564   $   $ 
Equity Vesting (6)   55,196    55,196                55,196 
Health Care Coverage          $8,952   $13,428         
Total  $55,196   $55,196   $343,952   $803,992   $   $55,196 
                               
Matthew M. Speare                          
Cash Severance  $   $   $345,000   $787,500   $   $ 
Equity Vesting (6)   64,541    64,541                64,541 
Health Care Coverage          $9,108   $13,662         
Total  $64,541   $64,541   $354,108   $801,162   $   $64,541 

 

150

 

 

Payments and
Benefits
  Death   Termination
Due to
Incapacity
   Termination
Without
Cause
or for Good
Reason Not in
Connection
with Change
of Control
(1)(2)
   Termination
Without
Cause
or for Good
Reason within
2 Years
Following a
Change of
Control
(3)(4)(5)
   Termination
For Cause or
Without Good
Reason
   Change of
Control with
no Related
Termination
of
Employment
 
Bradford N. Langs                                                 
Cash Severance  $   $   $335,000   $790,564   $   $ 
Equity Vesting (6)   55,196    55,196                55,196 
Health Care Coverage          $12,079   $18,119         
Total  $55,196   $55,196   $347,079   $808,683   $   $55,196 

  

(1)Under his employment agreement, if Mr. Van Dyke resigns for good reason or his employment is terminated without cause not in connection with a change of control, Mr. Van Dyke will be entitled to receive monthly severance payments equal to one-twelfth of his annual base salary for 18 months and continued employee health insurance coverage for 18 months. Payment of these severance benefits is subject to receipt by the Bank of a signed release and waiver of claims and satisfaction of other requirements, conditions, and limitations set forth in Mr. Van Dyke’s employment agreement, including covenants regarding confidentiality, non-competition, non-piracy and non-solicitation.

 

(2)For each named executive officer other than Mr. Van Dyke, under his or her employment agreement, if the named executive officer resigns for good reason or his or her employment is terminated without cause not in connection with a change of control, the named executive officer will be entitled to receive monthly severance payments equal to one-twelfth of his or her annual base salary for 12 months and continued employee health insurance coverage for 12 months. Payment of these severance benefits is subject to receipt by the Bank of a signed release and waiver of claims and satisfaction of other requirements, conditions, and limitations set forth in the employment agreement, including covenants regarding confidentiality, non-competition, non-piracy and non-solicitation.

 

(3)Under his employment agreement, if Mr. Van Dyke resigns for good reason or his employment is terminated without cause within two years after a change of control Mr. Van Dyke will be entitled to receive a lump sum severance payment equal to 2.99 times his annual base salary, continued employee health insurance coverage for 18 months and a lump sum payment equal to Mr. Van Dyke’s highest annual bonus earned from the Bank for the three years prior to termination. Payment of these severance benefits is subject to receipt by the Bank of a signed release and waiver of claims and satisfaction of other requirements, conditions, and limitations set forth in Mr. Van Dyke’s employment agreement, including covenants regarding confidentiality, non-competition, non-piracy and non-solicitation.

 

(4)For each named executive officer other than Mr. Van Dyke, under his or her employment agreement, if the named executive officer resigns for good reason or his or her employment is terminated without cause within two years after a change of control, the named executive officer will be entitled to receive to receive a lump sum severance payment equal to 2 times his or her annual base salary, continued employee health insurance coverage for 18 months and a lump sum payment equal to the named executive officer’s highest annual bonus earned from the Bank for the three years prior to termination. Payment of these severance benefits is subject to receipt by the Bank of a signed release and waiver of claims and satisfaction of other requirements, conditions, and limitations set forth in the employment agreement, including covenants regarding confidentiality, non-competition, non-piracy and non-solicitation.

 

(5)Each named executive officer’s employment agreement provides for change of control benefits on a “best net” approach, under which the named executive officer’s change of control benefits will be reduced to avoid the golden parachute excise tax under Section 280G of the Internal Revenue Code unless without such a reduction the named executive officer would receive more after-tax compensation than with a reduction. The amounts shown in this column do not reflect any reductions that might be made pursuant to these provisions.

 

(6)Restricted shares granted to the named executive officers become fully vested upon termination of the named executive officer’s employment due to (a) death, (b) disability, (c) retirement (with the consent of the Nominating and Compensation Committee) at or after age 59 years and six months, with 7 full years of employment where there is no cause for termination and the named executive officer is subject to a non-competition agreement upon retirement, or (d) a change in control of the Bank. In the event of termination of the named executive officer’s employment for good reason or without cause, all then unvested restricted shares would be forfeited in the absence of the Nominating and Compensation Committee’s exercise of discretion to waive such forfeiture. Ms. Karavatakis was the only named executive officer eligible for retirement under these provisions as of December 31, 2019.

 

151

 

 

DIRECTOR COMPENSATION

 

For 2019 non-employee director compensation, the Nominating and Compensation Committee determined the fees to be paid to non-employee directors based in part on advice of Pearl Meyer, which annually conducts an external market study using the same peer group identified above for executive compensation determinations to assess the competitiveness of current pay for our non-employee directors. As with the executive compensation program, the Committee considers the peer date to ensure that the Bank’s non-employee director compensation is competitive and close to the median of market practices of the peer companies.

 

Beginning in 2019, any changes to non-employee director compensation are reviewed and recommended by the Nominating and Compensation Committee and approved by the Board of Directors.

 

Based in part on the recommendations of the Committee’s independent compensation consultant, Pearl Myer (and its predecessor), effective January 1, 2019, the Nominating, Governance and Compensation Committee (now the Nominating and Compensation Committee) recommended and the Board of Directors approved a change in non-employee director compensation. Non-employee directors do not receive per-meeting fees and instead receive an annual cash retainer, payable monthly, and an annual stock retainer in the form of an annual award of time-based restricted stock under the Equity Plan. The Chairman of the Board receives an annual cash retainer in the amount of $48,000, each committee chair receives an annual cash retainer in the amount of $40,000, and each other non-employee director receives an annual cash retainer in the amount of $36,000. The annual stock retainer for each director is paid in the form of restricted stock in the amount of $24,000 based on the closing price of the Bank’s stock on the grant date. The annual stock retainer for 2019 was originally granted to vest in three equal installments on the first, second and third anniversaries of the grant date. Based on the advice of Pearl Meyer, that one-year cliff vesting is more common for non-employee director stock awards, the Nominating and Compensation Committee approved accelerated vesting of these non-employee director restricted shares in January 2020 to fully vest one year after the grant date and future annual stock retainers will be granted with a one-year vest date.

 

DIRECTOR COMPENSATION TABLE
FISCAL 2019

 

The following table provides compensation information for the year ended December 31, 2019 for each non-employee member of the Board of Directors.

 

Name (1)  Fees
Earned or
Paid in
Cash
($)
   Stock Awards
($) (2)
   Option
Awards
($)
   Non-Equity
Incentive Plan
Compensation
($)
   Change in Pension
Value and Nonqualified
Deferred
Compensation
Earnings ($)
   All Other
Compensation
($)
   Total ($) 
Michael R. Bird  $40,000   $24,000                   $64,000 
Robert W. Conner  $40,000   $24,000                   $64,000 
Gregory W. Feldmann  $40,000   $24,000                   $64,000 
Chester A. Gallimore  $36,000   $24,000                   $60,000 
Charles E. Hall  $36,000   $24,000                   $60,000 
James W. Haskins  $48,000   $24,000                   $72,000 
Lanny A. Kyle, O.D.  $36,000   $24,000                   $60,000 
George W. Lester, II  $36,000   $24,000                   $60,000 
E. Warren Matthews  $40,000   $24,000                   $64,000 
Catharine L. Midkiff  $36,000   $24,000                   $60,000 
Joseph E. Pigg  $36,000   $24,000                   $60,000 

 

(1)Litz Van Dyke, Chief Executive Officer, and Phyllis Karavatakis, Vice Chairman of the Board and Senior Executive Vice President for Special Projects, are not included in this table because they are officers of the Bank and did not receive separate compensation for service as a Director. The compensation received by Mr. Van Dyke and Ms. Karavatakis as officers of the Bank in 2019 is included in the Summary Compensation Table on page 143.

 

(2)The amounts in this column reflect the grant date fair value of grants of restricted stock to each listed director on January 23, 2019, under the Bank’s Equity Plan, calculated in accordance with ASC Topic 718. The grant date fair value of the restricted stock is based on the closing price of the Bank’s common stock on the grant date. As of December 31, 2019, each of the non-employee directors had outstanding 1,559 shares of restricted stock.

 

152

 

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

PRINCIPAL BENEFICIAL OWNERS OF CARTER BANK & TRUST COMMON STOCK

 

To the best of the Bank’s knowledge, there were no beneficial owners of more than 5% of the outstanding shares of the Bank’s common stock as of May 15, 2020.

 

BENEFICIAL OWNERSHIP OF CARTER BANK & TRUST COMMON STOCK BY DIRECTORS AND OFFICERS

 

The following table sets forth, as of May 15, 2020, the beneficial ownership of the Bank’s common stock of each Director, the executive officers identified in the Summary Compensation Table (referred to as our “named executive officers”) and the Bank’s current Directors and executive officers as a group. For purposes of the table below, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Exchange Act under which, in general, a person is deemed to be the beneficial owner of a security if he/she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he/she has the right to acquire beneficial ownership of the security within sixty days.

 

Name   Amount and Nature of
Beneficial Ownership (1)
    Ownership as a
Percentage of Common

Stock Outstanding (2) 
 
Bell, Wendy S.     14,332       *  
Bird, Michael R.     3,526       *  
Conner, Robert W.     69,891       *  
Feldmann, Gregory W.     4,226       *  
Gallimore, Chester A.     117,751       *  
Hall, Charles E.     33,867       *  
Haskins, James W. (3)     56,423       *  
Karavatakis, Phyllis Q.     17,427       *  
Kyle, Lanny A., O.D.     66,413       *  
Langs, Bradford N.     4,117       *  
Lester, George W., II (4)     1,084,608       4.11 %
Matthews, E. Warren     6,683       *  
Midkiff, Catharine L.     8,826       *  
Pigg, Joseph E. (5)     221,214       *  
Speare, Matthew M.     17,870       *  
Van Dyke, Litz H.     8,425       *  
                 
All Directors and Executive Officers as a Group (19 Persons)(6)     1,743,936       6.61 %

   

(1)May include shares held by or jointly with spouse or other family members, held in a trust or through a corporation or other entity.

(2)Percentages are based on 26,384,801 shares of common stock issued and outstanding.

(3)Shares reported include 20,000 shares of common stock pledged as security.

(4)Shares reported include 573,607 shares of common stock pledged as security.

(5)Shares reported include 110,601 shares of common stock pledged as security.

(6)Includes shares held by A. Loran Adams, Jane Ann Davis and Tony E. Kallsen

 

*Less than 1% of the outstanding common stock.

 

153

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table contains summary information as of December 31, 2019 with respect to the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan, the only equity compensation plan under which Bank securities are authorized for issuance.

 

Equity Compensation Plan Information

 

Plan Category  Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Rights and Warrants
   Weighted-Average
Exercise Price of
Outstanding Options,
Rights and Warrants
   Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
 
   (a)   (b)   (c) 
Equity compensation plans approved by security holders (1)           1,923,532 
Equity compensation plans not approved by security holders (2)            
Total           1,923,532 

 

(1)Shares available to be granted under the Equity Plan as of December 31, 2019, in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units and performance cash awards.

 

(2)The Bank does not have any equity compensation plans that have not been approved by shareholders.

 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

RELATED PERSON TRANSACTIONS

 

In the ordinary course of business, executive officers and their related interests were customers of, and had transactions with the Bank. Loan transactions with Directors and officers, principal security holders and associates were made in the ordinary course of the Bank’s business, on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable loans to unrelated parties and did not involve more than normal risk of collectability or present other unfavorable features. These extensions of credit equaled $39.7 million or 8.4% of the equity capital of Carter Bank & Trust as of December 31, 2019 and $23.4 million or 5.4%, as of December 31, 2018. The maximum aggregate amount of such indebtedness outstanding during 2019 was $39.7 million, or 8.4% of total year-end capital. The Bank expects to have similar banking transactions in the future with its Directors, officers, principal security holders and their associates.

 

Procedures for Approving Related Party Transactions

 

The Board of Directors has adopted a written policy with respect to related party transactions that governs the review, approval or ratification of covered related party transactions. The Audit and Compliance Committee (for purposes of this section, “the Committee”) oversees this policy. The policy generally provides that the Bank may enter into a related party transaction only if the Committee approves or ratifies such transaction in accordance with the guidelines set forth in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party, the transaction involves compensation approved by the Nominating and Compensation Committee or with respect to loans to or similar relationships with related parties, the loan or other relationship has been approved in accordance with the Bank’s Regulation O loan policy and procedures.

 

154

 

 

In the event management determines to recommend a related party transaction, the transaction must be presented to the Committee for approval. After review, the Committee will approve or disapprove such transaction and management will update the Audit and Compliance Committee as to any material change to the approved related party transaction. If advance approval by the Committee is not feasible, management may preliminarily enter into a related party transaction and the related party transaction shall be considered and, if the Audit and Compliance Committee determines it to be appropriate, ratified by the Committee at its next meeting. The Audit and Compliance Committee approves only those related party transactions that are in, or are not inconsistent with, the best interests of the Bank and its shareholders, as the Committee determines.

 

For purposes of this policy, a “related party transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which the Bank is, was or will be a participant and the amount involved exceeds $120,000 and in which any related party had, has or will have a direct or indirect material interest. For purposes of determining whether a transaction is a related party transaction, the Audit and Compliance Committee refers to Item 404 of Regulation S-K.

 

Carter Bank & Trust is a party to an agreement with Young, Haskins, Mann, Gregory and Wall, P.C. to provide legal services of which Chairman and Director James W. Haskins is an Attorney and Principal. During 2019, Carter Bank & Trust paid $401,000 in various legal fees to Young, Haskins, Mann, Gregory and Wall, P.C.

 

A “related party” is (i) any person who is, or at any time since the beginning of the last fiscal year was, an executive officer, Director, or nominee for Director of the Bank, (ii) any person who is known to own more than 5% of the Bank’s outstanding equity securities, (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and any person (other than a tenant or employee) sharing the household of any of the foregoing persons, and (iv) any entity owned or controlled by any of the foregoing persons or in which such person has a substantial ownership interest or control.

 

DIRECTOR INDEPENDENCE

 

Under the Bank’s Bylaws, a majority of the Board must be “Independent Directors.” All of the Bank’s current Directors, other than the Chief Executive Officer, Mr. Van Dyke, the Vice Chairman of the Board and Senior Executive Vice President for Special Projects, Ms. Karavatakis, and the Chairman of the Board, Mr. Haskins, satisfy the director independence requirements of the Nasdaq listing standards. All of the Bank’s Directors during 2019, other than Mr. Van Dyke, Ms. Karavatakis and Mr. Haskins, satisfied the director independence requirements of the Nasdaq listing standards.

 

155

 

 

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Crowe LLP served as the independent registered public accounting firm for the year ended December 31, 2019, while Yount, Hyde & Barbour, P.C. served as the independent registered public accounting firm for Carter Bank & Trust for the year ended December 31, 2018. Crowe LLP has been selected by the Audit and Compliance Committee to serve as the independent registered public accounting firm for Carter Bank & Trust for 2020.

 

The following table presents the aggregate fees for Carter Bank & Trust and its wholly-owned subsidiaries, for professional audit services rendered by Yount, Hyde & Barbour, P.C. for 2018 and Crowe LLP for 2019 for the audit of the annual financial statements for the years ended December 31, 2018 and December 31, 2019, and fees billed for other services rendered by each firm during those periods.

 

   Years Ended December 31, 
   2019   2018 
Audit fees1  $429,500   $176,748 
Tax fees2   76,143    5,827 
Other fees3   23,000    - 
Total Fees  $528,643   $182,575 

 

1Audit fees consist of audit and review services, report on internal control over financial reporting and review of documents filed with the FDIC for both Yount, Hyde & Barbour, P.C. and Crowe LLP.

2 Tax fees for 2019 consist of $5,111 related to assistance on 2015, 2016, and 2017 IRS Audits, during 2019, as well as, research and consultation on various tax matters in 2019 for Crowe LLP. Tax fees for 2018 consist of assistance with 2016 IRS audit, during 2018, as well as, research and consultation on various tax matters in 2017 for Yount, Hyde, & Barbour, P.C.

3 Other fees consist of assistance with the formation of CB&T Investment Company from Crowe LLP in 2019.

 

The Audit and Compliance Committee, considered the compatibility of the non-audit related services performed by and fees paid to Crowe LLP in 2019 and to Yount, Hyde & Barbour, P.C. in 2018 and determined that such services and fees were compatible with the independence of both Yount, Hyde & Barbour, P.C. and Crowe LLP as the Bank’s independent auditors.

 

Also, the Audit and Compliance Committee of the Board of Directors of the Bank pre-approves all audits (including audit-related) and permitted non-audit services to be performed by the independent auditors. With respect to other permitted services, the Audit and Compliance Committee pre-approves specific engagements, projects and categories of services on a fiscal year basis.

 

156

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)The following documents are filed as part of this Report.

 

Consolidated Financial Statements: The following consolidated financial statements are included in Part II, Item 8 of this Report. No financial statement schedules are being filed because the required information is inapplicable or is presented in the Consolidated Financial Statements or related notes.

 

Consolidated Balance Sheets   76 
      
Consolidated Statements of Income (Loss)   77 
      
Consolidated Statements of Comprehensive Income (Loss)   78 
      
Consolidated Statements of Changes in Shareholders’ Equity   79 
      
Consolidated Statements of Cash Flows   80 
      
Notes to Consolidated Financial Statements   82 
      
Report of Crowe LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements   125 
      
Report of Crowe LLP, Independent Registered Public Accounting Firm, on Effectiveness of Internal Control Over Financial Reporting   126 
      
Report of Yount, Hyde & Barbour, Independent Registered Public Accounting Firm, on Consolidated Financial Statements   128 

 

(b)Exhibits
   

3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Bank’s Form 8-A filed with the FDIC February 23, 2007)  
   
3.2 Amended and Restated Bylaws (as adopted by the Board of Directors on December 19, 2018) (incorporated by reference to Exhibit 3.2 to the Bank’s Form 8-K filed with the FDIC December 19, 2018)  
   
4.1 Description of Common Stock (filed herewith)

 

157

 

 

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES (continued)

 

10.1* Qualified Profit Sharing Plan of Carter Bank & Trust (formerly the Qualified Profit Sharing Plan of each of the Merged Banks and MCOV) (incorporated by reference to Exhibit 10.1 to the Bank’s Form 10-K filed with the FDIC July 6, 2007)  
   
10.2* Nonqualified Profit Sharing Plan of Carter Bank & Trust (formerly the Nonqualified Profit Sharing Plan of MCOV) (incorporated by reference to Exhibit 10.2 to the Bank’s Form 10-K filed with the FDIC July 6, 2007)            
   
10.3* Employment Agreement, dated as of June 19, 2017, by and between Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3 to the Bank’s Form 8-K filed with the FDIC June 20, 2017)  
   
10.3.1* First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Wendy S. Bell (filed herewith)
   
10.4* Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Litz Van Dyke (incorporated by reference to Exhibit 10.4 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)    
   
10.5* First Amended and Restated Employment Agreement, dated as of December 16, 2019, by and between Carter Bank & Trust and Phyllis Q. Karavatakis (incorporated by reference to Exhibit 10.5 to the Bank’s Form 8-K/A filed with the FDIC December 17, 2019)              
   
10.6* Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Jane Ann Davis (incorporated by reference to Exhibit 10.6 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)  
   
10.7* Employment Agreement, dated as of May 31, 2017, by and between Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.7 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)  
   
10.7.1* First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Bradford N. Langs (filed herewith)
   
10.8* Employment Agreement, dated as of June 15, 2017, by and between Carter Bank & Trust and Matthew M. Speare (incorporated by reference to Exhibit 10.8 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)  
   
10.9* Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (incorporated by reference to the Bank’s Proxy Statement filed with the FDIC April 30, 2018)  
   
10.9.1* Form of Time-Based Restricted Stock Agreement (for employee) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (filed herewith)
   
10.9.2* Form of Time-Based Restricted Stock Agreement (for non-employee director) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (filed herewith)  

 

158

 

 

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES (continued)
 
10.10* Carter Bank & Trust Annual Incentive Plan as adopted November 15, 2018 (incorporated by reference to Exhibit 10.10 to the Bank’s Form 10-Q filed with the FDIC May 9, 2019)  
   
31.1     Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith)  
   
31.2 Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith)
   
32.1 Certification by principal executive officer pursuant to 18 U.S.C. §1350 (filed herewith)
   
32.2 Certification by principal financial officer pursuant to 18 U.S.C. §1350 (filed herewith)

 

* Denotes management contract.

 

ITEM 16. FORM 10-K SUMMARY

 

Not applicable.

 

159

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  CARTER BANK & TRUST
              (Registrant)
     
  By: /s/Litz H. Van Dyke
  Name: Litz H. Van Dyke
  Title: Chief Executive Officer
  Date: June 5, 2020
     
  By: /s/ Wendy S. Bell
  Name: Wendy S. Bell
  Title: Senior Executive VP & Chief Financial Officer
  Date: June 5, 2020

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

         
By: /s/ James W. Haskins   By: /s/ Litz H. Van Dyke
Name: James W. Haskins   Name: Litz H. Van Dyke
Title: Chairman of the Board   Title: Director and Chief Executive Officer
Date: June 2, 2020   Date: June 2, 2020
         
By: /s/ Phyllis Q. Karavatakis   By: /s/ Michael R. Bird
Name: Phyllis Q. Karavatakis   Name: Michael R. Bird
Title: Vice Chairman and Senior Executive Vice President of Special Projects   Title: Director
Date: June 2, 2020   Date: June 2, 2020
         
By:     By: /s/ Gregory W. Feldmann
Name: Robert W. Conner   Name: Gregory W. Feldmann
Title: Director   Title: Director
Date: June 2, 2020   Date: June 2, 2020
         
By:     By:  
Name: Chester A. Gallimore   Name: Charles E. Hall
Title: Director   Title: Director
Date: June 2, 2020   Date: June 2, 2020

 

160

 

 

By:     By:  
Name: Lanny A. Kyle, O.D.   Name: George W. Lester, II
Title: Director   Title: Director
Date: June 2, 2020   Date: June 2, 2020
         
By:     By: /s/ Catharine L. Midkiff
Name: E. Warren Matthews   Name: Catharine L. Midkiff
Title: Director   Title: Director
Date:  June 2, 2020   Date: June 2, 2020
         
By: /s/ J.E. Pigg      
Name: Joseph E. Pigg      
Title: Director      
Date: June 2, 2020      

 

161

 

 

EXHIBIT 4.1

  

DESCRIPTION OF COMMON STOCK

 

The following is a summary description of the material features of the common stock, par value $1.00 per share, of Carter Bank & Trust (the “Bank”) based on the Bank’s Articles of Incorporation and Bylaws and relevant provisions of the laws of the Commonwealth of Virginia. This summary is not complete, and is qualified in its entirety by reference to the provisions of the Bank’s Articles of Incorporation and Bylaws and the laws of the Commonwealth of Virginia. The Bank’s Articles of Incorporation and Bylaws are included as exhibits to the Annual Report on Form 10-K of which this exhibit is a part.

 

The Bank’s Articles of Incorporation authorize 100,000,000 shares of common stock, par value $1.00 per share. The Bank’s common stock is traded on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “CARE.”

 

Holders of the Bank’s common stock are entitled to receive dividends if, as and when declared by the bank’s Board of Directors. Holders of the Bank’s common stock are entitled to one vote per share on each matter submitted to a vote of shareholders. A majority of the outstanding shares of common stock of the Bank entitled to vote constitutes a quorum for a meeting of shareholders. If a quorum exits, action on a matter, other than the election of directors, is approved if the votes cast in favor of the matter exceed the votes opposing the matter, unless Virginia law or the Bank’s Articles of Incorporation require a greater number of affirmative votes. The Bank’s Articles of Incorporation and Bylaws provide for a single class of directors to be elected annually. Directors are elected by a plurality of the votes cast at a meeting at which a quorum exists. There are no cumulative voting rights in the election of directors.

 

Unless otherwise provided for in the Bank’s Articles of Incorporation, the Bank’s shareholders have no preemptive rights to purchase additional shares of the Bank’s common stock in order to preserve their proportionate ownership interest in the Bank if the Bank issues shares that might dilute the ownership interests of existing shareholders. Holders of the Bank’s common stock have no conversion, redemption or sinking fund rights. The outstanding shares of the Bank’s common stock are fully paid and unassessable.

 

Except as limited by Virginia law or the Bank’s Articles of Incorporation, the Bank’s Bylaws vest the power to amend the Bylaws in the Board of Directors by a majority vote of the total number of directors.

 

With regard to indemnification and elimination of liability, the Bank shall indemnify every individual made a party to a proceeding because he or she is or was a director or officer against liability incurred in the proceeding if: (i) he or she conducted himself or herself in good faith; and (ii) he or she believed, in the case of conduct in his or her official capacity with the Bank, that his or her conduct was in the best interests of the Bank and, in all other cases, that his or her conduct was at least not opposed to the Bank’s best interests (or with respect to an employee benefit plan, that his or her conduct was for a purpose he or she believed to be in the interests of the participants of and beneficiaries of the plan); and (iii) he or she had no reasonable cause to believe, in the case of any criminal proceeding, that his or her conduct was unlawful. The Bank shall not indemnify any individual against his or her willful misconduct, a knowing criminal violation, or any liability incurred in any proceeding charging improper personal benefit to him or her, whether or not by or in the right of the Bank or involving action in an official capacity, in which he or she was adjudged liable by a court of competent jurisdiction on the basis that personal benefit was improperly received by him or her.

 

Except as provided in the Bank’s Articles of Incorporation, in any proceeding brought by or in the right of the Bank or by or on behalf of its shareholders, a director or officer shall not be liable in for monetary damages arising out of or resulting from a single transaction, occurrence or course of conduct. The Bank’s Articles of Incorporation provide that the liability of a director or officer shall not be so eliminated if he or she engaged in willful misconduct or a knowing criminal violation or violation of any federal or state securities law, including any claim of unlawful insider trading or manipulation of the market for any security.

 

 162 

 

 

Virginia law contains business combination statues that protect domestic corporations from hostile takeovers, and from actions following such a takeover, by restricting the voting rights of shares acquired by a person who has gained a significant holding in the Bank. The Bank’s Articles of Incorporation and Bylaws are silent with respect to these business combination statues; therefore, the laws of Virginia apply.

 

In the event of any liquidation, dissolution or winding up of the Bank, the holders of the Bank’s common stock will be entitled to receive, in cash or in kind, the assets of the Bank available for distribution remaining after payment or provision for payment of the Bank’s debts and liabilities.

 

 163 

 

 

EXHIBIT 10.3.1

   

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

 

THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is made and entered into as of this 17 day of December, 2019, by and between Wendy S. Bell (“Executive”) and Carter Bank & Trust (“Employer”), and is effective as of January 1, 2020.

 

WHEREAS, Employer and Executive entered into an Employment Agreement, dated July 24, 2017 (the “Original Agreement”); and

 

WHEREAS, Employer and Executive wish to amend the Original Agreement as set forth herein.

 

NOW, THEREFORE, the Employer and Executive agree to amend the Original Agreement as follows:

 

1.            Section 1(a) shall be amended by deleting the first sentence thereof and replacing it with the following: “Executive shall be employed as Senior Executive Vice President, Chief Financial Officer (the “Position”) on the terms and subject to the conditions of this Agreement.”

 

2.            All provisions of the Original Agreement that have not been amended by this Amendment shall remain in full force and effect. Notwithstanding the foregoing, to the extent there is any inconsistency between the provisions of the Original Agreement and this Agreement, the provisions of this Amendment shall control.

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf, as of the day and year first written above.

 

 

/s/ Wendy S. Bell   12/17/19  
Wendy S. Bell   Date        
       
       
CARTER BANK & TRUST      
       
       
/s/ Litz H. Van Dyke   12/17/19  
Litz H. Van Dyke, CEO   Date        

 

 164 

 

 

EXHIBIT 10.7.1

  

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

 

THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is made and entered into as of this 17 day of December, 2019, by and between Bradford N. Langs (“Executive”) and Carter Bank & Trust (“Employer”), and is effective as of January 1, 2020.

 

WHEREAS, Employer and Executive entered into an Employment Agreement, dated May 31, 2017 (the “Original Agreement”); and

 

WHEREAS, Employer and Executive wish to amend the Original Agreement as set forth herein.

 

NOW, THEREFORE, the Employer and Executive agree to amend the Original Agreement as follows:

 

3.            Section 1(a) shall be amended by deleting the first sentence thereof and replacing it with the following: “Executive shall be employed as President, Chief Strategy Officer of Employer (the “Position”) on the terms and subject to the conditions of this Agreement.”

 

4.            All provisions of the Original Agreement that have not been amended by this Amendment shall remain in full force and effect. Notwithstanding the foregoing, to the extent there is any inconsistency between the provisions of the Original Agreement and this Agreement, the provisions of this Amendment shall control.

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf, as of the day and year first written above.

 

 

/s/ Bradford N. Langs   12/17/19  
Bradford N. Langs   Date        
       
       
CARTER BANK & TRUST      
       
       
/s/ Litz H. Van Dyke   12/17/19  
Litz H. Van Dyke, CEO   Date        

 

 165 

 

 

EXHIBIT 10.9.1

 

CARTER BANK & TRUST

TIME-BASED RESTRICTED STOCK AGREEMENT

(for employees)

 

Granted <<AWARD DATE>>

 

This Time-Based Restricted Stock Agreement (this “Agreement”) is entered into as of <<AWARD DATE>> (the “Award Date”) pursuant to Article VII of the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Plan”), and evidences the grant of Restricted Stock and the terms, conditions and restrictions pertaining thereto (the “Award”) to <<NAME>> (the “Participant”).

 

WHEREAS, Carter Bank & Trust (the “Bank”) maintains the Plan under which the Committee or the Board may, among other things, award shares of the Bank’s common stock (the “Stock”) to such key employees of the Bank and its Subsidiaries as the Committee or the Board may determine, subject to terms, conditions and restrictions as it may deem appropriate; and

 

WHEREAS, pursuant to the Plan the Committee has awarded to the Participant a restricted stock award conditioned upon the execution by the Bank and the Participant of this Agreement setting forth all the terms and conditions applicable to such award;

 

NOW, THEREFORE, in consideration of the benefits which the Bank expects to be derived from the services rendered to it and its subsidiaries by the Participant and of the covenants contained herein, the parties hereby agree as follows:

 

1.Award of Shares. Under the terms and conditions of the Plan, the Committee has awarded to the Participant a restricted stock award as of the Award Date covering <<NUMBER>> shares of Stock (the “Award Shares”), subject to the terms, conditions and restrictions set forth in this Agreement.

 

2.Period of Restriction and Vesting in the Award Shares.

 

(a)Subject to earlier vesting or forfeiture as provided below, the period of restriction (the “Period of Restriction”) applicable to each portion of the Award Shares is the period from the Award Date through the applicable date provided below, provided the Participant’s employment with the Bank or its subsidiaries continues through such respective date:

 

Vesting Date Percent of Award Shares Vesting
(in each case, rounded down to a
whole share, with the balance on
the final installment)
<<1st ANNIVERSARY OF AWARD DATE>> 33⅓%
<<2nd ANNIVERSARY OF AWARD DATE>> 33⅓%
<<3rd ANNIVERSARY OF AWARD DATE>> 33⅓%

 

(b)Notwithstanding any other provision of this Agreement to the contrary (but subject to Section 13):

 

 166 

 

 

(i)If the Participant’s employment with the Bank and its subsidiaries is terminated during the Period of Restriction applicable to any portion of the Award Shares due to his death or Disability (as defined in the Plan), any remaining Period of Restriction applicable to any portion of the Award Shares at the date of such termination of employment shall automatically terminate and such Award Shares shall be free of restrictions and freely transferable as of such date.

 

(ii)If the Participant’s employment with the Bank and its subsidiaries is involuntarily terminated without Cause during the Period of Restriction applicable to any portion of the Award Shares, or if the Participant resigns employment with the Bank and its subsidiaries for Good Reason (as defined in the Plan) during the Period of Restriction applicable to any portion of the Award Shares, or if the Participant’s employment with the Bank and its subsidiaries is terminated during the Period of Restriction applicable to any portion of the Award Shares due to retirement (as determined by the Committee in its sole discretion), in each case not occurring in connection with a Change of Control (as defined in the Plan), the Committee may, in its sole discretion on or before the date of termination of employment, waive the automatic forfeiture of any or all unvested Award Shares otherwise provided in Section 6 and provide for such vesting as it deems appropriate subject to such new restrictions, if any, applicable to the Award Shares as it deems appropriate.

 

(iii)If a Change of Control of the Bank occurs during the Period of Restriction applicable to any portion of the Award Shares and the Participant has remained in employment with the Bank or any of its subsidiaries through the date such Change of Control occurs, any remaining Period of Restriction applicable to any portion of the Award Shares at the date such Change of Control occurs shall automatically terminate and such Award Shares shall be free of restrictions and freely transferable as of such date.

 

(c)Except as contemplated in Section 2(a) or 2(b), the Award Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Participant during the Period of Restriction applicable to such Award Shares; provided, however, that this Section 2(c) shall not prevent transfers by will or by the applicable laws of descent and distribution, or to a Beneficiary upon the death of the Participant and provided further that the Committee may permit, in its sole discretion, transfers of Award Shares pursuant to a domestic relations order during the lifetime of the Participant.

 

3.Stock Certificates. The Award Shares shall be registered on the Bank’s stock transfer books in the name of the Participant in book-entry or electronic form or in certificated form as determined by the Committee. During the Period of Restriction applicable to any portion of the Award Shares, any Award Shares issued in book-entry or electronic form shall be subject to the following legend, and any certificate(s) evidencing the Award Shares shall bear the following legend:

 

 167 

 

 

The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan, in the rules and administrative procedures adopted pursuant to such Plan, and in a restricted stock agreement dated <<AWARD DATE>>. A copy of the Plan, such rules and procedures, and such restricted stock agreement may be obtained from the Chief Financial Officer of Carter Bank & Trust.

  

4.Voting Rights. During the Period of Restriction, the Participant may exercise full voting rights with respect to all of the Award Shares.

 

5.Dividends and Other Distributions. During the Period of Restriction, the Participant shall be entitled to receive all dividends and other distributions paid with respect to all of the Award Shares (other than dividends or distributions that are paid in shares of Stock). If, during the Period of Restriction, any dividends or distributions paid with respect to the Award Shares are paid in shares of Stock, such shares shall be registered in the name of the Participant and such shares shall be subject to the same restrictions on vesting and transferability as the Award Shares with respect to which they were paid.

 

6.Forfeiture on Termination of Employment. If the Participant’s employment with the Bank and its subsidiaries ceases prior to the end of the Period of Restriction for any portion of the Award Shares and Paragraph 2(b) does not apply or has not applied, then any Award Shares subject to restrictions at the date of such termination of employment shall be automatically forfeited to the Bank upon the date of such termination of employment. For purposes of this Agreement, transfer of employment among the Bank and its subsidiaries shall not be considered a termination of employment.

 

7.Employment. Nothing under the Plan or in this Agreement shall confer upon the Participant any right to continue in the employ of the Bank or its subsidiaries or in any way affect the Bank’s right to terminate Participant’s employment without prior notice at any time for any or no reason (subject to the terms of any employment agreement between the Participant and the Bank or a subsidiary).

 

8.Withholding Taxes. The Bank or any of its subsidiaries shall have the right to retain and withhold the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to the Award Shares, provided that the Bank or a subsidiary shall withhold only the minimum amount necessary to satisfy applicable statutory withholding requirements unless the Participant has elected to have an additional amount (up to the maximum allowed by law) withheld. At its discretion, the Committee may require the Participant to reimburse the Bank for any such taxes required to be withheld by the Bank and to withhold any distribution in whole or in part until the Bank is so reimbursed. In the event the Participant does not make other arrangements with the Bank for the satisfaction of taxes, the Bank shall have the right to withhold from any other cash amounts due or to become due from the Bank or a subsidiary to the Participant an amount equal to such taxes required to be withheld by the Bank to reimburse the Bank for any such taxes.

 

 168 

 

 

9.Certain Tax Matters. The Participant shall provide the Bank with a copy of any election made pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended from time to time, and similar provision of state law (collectively, an “83(b) Election”). If the Participant wishes to make an 83(b) Election, he must do so within a very limited period of time. The Participant acknowledges that he has been advised to consult with his tax advisor to determine if an 83(b) Election is appropriate and further acknowledges that the Participant is solely responsible for the payment of any taxes that may be due to any federal, state or local tax authority and the Bank is under no obligation to ensure any such taxes are paid by the Participant.

  

10.Administration. The Committee shall have full authority and discretion (subject only to the express provisions of the Plan) to decide all matters relating to the administration and interpretation of the Plan and this Agreement. All such Committee determinations shall be final, conclusive and binding upon the Bank and the Participant.

 

11.Notices. Any notice to the Bank required under or relating to this Agreement shall be in writing and addressed to:

 

Carter Bank & Trust

Attention: Director of Human Resources

9112 Virginia Avenue

Bassett, Virginia 24055

 

Any notice to the Participant required under or relating to this Agreement shall be in writing and addressed to the Participant at the Participant’s address as it appears on the records of the Bank.

 

12.Governing Law. This Agreement shall be construed and administered in accordance with and governed by the laws of the Commonwealth of Virginia.

 

13.Securities Laws. The Bank may require the Participant to make or enter into such written representations, warranties and agreements as the Committee or Board may reasonably request to comply with applicable securities laws. The Award Shares shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.

 

14.Successors. This Agreement shall be binding upon and inure to the benefit of the successors, assigns, heirs and legal representatives of the respective parties.

 

15.Entire Agreement; Amendment and Termination. This Agreement contains the entire understanding of the parties. No amendment or termination of this Agreement that would be adverse to the rights of the Participant shall be made by the Board, the Committee or any plan administrator at any time without the written consent of the Participant. No amendment or termination of the Plan will adversely affect the right, title and interest of the Participant under this Agreement or to the Award granted hereunder without the written consent of the Participant.

 

 169 

 

 

16.Severability. The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

 

17.Capitalized Terms. Capitalized terms in this Agreement have the meaning assigned to them in the Plan, unless this Agreement provides, or the context requires, otherwise.

 

18.Plan. A copy of the Plan has been provided to the Participant, and the Participant acknowledges receipt thereof.

 

To evidence its grant of the Award and the terms, conditions and restrictions thereof, the Bank has signed this Agreement as of the Award Date. This Agreement shall not become legally binding unless the Participant has signed this Agreement no later than the thirtieth (30th) day after the Award Date (or such later date as the Chairman of the Committee may accept). If the Participant fails to timely sign this Agreement, the Award shall be cancelled and forfeited ab initio.

 

 

CARTER BANK & TRUST   PARTICIPANT
     
     
     
<<NAME>>   <<NAME>>
<<TITLE>>    
     
Date: <<AWARD DATE>>   Date:             

 

 170 

 

  

EXHIBIT 10.9.2

  

CARTER BANK & TRUST

TIME-BASED RESTRICTED STOCK AGREEMENT

(for non-employee directors)

 

Granted <<AWARD DATE>>

 

This Time-Based Restricted Stock Agreement (this “Agreement”) is entered into as of <<AWARD DATE>> (the “Award Date”) pursuant to Article VII of the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Plan”), and evidences the grant of Restricted Stock and the terms, conditions and restrictions pertaining thereto (the “Award”) to <<NAME>> (the “Participant”).

 

WHEREAS, Carter Bank & Trust (the “Bank”) maintains the Plan under which the Committee or the Board may, among other things, award shares of the Bank’s common stock (the “Stock”) to such non-employee directors of the Bank and its Subsidiaries as the Committee or the Board may determine, subject to terms, conditions and restrictions as it may deem appropriate; and

 

WHEREAS, pursuant to the Plan the Board has awarded to the Participant a restricted stock award conditioned upon the execution by the Bank and the Participant of this Agreement setting forth all the terms and conditions applicable to such award;

 

NOW, THEREFORE, in consideration of the benefits which the Bank expects to be derived from the services rendered to it and its subsidiaries by the Participant and of the covenants contained herein, the parties hereby agree as follows:

 

1.Award of Shares. Under the terms and conditions of the Plan, the Board has awarded to the Participant a restricted stock award as of the Award Date covering <<NUMBER>> shares of Stock (the “Award Shares”), subject to the terms, conditions and restrictions set forth in this Agreement.

 

2.Period of Restriction and Vesting in the Award Shares.

 

(c)Subject to earlier vesting or forfeiture as provided below, the period of restriction (the “Period of Restriction”) applicable to the Award Shares is the period from the Award Date through <<VEST DATE>>, provided the Participant’s service as a member of the Board of Directors of the Bank or its subsidiaries continues through such date.

 

(d)Notwithstanding any other provision of this Agreement to the contrary (but subject to Section 12):

 

(i)If the Participant’s service as a member of the Board of Directors of the Bank and its subsidiaries is terminated during the Period of Restriction due to his death or Disability (as defined in the Plan), any remaining Period of Restriction applicable to the Award Shares at the date of such termination of service shall automatically terminate and such Award Shares shall be free of restrictions and freely transferable as of such date.

 

(ii)If the Participant’s service as a member of the Board of Directors of the Bank and its subsidiaries is terminated during the Period of Restriction due to retirement at or after age 60, with 10 full years of service as a member of the Board of Directors of the Bank or its subsidiaries, with the consent of the Committee or its delegate, any remaining Period of Restriction applicable to the Award Shares at the date of such termination of service shall automatically terminate and such Award Shares shall be free of restrictions and freely transferable as of such date.

 

 171 

 

 

(iii)If a Change of Control of the Bank occurs during the Period of Restriction and the Participant has remained in service as a member of the Board of Directors of the Bank or any of its subsidiaries through the date such Change of Control occurs, any remaining Period of Restriction applicable to the Award Shares at the date such Change of Control occurs shall automatically terminate and such Award Shares shall be free of restrictions and freely transferable as of such date.

 

(c)Except as contemplated in Section 2(a) or 2(b), the Award Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Participant during the Period of Restriction; provided, however, that this Section 2(c) shall not prevent transfers by will or by the applicable laws of descent and distribution, or to a Beneficiary upon the death of the Participant and provided further that the Board or the Committee may permit, in its sole discretion, transfers of Award Shares pursuant to a domestic relations order during the lifetime of the Participant.

 

3.Stock Certificates. The Award Shares shall be registered on the Bank’s stock transfer books in the name of the Participant in book-entry or electronic form or in certificated form as determined by the Board or the Committee. During the Period of Restriction, any Award Shares issued in book-entry or electronic form shall be subject to the following legend, and any certificate(s) evidencing the Award Shares shall bear the following legend:

 

The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan, in the rules and administrative procedures adopted pursuant to such Plan, and in a restricted stock agreement dated <<AWARD DATE>>. A copy of the Plan, such rules and procedures, and such restricted stock agreement may be obtained from the Chief Financial Officer of Carter Bank & Trust.

 

4.Voting Rights. During the Period of Restriction, the Participant may exercise full voting rights with respect to all of the Award Shares.

 

5.Dividends and Other Distributions. During the Period of Restriction, the Participant shall be entitled to receive all dividends and other distributions paid with respect to all of the Award Shares (other than dividends or distributions that are paid in shares of Stock). If, during the Period of Restriction, any dividends or distributions paid with respect to the Award Shares are paid in shares of Stock, such shares shall be registered in the name of the Participant and such shares shall be subject to the same restrictions on vesting and transferability as the Award Shares with respect to which they were paid.

 

6.Forfeiture on Termination of Service. If the Participant’s service as a member of the Board of Directors of the Bank and its subsidiaries ceases prior to the end of the Period of Restriction and Section 2(b) does not apply or has not applied, then any Award Shares subject to restrictions at the date of such termination of service shall be automatically forfeited to the Bank upon the date of such termination of service. Notwithstanding the immediately preceding sentence, the Board or the Committee may, in its sole discretion, waive the forfeiture of any or all Award Shares and provide for such vesting as it deems appropriate, provided the Board or the Committee, as applicable, does so prior to the date the Participant ceases to serve as a member of the Board of Directors and its subsidiaries.

 

 172 

 

 

7.No Rights to Continued Service. Nothing under the Plan or in this Agreement shall confer upon the Participant any right to continue in the service of the Bank or its subsidiaries or in any way affect the Bank’s right to terminate Participant’s service or other affiliation with the Bank at any time.

 

8.Certain Tax Matters. The Participant shall provide the Bank with a copy of any election made pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended from time to time, and similar provision of state law (collectively, an “83(b) Election”). If the Participant wishes to make an 83(b) Election, he must do so within a very limited period of time. The Participant acknowledges that he has been advised to consult with his tax advisor to determine if an 83(b) Election is appropriate and further acknowledges that the Participant is solely responsible for the payment of any taxes that may be due to any federal, state or local tax authority and the Bank is under no obligation to ensure any such taxes are paid by the Participant.

 

9.Administration. The Board or the Committee shall have full authority and discretion (subject only to the express provisions of the Plan) to decide all matters relating to the administration and interpretation of the Plan and this Agreement. All such Board or Committee determinations, as applicable, shall be final, conclusive and binding upon the Bank and the Participant.

 

10.Notices. Any notice to the Bank required under or relating to this Agreement shall be in writing and addressed to:

 

Carter Bank & Trust

Attention: [Director of Human Resources/Chairman of the Board/other]

9112 Virginia Avenue

Bassett, Virginia 24055

 

Any notice to the Participant required under or relating to this Agreement shall be in writing and addressed to the Participant at the Participant’s address as it appears on the records of the Bank.

 

11.Governing Law. This Agreement shall be construed and administered in accordance with and governed by the laws of the Commonwealth of Virginia.

 

12.Securities Laws. The Bank may require the Participant to make or enter into such written representations, warranties and agreements as the Committee or Board may reasonably request to comply with applicable securities laws. The Award Shares shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.

 

13.Successors. This Agreement shall be binding upon and inure to the benefit of the successors, assigns, heirs and legal representatives of the respective parties.

 

14.Entire Agreement; Amendment and Termination. This Agreement contains the entire understanding of the parties. No amendment or termination of this Agreement that would be adverse to the rights of the Participant shall be made by the Board, the Committee or any plan administrator at any time without the written consent of the Participant. No amendment or termination of the Plan will adversely affect the right, title and interest of the Participant under this Agreement or to the Award granted hereunder without the written consent of the Participant.

 

 173 

 

 

15.Severability. The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

  

16.Capitalized Terms. Capitalized terms in this Agreement have the meaning assigned to them in the Plan, unless this Agreement provides, or the context requires, otherwise.

 

17.Plan. A copy of the Plan has been provided to the Participant, and the Participant acknowledges receipt thereof.

 

To evidence its grant of the Award and the terms, conditions and restrictions thereof, the Bank has signed this Agreement as of the Award Date. This Agreement shall not become legally binding unless the Participant has signed this Agreement no later than the thirtieth (30th) day after the Award Date (or such later date as the Chairman of the Board or the Chairman of the Committee may accept). If the Participant fails to timely sign this Agreement, the Award shall be cancelled and forfeited ab initio.

 

 

CARTER BANK & TRUST   PARTICIPANT
     
     
<<NAME>>   <<NAME>>
<<TITLE>>    
     
Date: <<AWARD DATE>>   Date:            

 

 174 

 

 

CERTIFICATIONS

  

Exhibit 31.1

 

I, Litz H. Van Dyke, certify that:

 

1.            I have reviewed this annual report on Form 10-K of Carter Bank & Trust;

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.            The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 5, 2020     /s/ Litz H. Van Dyke
    Litz H. Van Dyke
    Chief Executive Officer

 

 175 

 

 

CERTIFICATIONS

 

Exhibit 31.2

 

I, Wendy S. Bell, certify that:

 

1.            I have reviewed this annual report on Form 10-K of Carter Bank & Trust;

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.            The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  June 5, 2020     /s/ Wendy S. Bell
    Wendy S. Bell
    Senior Executive Vice President
    Chief Financial Officer

 

 176 

 

  

Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

 

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) I, Litz H. Van Dyke, as Chief Executive Officer of Carter Bank & Trust, certify that, to the best of my knowledge and belief, the Annual Report on Form 10-K for the period ended December 31, 2019, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Carter Bank & Trust at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

 

 

Date:  June 5, 2020     /s/ Litz H. Van Dyke
    Litz H. Van Dyke
    Chief Executive Officer
    (Principal Executive Officer)

 

 177 

 

 

Exhibit 32.2

  

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

 

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) I, Wendy S. Bell, as Senior Executive Vice President and Chief Financial Officer of Carter Bank & Trust, certify that, to the best of my knowledge and belief, the Annual Report on Form 10-K for the period ended December 31, 2019, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Carter Bank & Trust at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

 

 

Date:  June 5, 2020     /s/ Wendy S. Bell
    Wendy S. Bell
    Senior Executive Vice President
    Chief Financial Officer
    (Principal Financial Officer)

 

 178 

 

 

EX-99.2 7 tm2036036d1_ex99-2.htm EXHIBIT 99.2

Exhibit 99.2

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to _______

 

Commission File Number: n/a

 

CARTER BANK & TRUST

(Name of registrant as specified in its charter)

 

Virginia   20-5539935
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
1300 Kings Mountain Road, Martinsville, Virginia   24112
(Address of principal executive offices)   (Zip Code)

 

(276) 656-1776

(Registrant’s telephone number, including area code)

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $1 par value CARE Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨  Accelerated filer x
Non-accelerated filer ¨    (Do not check if smaller reporting company)  Smaller reporting company ¨
Emerging growth company ¨   

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

As of June 10, 2020 there were 26,384,801 shares of the registrant’s common stock issued and outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION 3 
    
Item 1 - FINANCIAL STATEMENTS 3 
    
Consolidated Balance Sheets - March 31, 2020 (unaudited) and December 31, 2019 3 
    
Consolidated Statements of Income - Three Months Ended March 31, 2020 and 2019 (unaudited) 4 
    
Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2020 and 2019 (unaudited) 5 
    
Consolidated Statements of Changes in Shareholders' Equity - Three Months Ended March 31, 2020 and 2019 (unaudited) 6 
    
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2020 and 2019 (unaudited) 7 
    
Notes To Unaudited Consolidated Financial Statements 9 
    
Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 36 
    
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 65 
    
Item 4 - CONTROLS AND PROCEDURES 67 
    
PART II – OTHER INFORMATION 68 
    
Item 1 - LEGAL PROCEEDINGS. 68 
    
Item 1A – RISK FACTORS. 68 
    
Item 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 68 
    
Item 3 - DEFAULTS UPON SENIOR SECURITIES. 68 
    
Item 4 –MINE SAFETY DISCLOSURES 68 
    
Item 5 - OTHER INFORMATION 68 
    
Item 6 - EXHIBITS 69 
    
SIGNATURES 71 

 

2 

 

 

PART I - FINANCIAL INFORMATION

Item 1 - FINANCIAL STATEMENTS

CARTER BANK & TRUST

CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)     
(Dollars in Thousands Except Per Share Data)  March 31,   *December 31, 
ASSETS  2020   2019 
Cash and Due From Banks  $48,706   $41,386 
Interest-Bearing Deposits in Other Financial Institutions   3,667    45,156 
Federal Reserve Bank Excess Reserves   11,028    39,270 
Total Cash and Cash Equivalents   63,401    125,812 
Securities Available-for-Sale, at Fair Value   729,973    742,617 
Loans Held-for-Sale   29,689    19,714 
Portfolio Loans   2,939,899    2,884,766 
Allowance for Loan Losses   (42,942)   (38,762)
Portfolio Loans, net   2,896,957    2,846,004 
Bank Premises and Equipment, net   88,986    85,942 
Other Real Estate Owned, net   18,117    18,324 
Goodwill   62,192    62,192 
Federal Home Loan Bank Stock, at Cost   5,093    4,113 
Bank Owned Life Insurance   52,950    52,597 
Other Assets   54,505    48,793 
Total Assets  $4,001,863   $4,006,108 
           
LIABILITIES          
Deposits:          
Noninterest-Bearing Demand  $557,511   $554,875 
Interest-Bearing Demand   305,214    286,561 
Money Market   156,140    140,589 
Savings   566,414    561,814 
Certificates of Deposit   1,887,716    1,960,406 
Total Deposits   3,472,995    3,504,245 
Federal Home Loan Bank Borrowings   35,000    10,000 
Other Liabilities   19,047    18,752 
Total Liabilities   3,527,042    3,532,997 
           
SHAREHOLDERS' EQUITY          
Common Stock, Par Value $1 Per Share, Authorized 100,000,000 Shares;
26,385,754 Outstanding at March 31, 2020 and 26,334,229 at December 31, 2019
 
 
 
 
 
26,386
 
 
 
 
 
 
 
26,334
 
 
Additional Paid-in-Capital   142,792    142,492 
Retained Earnings   304,892    304,158 
Accumulated Other Comprehensive Income   751    127 
Total Shareholders' Equity   474,821    473,111 
Total Liabilities and Shareholders' Equity  $4,001,863   $4,006,108 

 

See accompanying notes to unaudited consolidated financial statements.

 

*Derived from audited consolidated financial statements.

 

3 

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF INCOME

 

   Three Months Ended 
   March 31, 
(Dollars in Thousands except Per Share Data)  2020   2019 
INTEREST INCOME          
Loans, including fees          
Taxable  $30,797   $30,574 
Non-Taxable   2,102    2,618 
Investment Securities          
Taxable   4,502    4,122 
Non-Taxable   161    804 
FRB Excess Reserves   136    654 
Interest on Bank Deposits   74    367 
Dividend Income   64    - 
Total Interest Income   37,836    39,139 
Interest Expense          
Interest Expense on Deposits   10,495    11,223 
Interest Expense on Federal Funds Purchased   1    - 
Interest on Other Borrowings   76    20 
Total Interest Expense   10,572    11,243 
NET INTEREST INCOME   27,264    27,896 
Provision for Loan Losses   4,798    1,627 
Net Interest Income After Provision for Loan Losses   22,466    26,269 
NONINTEREST INCOME          
Gain on Sales of Securities, net   1,214    31 
Service Charges, Commissions and Fees   1,650    1,226 
Debit Card Interchange Fees   1,243    1,174 
Insurance   1,309    274 
Bank Owned Life Insurance Income   353    361 
Other Real Estate Owned Income   139    290 
Other   1,044    448 
Total Noninterest Income   6,952    3,804 
NONINTEREST EXPENSE          
Salaries and Employee Benefits   13,581    12,035 
Occupancy Expense, net   3,249    2,827 
FDIC Insurance Expense   544    714 
Other Taxes   746    643 
Advertising Expense   606    171 
Telephone Expense   574    505 
Professional and Legal Fees   437    649 
Data Processing Licensing Fee   486    750 
Losses on Sales and Write-downs of Other Real Estate Owned, net   189    188 
Loss on Sales and Write-downs of Bank Premises   12    170 
Debit Card Expense   554    710 
Tax Credit Amortization   272    563 
Unfunded Loan Expense   982    45 
Other Real Estate Owned Expense   140    97 
Other   2,376    2,043 
Total Noninterest Expense   24,748    22,110 
Income Before Taxes   4,670    7,963 
Income Tax Provision   247    422 
Net Income  $4,423   $7,541 
Earnings per Common Share          
Basic Earnings per Common Share  $0.17   $0.29 
Diluted Earnings per Common Share  $0.17   $0.29 
Average Shares Outstanding-Basic   26,362,906    26,293,108 
Average Shares Outstanding-Diluted   26,368,622    26,295,226 

See accompanying notes to unaudited consolidated financial statements.

 

4 

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   Three Months Ended March 31, 
(Dollars in Thousands)  2020   2019 
Net Income  $4,423   $7,541 
Other Comprehensive Income:          
Net Unrealized Gains on Securities Available-for-Sale:          
Net Unrealized Gains Arising during the Period   2,004    7,904 
Reclassification Adjustment for Gains included in Net Income   (1,214)   (31)
Net Unrealized Gains Recognized in Other Comprehensive Income   790    7,873 
Tax Effect   (166)   (1,653)
Other Comprehensive Income   624    6,220 
Comprehensive Income  $5,047   $13,761 

 

See accompanying notes to unaudited consolidated financial statements.

 

5 

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

 

   For the Three Months Ended March 31, 2020 and 2019 
Dollars in Thousands)  Common
Stock
   Additional
Paid-in-
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income (Loss)
   Total
Shareholder's
Equity
 
Balance December 31, 2019  $26,334   $142,492   $304,158   $127   $473,111 
Net Income   -    -    4,423    -    4,423 
Other Comprehensive Income, Net of Tax   -    -    -    624    624 
Dividends Declared ($0.14 per share)   -    -    (3,689)        (3,689)
Forfeiture of Restricted Stock (1,531 shares)   (2)   2    -    -    - 
Recognition of Restricted Stock Compensation Expense   -    352    -    -    352 
Issuance of Restricted Stock (53,056 shares)   54    (54)   -    -    - 
Balance March 31, 2020 (Unaudited)  $26,386   $142,792   $304,892   $751   $474,821 
                          
Balance December 31, 2018  $26,270   $142,175   $277,835   $(10,066)  $436,214 
Cumulative Effect of Adopting New Lease Standard   -    -    (252)   -    (252)
Balance December 31, 2018 adjusted for Cumulative Effect  $26,270   $142,175   $277,583   $(10,066)  $435,962 
Net Income   -    -    7,541    -    7,541 
Other Comprehensive Income, Net of Tax   -    -    -    6,220    6,220 
Forfeiture of Restricted Stock (403 shares)   -    -    -    -    - 
Recognition of Restricted Stock Compensation Expense   -    46    -    -    46 
Issuance of Restricted Stock (38,316 shares)   38    (38)   -    -    - 
Balance March 31, 2019 (Unaudited)  $26,308   $142,183   $285,124   $(3,846)  $449,769 

 

See accompanying notes to unaudited consolidated financial statements.

 

6 

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)
(Dollars in Thousands)
  Three Months
Ended
March 31,
2020
   Three Months
Ended
March 31,
2019
 
OPERATING ACTIVITIES          
Net income  $4,423   $7,541 
Adjustments to Reconcile Net Income to Net Cash (Used In)          
Provided by Operating Activities:          
Provision for Loan Losses   4,798    1,627 
Origination of Loans Held-for-Sale   (137,764)   (18,324)
Proceeds From Loans Held-for-Sale   127,789    14,598 
Depreciation of Bank Premises and Equipment, Net   1,480    1,274 
Deferred Income Tax (Benefit) Provision   (623)   744 
Net Amortization of Securities   874    982 
Tax Credit Amortization   272    563 
Gains on Sales of Securities, Net   (1,214)   (31)
Write-downs of Other Real Estate Owned, Net   70    7 
Loss on Sales of Other Real Estate Owned, Net   119    181 
Loss on Sales and Write-downs of Bank Premises and Equipment   12    170 
Increase in the Value of Life Insurance Contracts   (353)   (361)
Recognition of Restricted Stock Compensation Expense   352    46 
(Increase) Decrease in Other Assets   (5,527)   7,775 
Increase in Other Liabilities   295    1,377 
Net Cash (Used In) Provided By Operating Activities   (4,997)   18,169 
           
INVESTING ACTIVITIES          
Securities Available-for-Sale:          
Proceeds from Sales   54,502    24,882 
Proceeds from Maturities, Redemptions, and Pay downs   23,705    19,054 
Purchases   (64,433)   (52,925)
Purchase of Bank Premises and Equipment, Net   (4,536)   (2,354)
Loan Originations and Payments, Net   (56,458)   (143,247)
Other Real Estate Owned Improvements   (19)   - 
Purchase of Federal Home Loan Bank Stock   (1,062)   - 
Redemption of Federal Home Loan Bank Stock   82    - 
Proceeds from Sales and Payments of Other Real Estate Owned   744    3,080 
Net Cash Used In Investing Activities   (47,475)   (151,510)
           
FINANCING ACTIVITIES          
Net Change in Demand, Money Markets and Savings Accounts   41,440    40,442 
Decrease in Time Deposits   (72,690)   (13,357)
Proceeds from Federal Home Loan Bank Borrowings   25,000    - 
Cash Dividends Paid   (3,689)   - 
Net Cash (Used In) Provided by Financing Activities   (9,939)   27,085 
           
Net Decrease in Cash and Cash Equivalents   (62,411)   (106,256)
           
Cash and Cash Equivalents at Beginning of Period   125,812    293,823 
           
Cash and Cash Equivalents at End of Period  $63,401   $187,567 

 

See accompanying notes to unaudited consolidated financial statements.

 

7 

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

 

(Unaudited)
(Dollars in Thousands)
  Three Months
Ended March 31,
2020
   Three Months
Ended March 31,
2019
 
Supplementary Data:          
Cash Paid for Interest  $10,645   $10,785 
Cash Paid for Income Taxes  $-   $- 
Transfer from Loans to Other Real Estate Owned  $707   $179 
Right-of-use Asset Recorded in Exchange for Lease Liabilities  $-   $1,047 

 

See accompanying notes to unaudited consolidated financial statements.

 

8 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION

 

Principles of Consolidation:  The interim Consolidated Financial Statements include the accounts of Carter Bank & Trust and its wholly owned subsidiary. All significant intercompany transactions have been eliminated in consolidation.

 

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and with applicable quarterly reporting regulations of the Securities and Exchange Commission (the “SEC”). They do not include all of the information and notes required by U.S. GAAP for complete financial statements. Therefore, these Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Carter Bank & Trust Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, the accompanying interim financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.

 

Reclassification: Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

 

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of asset and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided. Actual results could differ from those estimates.

 

Newly Adopted Pronouncements in 2020: In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This accounting guidance became effective on January 1, 2020. The adoption of the guidance did not have a material effect on the Bank’s financial position, results of operation or disclosures.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for our disclosures included in this Form 10-Q for the period ended March 31, 2020. We adopted this ASU on January 1, 2020. The amendments in this ASU did not materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

 

9

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The main objective is ASU is to simplify the current requirements for testing goodwill for impairment by eliminating step two from the goodwill impairment test. The amendments are expected to reduce the complexity and costs associated with performing the goodwill impairment test, which could result in recording impairment charges sooner. We adopted the amendments of this ASU on January 1, 2020. The amendments in this ASU did not have any impact on our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

 

Accounting Statements Issued But Not Yet Adopted: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance. The amendments in this ASU will be effective on January 1, 2021 and are not expected to have any impact on our consolidated financial statements.

 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in US GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, universally referred to as CECL. The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For periodic report filers that are not smaller reporting companies, such as the Bank, this standard (ASC 326) is effective as of January 1, 2020.

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the 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 Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

10

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The Bank’s CECL Committee, which includes members from Credit Administration, Accounting/Finance, Risk Management and Internal Audit, has oversight by the Chief Executive Officer, Chief Financial Officer, and Chief Credit Officer. We have engaged a third-party to assist us in developing our CECL model and to assist with evaluation of data and methodologies related to this standard.

 

As part of its process of adopting CECL, management implemented a third party software solution and determined appropriate loan segments, methodologies, model assumptions and qualitative components. Our CECL model includes portfolio loan segmentation based upon similar risk characteristics and both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables. Our implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls. Management had a third party independent consultant to review and validate our CECL model.

 

Parallel runs utilizing data from the first and fourth quarters of 2020 and 2019, respectively, incorporate elements of our operational procedures and internal controls. Our current parallel run includes the composition, characteristics and quality of our loan portfolio as well as current market economic conditions and forecasts as of the adoption date.

 

In addition, ASU 2016-13 amends the accounting for credit losses on certain debt securities. Based upon the nature and characteristics of our securities portfolio at the adoption date, management does not expect to record any allowance for credit losses on its debt securities as a result of adopting ASU 2016-13.

 

The ultimate impact of adopting ASU 2016-13, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available-for-sale securities portfolio, along with other management judgments. The transition adjustment to record the allowance for loan losses will be applied using a cumulative effect adjustment to retained earnings.

 

NOTE 2 – EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the two-class method. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For all periods presented, the dilutive effect on average shares outstanding is the result of unvested restricted stock grants.

 

11

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented:

 

   Three Months ended March 31, 
(Dollars in Thousands, except share and per share data)  2020   2019 
Numerator for Earnings per Share- Basic:          
Net Income Allocated to Common Shareholders  $4,423   $7,541 
Numerator for Earnings per Share- Diluted:          
Net Income Allocated to Shareholders  $4,423   $7,541 
Denominators:          
Weighted Average Shares Outstanding- Basic   26,362,906    26,293,108 
Add: Average Participating Shares Outstanding   5,716    2,118 
Denominator for Two-Class Method-Diluted   26,368,622    26,295,226 
Earnings per Common Share-Basic  $0.17   $0.29 
Earnings per Common Share-Diluted  $0.17   $0.29 

 

There were 3,261 shares not included in the average participating shares outstanding because they would be considered to be anti-dilutive for the quarter ended March 31, 2020. There were no weighted average shares considered anti-dilutive in the calculation for the quarter ended March 31, 2019.

 

NOTE 3 - INVESTMENT SECURITIES

 

The following table sets forth a summary of the available-for-sale investment securities portfolio as of the periods indicated:

 

   March 31, 2020 
(Dollars in Thousands)  Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
Residential Mortgage-Backed Securities  $53,970   $962   $(41)  $54,891 
Commercial Mortgage-Backed Securities   13,463    1,101    -    14,564 
Asset Backed Securities   115,187    70    (7,372)   107,885 
Collateralized Mortgage Obligations   250,408    5,459    (3,192)   252,675 
Small Business Administration   103,878    359    (949)   103,288 
States and Political Subdivisions   177,387    5,382    (916)   181,853 
Corporate Notes   14,729    124    (36)   14,817 
Total Debt Securities  $729,022   $13,457   $(12,506)  $729,973 

 

12

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

   December 31, 2019 
(Dollars in Thousands)  Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
Residential Mortgage-Backed Securities  $51,600   $1,136   $(92)  $52,644 
Commercial Mortgage-Backed Securities   18,972    147    (113)   19,006 
Asset Backed Securities   110,943    285    (1,589)   109,639 
Collateralized Mortgage Obligations   291,139    2,425    (1,340)   292,224 
Small Business Administration   106,485    347    (1,096)   105,736 
States and Political Subdivisions   148,596    1,669    (1,785)   148,480 
Corporate Notes   14,721    167    -    14,888 
Total Debt Securities  $742,456   $6,176   $(6,015)  $742,617 

 

The Bank did not have securities classified as held-to-maturity at March 31, 2020 or December 31, 2019.

 

At March 31, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S. Government and its Agencies, in an amount greater than 10% of shareholders’ equity.

 

The carrying value of securities pledged to for various regulatory and legal requirements was $124.5 million at March 31, 2020 and $150.6 million at December 31, 2019.

 

Sales of securities were as follows:

 

   Three Months ended March 31, 
(Dollars in Thousands)  2020   2019 
Gross Realized Gains  $1,217   $342 
Gross Realized Losses   (3)   (311)
Net Realized Gains  $1,214   $31 
Tax Impact  $255   $7 

 

Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold. The net realized gains above represent reclassification adjustments in the calculation of other comprehensive income. The net realized gains are included in noninterest income as gains on sales of securities, net in the Consolidated Statements of Income. The tax impact is included in income tax provision in the Consolidated Statements of Income.

 

The amortized cost and fair value of securities available-for-sale by contractual maturity at March 31, 2020 and December 31, 2019 are included in the tables below. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single date are shown separately.

 

13

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

(Dollars in Thousands)  Amortized   Fair 
March 31, 2020  Cost   Value 
Due in One Year or Less  $6,111   $6,114 
Due after One Year through Five Years   13,948    14,131 
Due after Five Years through Ten Years   89,603    90,688 
Due after Ten Years   186,332    189,025 
Residential Mortgage-Backed Securities   53,970    54,891 
Commercial Mortgage-Backed Securities   13,463    14,564 
Collateralized Mortgage Obligations   250,408    252,675 
Asset Backed Securities   115,187    107,885 
Total Debt Securities  $729,022   $729,973 

 

(Dollars in Thousands)  Amortized   Fair 
December 31, 2019  Cost   Value 
Due in One Year or Less  $6,805   $6,816 
Due after One Year through Five Years   13,195    13,419 
Due after Five Years through Ten Years   82,610    83,086 
Due after Ten Years   167,192    165,783 
Residential Mortgage-Backed Securities   51,600    52,644 
Commercial Mortgage-Backed Securities   18,972    19,006 
Collateralized Mortgage Obligations   291,139    292,224 
Asset Backed Securities   110,943    109,639 
Total Debt Securities  $742,456   $742,617 

 

14

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Available-for-sale securities with unrealized losses at March 31, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 

   March 31, 2020 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
 
Residential Mortgage-Backed Securities   2   $2,997   $40    3   $75   $1    5   $3,072   $41 
Asset Backed Securities   29    58,051    4,182    17    39,443    3,190    46    97,494    7,372 
Collateralized Mortgage Obligations   35    117,965    2,734    6    17,256    458    41    135,221    3,192 
Small Business Administration   14    27,410    114    68    40,513    835    82    67,923    949 
States and Political Subdivisions   20    38,118    916    -    -    -    20    38,118    916 
Corporate Notes   2    2,212    36    -    -    -    2    2,212    36 
Total Debt Securities   102   $246,753   $8,022    94   $97,287   $4,484    196   $344,040   $12,506 

 

   December 31, 2019 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
   Number of
Securities
   Fair Value   Unrealized
Losses
 
Residential Mortgage-Backed Securities   5   $9,972   $92    1   $2   $-    6   $9,974   $92 
Commercial Mortgage-Backed Securities   3    7,713    113    -    -    -    3    7,713    113 
Asset Backed Securities   22    50,530    549    16    39,153    1,040    38    89,683    1,589 
Collateralized Mortgage Obligations   37    144,543    1,051    6    18,107    289    43    162,650    1,340 
Small Business Administration   13    25,380    91    69    47,616    1,005    82    72,996    1,096 
States and Political Subdivisions   37    70,678    1,785    -    -    -    37    70,678    1,785 
Total Debt Securities   117   $308,816   $3,681    92   $104,878   $2,334    209   $413,694   $6,015 

 

15

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Securities are evaluated for other-than-temporary impairment (“OTTI”) quarterly and more frequently if economic or market concerns warrant. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, the credit quality of the issuer and whether the Bank intends to sell the security or may be required to sell the security prior to maturity. The Bank has reviewed all securities for OTTI.

 

As of March 31, 2020, no OTTI has been identified for any investment securities in the Bank’s portfolio. The Bank does not believe any individual unrealized loss as of March 31, 2020 represents an other than temporary impairment, or OTTI. At March 31, 2020 there were 196 debt securities in an unrealized loss position and at December 31, 2019 there were 209 debt securities in an unrealized loss position. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities are determined to be investment grade and are paying principal and interest according to the contractual terms of the security. The Bank generally does not intend to sell and it is not more likely than not that the Bank will be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.

 

NOTE 4 – LOANS AND LOANS HELD-FOR-SALE

 

The composition of the loan portfolio by dollar amount is shown in the table below:

 

   March 31,     
   2020   December 31, 
(Dollars in Thousands)  (Unaudited)   2019 
Commercial          
     Commercial Real Estate  $1,372,819   $1,365,310 
     Commercial and Industrial   263,268    256,798 
     Obligations of State and Political Subdivisions   355,585    364,869 
     Commercial Construction   348,596    292,827 
Total Commercial Loans   2,340,268    2,279,804 
Consumer          
     Residential Mortgages   513,013    514,538 
     Other Consumer   73,242    73,688 
     Consumer Construction   13,376    16,736 
Total Consumer Loans   599,631    604,962 
Total Portfolio Loans  $2,939,899   $2,884,766 

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods.

 

 16 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Unsecured loans pose higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses, operate with low financial and operating leverage and demonstrate an ability to clear the outstanding balance on lines of credit for at least thirty consecutive days annually. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

Total commercial loans represented 79.6% of total portfolio loans at March 31, 2020 and 79.0% of total portfolio loans at December 31, 2019. Within our commercial portfolio, the CRE and Commercial Construction portfolios combined comprised $1.7 billion or 73.6% of total commercial loans and 58.6% of total portfolio loans at March 31, 2020 and comprised $1.7 billion or 72.7% of total commercial loans and 57.5% of total portfolio loans at December 31, 2019. Net deferred costs included in the portfolio balances above were $4.6 million and $5.1 million at March 31, 2020 and December 31, 2019, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $241 thousand and $250 thousand at March 31, 2020 and December 31, 2019, respectively.

 

Loans held-for-sale were $29.7 million and $19.7 million at March 31, 2020 and December 31, 2019, respectively.

 

 17 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 5 - ALLOWANCE FOR LOAN LOSSES

 

The following table presents, by portfolio segment, the changes in the allowance for loan losses and the allocation of the allowance for loan losses for the three month periods ended March 31, 2020 and 2019:

 

   Commercial     Obligations                
(Dollars in Thousands)  Real  Commercial  Of States and  Commercial  Residential  Other  Consumer    
Three Months Ended March 31, 2020  Estate  & Industrial  Political Sub.  Construction  Mortgages  Consumer  Construction  Total 
Allowance for Loan Losses:                                 
Balance: Beginning of Period  $24,706  $3,236  $365  $5,377  $1,736  $3,299  $43  $38,762 
  Provision Charged to Expense   660   150   276   1,918   80   1,718   (4)  4,798 
  Losses Charged Off   -   (38)  -   -   (5)  (1,527)  -   (1,570)
  Recoveries   707   1   -   -   -   244   -   952 
Balance, End of Period  $26,073  $3,349  $641  $7,295  $1,811  $3,734  $39  $42,942 

 

   Commercial     Obligations                
(Dollars in Thousands)  Real  Commercial  Of States and  Commercial  Residential  Other  Consumer    
Three Months Ended March 31, 2019  Estate  & Industrial  Political Sub.  Construction  Mortgages  Consumer  Construction  Total 
Allowance for Loan Losses:                                 
Balance: Beginning of Period  $23,897  $626  $432  $5,214  $6,129  $2,728  $173  $39,199 
  Provision Charged to Expense   3,106   1,977   (10)  9   (4,316)  954   (93)  1,627 
  Losses Charged Off   (50)  -   -   (393)  (5)  (928)  -   (1,376)
  Recoveries   -   -   -   -   -   122   -   122 
Balance, End of Period  $26,953  $2,603  $422  $4,830  $1,808  $2,876  $80  $39,572 

 

 18 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table presents the balances in the allowance for loan losses and the recorded investment in the loan balances based on impairment method as of March 31, 2020 and December 31, 2019:

 

   Commercial     Obligations                
(Dollars in Thousands)  Real  Commercial  Of States and  Commercial  Residential  Other  Consumer    
March 31,  2020  Estate  & Industrial  Political Sub.  Construction  Mortgages  Consumer  Construction  Total 
Allowance for Loan Losses:                                 
Individually Evaluated for Impairment  $5,815  $290  $-  $860  $-  $-  $-  $6,965 
Collectively Evaluated for Impairment   20,258   3,059   641   6,435   1,811   3,734   39   35,977 
Total Allowance for Loan Losses  $26,073  $3,349  $641  $7,295  $1,811  $3,734  $39  $42,942 
                                  
Total Portfolio Loans:                                 
Individually Evaluated for Impairment  $32,225  $290  $-  $58,893  $51,665  $-  $-  $143,073 
Collectively Evaluated for Impairment   1,340,594   262,978   355,585   289,703   461,348   73,242   13,376   2,796,826 
Total Portfolio Loans  $1,372,819  $263,268  $355,585  $348,596  $513,013  $73,242  $13,376  $2,939,899 

 

   Commercial     Obligations                
(Dollars in Thousands)  Real  Commercial  Of States and  Commercial  Residential  Other  Consumer    
December 31,  2019  Estate  & Industrial  Political Sub.  Construction  Mortgages  Consumer  Construction  Total 
Allowance for Loan Losses:                                 
Individually Evaluated for Impairment  $5,779  $390  $  $  $-  $-  $-  $6,169 
Collectively Evaluated for Impairment   18,927   2,846   365   5,377   1,736   3,299   43   32,593 
Total Allowance for Loan Losses  $24,706  $3,236  $365  $5,377  $1,736  $3,299  $43  $38,762 
                                  
Total Portfolio Loans:                                 
Individually Evaluated for Impairment  $33,256  $390  $  $59,053  $52,966  $  $  $145,665 
Collectively Evaluated for Impairment   1,332,054   256,408   364,869   233,774   461,572   73,688   16,736   2,739,101 
Total Portfolio Loans  $1,365,310  $256,798  $364,869  $292,827  $514,538  $73,688  $16,736  $2,884,766 

 

The recorded investment in loans excludes accrued interest receivable.

 

 19 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Impaired Loans

 

The following table includes the recorded investment and unpaid principal balance for impaired loans with the associated allowance, if applicable, at March 31, 2020, December 31, 2019 and March 31, 2019:

 

(Dollars in Thousands)   Unpaid Principal   Recorded   Specific   Average Investment   Interest Income 
March 31, 2020  Balance   Balance   Allowance   in Impaired Loans   Recognized 
Loans without a Specific Valuation Allowance                         

Commercial Real Estate

  $3,497   $3,497   $-   $3,992   $32 
Commercial Construction   57,154    57,154    -    58,104    413 
Residential Mortgages   51,665    51,665    -    52,315    620 
                          
Loans with a Specific Valuation Allowance                         
Commercial Real Estate   28,728    28,728    5,815    28,748    - 
Commercial & Industrial   290    290    290    340    - 
Commercial Construction   1,739    1,739    860    870    - 
                          
Total by Category                         
Commercial Real Estate   32,225    32,225    5,815    32,740    32 
Commercial & Industrial   290    290    290    340    - 
Commercial Construction   58,893    58,893    860    58,974    413 
Residential Mortgages   51,665    51,665    -    52,315    620 
Total Impaired Loans  $143,073   $143,073   $6,965   $144,369   $1,065 

 

20 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Interest Income 
December 31, 2019  Balance   Balance   Allowance   in Impaired Loans   Recognized 
Loans without a Specific Valuation Allowance                         
Commercial Real Estate  $4,487   $4,487   $-   $5,885   $131 
Commercial Construction   59,053    59,053    -    59,558    3,056 
Residential Mortgages   52,966    52,966    -    57,079    5,862 
                          
Loans with a Specific Valuation Allowance                         
Commercial Real Estate   28,769    28,769    5,779    31,201    - 
Commercial & Industrial   390    390    390    434    - 
Commercial Construction   -    -    -    1,716    - 
                          
Total by Category                         
Commercial Real Estate   33,256    33,256    5,779    37,086    131 
Commercial & Industrial   390    390    390    434    - 
Commercial Construction   59,053    59,053    -    61,274    3,056 
Residential Mortgages   52,966    52,966    -    57,079    5,862 
Total Impaired Loans  $145,665   $145,665   $6,169   $155,873   $9,049 

 

21 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Interest Income 
March 31, 2019  Balance   Balance   Allowance   in Impaired Loans   Recognized 
Loans without a Specific Valuation Allowance                         
Commercial Real Estate  $4,635   $4,635   $-   $8,127   $30 
Commercial Construction   61,397    61,397    -    61,365    492 
Residential Mortgages   58,245    58,245    -    58,245    1,500 
                          
Loans with a Specific Valuation Allowance                         
Commercial Real Estate   34,825    34,825    5,027    31,349    - 
Commercial Constuction   1,235    1,235    418    1,871    5 
                          
Total by Category                         
Commercial Real Estate   39,460    39,460    5,027    39,476    30 
Commercial Construction   62,632    62,632    418    63,236    497 
Residential Mortgages   58,245    58,245    -    58,245    1,500 
Total Impaired Loans  $160,337   $160,337   $5,445   $160,957   $2,027 

 

For the three months ended March 31, 2020 and 2019, interest income recognized on impaired loans was $1.1 million and $2.0 million, respectively. For the year ended December 31, 2019, interest income recognized on impaired loans was $9.0 million.

 

22 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Troubled Debt Restructurings

 

The following table summarizes the Bank’s troubled debt restructured loans as of the dates presented:

 

   March 31, 2020   December 31, 2019 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Commercial                              
Commercial Real Estate  $3,161   $29,064   $32,225   $3,183   $30,073   $33,256 
Commercial and Industrial   -    290    290    -    390    390 
Obligations of State and Political Subdivisions   -    -    -    -    -    - 
Commercial Construction   52,868    4,210    57,078    53,116    4,242    57,358 
Total Commercial TDRs   56,029    33,564    89,593    56,299    34,705    91,004 
Consumer                              
Residential Mortgages   51,665    -    51,665    52,966    -    52,966 
Other Consumer   -    -    -    -    -    - 
Consumer Construction   -    -    -    -    -    - 
Total Consumer TDRs   51,665    -    51,665    52,966    -    52,966 
Total TDRs  $107,694   $33,564   $141,258   $109,265   $34,705   $143,970 

 

In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized when there is a reasonable chance that an appropriate modification would allow our client to continue servicing the debt. A loan is a troubled debt restructuring (“TDR”) if both of the following exist: 1) the debtor is experiencing financial difficulties and 2) a creditor has granted a concession to the debtor that it would not normally grant. Nonaccrual loans that are modified can be placed back on accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

 

The Bank had one consumer automobile loan modified as a TDR during the three months ended March 31, 2020. The customer was experiencing financial difficulties, but sold the vehicle and the proceeds from that sale were applied to the loan balance. The remaining balance was charged-off, but the loan has been re-amortized for the customer to repay the balance by the end of 2021.

 

The Bank did not have any loans modified as TDRs during the three months ended March 31, 2019.

 

At March 31, 2020 and December 31, 2019, the Bank had $33.6 million and $34.7 million in loans, respectively, modified as TDRs in previous years which had experienced a payment default subsequent to the rework date and were classified as nonperforming. There were no TDR payment defaults during the three months ending March 31, 2020 and 2019. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

 

23

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The specific reserve portion of the allowance for loan losses on TDRs, if required, is determined by discounting the restructured cash flow at the original effective rate of the loan before modification or is based on the fair value of the collateral less cost to sell, if repayment of the loan is collateral dependent. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance as a component of the allowance for loan losses or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. As of March 31, 2020, specific reserves were recorded in the amount of $7.0 million on three credit relationships. As of December 31, 2019, specific reserves were recorded in the amount of $6.2 million on two credit relationships.

 

As of March 31, 2020 and December 31, 2019, the Bank had $383 thousand and $290 thousand, respectively of residential real estate in the process of foreclosure. The Bank had $67 thousand at March 31, 2020 and $69 thousand at December 31, 2019 in residential real estate included in other real estate owned (“OREO”).

 

Portfolio Quality Indicators:

 

The Bank’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Bank’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.

 

The Bank’s internally assigned grades are as follows:

 

Pass – The loan is currently performing and is of high quality.

 

Special Mention – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

 

Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

 

Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

 

24

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following tables represent credit exposures by internally assigned grades as of March 31, 2020 and December 31, 2019:

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
March 31,  2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Pass  $1,200,106   $174,456   $355,585   $227,346   $456,222   $72,939   $13,376   $2,500,030 
Special Mention   8,876    84    -    3,457    1,162    8    -    13,587 
Substandard   163,837    88,728    -    117,793    55,629    295    -    426,282 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
Total Portfolio Loans  $1,372,819   $263,268   $355,585   $348,596   $513,013   $73,242   $13,376   $2,939,899 
                                         
Performing Loans  $1,343,456   $262,863   $355,585   $341,306   $509,850   $73,006   $13,376   $2,899,442 
Non-Accrual Loans   29,363    405    -    7,290    3,163    236    -    40,457 
Total Portfolio Loans  $1,372,819   $263,268   $355,585   $348,596   $513,013   $73,242   $13,376   $2,939,899 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
December 31, 2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Pass   $1,198,269   $167,326   $364,869   $173,176   $456,859   $73,345   $16,736   $2,450,580 
Special Mention   1,368    203    -    1,476    1,178    9    -    4,234 
Substandard   165,673    89,269    -    118,175    56,501    334    -    429,952 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 
                                         
Performing Loans  $1,334,220   $256,331   $364,869   $285,375   $511,681   $73,421   $16,736   $2,842,633 
Non-Accrual Loans   31,090    467    -    7,452    2,857    267    -    42,133 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 

 

25

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Age Analysis of Past-Due Loans by Class

 

The following table includes an aging analysis of the recorded investment of past due loans as of March 31, 2020 and December 31, 2019.

 

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
March 31,2020  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Commercial Real Estate  $964   $-   $   -   $964   $1,342,492   $29,363   $1,372,819   $     - 
Commercial& Industrial   496    22    -    518    262,345    405    263,268    - 
Obligations of States and Political Sub.   -    -    -    -    355,585    -    355,585    - 
Commercial Construction   2,877    100    -    2,977    338,329    7,290    348,596    - 
Residential Mortgages   679    -    -    679    509,171    3,163    513,013    - 
Other Consumer   916    310    -    1,226    71,780    236    73,242    - 
Consumer Construction   702    -    -    702    12,674    -    13,376    - 
Total  $6,634   $432   $-   $7,066   $2,892,376   $40,457   $2,939,899   $- 

 

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
December 31, 2019  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Commercial Real Estate  $307   $913   $-   $1,220   $1,333,000   $31,090   $1,365,310   $     - 
Commercial& Industrial   146    15    -    161    256,170    467    256,798    - 
Obligations of States and Political Sub.   236    -    -    236    364,633    -    364,869    - 
Commercial Construction   58    170    -    228    285,147    7,452    292,827    - 
Residential Mortgages   937    5    -    942    510,739    2,857    514,538    - 
Other Consumer   894    389    -    1,283    72,138    267    73,688    - 
Consumer Construction   -    -    -    -    16,736    -    16,736    - 
Total  $2,578   $1,492   $-   $4,070   $2,838,563   $42,133   $2,884,766   $- 

 

26

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 6 – FAIR VALUE MEASUREMENTS

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs. 

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. 

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. These include discounted cash flow models, appraisals, internal valuations, and other similar techniques.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair value:

 

Securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.

 

Impaired Loans: Impaired loans with an outstanding balance equal to or greater than $1.0 million are evaluated for potential specific reserves and adjusted, if a shortfall exits, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent.  All impaired loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

 

27

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Fair value for collateral dependent loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

  

Subsequent to the initial impairment date, existing impaired loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For collateral dependent loans, the first stage of our impairment analysis involves management’s inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal. In circumstances where the Bank feels confident in its ability to collect and analyze salient information on the subject collateral and its surrounding real estate market, an in house valuation shall be utilized.  Factors which should be considered in an in house valuation are timing of sale, location and neighborhood, size of the structure and land component, age of any improvements, and other attributes as warranted by the Bank.  This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and our assessment of deterioration of real estate values in the market in which the property is located. When the Bank feels it cannot collect and analyze salient information on the subject collateral or the collateral’s real estate market, a full appraisal will be utilized.

 

For non-collateral dependent loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

 

OREO: OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market, or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to revalue the assets, at minimum, once every twenty-four months based on the size of the exposure. At March 31, 2020 the Bank’s OREO assets were in compliance with the Bank’s OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third party real estate brokers.

 

28

 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Financial assets measured at fair value on a recurring basis at March 31, 2020 are summarized below:

 

       Quoted Prices In       Significant 
       Active Markets for   Significant Other   Unobservable 
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $729,973   $   $720,850   $9,123 
Derivatives   1,868        1,868     
Total  $731,841   $   $722,718   $9,123 

 

Liabilities                
Derivatives   2,008        2,008     
Total  $2,008   $   $2,008   $ 

 

Financial assets measured at fair value on a recurring basis at December 31, 2019 are summarized below:

 

       Quoted Prices In       Significant 
       Active Markets for   Significant Other   Unobservable 
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $742,617   $   $737,617   $5,000 
Derivatives   626        626     
Total  $743,243   $   $738,243   $5,000 

 

Liabilities                
Derivatives   675        675     
Total  $675   $   $675   $ 

 

Financial assets measured at fair value on a non-recurring basis are summarized below:

 

(Dollars in Thousands)                
March 31, 2020  Level 1   Level 2   Level 3   Fair Value 
OREO  $-   $-   $18,117   $18,117 
Impaired Loans  $-   $-   $23,792   $23,792 
                     

 

(Dollars in Thousands)                
December 31, 2019  Level 1   Level 2   Level 3   Fair Value 
OREO  $-   $-   $18,324   $18,324 
Impaired Loans  $-   $-   $22,989   $22,989 

 

Impaired loans had a net carrying amount of $23.8 million at March 31, 2020 with a valuation allowance of $7.0 million, resulting in a $0.8 million increase in provision for loan losses for the three months ended March 31, 2020. At December 31, 2019, impaired loans had a net carrying amount of $23.0 million, with a valuation allowance of $6.2 million.

 

 29 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $18.1 million as of March 31, 2020, compared with $18.3 million at December 31, 2019, a decrease of $0.2 million. Write-downs of $70 thousand were recorded on OREO for the three months ended March 31, 2020 compared to $7 thousand for the three months ended March 31, 2019, respectively.

 

The following table summarizes the Bank’s assets that were measured at fair value on a nonrecurring basis as of March 31, 2020 and December 31, 2019:

 

(Dollars in Thousands)                
March 31,  2020  Fair   Valuation  Unobservable  Weighted   
Assets  Value   Technique  Inputs  Range  Average
Impaired Loans  $2,628   Purchase Contract  Pending Close of Contract, Net of Closing Costs  25.0%  25.0%
Impaired Loans   20,285   Discounted Appraisals  Management’s Discount & Selling Costs  5.4% - 84.6%  26.0%
Impaired Loans   879   Discounted Appraisals  Selling Cost  7.0% - 12.0%  9.5%
        Development Contract  Developer Fee  12.6%  12.6%
  Total Impaired Loans  $23,792             
                  
Other Real Estate Owned  $14,047   Appraisals  Selling Costs  6.0% - 25.0%  7.4%
Other Real Estate Owned   1,613   Discounted Cash Flow  Discount Rate  6.3%  6.3%
Other Real Estate Owned   1,563   Internal Valuations  Selling Costs  5.0%  5.0%
Other Real Estate Owned   894   Discounted Internal Valuations  Management’s Discount & Selling Costs  3.3% - 15.8%  19.1%
Total Other Real Estate Owned  $18,117             
                 
December 31,  2019  Fair   Valuation  Unobservable  Weighted   
Assets  Value   Technique  Inputs  Range  Average
Impaired Loans  $2,700   Purchase Contract  Pending Close of Contract, Net of Closing Costs  25.0%  25.0%
Impaired Loans   20,289   Discounted Appraisals  Management’s Discount & Selling Costs  2.6% - 84.6%  24.1%
  Total Impaired Loans  $22,989             
                  
Other Real Estate Owned  $13,596   Appraisals  Selling Costs  6.0% - 10.0%  6.4%
Other Real Estate Owned   1,735   Discounted Cash Flow  Discount Rate  6.3%  6.3%
Other Real Estate Owned   2,993   Internal Valuations  Selling Costs  5.0%  5.0%
Total Other Real Estate Owned  $18,324             

 

The carrying values and estimated fair values of the Bank’s financial instruments at March 31, 2020 and December 31, 2019 are presented in the following tables. Fair values for March 31, 2020 and December 31, 2019 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”.

 

 30 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

(Dollars in Thousands)      Fair Value Measurements at March 31, 2020 
Financial Assets:  Carrying
Value
   Level 1   Level 2   Level 3   Total 
Cash and Cash Equivalents  $63,401   $48,706   $14,695   $-   $63,401 
Securities Available-for-Sale   729,973    -    720,850    9,123    729,973 
Loans Held-for-Sale   29,689    -    -    29,689    29,689 
Portfolio Loans   2,939,899    -    -    2,912,603    2,912,603 
Federal Home Loan Bank Stock, at Cost   5,093    -    -    N/A    N/A 
Other Assets- Interest Rate Derivatives   1,868    -    1,868    -    1,868 
Accrued Interest Receivable   16,166    -    3,070    13,096    16,166 

 

Financial Liabilities:                         
Deposits  $3,472,995   $557,511   $1,027,768   $1,894,607   $3,479,886 
Other Liabilities- Interest Rate Derivatives   2,008    -    2,008    -    2,008 
FHLB Borrowings   35,000    -    -    35,500    35,500 
Accrued Interest Payable   2,928    -    -    2,928    2,928 

 

(Dollars in Thousands)      Fair Value Measurements at December 31, 2019 
Financial Assets:  Carrying
Value
   Level 1   Level 2   Level 3   Total 
Cash and Cash Equivalents  $125,812   $41,386   $84,426   $-   $125,812 
Securities Available-for-Sale   742,617    -    737,617    5,000    742,617 
Loans Held-for-Sale   19,714    -    -    19,714    19,714 
Portfolio Loans   2,884,766    -    -    2,857,986    2,857,986 
Federal Home Loan Bank Stock, at Cost   4,113    -    -    N/A    N/A 
Other Assets- Interest Rate Derivatives   626    -    626    -    626 
Accrued Interest Receivable   13,751    -    3,018    10,733    13,751 

 

Financial Liabilities:                         
Deposits  $3,504,245   $554,875   $988,964   $1,967,563   $3,511,402 
Other Liabilities- Interest Rate Derivatives   675    -    675    -    675 
FHLB Borrowings   10,000    -    -    9,886    9,886 
Accrued Interest Payable   3,001    -    -    3,001    3,001 

 

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The following table indicates the amounts representing the value of derivative assets and derivative liabilities at March 31, 2020 and December 31, 2019:

 

   Fair Values of Derivative Instruments 
   Asset Derivatives (Included in Other Assets) 
   March 31, 2020   December 31, 2019 
(Dollars in Thousands)  Number of
Transactions
   Notional
Amount
  

Fair
Value

   Number of
Transactions
   Notional
Amount
  

Fair
Value

 
Derivatives not Designated as Hedging Instruments                        
Interest Rate Lock Commitments – Mortgage Loans   6   $854   $12    5   $937   $1 
Interest Rate Swap Contracts – Commercial Loans   8    56,095    1,856    2    18,773    625 
Total Derivatives not Designated as Hedging Instruments   14   $56,949   $1,868    7   $19,710   $626 

 

 31 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

   Fair Values of Derivative Instruments 
   Liability Derivatives (Included in Other Liabilities) 
   March 31, 2020   December 31, 2019 
(Dollars in Thousands) 

Number of

Transactions

   Notional
Amount
   Fair
Value
   Number of
Transactions
  

Notional

Amount

  

Fair

Value

 
Derivatives not Designated as Hedging Instruments                        
Forward Sale Contracts – Mortgage Loans   6   $854   $12    5   $937   $1 
Interest Rate Swap Contracts – Commercial Loans   8    56,095    1,996    2    18,773    674 
Total Derivatives not Designated as Hedging Instruments   14   $56,949   $2,008    7   $19,710   $675 

 

The following table indicates the gain or loss recognized in income on derivatives for the periods ended March 31:

 

   For the Three Months Ended 
   March 31,   March 31, 
(Dollars in Thousands)  2020   2019 
Derivatives not Designated as Hedging Instruments        
Interest Rate Lock Commitments – Mortgage Loans  $11   $1 
Forward Sale Contracts – Mortgage Loans   (11)   (1)
Interest Rate Swap Contracts – Commercial Loans   (91)   (10)
Total Derivative Loss  $(91)  $(10)

 

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

 

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets for the periods presented:

 

 

   Asset Derivatives (Included in
Other Assets)
   Liability Derivatives (Included in
Other Liabilities)
 
(Dollars in Thousands)  March 31,
2020
   December 31,
2019
   March 31,
2020
   December 31,
2019
 
Derivatives not Designated as Hedging Instruments                    
Gross Amounts Recognized  $1,856   $625   $1,996   $674 
Gross Amounts Offset   -    -    -    - 
Net Amounts Presented in the Consolidated Balance Sheets   1856    625    1996    674 
Gross Amounts Not Offset (1)   -    -    (1,790)   (860)
Net Amount  $1,856   $625   $206   $(186)

 

(1)Amounts represent collateral posted for the periods presented.

 

NOTE 8 – LONG-TERM BORROWINGS

 

Long-term borrowings are for original terms greater than or equal to one year and are comprised of Federal Home Loan Bank (“FHLB”) advances. Our long-term borrowings at the Atlanta FHLB were $35.0 million as of March 31, 2020 and $10.0 million as of December 31, 2019. FHLB borrowings are secured by a blanket lien on select residential mortgages at March 31, 2020. Total loans pledged as collateral were $301.4 million and $284.6 million at March 31, 2020 and December 31, 2019, respectively. There were no securities available-for-sale pledged as collateral at March 31, 2020. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $217.6 million based upon qualifying collateral, to a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of March 31, 2020.

 

 32 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The following table represents the balance of long-term borrowings and the weighted average interest rate as of the periods presented:

 

(Dollars in Thousands)  March 31, 2020   December 31, 2019 
Long-term Borrowings  $35,000   $10,000 
Weighted Average Interest Rate   1.13%   1.63%

 

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to March 31, 2020 and thereafter are as follows:

 

       Weighted 
(Dollars in Thousands)  Balance   Avg Rate 
1 year  $-    0.00%
2 years   3,000    1.68%
3 years   14,000    1.09%
4 years   10,000    0.94%
5 years   8,000    1.25%
Thereafter   -    0.00%
Total FHLB Borrowings  $35,000    1.13%

 

NOTE 9 – INCENTIVE AND RESTRICTED STOCK PLAN

 

The Board of Directors of Bank adopted the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Plan”) on March 29, 2018 based on the recommendation of the Nominating and Compensation Committee (the “Committee”). The Plan became effective on June 27, 2018 and reserves 2,000,000 shares of common stock for issuance. The Plan provides for the grant to key employees and non-employee directors of awards that may include one or more of the following: stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units and performance cash awards (collectively, the “awards”). Subject to accelerated vesting under certain circumstances, the Plan requires a minimum vesting period of one year for awards subject to time-based conditions and a minimum performance period of one year for awards subject to achievement or satisfaction of performance goals. These minimums are applicable to awards other than those granted as part of a retainer for the service of non-employee directors. The Committee will set the vesting period on the awards. No awards may be granted under the Plan more than ten years from the effective date of the Plan.

 

Restricted Stock

 

The Bank periodically issues restricted stock to non-employee directors, executive officers and employees pursuant to our Plan. As of March 31, 2020, 129,927 restricted shares have been granted under the Plan, 1,934 shares have been forfeited and 28,196 shares have vested.

 

 33 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

The Bank granted 36,919 and 21,167 restricted shares of common stock to key personnel under the Plan during the quarters ended March 31, 2020 and 2019, respectively. Totals grants of restricted stock to key personnel totaled 96,641 shares as of March 31, 2020. Forfeitures of restricted stock were 1,531 and 403 shares during the first quarters of 2020 and 2019, respectively. During the first quarter of 2020, 7,052 shares of restricted stock vested. No shares of restricted stock vested during the first quarter of 2019. These grants were approved by the Committee as compensation for substantial contributions to Bank performance, including contribution during our recent core systems conversion. These key personnel restricted shares fully vest three years after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

The Bank granted 16,137 and 17,149 restricted shares of common stock to non-employee directors under the Plan during the quarters ended March 31, 2020 and 2019, respectively. Total grants of restricted shares to non-employee directors totaled 33,286 shares as of March 31, 2020. There were no forfeitures of restricted stock during the first quarter of 2020 or 2019. During the first quarter of 2020, 17,149 shares of restricted stock vested. No shares of restricted stock vested during the first quarter of 2019. These grants were approved by the Committee as compensation for Bank performance. These restricted shares were originally approved to fully vest three years after the grant date. However, the Committee approved accelerated vesting of these non-employee director restricted shares in January 2020 to fully vest one year after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

If any award granted under this Plan terminates, expires, or lapses for any reason other than by virtue of exercise or settlement of the award, or if shares issued pursuant to awards are forfeited, any stock subject to such award again shall be available for future awards under the Plan.

 

Compensation expense for restricted shares of stock is recognized ratably over the period of service, generally the entire vesting period, based on fair value on the grant date. During the first quarter of 2020 and 2019, the Bank recognized compensation expense of $352 thousand and $47 thousand, respectively.

 

As of March 31, 2020, there was $1.6 million of total unrecognized compensation cost related to restricted stock that will be recognized as compensation expense over a weighted average period of 2.14 years.

 

The following table provides information about restricted stock grants, vesting’s and forfeits under the Plan for the quarter ended March 31, 2020 and the year ended December 31, 2019:

 

       Weighted Average 
       Grant Date 
   Restricted Shares   Fair Value 
Non-vested at December 31, 2018   12,413    17.86 
Granted   64,458    17.39 
Vested   (3,995)   17.86 
Forfeited   (403)   17.86 
Non-vested at December 31, 2019   72,473   $17.44 
Granted   53,056    19.72 
Vested   (24,201)   15.86 
Forfeited   (1,531)   19.16 
Non-vested at March 31, 2020   99,797   $19.01 

 

 34 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 10 – OFF-BALANCE SHEET ARRANGEMENTS

 

Commitments to extend credit, which amounted to $554.3 million at March 31, 2020 and $488.9 million at December 31, 2019, respectively, represent agreements to lend to customers with fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements. Standby letters of credit are conditional commitments issued by the Bank guaranteeing the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The Bank had outstanding letters of credit in the amount of $39.3 million at March 31, 2020 and $39.5 million at December 31, 2019.

 

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and unconditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.

 

Our allowance for unfunded commitments is determined using a methodology similar to that used to determine the ALL. Amounts are added to the allowance for unfunded commitments through a charge to current earnings in noninterest expense. The balance in the allowance for unfunded commitments was $1.4 million at March 31, 2020 and $0.4 million at December 31, 2019. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The reserve is calculated by applying historical loss rates to our unfunded commitments.

 

NOTE 11 – SUBSEQUENT EVENT

 

In December 2019, in Wuhan, China, a novel strain of coronavirus causing a previously unknown disease (“COVID-19”) was reported in Wuhan, China. The World Health Organization (the “WHO”) declared the outbreak to constitute a Public Health Emergency of International Concern on January 30, 2020. Over the course of the first quarter of 2020, COVID-19 developed into a worldwide outbreak and, on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 13, 2020, President Trump issued a proclamation declaring a national state of emergency in response to COVID-19. During the final two weeks of March 2020, the governors of multiple U.S. states, including Virginia, where the Bank has its principal place of business, and North Carolina, where the Bank has significant operations, issued stay-at-home orders that directed the closing of non-essential businesses and restricted public gatherings. The COVID-19 pandemic continues to grow in the Bank’s areas of operation, the United States and across the globe. The pandemic has severely disrupted supply chains and adversely affected production, demand, sales and employee productivity across a range of industries and dramatically increased unemployment in the Bank’s areas of operation and nationally. These events have affected the Bank’s operations in the first quarter of 2020 and are expected to impact the Bank’s financial results throughout fiscal year 2020. The extent of the impact of the COVID-19 pandemic on the Bank’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the impact on the Bank’s customers, employees and vendors and the nature and effect of past and future federal and state governmental and private sector responses to the pandemic, all of which are uncertain and cannot be predicted.

 

 35 

 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act is an emergency stimulus measure providing assistance and relief in a variety of ways to certain individuals, businesses, and industries. The CARES Act established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the paycheck protection program (“PPP”). In addition to the general impact of COVID-19, certain provisions of the CARES act as well as other legislative and regulatory relief efforts are expected to have a material impact on our operation. It is impossible to determine the extent of these impacts at the date of this filing, we are disclosing potentially material items of which we are aware.

 

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of the Treasury, the FDIC, the FRB and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Bank.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or (“MD&A”), represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations as of and for the three month periods ended March 31, 2020 and 2019. Our MD&A should be read in conjunction with our Consolidated Financial Statements and notes thereto. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.

 

36 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Important Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains or incorporates statements that we believe are “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; loan quality; levels of net charge-offs; changes in appraised values of collateral securing loans; the Bank’s liquidity and capital positions; interest rates; 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 Bank's borrowers to satisfy their obligations to the Bank, on the value of collateral securing loans, on the demand for the Bank's loans or its other products and services, on incidents of cyberattack and fraud, on the Bank’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Bank's business operations and on financial markets and economic growth; rates of customer loan payoffs; cyber-security concerns; rapid technological developments and changes; the impact of the information technology systems upgrade; efforts to restructure the balance sheet; 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; our ability to retain existing deposits and attract new deposits; 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; 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 Annual Report on Form 10-K for the year ended December 31, 2019, including Part I, Item 1A, Risk Factors and any of our subsequent filings with the FDIC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Bank cautions 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 the Bank undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement are made.

 

On March 25, 2020, the SEC issued a further order (the “March 25 Order”), which supersedes the March 4 order, providing COVID-19 impacted registrants temporary relief from certain filing and regulatory requirements and providing an additional 45 days for registrants to make required Exchange Act filings that would have been due between March 1 and July 1, 2020, including quarterly reports on Form 10-Q, if a registrant is unable to meet a deadline because of circumstances related to COVID-19.

 

The Bank relied on the March 25 Order for relief from the SEC’s filing deadline for the Bank’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

 

The Bank and its auditor were evaluating collateral supporting one impaired loan relationship. The Bank’s evaluation of the collateral was dependent, in part, on the results of a pending independent appraisal regarding the collateral. The appraisal report and the Bank’s evaluation thereof with its auditor could have potentially impacted the financial statements to be included in the Quarterly Report.

 

37 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Due to the effects of the COVID-19 pandemic, the process of obtaining the independent appraisal and evaluating the collateral had been slowed, and, consequently, the Bank was unable to complete preparation of the Quarterly Report and file within the deadline prescribed by the SEC’s rules.

 

Critical Accounting Policies and Estimates

 

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2020 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2019 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

Overview

 

Carter Bank & Trust (the “Bank”) is a non-member state Bank headquartered in Martinsville, Virginia with assets of $4.0 billion at March 31, 2020.  The Bank operates branches in Virginia and North Carolina. The Bank provides a full range of financial services with retail, and commercial banking products and insurance. Our common stock began trading on Nasdaq Global Select Market effective March 25, 2019, under the ticker symbol “CARE.” Prior to March 25, 2019, our common stock traded on the Over the Counter (“OTCQX”) Best Market under the ticker symbol “CARE.”

 

The Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. The Bank incurs expenses for the cost of deposits, provision for loan losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

 

Our mission is that the Bank strives to be the preferred lifetime financial partner for our customers and shareholders, and the employer of choice in the communities the Bank is privileged to serve. Our strategic plan focuses on restructuring the balance sheet to provide more diversification and higher yielding assets to increase the net interest margin. Another area of focus is the transformation of the infrastructure of the Bank to provide a foundation for operational efficiency and provide new products and services for our customers that will ultimately increase noninterest income.

 

Our focus continues to be on loan and deposit growth with a shift in the composition of deposits to more low cost core deposits with less dependence in higher cost certificates of deposits, as well as, implementing opportunities to increase fee income while closely monitoring our operating expenses. The Bank is focused on executing our strategy to successfully build our brand and grow our business in our markets. The Bank’s net interest margin has benefited due to our strategy to deploy our excess cash into higher yielding and diversified investment securities and purchased loans, as well as, the runoff of higher cost deposits.

 

38 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

COVID-19 Subsequent Event and Recent Developments

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act is an emergency stimulus measure providing assistance and relief in a variety of ways to certain individuals, businesses, and industries. The CARES Act established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the paycheck protection program (“PPP”). In addition to the general impact of COVID-19, certain provisions of the CARES act as well as other legislative and regulatory relief efforts are expected to have a material impact on our operation. It is impossible to determine the extent of these impacts at the date of this filing, we are disclosing potentially material items of which we are aware.

 

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of the Treasury, the FDIC, the FRB and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Bank.

 

Set forth below is a brief overview of certain provisions of the CARES Act and certain other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Such statutes, regulations, and policies are subject to ongoing review by U.S. Congress and federal regulatory authorities. Future amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Bank could have a material effect on the Bank. Many of the requirements called for in the CARES Act and related regulations and supervisory guidance will be implemented over time and most will be subject to implementing regulations over the course of the coming weeks. The Bank will continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

 

FRB Reserve Programs and Initiatives

 

The CARES Act encourages the FRB, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities, including (i) a Midsize Business/Nonprofit Organization Program to provide financing to banks and other lenders to make direct loans to eligible businesses and nonprofit organizations with between 500 and 10,000 employees and (ii) the Municipal Liquidity Facility, provide liquidity to the financial system that supports states and municipalities. On April 9, 2020, the FRB announced and solicited comments regarding the Main Street Lending Program, which would implement certain of these recommendations. Further action regarding the Main Street Lending Program is expected soon.

 

Separately and in response to COVID-19, the FRB’s Federal Open Market Committee (the “FOMC”) has set the federal funds target rate – i.e., the interest rate at which depository institutions such as the Bank lend reserve balances to other depository institutions overnight on an uncollateralized basis – to an historic low. On March 16, 2020, the FOMC set the federal funds target rate at 0-0.25%. Consistent with FRB policy, the FRB has committed to the use of overnight reverse repurchase agreements as a supplementary policy tool, as necessary, to help control the federal funds rate and keep it in the target range set by the FOMC.

 

39 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

In addition, the FRB has expanded the size and scope of three existing programs to mitigate the economic impact of the COVID-19 outbreak: (i) the Primary Market Corporate Credit Facility; (ii) the Secondary Market Corporate Credit Facility; and (iii) the Term Asset-Backed Securities Loan Facility. The FRB has also established two new program facilities – the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility – to broaden its support for the flow of credit to households and businesses during COVID-19.

 

Temporary Regulatory Capital Relief related to Impact of CECL

 

Concurrent with enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement CECL before the end of 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.

 

Temporary Bank Secrecy Act (“BSA”) Reporting Relief

 

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has provided targeted relief from certain BSA reporting requirements and have provided updated guidance to financial institutions on complying with such requirements during COVID-19. Specifically, FinCEN has (i) granted targeted relief to financial institutions participating in the PPP, stating that PPP loans to existing customers will not require re-verification under applicable BSA requirements, unless re-verification is otherwise required under the financial institution’s risk-based BSA compliance program, (ii) acknowledged that there may be “reasonable delays in compliance” due to COVID-19, and (iii) temporarily suspended implementation if its February 2020 ruling, which would have entailed significant changes to currency transaction reporting filing requirements for transactions involving sole proprietorships and entities operating under a “doing business as” or other assumed name.

 

Bank’s Response to COVID-19

 

Lending Operations

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the 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 Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

The Bank quickly responded to the pandemic and the CARES Act, offering the option of payment deferrals, participation in the PPP, fee waivers and other relief actions to customers. Banks have been identified as essential services and have remained open during the order. The Bank continues to serve its customers through modified hours in both the drive-ins and branch services via appointment. Every opportunity is being taken to protect both customers and employees through enhanced cleaning services, social distancing and personal protective equipment requirements for both. Approximately 20% of the Bank’s workforce is working remotely.

 

40 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Under the CARES Act, the PPP is an amendment to the Small Business Administration (“SBA”) 7-A loan program. The Bank recently became an approved SBA 7-A lender. PPP is a guaranteed, unsecured loan program created to fund certain payroll and operating costs of eligible businesses, organizations and self-employed persons during COVID-19.  Initially, $349 billion were approved and designated for PPP in order for the SBA to guarantee 100% of the collective loans made under the program to eligible small businesses, nonprofits, veteran’s organizations, and tribal businesses. The Bank participated in the initial round of funding though a referral relationship with a third-party, non-bank lender. When an additional $310 billion in funds were approved and designated for PPP, the Bank opted to stand up an internal, automated loan process utilizing its core system provider. As of May 31, 2020 we had processed 538 PPP loans totaling $44 million.

 

The FRB implemented a liquidity facility available to financial institutions participating in the PPP.  We believe we have sufficient liquidity sources to fund all pending PPP loans and to continue to provide this important service to local businesses.  These loans are fully guaranteed by the SBA and do not represent a credit risk.

 

The Bank is providing deferrals to customers under Section 4013 of the CARES Act. These deferrals typically provide deferrals of both principal and interest for up to 180 days. At the end of the deferral period, for loan terms, 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 May 31, 2020, we have had 651 commercial and consumer customers opt for deferrals with an aggregate principal balance of $1.2 billion with $30.0 million in deferred principal and interest payments. Approximately $465.9 million of these modifications were in the hospitality industry comprised of deferrals on 84 loans. The average deferment period for these customers has been 4.5 months.

 

The following table provides detail of the Bank’s deferred payments.

 

   Number   Loan   Percent of   Aggregate Deferred Payments 
(Dollars in Thousands)  of Loans   Principal   Outstanding   Principal   Interest 
Commercial                    
Commercial Real Estate   245   $778,267    56.7%  $9,009   $13,481 
Commercial and Industrial   107    110,509    42.0%   1,577    1,166 
Obligations of State and Political Subdivisions                         
Commercial Construction   35    179,212    51.4%   762    2,199 
Total Commercial Loans   387    1,067,988    45.6%   11,348    16,846 
Consumer                         
Residential Mortgages   167    95,198    18.6%   522    1,150 
Other Consumer   97    873    1.2%   122    29 
Consumer Construction                         
Total Consumer Loans   264    96,071    16.0%   644    1,179 
Total Aggregate Deferred Payments   651   $1,164,059    39.6%  $11,992   $18,025 

 

41 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Our interest income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

 

The Bank’s exposure to hospitality at March 31, 2020 equated to approximately $496.1 million, or 16.9% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit with other financial institutions and adversely affect their ability to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

The allowance for loan loss at March 31, 2020 includes a reserve build of $2.6 million, driven by the economic and market conditions as a result of COVID-19. The Bank 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 uncertainly 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.

 

Retail Operations

 

The Bank will continue to promote our digital banking options through our website. Customers are encouraged to utilize online and mobile banking tools, and our customer service and retail departments are fully staffed and available to assist customers remotely.

 

We have closed all branches to customer activity, except for drive-up and appointment only services. We continue to pay all employees according to their normal work schedule, even if their work has been reduced. No employees have been furloughed. Employees whose job responsibilities can be effectively carried out remotely are working from home. Employees whose critical duties require their continued presence on-site are observing social distancing and cleaning protocols.

 

Our fee income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees and account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact our fee income in future periods.

 

42 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Capital Resources and Liquidity

 

As of March 31, 2020, all of the Bank’s capital ratios were in excess of all regulatory requirements. An extended economic recession brought about by COVID-19 could adversely impact our reported regulatory capital ratios.

 

We maintain access to multiple sources of liquidity. Funding sources accessible to the Bank include borrowing availability at the FHLB, equal to 25% of the Bank’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 $115.0 million and access to the institutional CD market through brokered CDs and QwickRate. In addition to the above resources, the Bank also has $605.4 million of unpledged available-for-sale securities as an additional source of liquidity at March 31, 2020. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

 

The Bank is monitoring and will continue to monitor the impact of the COVID-19 pandemic and has taken and will continue to take steps to mitigate the potential risks and impact on our liquidity and capital resources. Due to the economic uncertainty, we are taking a prudent approach to capital management and have established access to the FRB’s PPP Lending Facility.

 

Goodwill and Other Intangibles

 

As of March 31, 2020 goodwill and other intangible assets were not considered impaired; however, changing economic conditions that may adversely affect our performance and stock price could result in impairment, which could adversely affect earnings in future periods. As a result of our impairment analysis as of March 31, 2020, it was determined that the fair value of our goodwill exceeded its carrying value.

 

Earnings Summary

 

Net income decreased $3.1 million, or 41.3%, for the three months ended March 31, 2020 as compared to the same period in 2019. Net income for the three months ended March 31, 2020 was $4.4 million, or $0.17 diluted earnings per share, as compared to $7.5 million, or $0.29 diluted earnings per share, for the same period in 2019. The decrease in net income for the three month period ended March 31, 2020 of $3.1 million was primarily due to an increase of $3.2 million in the provision for loan losses due to a reserve build of $2.6 million, or $(0.08) per share, driven by economic and market conditions as a result of COVID-19.

 

Net interest income decreased $0.6 million, or 2.3%, to $27.3 million during the first quarter of 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, decreased 12 basis points to 2.97% over the past twelve months. The decreases in short-term interest rates had a negative impact on both net interest income and the net interest margin, but are offset by a lower cost of funds. The yield on interest-earning assets decreased 18 basis points, offset by a five basis point decline in funding costs as compared to the same period of 2019.

 

43 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The provision for loan losses totaled $4.8 million for the period ended March 31, 2020 and $1.6 million for the same period of 2019. Included in the provision for loan loss expense for the period ended March 31, 2020 is the impact of a reserve build of $2.6 million, or $(0.08) per share, driven by economic and market conditions as a result of COVID-19. This represents a 194.9% increase in the provision expense as compared to the same period of 2019.

 

At March 31, 2020, nonperforming loans were $40.5 million as compared to $42.1 million at December 31, 2019, a decrease of $1.6 million, or 4.0%. Net charge-offs were $0.6 million in the first quarter of 2020 as compared to $1.3 million in the same period of 2019. As a percentage of total portfolio loans, on an annualized basis, net charge-offs were 0.08% and 0.18% for the quarters ending March 31, 2020 and 2019, respectively.

 

Nonperforming loans as a percentage of total portfolio loans were 1.38%, 1.46% and 1.74% as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

 

Noninterest income at March 31, 2020, excluding net securities gains, increased $2.0 million, or 52.1%, as compared to the same period of 2019. The increase was primarily due to $1.0 million of higher insurance income, $0.4 million of commercial loan interest rate swap fees, included in other income, and $0.5 million of higher service charges and debit card interchange fees. These increases are offset by lower other real estate owned income of $0.2 million due to the sale of several large commercial properties that generated income. Securities gains of $1.2 million and $31 thousand were realized during the first quarter of 2020 and 2019, respectively, to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Total noninterest expense increased $2.6 million, or 11.9%, for the first quarter of 2020 to $24.7 million as compared to $22.1 million in the same period of 2019. The increase was primarily driven by salaries and employee benefits and occupancy expenses. Other increases include $0.4 million in occupancy expense, $0.4 million increase in advertising expense, and $0.9 million increase in the unfunded loan commitment reserve. Offsetting these increases was a total decrease of $0.6 million from FDIC insurance expense, legal and professional fees, and data processing collectively.

 

The provision for income taxes was $0.2 million in the first quarter of 2020 as compared to $0.4 million during the same period of 2019.

 

The effective tax rate was 5% for the three months ended March 31, 2020 and 2019. The Bank ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects, which are relatively consistent regardless of the level of pretax income.

 

Explanation of Use of Non-GAAP Financial Measures

 

In addition to the results of operations presented in accordance with generally accepted accounting principles, or GAAP, in the United States, management uses, and this quarterly report references, net interest income on a fully taxable equivalent, or (“FTE”), basis, which is a non-GAAP financial measure. Management believes this measure provides information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies.

 

44 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank believes the presentation of net interest income on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Net interest income per the Consolidated Statements of Income is reconciled to net interest income adjusted to an FTE basis in the Net Interest Income section of the "Results of Operations – Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019".

 

RESULTS OF OPERATIONS

 

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

 

Net Interest Income

 

Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or (“ALCO”), in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Bank believes is an acceptable level of net interest income.

 

The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal corporate tax rate for each period (which was 21% for all periods presented) and the dividend-received deduction for equity securities. The Bank believes this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.

 

The following table reconciles net interest income per the Consolidated Statements of Income to net interest income on an FTE basis for the periods presented:

 

   Three Months Ended 
   March 31,   March 31, 
(Dollars in Thousands)  2020   2019 
Total Interest Income  $37,836   $39,139 
Total Interest Expense   10,572    11,243 
Net Interest Income   27,264    27,896 
Adjustment to FTE Basis   601    909 
Net Interest Income (FTE) (non-GAAP)  $27,865   $28,805 
Net Interest Margin   2.90%   2.99%
Adjustment to FTE Basis   0.07%   0.10%
Net Interest Income (FTE) (non-GAAP)   2.97%   3.09%

 

45 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Net interest income, on a fully taxable equivalent basis, decreased $0.9 million, or 3.3%, to $27.9 million as compared to $28.8 million in the same period of 2019. Interest income, on a fully taxable equivalent basis, decreased $1.6 million and interest expense decreased $0.7 million in the quarter over quarter comparison. The decreases in short-term interest rates had a negative impact on both net interest income and the net interest margin, but are offset by a lower cost of funds. The net interest margin, on a fully taxable equivalent basis, decreased 12 basis points to 2.97% over the past twelve months, primarily due to the lower interest rate environment. The lower interest rate environment and the intentional runoff of higher cost certificates of deposits helped to lower the overall cost of funds.

 

The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented:

 

Average Balance Sheet and Net Interest Income Analysis (FTE)

 

   Three Months ended March 31, 2020   Three Months ended March 31, 2019 
(Dollars in Thousands)  Average Balance   Income/Expense   Rate   Average Balance   Income/Expense   Rate 
ASSETS                        
Interest-Bearing Deposits with Banks  $62,960   $210    1.32%  $172,155   $1,021    2.41%
Tax-Free Investment Securities   21,452    204    3.80%   110,955    1,018    3.72%
Taxable Investment Securities   712,104    4,502    2.52%   701,390    4,122    2.38%
Tax-Free Loans   337,857    2,660    3.15%   401,066    3,313    3.35%
Taxable Loans   2,584,917    30,797    4.74%   2,396,152    30,574    5.17%
Federal Home Loan Bank Stock   4,418    64    5.85%   -    -    - 
Total Interest-Earning Assets  $3,723,708   $38,437    4.11%  $3,781,718   $40,048    4.29%
                               
LIABILITIES                              
Deposits                              
Interest-Bearing Demand   297,395    446    0.60%   271,214    640    0.96%
Money Market   154,564    271    0.71%   90,601    243    1.09%
Savings   562,712    145    0.10%   606,317    486    0.33%
Certificates of Deposit   1,918,841    9,633    2.02%   2,098,658    9,854    1.90%
Total Interest-Bearing Deposits   2,933,512    10,495    1.44%   3,066,790    11,223    1.48%
Borrowings:                              
Fed Funds Purchased   220    1    1.59%   -    -    - 
FHLB Borrowings   17,418    58    1.33%   -    -    - 
Other Borrowings   1,481    18    4.81%   954    20    8.50%
Total Borrowings   19,119    77    1.64%   954    20    8.50%
Total Liabilities  $2,952,631   $10,572    1.44%  $3,067,744   $11,243    1.49%
Net Interest Income       $27,865             $28,805      
Net Interest Margin             2.97%             3.09%

 

46 

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Interest income, on a fully taxable equivalent basis, decreased $1.6 million, or 4.0%, for the three months ended March 31, 2020 as compared to the same period of 2019. The decrease is primarily due to the decrease in short-term interest rates. The average balance of interest-bearing deposit with banks decreased $109.2 million and the overall rate earned on these deposits decreased by 1.09% in the quarter over quarter comparison. This excess cash was deployed into higher yielding and diversified securities, funded loan growth, and also funded the planned decrease in higher cost certificates of deposits. Tax-free investment securities volume declined $89.5 million for the first three months of 2020 as compared to the first three months of 2019. Taxable investment securities volume increased by $10.7 million and the overall rate on these securities increased by 14 basis points in the quarter over quarter comparison. Tax-free loan volume decreased by $63.2 million in the first quarter of 2020 as compared to the first quarter of 2019. Taxable loan volume increased $188.8 million, but was offset by a decline in rate of 43 basis points. The overall rate earned on total interest-earning assets decreased by 18 basis points in the first quarter of 2020 as compared to the same period of 2019.

 

Interest expense decreased $0.7 million, or 6.0%, for the three months ended March 31, 2020 as compared to the same period of 2019. This decrease was primarily due to a decrease in interest expense of interest-bearing demand deposits, savings accounts, and certificates of deposits in the amounts of $0.2 million, $0.3 million, and $0.2 million, respectively. The decrease in interest-bearing demand deposits and savings accounts was primarily driven by a decrease in the rates of these products. The rate on interest-bearing demand deposits and savings accounts decreased by 36 and 23 basis points, respectively, in the quarter over quarter comparison. However, the decrease in expense of certificates of deposits was driven by a $0.8 million decrease in volume, offset by a $0.6 million increase in rates. The average balance of certificates of deposits decreased $179.8 million in the quarter over quarter comparison due to the intentional runoff of these higher cost deposits. The overall rate on these deposits increased 12 basis points to 2.02% for the quarter ended March 31, 2020 as compared to March 31, 2019. The overall rate on total interest-bearing deposits decreased by four basis points to 1.44% in the first quarter of 2020 as compared to 1.48% in the same period of 2019.

 

47 

 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:

 

   Three Months ended March 31, 2020 
   compared to March 31, 2019 
(Dollars in Thousands)  Increase/
(Decrease)
   Increase/(Decrease)
Rate
   Increase/(Decrease)
Volume
 
ASSETS               
Interest-Bearing Deposits with Banks  $(811)  $(338)  $(473)
Tax-Free Investment Securities   (814)   21    (835)
Taxable Investment Securities   380    300    80 
Tax-Free Loans   (653)   (179)   (474)
Taxable Loans   223    (2,371)   2,594 
Federal Home Loan Bank Stock   64    -    64 
Total Interest-Earning Assets  $(1,611)  $(2,567)  $956 
                
LIABILITIES               
Deposits               
Interest-bearing Demand   (194)   (253)   59 
Money Market   28    (104)   132 
Savings   (341)   (309)   (32)
Certificates of Deposit   (221)   621    (842)
Total Interest-Bearing Deposits   (728)   (45)   (683)
Borrowings:               
Fed Funds Purchased   1    -    1 
FHLB Borrowings   58    -    58 
Other Borrowings   (2)   (11)   9 
Total Liabilities  $(671)  $(56)  $(615)
Net Interest Income  $(940)  $(2,511)  $1,571 

 

Provision for Loan Losses

 

The provision for loan losses is the amount to be added to the allowance for loan losses, or (“ALL”), after considering loan charge-offs and recoveries, to bring the ALL to a level determined to be appropriate in management's judgment to absorb probable losses inherent in the loan portfolio.

 

The provision for loan losses totaled $4.8 million for the period ended March 31, 2020 and $1.6 million for the same period of 2019. The Bank was subject to the adoption of the CECL accounting method under FASB Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326). However, the Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020. Included in the provision for loan loss expense for the period ended March 31, 2020 is the impact of a reserve build of $2.6 million, or $(0.08) per share, driven by economic and market conditions as a result of COVID-19. This represents a 194.9% increase in the provision expense as compared to the same period of 2019. The Bank 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 or payment deferrals, temporary business shutdowns and reduced consumer and business spending. An additional contributing factor to the increase in provision for loan loss expense is an increase in specific reserves of $0.8 million at March 31, 2020 as compared to December 31, 2019.

 

48

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Net charge-offs were $0.6 million in the first quarter of 2020 as compared to $1.3 million in the same period of 2019. As a percentage of total portfolio loans, on an annualized basis, net charge-offs were 0.08% and 0.18% for the quarters ending March 31, 2020 and 2019, respectively.

 

Nonperforming loans decreased $1.6 million at March 31, 2020, to $40.5 million, as compared to $42.1 million at December 31 2019. The allowance for loan losses was 106.1% of nonperforming loans as of March 31, 2020, as compared to 92.0% of nonperforming loans as of December 31, 2019.

 

The ALL was $42.9 million at March 31, 2020, as compared to $38.8 million at December 31, 2019. The ALL as a percentage of total portfolio loans was 1.46% at March 31, 2020 and 1.34% at December 31, 2019. General reserves as a percentage of portfolio total loans were 1.22% at March 31, 2020, as compared to 1.13% as of December 31, 2019. Specific reserves increased by $0.8 million to $7.0 million at March 31, 2020 as compared to $6.2 million at December 31, 2019.

 

Loans past due 30 to 89 days increased by $3.0 million to $7.1 million at March 31, 2020 compared to $4.1 million at December 31, 2019. Commercial construction represented the largest category of increase in the amount of $2.7 million. Included in the past dues was a $2.8 million administrative past due that has subsequently been renewed.

 

Noninterest Income

 

   Three Months Ended March 31, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Gains on Sales of Securities, net  $1,214   $31   $1,183    N/M 
Service Charges, Commissions and Fees   1,650    1,226    424    34.6%
Debit Card Interchange Fees   1,243    1,174    69    5.9%
Insurance   1,309    274    1,035    377.7%
Bank Owned Life Insurance Income   353    361    (8)   (2.2)%
Other Real Estate Owned Income   139    290    (151)   (52.1)%
Other   1,044    448    596    133.0%
Total Noninterest Income  $6,952   $3,804   $3,148    82.8%

NM - percentage not meaningful

 

49

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Noninterest income at March 31, 2020, excluding net securities gains, increased $2.0 million, or 52.1%, as compared to the same period of 2019. The increase was primarily due to $1.0 million of higher insurance income, related to the adoption of ASU 2014-09, Topic 606 by our provider, $0.4 million of commercial loan interest rate swap fees, included in other income, and $0.5 million of higher service charges and debit card interchange fees. These increases are offset by lower other real estate owned income of $0.2 million due to the sale of several large commercial properties that generated income. Securities gains of $1.2 million and $31 thousand were realized during the first quarter of 2020 and 2019, respectively, to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Noninterest Expense

 

   Three Months Ended March 31, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Salaries and Employee Benefits  $13,581   $12,035   $1,546    12.8%
Occupancy Expense, net   3,249    2,827    422    14.9%
FDIC Insurance Expense   544    714    (170)   (23.8)%
Other Taxes   746    643    103    16.0%
Advertising Expense   606    171    435    254.4%
Telephone Expense   574    505    69    13.7%
Professional and Legal Fees   437    649    (212)   (32.7)%
Data Processing   486    750    (264)   (35.2)%
Losses on Sales and Write-downs of Other Real Estate Owned, net   189    188    1    0.5%
Losses on Sales and Write-downs of Bank Premises, net   12    170    (158)   (92.9)%
Debit Card Expense   554    710    (156)   (22.0)%
Tax Credit Amortization   272    563    (291)   (51.7)%
Unfunded Loan Expense   982    45    937    N/M 
Other Real Estate Owned Expense   140    97    43    44.3%
Other   2,376    2,043    333    16.3%
Total Noninterest Expense  $24,748   $22,110   $2,638    11.9%

NM - percentage not meaningful        

 

Total noninterest expense increased $2.6 million, or 11.9%, for the first quarter of 2020 to $24.7 million as compared to $22.1 million in the same period of 2019. The increase was primarily driven by salaries and employee benefits and occupancy expenses. The increase of $1.5 million in salaries and employee benefits were primarily attributable to a $0.7 million increase of normal merit increases and a $0.7 million decrease in salary deferrals on new loan originations in the first quarter of 2020. There have not been any permanent or temporary reductions in employees as a result of COVID-19. The $0.4 million increase in occupancy expense is a result of higher depreciation for software and equipment for ancillary products and services. The $0.4 million increase in advertising expense is related to our deposit acquisition strategy. The $0.9 million increase in the unfunded loan commitment reserve was due to several new commitments approved during the first quarter of 2020 and increased commitments on existing lines of credit. Offsetting these increases was a total decrease of $0.6 million from FDIC insurance expense, legal and professional fees, and data processing collectively.

 

50

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Provision for Income Taxes

 

The provision for income taxes was $0.2 million in the first quarter of 2020 as compared to $0.4 million during the same period of 2019.

 

The effective tax rate was 5% for the three months ended March 31, 2020 and 2019. The Bank ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects, which are relatively consistent regardless of the level of pretax income.

 

Financial Condition

March 31, 2020

 

Total assets were $4.0 billion as of March 31, 2020 and December 31, 2019. Total portfolio loans increased $55.1 million, or 7.6% on an annualized basis, to $2.9 billion as of March 31, 2020 as compared to December 31, 2019. Nonperforming loans decreased $1.6 million to $40.5 million as of March 31, 2020 as compared to $42.1 million at December 31, 2019. OREO decreased $0.2 million at March 31, 2020 as compared to December 31, 2019. The book value of closed retail offices, included in OREO, declined $0.5 million from December 31, 2019 and have a remaining book value of $2.5 million at March 31, 2020.

 

Federal Reserve Bank excess reserves decreased $28.2 million at March 31, 2020 as compared to December 31, 2019 due to active balance sheet management. This excess cash was deployed into higher yielding and diversified securities, funded loan growth and also funded the planned decrease in higher cost certificates of deposits.

 

The securities portfolio decreased $12.6 million from December 31, 2019 and currently comprises 18.2% of total assets as compared to 18.5% of total assets at December 31, 2019. 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 decreased $31.3 million to $3.5 billion as of March 31, 2020 as compared to December 31, 2019 due to the intentional runoff of higher cost certificates of deposits. Certificates of deposits decreased $72.7 million as of March 31, 2020 as compared to December 31, 2019. Core deposits, including noninterest-bearing and interest-bearing demand deposits, money market accounts and savings, increased by $41.4 million, or 2.7%, as compared to December 31, 2019. Noninterest-bearing deposits comprised 16.1% and 15.8% of total deposits at March 31, 2020 and December 31, 2019, respectively.

 

The allowance for loan losses was 1.46% of total portfolio loans as of March 31, 2020, as compared to 1.34% as of December 31, 2019. General reserves as a percentage of total loans were 1.22% at March 31, 2020, as compared to 1.13% as of December 31, 2019. The allowance for loan losses was 106.1% of nonperforming loans as of March 31, 2020 as compared to 92.0% of nonperforming loans as of December 31, 2019. In the view of management, the allowance for loan losses is adequate to absorb probable losses inherent in the loan portfolio.

 

51

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank remains well capitalized. The Bank’s Tier 1 Capital ratio decreased to 13.03% as of March 31, 2020, as compared to 13.46% as of December 31, 2019. The Bank’s leverage ratio was 10.47% at March 31, 2020, as compared to 10.33% as of December 31, 2019. The Bank’s Total Risk-Based Capital ratio was 14.29% at March 31, 2020, as compared to 14.71% at December 31, 2019.

 

Securities Activity

 

The following table presents the composition of available-for-sale securities:

 

(Dollars in Thousands)  March 31, 2020   December 31, 2019   $ Change 
Residential Mortgage-Backed Securities   54,891    52,644    2,247 
Commercial Mortgage-Backed Securities   14,564    19,006    (4,442)
Asset Backed Securities   107,885    109,639    (1,754)
Collateralized Mortgage Obligations   252,675    292,224    (39,549)
Small Business Administration   103,288    105,736    (2,448)
States and Political Subdivisions   181,853    148,480    33,373 
Corporate Notes   14,817    14,888    (71)
Total Debt Securities  $729,973   $742,617   $(12,644)

 

The Bank invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the Asset Liability Committee (“ALCO”) to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to the Bank. Security purchases are subject to our Investment Policy approved annually by our Board of Directors and administered through ALCO and our treasury function.

 

The securities portfolio decreased $12.6 million, or 1.7%, and is currently 18.2% of total assets at March 31, 2020 as compared to 18.5% of total assets at December 31, 2019. 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.

 

The Bank’s entire securities portfolio is classified as available-for-sale, which allows for greater flexibility in using the securities portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exits. Sales of securities, which resulted in a net realized gain of $1.2 million during the first three months of 2020, were transacted to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Management evaluates the securities portfolio for other than temporary impairment (“OTTI”), on a quarterly basis. During the three months ended March 31, 2020 and 2019, the Bank did not record any OTTI. The performance of the debt and equity securities markets could generate impairments in future periods requiring realized losses to be reported.

 

52

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Loan Composition

 

The composition of the loan portfolio by dollar amount is shown in the table below:

 

   March 31,     
   2020   December 31, 
(Dollars in Thousands)  (Unaudited)   2019 
Commercial          
Commercial Real Estate  $1,372,819   $1,365,310 
Commercial and Industrial   263,268    256,798 
Obligations of State and Political Subdivisions   355,585    364,869 
Commercial Construction   348,596    292,827 
Total Commercial Loans   2,340,268    2,279,804 
Consumer          
Residential Mortgages   513,013    514,538 
Other Consumer   73,242    73,688 
Consumer Construction   13,376    16,736 
Total Consumer Loans   599,631    604,962 
Total Portfolio Loans   2,939,899    2,884,766 
Loans Held-for-Sale   29,689    19,714 
Total Loans  $2,969,588   $2,904,480 

 

Our loan portfolio represents our most significant source of interest income. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay.

 

Total portfolio loans increased $55.1 million, or 1.9%, to $2.9 billion as of March 31, 2020 as compared to December 31, 2019. Commercial loans increased $60.5 million, or 2.7%, as of March 31, 2020 as compared to December 31, 2019. This increase in commercial loans is primarily in the commercial construction category. Consumer loans decreased 0.9% since December 31, 2019. Consumer loans decreased primarily in the consumer construction category.

 

Total commercial loans represented 79.6% of total portfolio loans at March 31, 2020 and 79.0% of total portfolio loans at December 31, 2019. Within our commercial portfolio, the CRE and Commercial Construction portfolios combined comprised $1.7 billion or 73.6% of total commercial loans and 58.6% of total portfolio loans at March 31, 2020 and comprised $1.7 billion or 72.7% of total commercial loans and 57.5% of total portfolio loans at December 31, 2019. Net deferred costs included in the portfolio balances above were $4.6 million and $5.1 million at March 31, 2020 and December 31, 2019, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $241 thousand and $250 thousand at March 31, 2020 and December 31, 2019, respectively.

 

The commercial portfolio is monitored for potential concentrations of credit risk by market, type of lending, CRE property type, C&I and owner-occupied CRE by industry, investment CRE dependent on common tenants and industries or property types that are similarly impacted by external factors.

 

53

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The economic slowdown associated with COVID-19 may have an adverse impact on the growth and asset quality of our loan portfolio, especially those industry segments being severely impacted by the pandemic.

 

The Bank’s exposure to hospitality at March 31, 2020 equated to approximately $496.1 million, or 16.9% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit with other financial institutions and adversely affect their ability to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

Portfolio loans originated to our top 10 credit relationships were $745.3 million at March 31, 2020. These loans are in the hospitality, golf course, agricultural, land holdings, commercial real estate (multi-family and office/retail), energy, land development, and lumber industries.

 

With regards to line utilization, unused commitments, excluding consumer overdraft lines were $406.9 million at March 31, 2020 as compared to $355.5 million at December 31, 2019. Total utilization excluding consumer overdraft lines, was 48.67% at March 31, 2020, as compared to 51.05% at December 31, 2019. Commercial line utilization was 48.50% at March 31, 2020, as compared to 50.80% at December 31, 2019.

 

From time to time, the Bank has loans held-for-sale derived from two sources. First, the Bank purchases mortgage loans from another financial institution with fully executed contracts with investors. Secondly, the Bank originates and closes mortgages with fully executed contracts with investors to purchase shortly after closing. The Bank then holds the loans from both sources until funded by the investor, typically a two-week period. Loans held-for-sale were $29.7 million and $19.7 million at March 31, 2020 and December 31, 2019, respectively.

 

Credit Quality

 

On a monthly basis, a criticized asset committee meets to review all special mention and substandard loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to us. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral.

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and interest risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods.

 

54

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Unsecured loans pose higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses, operate with low financial and operating leverage and demonstrate an ability to clear the outstanding balance on lines of credit for at least thirty consecutive days annually. The repayment capacity of the borrower should exceed all policy and guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

On a quarterly basis, the Credit Risk Committee of the Board of Directors meets to review our loan portfolio metrics, segmentation guidelines, and loan review findings from the previous quarter. Annually, this same committee reviews credit related policies and policy enhancements as they become available.

 

Additional credit risk management practices include periodic review and update of our lending policies and procedures to support sound underwriting practices and portfolio management through portfolio stress testing. Our loan review serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all corporate lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms.

 

The Bank has a loan review policy and annual scope report that details the level of loan review for commercial loans in a given year. During 2020, the Bank used a four step approach for loan review in the following segments:

 

·Top 20 largest loan relationships, which is defined as any relationship with an aggregate outstanding balance of $2.0 million or more;
·New loans and renewals;
·Large loan relationships that are not part of the top 20; and
·Concentration focus reviews of four segments, out of a total of nine available segments, based upon collateral coding. Credit Systems is currently performing a comprehensive review of collateral codes to ensure more accurate segmentation. During 2020, the Bank is moving from segments based on NAICS codes to collateral codes.

 

Allowance for Loan Losses

 

The Bank maintains its allowance for loan losses (“ALL”) at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ALL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ALL has two main components: evaluation and impairment tests of individual loans and evaluation and impairment tests of certain groups of homogeneous loans with similar risk characteristics.

 

55

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

An inherent risk to the loan portfolio as a whole is the condition of the economy in our markets. In addition, each loan segment carries with it risks specific to the segment. The Bank develops and documents a systematic ALL methodology based on the following portfolio segments: 1) Commercial Real Estate (“CRE”), 2) Commercial & Industrial (“C&I”), 3) Obligations of States and Political Subdivisions, 4) Commercial Construction, 5) Residential Mortgages, 6) Other Consumer, and 7) Consumer Construction. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ALL.

 

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

 

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

 

Obligations of States and Political Subdivision loans are made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up fit and expansion, or to purchase new equipment. This segment of loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Bank. The primary repayment source for these loans include the tax basis of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Bank’s loan portfolio.

 

Commercial Construction loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

 

Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

 

56

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Consumer loans are made to individuals and may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

 

Consumer Construction loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed.

 

The ALL was $42.9 million, or 1.46% of total portfolio loans at March 31, 2020, as compared to $38.8 million, or 1.34% of total portfolio loans at December 31, 2019.

 

The increase in the ALL of $4.1 million was primarily due to a $0.8 million increase in the specific reserve for impaired loans combined with a $3.3 million increase in the reserve for loans collectively evaluated for impairment at March 31, 2020, as compared to December 31, 2019. Included in the general reserve is the impact of a reserve build of $2.6 million driven by economic and market conditions as a result of COVID-19. The Bank 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. The $0.8 million increase in the specific reserve for impaired loans since December 31, 2019 was due to the addition of a $0.9 million reserve on one credit relationship, offset by the collective reduction of $0.1 million of the existing impaired relationships at December 31, 2019. Please reference Note 5 Allowance for Loan Losses for additional information.

 

Net charge-offs were $0.6 million for the quarter ended March 31, 2020. Special mention, substandard and doubtful loans at March 31, 2020 increased by $5.7 million to $439.9 million compared to $434.2 million at December 31, 2019, with an increase of $9.4 million in special mention and a decrease of $3.7 million in substandard.

 

The Bank individually evaluates all impaired loans greater than $1.0 million for additional impairment. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts when due according to the contractual terms of the loan agreement. Our methodology for evaluating whether a loan is impaired includes risk-rating credits on an individual basis and consideration of the borrower’s overall financial condition, payment history and available cash resources. In measuring impairment, the Bank primarily utilizes fair market value of the collateral; however, the Bank also uses the discounted cash flow method for loans that are not deemed to be collateral dependent at the time of impairment.

 

57

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Troubled debt restructurings, or (“TDRs”), whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where the Bank for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that the Bank would not otherwise grant. The Bank strives to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant.

 

An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before the modification. All TDRs are considered to be impaired loans and will be reported as impaired loans for their remaining lives, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and the Bank fully expects that the remaining principal and interest will be collected according to the restructured agreement. The Bank individually evaluates all impaired loans, which includes TDRs, greater than $1.0 million for additional impairment. In addition, the Bank evaluates credits with balances less than $1.0 million for impairment that may have complex loan structures. Nonaccruing TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

 

As an example, consider a substandard commercial construction loan that is currently 90 days past due where the loan is restructured to extend the maturity date for a period longer than would be considered an insignificant period of time. The post-modification interest rate given to the borrower is considered to be lower than the current market rate for new debt with similar risk and all other terms remain the same according to the original loan agreement. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted due to the long extension, resulting in payment delay as well as the rate being lower than current market rate for new debt with similar risk. The loan will be reported as a nonaccrual TDR and an impaired loan. In addition, the loan could be charged down to the fair value of the collateral if a confirmed loss exists. If the loan subsequently performs, by means of making on-time principal and interest payments according to the newly restructured terms for a period of six months, and it is expected that all remaining principal and interest will be collected according to the terms of the restructured agreement, the loan will be returned to accrual status and reported as an accruing TDR. The loan will remain an impaired loan for the remaining life of the loan because the interest rate was not adjusted to be equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk.

 

58

 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table summarizes the Bank’s troubled debt restructured loans as of the dates presented:

 

   March 31, 2020   December 31, 2019 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Commercial                              
Commercial Real Estate  $3,161   $29,064   $32,225   $3,183   $30,073   $33,256 
Commercial and Industrial   -    290    290    -    390    390 
Obligations of State and Political Subdivisions   -    -    -    -    -    - 
Commercial Construction   52,868    4,210    57,078    53,116    4,242    57,358 
Total Commercial TDRs   56,029    33,564    89,593    56,299    34,705    91,004 
Consumer                              
Residential Mortgages   51,665    -    51,665    52,966    -    52,966 
Other Consumer   -    -    -    -    -    - 
Consumer Construction   -    -    -    -    -    - 
Total Consumer TDRs   51,665    -    51,665    52,966    -    52,966 
Total TDRs  $107,694   $33,564   $141,258   $109,265   $34,705   $143,970 

 

TDRs decreased $2.7 million to $141.3 million at March 31, 2020, as compared to $144.0 million at December 31, 2019. The decrease is primarily due to principal pay-downs in the amount of $2.9 million offset by $0.2 million of draws on commitments. Total TDRs of $33.6 million and $34.7 million were on nonaccrual at March 31, 2020 and December 31, 2019, respectively. There were minimal commitments to lend additional funds on relationships identified as TDRs.

 

Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes quantifiable, regardless of the delinquency status of the loan. The Bank may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to:

 

• The status of a bankruptcy proceeding

• The value of collateral and probability of successful liquidation; and/or

• The status of adverse proceedings or litigation that may result in collection

 

Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.

 

Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.

 

59 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Nonperforming assets consist of nonaccrual loans, nonaccrual TDRs and OREO. The following table summarizes nonperforming assets for the dates presented:

 

    March 31,     December 31,  
(Dollars in Thousands)   2020     2019  
Nonperforming Loans                
Commercial Real Estate   $ 299     $ 1,017  
Commercial and Industrial     115       77  
Obligations of State and Political Subdivisions     -       -  
Commercial Construction     3,080       3,210  
Residential Mortgages     3,163       2,857  
Other Consumer     236       267  
Consumer Construction     -       -  
Total Nonperforming Loans     6,893       7,428  
Nonperforming Troubled Debt Restructurings                
Commercial Real Estate     29,064       30,073  
Commercial and Industrial     290       390  
Obligations of State and Political Subdivisions     -       -  
Commercial Construction     4,210       4,242  
Residential Mortgages     -       -  
Other Consumer     -       -  
Consumer Construction     -       -  
Total Nonperforming Troubled Debt Restructurings     33,564       34,705  
Total Nonperforming Loans and Troubled Debt Restructurings     40,457       42,133  
Other Real Estate Owned     18,117       18,324  
Total Nonperforming Assets   $ 58,574     $ 60,457  
                 
Nonperforming Loans and Troubled Debt Restructurings to Total Portfolio Loans     1.38 %     1.46 %
Nonperforming Assets to Total Portfolio Loans plus OREO     1.98 %     2.08 %

 

Nonperforming assets, or NPAs, decreased $1.9 million to $58.6 million at March 31, 2020, as compared to $60.5 million at December 31, 2019. The decrease was due to a decline in nonperforming loans and other real estate owned. The decrease in nonperforming loans was primarily due to pay-downs during the first quarter of 2020. The decrease in other real estate owned was due to the sale of properties during the first quarter of 2020, offset by the transfer of one loan to OREO during the same period. The book value of closed retail offices, included in OREO, declined $0.5 million from December 31, 2019 and have a remaining book value of $2.5 million at March 31, 2020.

 

60 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table summarizes loans past due 30-89 days for the periods presented:

 

   March 31,   December 31, 
(Dollars in Thousands)  2020   2019 
Loans 30 to 89 Days Past Due          
Commercial          
Commercial Real Estate  $964   $1,220 
Commercial and Industrial   518    161 
Obligations of State and Political Subdivisions   -    236 
Commercial Construction   2,977    228 
Total Commercial Loans   4,459    1,845 
Consumer          
Residential Mortgages   679    942 
Other Consumer   1,226    1,283 
Consumer Construction   702    - 
Total Consumer Loans   2,607    2,225 
Total Loans 30 to 89 Days Past Due  $7,066   $4,070 

 

Loans past due 30 to 89 days increased by $3.0 million to $7.1 million at March 31, 2020 as compared to $4.1 million at December 31, 2019. The largest contributor to the increase is in the category of commercial construction in the amount of $2.7 million. Included in the past dues was a $2.8 million administrative past due that has subsequently been renewed.

 

There were no loans past due 90 days or more and still accruing at March 31, 2020 or December 31, 2019.

 

Deposits

 

The following table presents the composition of deposits:

 

(Dollars in Thousands)  March 31, 2020   December 31, 2019   $ Change   % Change 
Noninterest-Bearing Demand  $557,511   $554,875   $2,636    0.5%
Interest-Bearing Demand   305,214    286,561    18,653    6.5%
Money Market   156,140    140,589    15,551    11.1%
Savings   566,414    561,814    4,600    0.8%
Certificates of Deposits   1,887,716    1,960,406    (72,690)   (3.7)%
Total  $3,472,995   $3,504,245   $(31,250)   (0.9)%

 

Total deposits decreased $31.3 million to $3.5 billion as of March 31, 2020 as compared to December 31, 2019. Certificates of deposits decreased $72.7 million, or 3.7%, as of March 31, 2020 as compared to December 31, 2019 due to an intentional runoff of these higher cost deposits. Noninterest-bearing deposits increased by $2.6 million, or 0.5%, to $557.5 million as of March 31, 2020 as compared to $554.9 million as of December 31, 2019. Interest-bearing demand deposits and money market accounts increased by $34.2 million as of March 31, 2020 as compared to December 31, 2019. Money market accounts increased due to our new Treasury Management function. Savings accounts increased $4.6 million, or 0.8%, as of March 31, 2020 as compared to December 31, 2019. Noninterest-bearing deposits comprised 16.1% and 15.8% of total deposits at March 31, 2020 and December 31, 2019, respectively.

 

61 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

We expect core deposits to increase in the coming months. Many consumers are working from home or temporarily unemployed, but still receiving income through unemployment insurance Additionally, many Americans are receiving their tax refunds for the 2019 filing year and stimulus payments from the CARES Act. Since consumers have fewer ways to spend their money during the stay at home orders and social distancing practices brought on by the COVID-19 pandemic, we expect our retail deposit base to increase, until such time, as the threat from the virus dissipates and states are allowed to open their businesses once again The increases due to these factors may be offset by deposit decreases as a result of individuals utilizing savings due to job losses along with school districts decreasing reserves.

 

Long-Term Borrowings

 

Borrowings are an additional source of liquidity for the Bank. Long-term borrowings are for terms greater than one year and consist of Federal Home Loan Bank (“FHLB”) advances. FHLB Borrowings were $35.0 million and $10.0 million at March 31, 2020 and December 31, 2019, respectively. FHLB borrowings are fixed rate advances for various terms and are secured by a blanket lien on select residential mortgages at March 31, 2020. Total loans pledged as collateral were $301.4 million and $284.6 million at March 31, 2020 and December 31, 2019, respectively. There were no securities available-for-sale pledged as collateral at March 31, 2020. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $217.6 million based upon qualifying collateral, to a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of March 31, 2020.

 

Information pertaining to long-term borrowings is summarized in the table below:

 

(Dollars in Thousands)  March 31, 2020   December 31, 2019 
Balance at Period End  $35,000   $10,000 
Average Balance during Period   17,418    2,329 
Average Interest Rate during the Period   1.36%   1.63%
Maximum Month-end Balance during the Period   35,000    10,000 
Average Interest Rate at Period End   1.13%   1.63%
           

 

The Bank held FHLB Atlanta stock of $5.1 million and $4.1 million at March 31, 2020 and December 31, 2019, respectively. Dividends received on this restricted stock were $64 thousand and $144 thousand for the quarter ended March 31, 2020 and the year ended December 31, 2019, respectively. The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Atlanta. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. The Bank reviewed and evaluated FHLB stock for OTTI at March 31, 2020. The Bank reviews factors such as earnings, capital ratios, and dividend paying capacity in its evaluation of impairment. The Bank believes that there is sufficient evidence to conclude that there is no impairment at March 31, 2020.

 

62 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources

 

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers access to funds to meet their credit needs. In order to manage liquidity risk our Board of Directors has delegated authority to the ALCO for formulation, implementation and oversight of liquidity risk management for the Bank. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and by having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

 

Our primary funding and liquidity source is a stable customer deposit base. The Bank believes we have the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Bank has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Bank include borrowing availability at the FHLB of Atlanta, equal to 25% of the Bank’s assets approximating $1.0 billion, subject to the amount of eligible collateral pledged, federal funds lines with six other correspondent financial institutions in the amount of $115.0 million and the brokered deposit market. In addition to the lines referenced above, the Bank also has its available-for-sale investment securities portfolio as an additional source of liquidity.

 

As a result of the onset of the COVID-19 pandemic, there is an increased emphasis on solidifying, monitoring and managing our liquidity position. We believe our liquidity position is strong. An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. At March 31, 2019, the Bank had $649.8 million in highly liquid assets, which consisted of $3.7 million in interest-bearing deposits with banks, $11.0 million in Federal Reserve Bank Excess Reserves, $605.4 million in unpledged securities and $29.7 million in loans held-for-sale. This resulted in highly liquid assets to total assets ratio of 16.2% at March 31, 2020.

 

The following table provides detail of liquidity sources as of the periods presented:

 

(Dollars in Thousands)  March 31, 2020   December 31, 2019 
Cash and Due From Banks  $50,879   $85,628 
Interest Bearing Deposits   1,493    914 
Excess Reserves   11,028    39,270 
Unpledged Investment Securities   605,432    592,065 
Excess Pledged Securities   29,018    16,030 
FHLB Borrowing Availability   217,626    242,188 
Unsecured Lines of Credit   115,000    115,000 
Total Liquidity Sources  $1,030,477   $1,091,094 

 

63 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Regulatory Capital Requirements

 

Shareholders’ equity increased $1.7 million, or 0.4%, to $474.8 million at March 31, 2020, as compared to $473.1 million at December 31, 2019. The increase in shareholders’ equity is primarily due to net income of $4.4 million and other comprehensive income in the amount of $0.6 million, reduced by a special dividend of $3.7 million declared on February 11, 2020. Other comprehensive income of $0.6 million was primarily due to the increase in net unrealized gains on securities available-for-sale driven by a decrease in interest rates during the period. The remaining difference of $0.4 million is related to restricted stock activity during the first quarter of 2020.

 

The Bank continues to maintain its capital position with a leverage ratio of 10.47% as compared to the regulatory guideline of 5.0% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 13.03% compared to the regulatory guideline of 6.5% to be well-capitalized. Our risk-based Tier 1 and Total Capital ratios were 13.03% and 14.29%, respectively, which places the Bank about the federal bank regulatory agencies’ well-capitalized guidelines of 8.0% and 10.0%, respectively. We believe that we have the ability to raise additional capital, if necessary.

 

In July 2013 the federal banking agencies issued a final rule to implement Basel III (which were agreements reached in July 2010 by the international oversight body of the Basel Committee on Banking Supervision to require more and higher quality capital) and the minimum leverage and risk-based capital requirements of the Dodd-Frank Act. The final rule established a comprehensive capital framework and went into effect on January 1, 2015 for smaller banking organizations such as the Bank. The rule also required the Bank to maintain a capital conservation buffer composed of Common Equity Tier 1 capital in an amount greater than 2.50% of total risk-weighted assets beginning in 2019. The capital conservation buffer is scheduled to phase in over several years. The capital conservation buffer was .25% in 2016, .50% in 2017, .75% in 2018, and increased to 1.00% in 2019 and beyond. As a result, starting in 2019, the Bank must maintain a Common Equity Tier I risk-based capital ratio greater than 7.0%, a Tier 1 risk-based capital ratio greater than 8.5%, and a Total risk-based capital ratio greater than 10.5%; otherwise, the Bank will be subject to restrictions on capital distributions and discretionary bonus payments. Now that the new rule is fully phased in, the minimum capital requirements plus the capital conservation buffer exceeds the regulatory capital ratios required for an insured depository institution to be well-capitalized under the FDIC’s prompt corrective action framework.

 

Federal regulators periodically propose amendments to the regulatory capital rules and the related regulatory framework and consider changes to the capital standards that could significantly increase the amount of capital needed to meet applicable standards. The timing of adoption, ultimate form and effect of any such proposed amendments cannot be predicted.

 

64 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table summarizes capital amounts and ratios for the Bank for the dates presented:

 

           March 31, 2020   December 31, 2019 
(Dollars in Thousands)  Minimum Value (1)   Well-
Capitalized (2)
   Amount   Ratio   Minimum
Amount (1)
   Amount   Ratio   Minimum
Amount (1)
 
Tier 1 Leverage Ratio   4.00%   5.00%  $411,878    10.47%  $157,394   $410,793    10.33%  $158,993 
Common Equity Tier 1 Capital Ratio   4.50%   6.50%   411,878    13.03%   142,206    410,793    13.46%   137,333 
Tier 1 Capital Ratio   6.00%   8.00%   411,878    13.03%   189,608    410,793    13.46%   183,110 
Total Risk-Based Capital Ratio   8.00%   10.00%   451,439    14.29%   252,810    448,953    14.71%   244,147 

 

(1) Minimum requirements to remain adequately capitalized.

(2) Well-capitalized under prompt corrective action regulations.              

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk

 

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.

 

The ALCO utilizes an asset liability model (ALM) to monitor and manages market risk through net interest income simulation for various rate shock scenarios and economic value of equity, or (“EVE”), simulation for various rate shock scenarios. The rate shock scenarios used in the ALM span over multiple time horizons and yield curve shapes and include parallel and non-parallel shifts to ensure the ALCO can mitigate future earnings and market value fluctuations due to changes in market interest rates.

 

Within the context of the ALM, net interest income rate shock simulations explicitly measure the exposure to earnings from changes in market rates of interest over a defined time horizon. These robust simulations include assumptions of how the balance sheet will react in different rate environments including loan pre-payment speeds, average life of non maturing deposits, and how sensitive each interest-earning asset and interest-bearing liability is to changes in market rates (betas). Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. Reviewing these various measures provides us with a more comprehensive view of our interest rate risk profile.

 

65 

 

 

CARTER BANK & TRUST

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

 

Net interest income rate shock simulation results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 months and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static and growth balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. Our policy guidelines limit the change in pretax net interest income over a 12 month horizon using rate shocks of +/- 100, 200, 300 and 400 basis points. We have temporarily suspended the -300 and -400 basis point rate shock analyses. Due to the low interest rate environment, we believe the impact to net interest income when evaluating the -300 and -400 basis point rate shock scenarios does not provide meaningful insight into our interest rate risk position.

 

In order to monitor interest rate risk beyond the 24 month time horizon of rate shocks, we also perform EVE analyses. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. EVE rate change results are compared to a base case to determine the impact that market rate changes may have on our EVE. As with rate shock analysis, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and the behavior and value of non-maturity deposit products. Our policy guidelines limit the change in EVE given changes in rates of +/- 100, 200, 300 and 400 basis points. We have also temporarily suspended the EVE -300 and -400 basis point scenarios due to the low interest rate environment.

 

The tables below reflect the net interest income rate shock analyses and EVE analyses results for the periods presented utilizing a static balance sheet. All percentage changes presented are within prescribed ranges set by management.

 

    March 31, 2020 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
 400    30.9%   3.9%
 300    24.7%   5.8%
 200    17.9%   6.5%
 100    10.2%   4.4%
 (100)   -10.4%   -5.4%
 (200)   -11.1%   -2.0%

 

    December 31, 2019 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
 400    24.1%   1.4%
 300    19.1%   2.2%
 200    13.4%   2.9%
 100    7.1%   2.5%
 (100)   -8.6%   -7.0%
 (200)   -15.9%   -14.1%

 

66 

 

 

CARTER BANK & TRUST

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

 

The results from the net interest income rate shock analysis are consistent with having an asset sensitive balance sheet, when adjusted for repricing correlations (betas). The above table indicates that in a rising interest rate environment, the Bank is positioned to have increased pretax net interest income for the same asset base due to the balance sheet composition, related maturity structures, repricing floors, and repricing correlations to market interest rates for assets and liabilities. Conversely, in a declining interest rate environment the Bank is positioned to have decreased pretax net interest income for the same reasons discussed above.

 

In addition to rate shocks and EVE analyses, sensitivity analyses are performed to help us identify which model assumptions are critical and cause the greatest impact on pretax net interest income. Sensitivity analyses include changing prepayment behavior of loans and securities with optionality, repricing correlations, and the impact of interest rate changes on non-maturity deposit products (decay rates).

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Based on the evaluation required by Securities Exchange Act Rules 13a-15(b) and 15d-15(b), the Bank’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), at March 31, 2020.  Based on and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective due to a material weakness in the Bank’s internal controls over financial reporting, as described below. Other than the material weakness which was identified as a result of an error that occurred during the quarter ended December 31, 2019, there have been no other changes in Bank’s internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Banks’s internal control over financial reporting.

 

As of December 31, 2019, management including the CEO and CFO, assessed the effectiveness of the Bank’s internal control over financial reporting based on the criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Based upon this assessment, management determined that, as of December 31, 2019, the control deficiency described in the following paragraph constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Bank’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

As of December 31, 2019, we did not maintain effective controls over the completeness and accuracy of impaired loans, including calculations and supporting information.  A material weakness existed related to ineffective control of the valuation and existence of unique, complex collateral associated with two collateral-dependent impaired loans that are part of the same relationship. The Bank relied on stale appraisal information in order to support the underlying assumptions and methodologies to determine fair value and existence of the complex collateral. The appraisals were incomplete and did not adequately support the valuation and existence of the complex, unique collateral.

 

67 

 

 

CARTER BANK & TRUST

ITEM 4 - CONTROLS AND PROCEDURES (continued)

 

As a result of this material weakness, we concluded that the Bank did not maintain effective internal control over financial reporting as of December 31, 2019, based on the criteria established in “Internal Control—Integrated Framework” issued by COSO.

 

Plan for Remediation of Material Weakness that Existed as of December 31, 2019

 

Management is committed to continuing efforts to improve the design and operation of our internal controls, including taking all necessary steps to remediate the material weakness identified above. We are addressing the material weakness by defining expectations for validating assumptions accompanying appraisals and plan to test in 2020.

 

PART II – OTHER INFORMATION

 

ITEM 1- LEGAL PROCEEDINGS

 

As of March 31, 2020, no material legal proceedings were pending or threatened against Carter Bank & Trust.

 

ITEM 1A – RISK FACTORS

 

As of March 31, 2020, there have been no material changes in the risk factors faced by the Bank from those disclosed in the Bank’s 2019 Annual Report on Form 10-K.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5 - OTHER INFORMATION

 

None.

 

68 

 

 

CARTER BANK & TRUST

PART II – OTHER INFORMATION

ITEM 6 - EXHIBITS

Exhibits:

 

3.1   Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Bank’s Form 8-A filed with the FDIC February 23, 2007)  
     
3.2   Amended and restated Bylaws (as adopted by the Board of Directors on December 19, 2018) (incorporated by reference to Exhibit 3.2 to the Bank’s Form 8-K filed with the FDIC December 19, 2018)  
     
4.1   Description of Common Stock (incorporated by reference to Exhibit 4.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
     
10.1*   Qualified Profit Sharing Plan of Carter Bank & Trust (formerly the Qualified Profit Sharing Plan of each of the Merged Banks and MCOV) (incorporated by reference to Exhibit 10.1 to the Bank’s 2006 Form 10K filed with the FDIC July 6, 2007)  
     
10.2*   Nonqualified Profit Sharing Plan of Carter Bank & Trust (formerly the Nonqualified Profit Sharing Plan of MCOV) (incorporated by reference to Exhibit 10.2 to the Bank’s 2006 Form 10K filed with the FDIC July 6, 2007)  
     
10.3*   Employment Agreement, dated as of June 19, 2017, by and between Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3 to the Bank’s Form 8-K filed with the FDIC June 20, 2017)  
     
10.3.1*   First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
     
10.4*   Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Litz Van Dyke (incorporated by reference to Exhibit 10.4 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)  
     
10.5*   First Amended and Restated Employment Agreement, dated as of December 16, 2019, by and between Carter Bank & Trust and Phyllis Q. Karavatakis (incorporated by reference to Exhibit 10.5 to the Bank’s Form 8-K/A filed with the FDIC December 17, 2019)  
     
10.6*   Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Jane Ann Davis (incorporated by reference to Exhibit 10.6 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)  
     
10.7*   Employment Agreement, dated as of May 31, 2017, by and between Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.7 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)  
     
10.7.1*   First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.7.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
     
10.8*   Employment Agreement, dated as of June 15, 2017, by and between Carter Bank & Trust and Matthew M. Speare (incorporated by reference to Exhibit 10.8 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)  

 

69 

 

 

CARTER BANK & TRUST

PART II – OTHER INFORMATION

ITEM 6 - EXHIBITS (continued)

Exhibits:

 

10.9*   Carter Bank & Trust 2018 Omnibus Equity Inventive Plan (incorporated by reference to the Bank’s Proxy Statement filed with the FDIC April 30, 2018)  
     
10.9.1*   Form of Time-Based Restricted Stock Agreement (for employee) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.9.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
     
10.9.2*   Form of Time-Based Restricted Stock Agreement (for non-employee director) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.9.2 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
     
10.10   Carter Bank & Trust Annual Incentive Plan as adopted November 15, 2018 (incorporated by reference to Exhibit 10.10 to the Bank’s Form 10-Q filed with the FDIC May 9, 2019)  
     
31.1   Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith)  
     
31.2   Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith)  
     
32   Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350 (filed herewith)  
     
*   Denotes management contract.

 

70 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

CARTER BANK& TRUST
  (Registrant)
   
Date: June 11, 2020 /s/ Litz H. Van Dyke
  Litz H. Van Dyke
  Chief Executive Officer
  (Principal Executive Officer)

 

Date: June 11, 2020 /s/ Wendy S. Bell
  Wendy S. Bell
  Senior Executive Vice President
  Chief Financial Officer
  (Principal Financial Officer)

 

71 

 

 

Exhibit 31.1

 

CERTIFICATIONS

 

I, Litz H. Van Dyke, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Carter Bank & Trust;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: June 11, 2020 /s/ Litz H. Van Dyke
  Litz H. Van Dyke
  Chief Executive Officer
  (Principal Executive Officer)

 

72 

 

 

Exhibit 31.2

 

I, Wendy Bell, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Carter Bank & Trust;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: June 11, 2020  /s/ Wendy S. Bell
   Wendy S. Bell
   Senior Executive Vice President
   Chief Financial Officer
   (Principal Financial Officer)

 

73 

 

 

Exhibit 32

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

 

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

 

The undersigned, as the principal executive officer and principal financial officer of Carter Bank & Trust, respectively, certify that, to the best of their knowledge and belief, the Quarterly Report on Form 10-Q for the period ended March 31, 2020, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Carter Bank & Trust at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaim any obligation to update the foregoing certification except as required by law.

 

Date: June 11, 2020  /s/ Litz H. Van Dyke
   Litz H. Van Dyke
   Chief Executive Officer
   (Principal Executive Officer)

 

Date: June 11, 2020  /s/ Wendy S. Bell
   Wendy S. Bell
   Senior Executive Vice President
   Chief Financial Officer
   (Principal Financial Officer)

 

74 

 

EX-99.3 8 tm2036036d1_ex99-3.htm EXHIBIT 99.3

Exhibit 99.3

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION 

Washington, D.C. 20429

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended June 30, 2020

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the transition period from ________ to _______

 

Commission File Number: n/a

 

CARTER BANK & TRUST 

(Name of registrant as specified in its charter)

 

Virginia 20-5539935
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1300 Kings Mountain Road, Martinsville, Virginia 24112
(Address of principal executive offices) (Zip Code)

 

(276) 656-1776 

(Registrant’s telephone number, including area code)

 

n/a 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $1 par value CARE Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨ (Do not check if smaller reporting company) Smaller reporting company ¨
Emerging growth company ¨  

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of August 6, 2020 there were 26,384,801 shares of the registrant’s common stock issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION 3 
    
Item 1 - FINANCIAL STATEMENTS 3 
    
Consolidated Balance Sheets - June 30, 2020 (unaudited) and December 31, 2019 3 
    
Consolidated Statements of Income - Three and Six Months Ended June 30, 2020 and 2019 (unaudited) 4 
    
Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2020 and 2019 (unaudited) 5 
    
Consolidated Statements of Changes in Shareholders' Equity - Three and Six Months Ended June 30, 2020 and 2019 (unaudited) 6 
    
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2020 and 2019 (unaudited) 7 
    
Notes To Unaudited Consolidated Financial Statements 9 
    
Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 38 
    
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 71 
    
Item 4 - CONTROLS AND PROCEDURES 73 
    
PART II – OTHER INFORMATION 74 
    
Item 1 - LEGAL PROCEEDINGS. 74 
    
Item 1A – RISK FACTORS. 74 
    
Item 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 74 
    
Item 3 - DEFAULTS UPON SENIOR SECURITIES. 74 
    
Item 4 –MINE SAFETY DISCLOSURES 74 
    
Item 5 - OTHER INFORMATION 74 
    
Item 6 - EXHIBITS 75 
    
SIGNATURES 77 

 

2

 

 

PART I - FINANCIAL INFORMATION

Item 1 - FINANCIAL STATEMENTS

CARTER BANK & TRUST

CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)     
  June 30,   *December 31, 
(Dollars in Thousands Except Per Share Data)  2020   2019 
ASSETS          
Cash and Due From Banks  $47,175   $41,386 
Interest-Bearing Deposits in Other Financial Institutions   6,846    45,156 
Federal Reserve Bank Excess Reserves   135,237    39,270 
Total Cash and Cash Equivalents   189,258    125,812 
Securities Available-for-Sale, at Fair Value   749,029    742,617 
Loans Held-for-Sale   9,345    19,714 
Portfolio Loans   2,957,344    2,884,766 
Allowance for Loan Losses   (47,405)   (38,762)
Portfolio Loans, net   2,909,939    2,846,004 
Bank Premises and Equipment, net   89,493    85,942 
Other Real Estate Owned, net   17,245    18,324 
Goodwill   62,192    62,192 
Federal Home Loan Bank Stock, at Cost   5,093    4,113 
Bank Owned Life Insurance   53,300    52,597 
Other Assets   66,839    48,793 
Total Assets  $4,151,733   $4,006,108 
           
LIABILITIES          
Deposits:          
Noninterest-Bearing Demand  $662,639   $554,875 
Interest-Bearing Demand   318,903    286,561 
Money Market   190,664    140,589 
Savings   608,716    561,814 
Certificates of Deposit   1,825,785    1,960,406 
Total Deposits   3,606,707    3,504,245 
Federal Home Loan Bank Borrowings   35,000    10,000 
Other Liabilities   20,967    18,752 
Total Liabilities   3,662,674    3,532,997 
           
SHAREHOLDERS' EQUITY          
Common Stock, Par Value $1 Per Share, Authorized 100,000,000          
Shares; 26,384,801 Outstanding at June 30, 2020 and 26,334,229 at December 31, 2019   26,385    26,334 
Additional Paid-in-Capital   143,016    142,492 
Retained Earnings   309,347    304,158 
Accumulated Other Comprehensive Income   10,311    127 
Total Shareholders' Equity   489,059    473,111 
Total Liabilities and Shareholders' Equity  $4,151,733   $4,006,108 

 

See accompanying notes to unaudited consolidated financial statements. 

*Derived from audited consolidated financial statements.

 

3

 

 

CARTER BANK & TRUST 

CONSOLIDATED STATEMENTS OF INCOME

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
(Dollars in Thousands except Per Share Data)  2020   2019   2020   2019 
INTEREST INCOME                    
Loans, including fees                    
Taxable  $29,577   $31,929   $60,374   $62,503 
Non-Taxable   2,024    2,439    4,126    5,057 
Investment Securities                    
Taxable   3,594    4,283    8,096    8,405 
Non-Taxable   329    628    490    1,432 
FRB Excess Reserves   26    398    162    1,052 
Interest on Bank Deposits   -    365    74    732 
Dividend Income   67    26    131    26 
Total Interest Income   35,617    40,068    73,453    79,207 
Interest Expense                    
Interest Expense on Deposits   9,237    12,093    19,732    23,316 
Interest Expense on Federal Funds Purchased   -    -    1    - 
Interest on Other Borrowings   118    20    194    40 
Total Interest Expense   9,355    12,113    19,927    23,356 
NET INTEREST INCOME   26,262    27,955    53,526    55,851 
Provision for Loan Losses   5,473    1,369    10,271    2,996 
Net Interest Income After Provision for Loan Losses   20,789    26,586    43,255    52,855 
NONINTEREST INCOME                    
Gain on Sales of Securities, net   2,321    909    3,535    940 
Service Charges, Commissions and Fees   190    892    1,840    2,118 
Debit Card Interchange Fees   1,468    1,320    2,711    2,494 
Insurance   332    369    1,641    643 
Bank Owned Life Insurance Income   350    356    703    717 
Gains on Sales of Other Real Estate Owned, net   137    -    -    - 
Gains on Sales of Bank Premises, net   -    178    -    8 
Other Real Estate Owned Income   82    231    221    521 
Fee Income on Interest Rate Swap   1,125    -    1,548    - 
Other   196    324    817    772 
Total Noninterest Income   6,201    4,579    13,016    8,213 
NONINTEREST EXPENSE                    
Salaries and Employee Benefits   12,489    12,809    26,070    24,844 
Occupancy Expense, net   3,415    2,836    6,664    5,663 
FDIC Insurance Expense   537    433    1,081    1,147 
Other Taxes   788    711    1,534    1,354 
Advertising Expense   400    326    1,006    497 
Telephone Expense   573    562    1,147    1,067 
Professional and Legal Fees   1,399    980    1,836    1,629 
Data Processing Licensing Fee   595    469    1,081    1,219 
Losses on Sales and Write-downs of Other Real Estate Owned, net   -    88    52    276 
Loss on Sales and Write-downs of Bank Premises   59    -    71    - 
Debit Card Expense   671    830    1,225    1,540 
Tax Credit Amortization   272    563    544    1,126 
Unfunded Loan Commitment Expense   (383)   173    599    218 
Other Real Estate Owned Expense   177    (31)   317    66 
Other   2,031    2,085    4,407    4,128 
Total Noninterest Expense   23,023    22,834    47,634    44,774 
Income Before Taxes   3,967    8,331    8,637    16,294 
Income Tax (Benefit) Provision   (488)   504    (241)   926 
Net Income  $4,455   $7,827   $8,878   $15,368 
Earnings per Common Share                    
Basic Earnings per Common Share  $0.17   $0.30   $0.34   $0.58 
Diluted Earnings per Common Share  $0.17   $0.30   $0.34   $0.58 
Average Shares Outstanding-Basic   26,384,957    26,333,929    26,373,803    26,313,631 
Average Shares Outstanding-Diluted   26,384,957    26,347,635    26,373,803    26,320,530 

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

CARTER BANK & TRUST 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   Three Months Ended June 30,   Six Months Ended June 30, 
(Dollars in Thousands)  2020   2019   2020   2019 
Net Income  $4,455   $7,827   $8,878   $15,368 
Other Comprehensive Income:                    
Net Unrealized Gains on Securities Available-for-Sale:                    
Net Unrealized Gains Arising during the Period   14,422    9,170    16,426    17,074 
Reclassification Adjustment for Gains included in Net Income   (2,321)   (909)   (3,535)   (940)
Net Unrealized Gains Recognized in Other Comprehensive Income   12,101    8,261    12,891    16,134 
Tax Effect   (2,541)   (1,735)   (2,707)   (3,388)
Other Comprehensive Income   9,560    6,526    10,184    12,746 
Comprehensive Income  $14,015   $14,353   $19,062   $28,114 

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

 

CARTER BANK & TRUST 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

   For the Three Months Ended June 30, 2020 and 2019 
Dollars in Thousands)  Common
Stock
   Additional Paid-in-
Capital
   Retained Earnings   Accumulated Other Comprehensive Income (Loss)   Total Shareholder's Equity 
Balance March 31, 2020  $26,385   $142,793   $304,892   $751   $474,821 
Net Income   -    -    4,455    -    4,455 
Other Comprehensive Income, Net of Tax   -    -    -    9,560    9,560 
Forfeiture of Restricted Stock (384 shares)   -    -    -    -    - 
Recognition of Restricted Stock Compensation Expense   -    223    -    -    223 
Balance June 30, 2020 (Unaudited)  $26,385   $143,016   $309,347   $10,311   $489,059 
                          
Balance March 31, 2019  $26,308   $142,183   $285,124   $(3,846)  $449,769 
Net Income   -    -    7,827    -    7,827 
Other Comprehensive Income, Net of Tax   -    -    -    6,526    6,526 
Recognition of Restricted Stock Compensation Expense   -    111    -    -    111 
Issuance of Restricted Stock (25,842 shares)   26    (26)   -    -    - 
Balance June 30, 2019 (Unaudited)  $26,334   $142,268   $292,951   $2,680   $464,233 

 

   For the Six Months Ended June 30, 2020 and 2019 
Dollars in Thousands)  Common Stock   Additional Paid-in-Capital   Retained Earnings   Accumulated Other Comprehensive Income (Loss)   Total Shareholder's Equity 
Balance December 31, 2019  $26,334   $142,492   $304,158   $127   $473,111 
Net Income   -    -    8,878    -    8,878 
Other Comprehensive Income, Net of Tax   -    -    -    10,184    10,184 
Dividends Declared ($0.14 per share)   -    -    (3,689)   -    (3,689)
Forfeiture of Restricted Stock (2,484 shares)   (3)   3    -    -    - 
Recognition of Restricted Stock Compensation Expense   -    575    -    -    575 
Issuance of Restricted Stock (53,056 shares)   54    (54)   -    -    - 
Balance June 30, 2020 (Unaudited)  $26,385   $143,016   $309,347   $10,311   $489,059 
                          
Balance December 31, 2018  $26,270   $142,175   $277,835   $(10,066)  $436,214 
Cumulative Effect of Adopting New Lease Standard   -    -    (252)   -    (252)
Balance December 31, 2018 adjusted for Cumulative Effect  $26,270   $142,175   $277,583   $(10,066)  $435,962 
Net Income   -    -    15,368    -    15,368 
Other Comprehensive Income, Net of Tax   -    -    -    12,746    12,746 
Forfeiture of Restricted Stock (403 shares)   -    (1)   -    -    (1)
Recognition of Restricted Stock Compensation Expense   -    158    -    -    158 
Issuance of Restricted Stock (64,158 shares)   64    (64)   -    -    - 
Balance June 30, 2019 (Unaudited)  $26,334   $142,268   $292,951   $2,680   $464,233 

 

See accompanying notes to unaudited consolidated financial statements

 

6

 

 

CARTER BANK & TRUST 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

(Dollars in Thousands)

 

Six Months
Ended

June 30, 2020

  

Six Months
Ended

June 30, 2019

 
OPERATING ACTIVITIES          
Net income  $8,878   $15,368 
Adjustments to Reconcile Net Income to Net Cash          
Provided by Operating Activities:          
Provision for Loan Losses   10,271    2,996 
Origination of Loans Held-for-Sale   (266,307)   (81,077)
Proceeds From Loans Held-for-Sale   276,676    73,795 
Depreciation of Bank Premises and Equipment, Net   3,016    2,569 
Deferred Income Tax (Benefit) Provision   (1,159)   1,001 
Net Amortization of Securities   1,724    2,051 
Tax Credit Amortization   544    1,126 
Gains on Sales of Securities, Net   (3,535)   (940)
Write-downs of Other Real Estate Owned, Net   70    90 
(Gains) Loss on Sales of Other Real Estate Owned, Net    (18)   186 
Loss (Gains) on Sales and Write-downs of Bank Premises and Equipment   71    (8)
Increase in the Value of Life Insurance Contracts   (703)   (717)
Recognition of Restricted Stock Compensation Expense   575    157 
(Increase) Decrease in Other Assets   (20,138)   6,622 
(Decrease) Increase in Other Liabilities    (1,010)   239 
Net Cash Provided By Operating Activities   8,955    23,458 
           
INVESTING ACTIVITIES          
Securities Available-for-Sale:          
Proceeds from Sales   96,669    163,908 
Proceeds from Maturities, Redemptions, and Pay downs   43,534    33,056 
Purchases   (128,688)   (200,407)
Purchase of Bank Premises and Equipment, Net   (6,873)   (4,202)
Proceeds from Sales of Bank Premises and Equipment, Net   -    1,135 
Loan Originations and Payments, Net   (74,912)   (164,118)
Payments Received on Other Real Estate Owned   245    - 
Other Real Estate Owned Improvements   (19)   - 
Purchase of Federal Home Loan Bank Stock   (1,062)   (3,688)
Redemption of Federal Home Loan Bank Stock   82    - 
Proceeds from Sales and Payments of Other Real Estate Owned   1,742    9,751 
Net Cash Used In Investing Activities   (69,282)   (164,565)
           
FINANCING ACTIVITIES          
Net Change in Demand, Money Markets and Savings Accounts   237,083    21,436 
Decrease in Time Deposits   (134,621)   (35,137)
Proceeds from Federal Home Loan Bank Borrowings   25,000    - 
Cash Dividends Paid   (3,689)   - 
Net Cash Provided by (Used In) Financing Activities   123,773    (13,701)
           
Net Increase (Decrease) in Cash and Cash Equivalents   63,446    (154,808)
           
Cash and Cash Equivalents at Beginning of Period   125,812    293,823 
           
Cash and Cash Equivalents at End of Period  $189,258   $139,015 

 

See accompanying notes to unaudited consolidated financial statements.

 

7

 

 

CARTER BANK & TRUST 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

 

(Unaudited)
(Dollars in Thousands)
  Six Months Ended
June 30, 2020
   Six Months Ended
June 30, 2019
 
Supplementary Data:          
Cash Paid for Interest  $20,272   $22,705 
Cash Paid for Income Taxes  $240   $150 
Transfer from Loans to Other Real Estate Owned  $707   $262 
Transfer from Fixed Assets to Other Real Estate Owned  $235   $706 
Security (Purchases) Sales Settled in Subsequent Period  $(3,225)  $(2,449)
Right-of-use Asset Recorded in Exchange for Lease Liabilities  $-   $1,225 

 

See accompanying notes to unaudited consolidated financial statements.

8

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION

 

Principles of Consolidation:  The interim Consolidated Financial Statements include the accounts of Carter Bank & Trust and its wholly owned subsidiary. All significant intercompany transactions have been eliminated in consolidation.

 

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with applicable quarterly reporting regulations of the Securities and Exchange Commission (the “SEC”). They do not include all of the information and notes required by GAAP for complete financial statements. Therefore, these Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Carter Bank & Trust Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, the accompanying interim financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.

 

Reclassification: Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

 

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided. Actual results could differ from those estimates.

 

The Cares Act:

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law, which, in part, established a loan program administered through the U.S. Small Business Administration ("SBA"), referred to as the Paycheck Protection Program ("PPP"). Under the PPP, small businesses, sole proprietorships, independent contractors, non-profit organizations and self-employed individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP program. All loans have a 1% interest rate and we earn a fee that is based upon a tiered schedule corresponding with the amount of the loan to the borrower, which is deferred and recognized over the life of the loan. Based upon the borrower meeting certain criteria as defined by the CARES act, the loan maybe forgiven by the SBA. The Bank reports these loans at their principal amount outstanding, net of unearned income, unamortized deferred loan fee income and loan origination costs. Interest is accrued as earned and loan origination fees and direct costs are deferred and accreted or amortized into interest income, as an adjustment to the yield, over the life of the loan using the level yield method. When a PPP loan is paid off or forgiven by the SBA, the remaining unaccreted or unamortized net origination fees or costs are immediately recognized into income.

 

9 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” allows financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. On April 7, 2020, the joint federal regulatory agencies issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement)”), which further discusses loan modifications related to COVID-19. The Bank has extended up to a 180 day delay in loan principal and/or interest payments for customers affected by the COVID-19 pandemic. These customers must meet certain criteria, such as they were in good standing and not more than 30 days past due either as of December 31, 2019, or as of the implementation of the modification program under the Interagency Statement, as well other requirements noted in the regulatory agencies’ revised statement. Based on the CARES Act provisions and the guidance noted above, The Bank does not classify the COVID-19 loan modifications as TDRs, nor are the customers considered past due with regards to their delayed payments to the extent they meet the criteria. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. We are currently evaluating the ability of the borrower to repay and evaluating the appropriateness of an additional deferral program, which would require more scrutiny, including the borrower’s ability to repay.

 

Asset Valuation: Currently, the Bank does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Bank does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

 

At June 30, 2020, the Bank considered the on-going economic market disruption, the movement of the Bank’s stock price in relation to other bank indexes and the length of time that the market value of the reporting unit has been below its book value as triggering events and has completed a quantitative analysis to assess whether or not goodwill was impaired.  The analysis estimated fair value of the reporting unit to be $527.7 million, or $20.00 per share and the Bank has concluded that goodwill was not impaired at June 30, 2020.

 

The determination of the fair value of the reporting unit incorporates assumptions that marketplace participants would use in their estimates of fair value in a change in control transaction, as prescribed by ASC Topic 820.  To arrive at a conclusion of fair value, we utilized both the income approach and the market approach and then applied weighting factors to each approach.  Weighting factors represent our best business judgement of the weightings a market participant would utilize in arriving at fair value of the reporting unit.  In performing the analysis, Bank management made numerous assumptions with respect to industry performance, reporting unit business performance, economic and market conditions and various other matters, many of which require significant management judgement.  Projections related to business unit performance over the next five years assumed an economic downturn over a 12-month time horizon subsequently returning to conservative positive growth rates in loan and deposits after that time period.  The analysis performed and the assumptions that are incorporated into the analysis reflect the best currently available estimates and judgements as to the expected future financial performance of the reporting unit.

 

Further and sustained declines in the Bank’s stock price, may require further quantitative and qualitative analysis and could result in an impairment charge being recorded for that period. In the event that the Bank concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

 

10 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Newly Adopted Pronouncements in 2020: In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This accounting guidance became effective on January 1, 2020. The adoption of the guidance did not have a material effect on the Bank’s financial position, results of operation or disclosures.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for our disclosures included in this Form 10-Q for the period ended March 31, 2020. We adopted this ASU on January 1, 2020. The amendments in this ASU did not materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

 

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The main objective of ASU is to simplify the current requirements for testing goodwill for impairment by eliminating step two from the goodwill impairment test. The amendments are expected to reduce the complexity and costs associated with performing the goodwill impairment test, which could result in recording impairment charges sooner. We adopted the amendments of this ASU on January 1, 2020. The amendments in this ASU did not have any impact on our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

 

Accounting Statements Issued But Not Yet Adopted: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance. The amendments in this ASU will be effective on January 1, 2021 and are not expected to have any impact on our consolidated financial statements.

 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in US GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements.

 

11 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, universally referred to as Current Expected Credit Loss (“CECL”). The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For periodic report filers that are not smaller reporting companies, such as the Bank, this standard (ASC 326) is effective as of January 1, 2020.

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the 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 Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

The Bank’s CECL Committee, which includes members from Credit Administration, Accounting/Finance, Risk Management and Internal Audit, has oversight by the Chief Executive Officer, Chief Financial Officer, and Chief Credit Officer. We have engaged a third-party to assist us in developing our CECL model and to assist with evaluation of data and methodologies related to this standard.

 

As part of its process of adopting CECL, management implemented a third party software solution and determined appropriate loan segments, methodologies, model assumptions and qualitative components. Our CECL model includes portfolio loan segmentation based upon similar risk characteristics and both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables. Our implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls. Management continues to have a third party independent consultant review and validate our CECL model.

 

Parallel runs utilizing data from the current and previous quarters in 2020 and 2019, incorporate elements of our operational procedures and internal controls. Our current parallel run includes the composition, characteristics and quality of our loan portfolio as well as current market economic conditions and forecasts as of the adoption date.

 

In addition, ASU 2016-13 amends the accounting for credit losses on certain debt securities. Based upon the nature and characteristics of our securities portfolio at the adoption date, management does not expect to record any allowance for credit losses on its debt securities as a result of adopting ASU 2016-13.

 

The ultimate impact of adopting ASU 2016-13, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available-for-sale securities portfolio, along with other management judgments. The transition adjustment to record the allowance for loan losses will be applied using a cumulative effect adjustment to retained earnings.

 

12 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 2 – EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the two-class method. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For all periods presented, the dilutive effect on average shares outstanding is the result of unvested restricted stock grants.

 

The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented:

 

   Three Months ended June 30,   Six Months ended June 30, 
(Dollars in Thousands, except share and per share data)  2020   2019   2020   2019 
Numerator for Earnings per Share- Basic:                    
Net Income Allocated to Common Shareholders  $4,455   $7,827   $8,878   $15,368 
Numerator for Earnings per Share- Diluted:                    
Net Income Allocated to Shareholders  $4,455   $7,827   $8,878   $15,368 
Denominators:                    
Weighted Average Shares Outstanding- Basic   26,384,957    26,333,929    26,373,803    26,313,631 
Add: Average Participating Shares Outstanding   -    13,706    -    6,899 
Denominator for Two-Class Method-Diluted   26,384,957    26,347,635    26,373,803    26,320,530 
Earnings per Common Share-Basic  $0.17   $0.30   $0.34   $0.58 
Earnings per Common Share-Diluted  $0.17   $0.30   $0.34   $0.58 

 

There were 94,743 shares and 31,206 shares not included in the average participating shares outstanding because they would be considered to be anti-dilutive for the quarter and six month period ended June 30, 2020, respectively. There were no weighted average shares considered anti-dilutive in the calculation for the quarter and six month period ended June 30, 2019.

 

13 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 3 - INVESTMENT SECURITIES

 

The following table sets forth a summary of the available-for-sale investment securities portfolio as of the periods indicated:

 

   June 30, 2020 
(Dollars in Thousands)  Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Fair Value 
Residential Mortgage-Backed Securities  $51,615   $2,809   $(10)  $54,414 
Commercial Mortgage-Backed Securities   10,408    475    -    10,883 
Asset Backed Securities   122,889    491    (4,780)   118,600 
Collateralized Mortgage Obligations   233,083    6,721    (526)   239,278 
Small Business Administration   98,931    241    (1,055)   98,117 
States and Political Subdivisions   200,815    8,698    (308)   209,205 
Corporate Notes   18,236    306    (10)   18,532 
Total Debt Securities  $735,977   $19,741   $(6,689)  $749,029 

 

   December 31, 2019 
(Dollars in Thousands)  Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Fair Value 
Residential Mortgage-Backed Securities  $51,600   $1,136   $(92)  $52,644 
Commercial Mortgage-Backed Securities   18,972    147    (113)   19,006 
Asset Backed Securities   110,943    285    (1,589)   109,639 
Collateralized Mortgage Obligations   291,139    2,425    (1,340)   292,224 
Small Business Administration   106,485    347    (1,096)   105,736 
States and Political Subdivisions   148,596    1,669    (1,785)   148,480 
Corporate Notes   14,721    167    -    14,888 
Total Debt Securities  $742,456   $6,176   $(6,015)  $742,617 

 

At June 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S. Government and its Agencies, in an amount greater than 10% of shareholders’ equity.

 

The carrying value of securities pledged to for various regulatory and legal requirements was $124.5 million at June 30, 2020 and $150.6 million at December 31, 2019.

 

Sales of securities were as follows:

 

   Three Months ended June 30,   Six Months ended June 30, 
(Dollars in Thousands)  2020   2019   2020   2019 
Proceeds from Sales of Securities Available-for-Sale  $42,167   $139,026   $96,669   $163,908 
                     
Gross Realized Gains  $2,354   $1,605   $3,571   $1,947 
Gross Realized Losses   (33)   (696)   (36)   (1,007)
Net Realized Gains  $2,321   $909   $3,535   $940 
Tax Impact  $487   $191   $742   $197 

 

14 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold. The net realized gains above represent reclassification adjustments in the calculation of other comprehensive income. The net realized gains are included in noninterest income as gains on sales of securities, net in the Consolidated Statements of Income. The tax impact is included in income tax (benefit) provision in the Consolidated Statements of Income.

 

The amortized cost and fair value of securities available-for-sale by contractual maturity at June 30, 2020 and December 31, 2019 are included in the tables below. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single date are shown separately.

 

(Dollars in Thousands)  Amortized   Fair 
June 30, 2020  Cost   Value 
Due in One Year or Less  $3,456   $3,532 
Due after One Year through Five Years   8,693    8,925 
Due after Five Years through Ten Years   91,670    92,814 
Due after Ten Years   214,163    220,583 
Residential Mortgage-Backed Securities   51,615    54,414 
Commercial Mortgage-Backed Securities   10,408    10,883 
Collateralized Mortgage Obligations   233,083    239,278 
Asset Backed Securities   122,889    118,600 
Total Securities  $735,977   $749,029 

 

15 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Available-for-sale securities with unrealized losses at June 30, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 

   June 30, 2020 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of Securities   Fair Value   Unrealized Losses   Number of Securities   Fair Value   Unrealized Losses   Number of Securities   Fair Value   Unrealized Losses 
Residential Mortgage-Backed Securities   3   $6,130   $(9)   3   $52   $(1)   6   $6,182   $(10)
Asset Backed Securities   23    51,260    (1,999)   24    53,126    (2,781)   47    104,386    (4,780)
Collateralized Mortgage Obligations   12    32,451    (229)   16    47,835    (297)   28    80,286    (526)
Small Business Administration   19    32,406    (148)   70    41,426    (907)   89    73,832    (1,055)
States and Political Subdivisions   14    19,965    (308)   -    -    -    14    19,965    (308)
Corporate Notes   1    740    (10)   -    -    -    1    740    (10)
Total Debt Securities   72   $142,952   $(2,703)   113   $142,439   $(3,986)   185   $285,391   $(6,689)

 

   December 31, 2019 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of Securities   Fair Value   Unrealized Losses   Number of Securities   Fair Value   Unrealized Losses   Number of Securities   Fair Value   Unrealized Losses 
Residential Mortgage-Backed Securities   5   $9,972   $(92)   1   $2   $-    6   $9,974   $(92)
Commercial Mortgage-Backed Securities   3    7,713    (113)   -    -    -    3    7,713    (113)
Asset Backed Securities   22    50,530    (549)   16    39,153    (1,040)   38    89,683    (1,589)
Collateralized Mortgage Obligations   37    144,543    (1,051)   6    18,107    (289)   43    162,650    (1,340)
Small Business Administration   13    25,380    (91)   69    47,616    (1,005)   82    72,996    (1,096)
States and Political Subdivisions   37    70,678    (1,785)   -    -    -    37    70,678    (1,785)
Total Debt Securities   117   $308,816   $(3,681)   92   $104,878   $(2,334)   209   $413,694   $(6,015)

 

16 

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Securities are evaluated for other-than-temporary impairment (“OTTI”) quarterly and more frequently if economic or market concerns warrant. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, the credit quality of the issuer and whether the Bank intends to sell the security or may be required to sell the security prior to maturity. The Bank has reviewed all securities for OTTI.

 

As of June 30, 2020, no OTTI has been identified for any investment securities in the Bank’s portfolio. The Bank does not believe any individual unrealized loss as of June 30, 2020 represents an other than temporary impairment, or OTTI. At June 30, 2020 there were 185 debt securities in an unrealized loss position and at December 31, 2019 there were 209 debt securities in an unrealized loss position. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities are determined to be investment grade and are paying principal and interest according to the contractual terms of the security. The Bank generally does not intend to sell and it is not more likely than not that the Bank will be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.

 

NOTE 4 – LOANS AND LOANS HELD-FOR-SALE

 

The composition of the loan portfolio by dollar amount is shown in the table below:

 

   June 30,     
   2020   December 31, 
(Dollars in Thousands)  (Unaudited)   2019 
Commercial          
Commercial Real Estate  $1,374,242   $1,365,310 
Commercial and Industrial   279,143    256,798 
Obligations of State and Political Subdivisions   338,190    364,869 
Commercial Construction   374,609    292,827 
Total Commercial Loans   2,366,184    2,279,804 
Consumer          
Residential Mortgages   508,388    514,538 
Other Consumer   69,884    73,688 
Consumer Construction   12,888    16,736 
Total Consumer Loans   591,160    604,962 
Total Portfolio Loans  $2,957,344   $2,884,766 

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio. For other homogeneous property types we have established segment limits for those in which we have concentrations. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods.

 

17

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Unsecured loans pose higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses, operate with low financial and operating leverage and demonstrate an ability to clear the outstanding balance on lines of credit for at least thirty consecutive days annually. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

Total commercial loans represented 80.0% of total portfolio loans at June 30, 2020 and 79.0% of total portfolio loans at December 31, 2019. Within our commercial portfolio, the Commercial Real Estate (“CRE”) and Commercial Construction portfolios combined comprised $1.7 billion or 73.9% of total commercial loans and 59.1% of total portfolio loans at June 30, 2020 and comprised $1.7 billion or 72.7% of total commercial loans and 57.5% of total portfolio loans at December 31, 2019. Net deferred costs included in the portfolio balances above were $3.5 million and $5.1 million at June 30, 2020 and December 31, 2019, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $234 thousand and $250 thousand at June 30, 2020 and December 31, 2019, respectively.

 

As of June 30, 2020, the Bank had processed either through a third party or internally 970 PPP loans totaling $55.8 million, represented by $15.9 million and $39.9 million processed in round one and round two, respectively. The PPP loans had zero allowance reserves associated with them since 100% guaranteed. We expect the vast majority of these PPP loans will be forgiven.

 

Loans held-for-sale were $9.3 million and $19.7 million at June 30, 2020 and December 31, 2019, respectively.

 

18

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 5 - ALLOWANCE FOR LOAN LOSSES

 

The following table presents, by portfolio segment, the changes in the allowance for loan losses and the allocation of the allowance for loan losses for the three and six month periods ended June 30, 2020 and 2019:

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Three Months Ended June 30, 2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Balance: Beginning of Period  $26,073   $3,349   $641   $7,295   $1,811   $3,734   $39   $42,942 
Provision Charged to Expense   2,513    474    374    1,031    390    679    12    5,473 
Losses Charged Off   (40)   (8)   -    -    (15)   (1,094)   -    (1,157)
Recoveries   -    1    -    -    -    146                -    147 
Balance, End of Period  $28,546   $3,816   $1,015   $8,326   $2,186   $3,465   $51   $47,405 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Three Months Ended June 30, 2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                                      
Balance: Beginning of Period  $26,953   $2,603   $422   $4,830   $1,808   $2,876   $80   $39,572 
Provision Charged to Expense   (221)   129    (16)   168    300    1,015    (6)   1,369 
Losses Charged Off   (19)   (2)   -    -    (18)   (1,031)   -    (1,070)
Recoveries   -    -    -    -    -    137    -    137 
Balance, End of Period  $26,713   $2,730   $406   $4,998   $2,090   $2,997   $74   $40,008 

 

19

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Six Months Ended June 30, 2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Balance: Beginning of Period  $24,706   $3,236   $365   $5,377   $1,736   $3,299   $43   $38,762 
Provision Charged to Expense   3,173    624    650    2,949    470    2,397    8    10,271 
Losses Charged Off   (40)   (46)   -    -    (20)   (2,621)   -    (2,727)
Recoveries   707    2    -    -    -    390             -    1,099 
Balance, End of Period  $28,546   $3,816   $1,015   $8,326   $2,186   $3,465   $51   $47,405 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Six Months Ended June 30, 2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                                       
Balance: Beginning of Period  $23,897   $626   $432   $5,214   $6,129   $2,728   $173   $39,199 
Provision Charged to Expense   2,885    2,106    (26)   177    (4,016)   1,969    (99)   2,996 
Losses Charged Off   (69)   (2)   -    (393)   (23)   (1,959)   -    (2,446)
Recoveries   -    -    -    -    -    259    -    259 
Balance, End of Period  $26,713   $2,730   $406   $4,998   $2,090   $2,997   $74   $40,008 

 

20

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following table presents the balances in the allowance for loan losses and the recorded investment in the loan balances based on impairment method as of June 30, 2020 and December 31, 2019:

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
June 30,  2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Individually Evaluated for Impairment  $6,594   $240   $-   $1,083   $12   $-   $-   $7,929 
Collectively Evaluated for Impairment   21,952    3,576    1,015    7,243    2,174    3,465    51    39,476 
Total Allowance for Loan Losses  $28,546   $3,816   $1,015   $8,326   $2,186   $3,465   $51   $47,405 
                                         
Total Portfolio Loans:                                        
Individually Evaluated for Impairment  $32,148   $240   $-   $59,053   $51,665   $-   $-   $143,106 
Collectively Evaluated for Impairment   1,342,094    278,903    338,190    315,556    456,723    69,884    12,888    2,814,238 
Total Portfolio Loans  $1,374,242   $279,143   $338,190   $374,609   $508,388   $69,884   $12,888   $2,957,344 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
December 31,  2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Individually Evaluated for Impairment  $5,779   $390   $   $   $-   $-   $-   $6,169 
Collectively Evaluated for Impairment   18,927    2,846    365    5,377    1,736    3,299    43    32,593 
Total Allowance for Loan Losses  $24,706   $3,236   $365   $5,377   $1,736   $3,299   $43   $38,762 
                                         
Total Portfolio Loans:                                        
Individually Evaluated for Impairment  $33,256   $390   $   $59,053   $52,966   $   $   $145,665 
Collectively Evaluated for Impairment   1,332,054    256,408    364,869    233,774    461,572    73,688    16,736    2,739,101 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 

 

The recorded investment in loans excludes accrued interest receivable.

 

21

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Impaired Loans

 

The following table includes the recorded investment and unpaid principal balance for impaired loans with the associated allowance, if applicable, at June 30, 2020, December 31, 2019 and June 30, 2019:

 

                   Three Months Ended   Six Months Ended 
                   June 30, 2020   June 30, 2020 
(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average  Investment   Interest Income   Interest Income 
June 30, 2020  Balance   Balance   Allowance   in Impaired Loans   Recognized   Recognized 
Loans without a Specific Valuation Allowance                              
Commercial Real Estate  $3,463   $3,463   $-   $3,816   $32   $64 
Commercial Construction   5,387    5,387    -    5,247    -    - 
Residential Mortgages   -    -    -    -    -    - 
                               
Loans with a Specific Valuation Allowance                                                 
Commercial Real Estate   28,686    28,686    6,594    28,727    -    - 
Commercial & Industrial   240    240    240    307    -    - 
Commercial Construction   53,665    53,665    1,083    53,752    595    1,008 
Residential Mortgages   51,665    51,665    12    52,099    428    1,048 
                               
Total by Category                              
Commercial Real Estate   32,149    32,149    6,594    32,543    32    64 
Commercial & Industrial   240    240    240    307    -    - 
Commercial Construction   59,052    59,052    1,083    58,999    595    1,008 
Residential Mortgages   51,665    51,665    12    52,099    428    1,048 
Total Impaired Loans  $143,106   $143,106   $7,929   $143,948   $1,055   $2,120 

 

22

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Interest Income 
December 31, 2019  Balance   Balance   Allowance   in Impaired Loans   Recognized 
Loans without a Specific Valuation Allowance                         

Commercial Real Estate

  $4,487   $4,487   $-   $5,885   $131 
Commercial Construction   59,053    59,053    -    59,558    3,056 
Residential Mortgages   52,966    52,966    -    57,079    5,862 
                          
Loans with a Specific Valuation Allowance                         
Commercial Real Estate   28,769    28,769    5,779    31,201    - 
Commercial & Industrial   390    390    390    434    - 
Commercial Construction   -    -    -    1,716    - 
                          
Total by Category                         
Commercial Real Estate   33,256    33,256    5,779    37,086    131 
Commercial & Industrial   390    390    390    434    - 
Commercial Construction   59,053    59,053    -    61,274    3,056 
Residential Mortgages   52,966    52,966    -    57,079    5,862 
Total Impaired Loans  $145,665   $145,665   $6,169   $155,873   $9,049 

 

23

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

                   Three Months Ended   Six Months Ended 
                   June 30, 2019   June 30, 2019 
(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Interest Income   Interest Income 
June 30, 2019  Balance   Balance   Allowance   in Impaired Loans   Recognized   Recognized 
Loans without a Specific Valuation Allowance                              
Commercial Real Estate  $4,441   $4,441   $-   $7,127   $35   $65 
Commercial Construction   55,465    55,465    -    59,170    673    1,165 
Residential Mortgages   57,973    57,973    -    58,154    2,833    4,333 
                               
Loans with a Specific Valuation Allowance                              
Commercial Real Estate   33,114    33,114    5,959    31,737    -    - 
Commercial Construction   5,145    5,145    165    3,163    5    10 
                               
Total by Category                              
Commercial Real Estate   37,555    37,555    5,959    38,864    35    65 
Commercial Construction   60,610    60,610    165    62,333    678    1,175 
Residential Mortgages   57,973    57,973    -    58,154    2,833    4,333 
Total Impaired Loans  $156,138   $156,138   $6,124   $159,351   $3,546   $5,573 

 

For the three months ended June 30, 2020 and 2019, interest income recognized on impaired loans was $1.1 million and $3.5 million, respectively. For the six months ended June 30, 2020 and 2019, interest income recognized on impaired loans was $2.1 million and $5.6 million, respectively. For the year ended December 31, 2019, interest income recognized on impaired loans was $9.0 million.

 

24

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Troubled Debt Restructurings

 

The following table summarizes the Bank’s troubled debt restructured loans as of the dates presented:

 

   June 30, 2020   December 31, 2019 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Commercial                        
Commercial Real Estate  $3,138   $29,010   $32,148   $3,183   $30,073   $33,256 
Commercial and Industrial   -    240    240    -    390    390 
Obligations of State and Political Subdivisions   -    -    -    -    -    - 
Commercial Construction   52,481    4,252    56,733    53,116    4,242    57,358 
Total Commercial TDRs   55,619    33,502    89,121    56,299    34,705    91,004 
Consumer                              
Residential Mortgages   51,665    -    51,665    52,966    -    52,966 
Other Consumer   -    -    -    -    -    - 
Consumer Construction   -    -    -    -    -    - 
Total Consumer TDRs   51,665    -    51,665    52,966    -    52,966 
Total TDRs  $107,284   $33,502   $140,786   $109,265   $34,705   $143,970 

 

In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized when there is a reasonable chance that an appropriate modification would allow our client to continue servicing the debt. A loan is a troubled debt restructuring (“TDR”) if both of the following exist: 1) the debtor is experiencing financial difficulties and 2) a creditor has granted a concession to the debtor that it would not normally grant. Nonaccrual loans that are modified can be placed back on accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

 

The Bank did not have any loans modified as TDRs during the second quarter of 2020. The Bank had one consumer automobile loan modified as a TDR during the first quarter of 2020. The customer was experiencing financial difficulties, but sold the vehicle and the proceeds from that sale were applied to the loan balance. The remaining balance was charged-off, but the loan has been re-amortized for the customer to repay the balance by the end of 2021.

 

The Bank did not have any loans modified as TDRs during the three and six month periods ended June 30, 2019.

 

At June 30, 2020 and December 31, 2019, the Bank had $33.6 million and $34.7 million in loans, respectively, modified as TDRs in previous years which had experienced a payment default subsequent to the rework date and were classified as nonperforming. There were no TDR payment defaults during the three or six month periods ending June 30, 2020 and 2019. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

 

25 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The specific reserve portion of the allowance for loan losses on TDRs, if required, is determined by discounting the restructured cash flow at the original effective rate of the loan before modification or is based on the fair value of the collateral less cost to sell, if repayment of the loan is collateral dependent. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance as a component of the allowance for loan losses or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. As of June 30, 2020, specific reserves were recorded in the amount of $7.9 million on four credit relationships. As of December 31, 2019, specific reserves were recorded in the amount of $6.2 million on two credit relationships.

 

As of June 30, 2020 and December 31, 2019, the Bank had $178 thousand and $290 thousand, respectively of residential real estate in the process of foreclosure. The Bank currently has a moratorium on foreclosure sales until August 1, 2020 due to COVID-19, but there were three properties for which foreclosure proceedings had already begun at the onset of the pandemic. The Bank had $65 thousand at June 30, 2020 and $69 thousand at December 31, 2019 in residential real estate included in other real estate owned (“OREO”).

 

Portfolio Quality Indicators:

 

The Bank’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Bank’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.

 

The Bank’s internally assigned grades are as follows:

 

Pass – The loan is currently performing and is of high quality.

 

Special Mention – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

 

Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

 

Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

 

26 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following tables represent credit exposures by internally assigned grades as of June 30, 2020 and December 31, 2019:

 

(Dollars in Thousands)
June 30,  2020
 
 
 
Commercial
Real
Estate
 
 
 
 
 
 
 
Commercial
& Industrial
 
 
 
 
 
 
Obligations
Of States and
Political Sub.
 
 
 
 
 
 
 
Commercial
Construction
 
 
 
 
 
 
 
Residential
Mortgages
 
 
 
 
 
 
 
Other
Consumer
 
 
 
 
 
 
 
Consumer
Construction
 
 
 
 
 
 
 
 
Total
 
 
 
Pass  $1,203,512   $200,368   $338,190   $254,354   $451,753   $69,621   $12,888   $2,530,686 
Special Mention   7,815    39    -    2,242    914    7    -    11,017 
Substandard   162,915    78,736    -    118,013    55,721    256    -    415,641 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
Total Portfolio Loans  $1,374,242   $279,143   $338,190   $374,609   $508,388   $69,884   $12,888   $2,957,344 
                                         
Performing Loans  $1,344,985   $278,748   $338,190   $367,195   $505,062   $69,678   $12,888   $2,916,746 
Non-Accrual Loans   29,257    395    -    7,414    3,326    206    -    40,598 
Total Portfolio Loans  $1,374,242   $279,143   $338,190   $374,609   $508,388   $69,884   $12,888   $2,957,344 

 

(Dollars in Thousands)
December 31, 2019
  Commercial
Real
Estate
   Commercial
& Industrial
   Obligations
Of States and
Political Sub.
    
Commercial
Construction
    
Residential
Mortgages
    
Other
Consumer
   Consumer
Construction
    
 
Total
 
Pass  $1,198,269   $167,326   $364,869   $173,176   $456,859   $73,345   $16,736   $2,450,580 
Special Mention   1,368    203    -    1,476    1,178    9    -    4,234 
Substandard   165,673    89,269    -    118,175    56,501    334    -    429,952 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 
                                         
Performing Loans  $1,334,220   $256,331   $364,869   $285,375   $511,681   $73,421   $16,736   $2,842,633 
Non-Accrual Loans   31,090    467    -    7,452    2,857    267    -    42,133 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 

 

27 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Age Analysis of Past-Due Loans by Class

 

The following table includes an aging analysis of the recorded investment of past due loans as of June 30, 2020 and December 31, 2019.

 

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
June 30,  2020  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Commercial Real Estate  $80   $54   $              -   $134   $1,344,851   $29,257   $1,374,242   $               - 
Commercial & Industrial   107    23    -    130    278,618    395    279,143    - 
Obligations of States and Political Sub.   -    -    -    -    338,190    -    338,190    - 
Commercial Construction   1,601    -    -    1,601    365,594    7,414    374,609    - 
Residential Mortgages   180    249    -    429    504,633    3,326    508,388    - 
Other Consumer   226    317    -    543    69,135    206    69,884    - 
Consumer Construction   -    -    -    -    12,888    -    12,888    - 
Total  $2,194   $643   $-   $2,837   $2,913,909   $40,598   $2,957,344   $- 

 

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
December 31, 2019  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Commercial Real Estate  $307   $913   $              -   $1,220   $1,333,000   $31,090   $1,365,310   $              - 
Commercial & Industrial   146    15    -    161    256,170    467    256,798    - 
Obligations of States and Political Sub.   236    -    -    236    364,633    -    364,869    - 
Commercial Construction   58    170    -    228    285,147    7,452    292,827    - 
Residential Mortgages   937    5    -    942    510,739    2,857    514,538    - 
Other Consumer   894    389    -    1,283    72,138    267    73,688    - 
Consumer Construction   -    -    -    -    16,736    -    16,736    - 
Total  $2,578   $1,492   $-   $4,070   $2,838,563   $42,133   $2,884,766   $- 

 

28 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 6 – FAIR VALUE MEASUREMENTS

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

 

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. These include discounted cash flow models, appraisals, internal valuations, and other similar techniques.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair value:

 

Securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.

 

Impaired Loans: Impaired loans with an outstanding balance equal to or greater than $1.0 million are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent.  All impaired loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

 

29 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Fair value for collateral dependent loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 

Subsequent to the initial impairment date, existing impaired loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For collateral dependent loans, the first stage of our impairment analysis involves management’s inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal. In circumstances where the Bank feels confident in its ability to collect and analyze salient information on the subject collateral and its surrounding real estate market, an in house valuation shall be utilized.  Factors which should be considered in an in house valuation are timing of sale, location and neighborhood, size of the structure and land component, age of any improvements, and other attributes as warranted by the Bank.  This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and our assessment of deterioration of real estate values in the market in which the property is located. When the Bank feels it cannot collect and analyze salient information on the subject collateral or the collateral’s real estate market, a full appraisal will be utilized.

 

For non-collateral dependent loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

 

OREO: OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market, or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to revalue the assets, at minimum, once every twenty-four months based on the size of the exposure. At June 30, 2020 the Bank’s OREO assets were in compliance with the Bank’s OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third party real estate brokers.

 

30 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Financial assets measured at fair value on a recurring basis at June 30, 2020 are summarized below:

 

       Quoted Prices In       Significant 
       Active Markets for   Significant Other   Unobservable 
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $749,029   $              -   $744,029   $5,000 
Derivatives   3,359    -    3,359    - 
   Total  $752,388   $-   $747,388   $5,000 
                     
Liabilities                    
Derivatives  $3,607   $-   $3,607   $- 
   Total  $3,607   $-   $3,607   $- 

 

Financial assets measured at fair value on a recurring basis at December 31, 2019 are summarized below:

 

       Quoted Prices In       Significant 
       Active Markets for   Significant Other   Unobservable 
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $742,617   $              -   $737,617   $5,000 
Derivatives   626    -    626    - 
   Total  $743,243   $-   $738,243   $5,000 
                     
Liabilities                    
Derivatives  $675   $-   $675   $- 
   Total  $675   $-   $675   $- 

 

Financial assets measured at fair value on a non-recurring basis are summarized below:

 

(Dollars in Thousands)                
June 30, 2020  Level 1   Level 2   Level 3   Fair Value 
OREO  $-   $-   $17,245   $17,245 
Impaired Loans  $-   $-   $126,327   $126,327 

 

(Dollars in Thousands)                
December 31, 2019  Level 1   Level 2   Level 3   Fair Value 
OREO  $-   $-   $18,324   $18,324 
Impaired Loans  $-   $-   $22,989   $22,989 

 

Impaired loans had a net carrying amount of $126.3 million at June 30, 2020 with a valuation allowance of $7.9 million, resulting in a $1.7 million increase in provision for loan losses for the six months ended June 30, 2020. During the three months ended June 30, 2020, there as a $0.9 million increase in provision for loan losses on impaired loans. At December 31, 2019, impaired loans had a net carrying amount of $23.0 million, with a valuation allowance of $6.2 million.

 

 31 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $17.2 million as of June 30, 2020, compared with $18.3 million at December 31, 2019, a decrease of $1.1 million. Write-downs of zero were recorded on OREO for the three months ended June 30, 2020 compared to $83 thousand for the three months ended June 30, 2019, respectively. Write-downs of $70 thousand and $90 thousand were recorded on OREO for the six months ended June 30, 2020 and 2019, respectively.

 

The following table summarizes the Bank’s assets that were measured at fair value on a nonrecurring basis as of June 30, 2020 and December 31, 2019:

 

(Dollars in Thousands)

June 30,  2020  Fair   Valuation  Unobservable  Weighted     
Assets  Value   Technique  Inputs  Range   Average 
Impaired Loans  $1,849   Discounted Appraisals  Management’s Discount, Estimated Selling Cost & Other Expenses   47.2%    47.2%
Impaired Loans   20,242   Discounted Appraisals  Estimated Selling Costs & Qualitative Adjustments   3.1% - 50.0%    20.2%
Impaired Loans   668   Discounted Appraisals  Estimated Selling Costs & Other Expenses   20.1%    20.1%
Impaired Loans   103,568   Discounted Appraisals & Tax Assessments  Estimated Selling Costs & Other Expenses   6.0% - 25.9%    16.3%
           Management’s Discount   100.0%    100.0%
      Total Impaired Loans  $126,327                 
                      
Other Real Estate Owned  $13,229   Appraisals  Estimated Selling Costs   6.0% - 10.0%    6.5%
Other Real Estate Owned   1,494   Discounted Cash Flow  Discount Rate   6.3%    6.3%
Other Real Estate Owned   1,797   Internal Valuations  Estimated Selling Costs   5.0%    5.0%
Other Real Estate Owned   725   Discounted Internal Valuations  Management’s Discount & Estimated Selling Costs   3.3%    3.3%
     Total Other Real Estate Owned  $17,245                 

 

December 31,  2019  Fair   Valuation  Unobservable  Weighted     
Assets  Value   Technique  Inputs  Range   Average 
Impaired Loans  $2,700   Purchase Contract  Pending Close of Contract, Net of Closing Costs   25.0%    25.0%
Impaired Loans   20,289   Discounted Appraisals  Management’s Discount & Selling Costs   2.6% - 84.6%    24.1%
    Total Impaired Loans  $22,989                 
                      
Other Real Estate Owned  $13,596   Appraisals  Selling Costs   6.0% - 10.0%    6.4%
Other Real Estate Owned   1,735   Discounted Cash Flow  Discount Rate   6.3%    6.3%
Other Real Estate Owned   2,993   Internal Valuations  Selling Costs   5.0%    5.0%
    Total Other Real Estate Owned  $18,324                 

 

The carrying values and estimated fair values of the Bank’s financial instruments at June 30, 2020 and December 31, 2019 are presented in the following tables. Fair values for June 30, 2020 and December 31, 2019 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”.

 

 32 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(Dollars in Thousands)  Carrying   Fair Value Measurements at June 30, 2020 
Financial Assets:  Value   Level 1   Level 2   Level 3   Total 
Cash and Cash Equivalents  $189,258   $47,175   $142,083   $-   $189,258 
Securities Available-for-Sale   749,029    -    744,029    5,000    749,029 
Loans Held-for-Sale   9,345    -    -    9,345    9,345 
Portfolio Loans   2,957,344    -    -    2,929,875    2,929,875 
Federal Home Loan Bank Stock, at Cost   5,093    -    -     N/A      N/A  
Other Assets- Interest Rate Derivatives   3,359    -    3,359    -    3,359 
Accrued Interest Receivable   28,861    -    2,861    26,000    28,861 
                          
Financial Liabilities:                         
Deposits  $3,606,707   $662,639   $1,118,283   $1,832,450   $3,613,372 
Other Liabilities- Interest Rate Derivatives   3,607    -    3,607    -    3,607 
FHLB Borrowings   35,000    -    -    35,656    35,656 
Accrued Interest Payable   2,656    -    -    2,656    2,656 

 

(Dollars in Thousands)  Carrying   Fair Value Measurements at December 31, 2019 
Financial Assets:  Value   Level 1   Level 2   Level 3   Total 
Cash and Cash Equivalents  $125,812   $41,386   $84,426   $-   $125,812 
Securities Available-for-Sale   742,617    -    737,617    5,000    742,617 
Loans Held-for-Sale   19,714    -    -    19,714    19,714 
Portfolio Loans   2,884,766    -    -    2,857,986    2,857,986 
Federal Home Loan Bank Stock, at Cost   4,113    -    -    N/A    N/A 
Other Assets- Interest Rate Derivatives   626    -    626    -    626 
Accrued Interest Receivable   13,751    -    3,018    10,733    13,751 
                          
Financial Liabilities:                         
Deposits  $3,504,245   $554,875   $988,964   $1,967,563   $3,511,402 
Other Liabilities- Interest Rate Derivatives   675    -    675    -    675 
FHLB Borrowings   10,000    -    -    9,886    9,886 
Accrued Interest Payable   3,001    -    -    3,001    3,001 

 

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The following table indicates the amounts representing the value of derivative assets and derivative liabilities at June 30, 2020 and December 31, 2019:

 

   Fair Values of Derivative Instruments 
   Asset Derivatives (Included in Other Assets) 
   June 30, 2020   December 31, 2019 
(Dollars in Thousands)  Number of
Transactions
   Notional
Amount
   Fair
Value
   Number of
Transactions
   Notional
Amount
   Fair
Value
 
Derivatives not Designated as Hedging Instruments                        
Interest Rate Lock Commitments – Mortgage Loans   17   $2,444   $7    5   $937   $1 
Interest Rate Swap Contracts – Commercial Loans   18    117,653    3,352    2    18,773    625 
  Total Derivatives not Designated as Hedging Instruments   35   $120,097   $3,359    7   $19,710   $626 

 

 33 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

   Fair Values of Derivative Instruments 
   Liability Derivatives (Included in Other Liabilities) 
   June 30, 2020   December 31, 2019 
(Dollars in Thousands)  Number of
Transactions
   Notional
Amount
   Fair
Value
   Number of
Transactions
   Notional
Amount
   Fair
Value
 
Derivatives not Designated as Hedging Instruments                        
Forward Sale Contracts – Mortgage Loans   17   $2,444   $7    5   $937   $1 
Interest Rate Swap Contracts – Commercial Loans   18    117,653    3,600    2    18,773    674 
     Total Derivatives not Designated as Hedging Instruments   35   $120,097   $3,607    7   $19,710   $675 

 

The following table indicates the loss recognized in income on derivatives for the periods presented:

 

   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30,   June 30,   June 30, 
(Dollars in Thousands)  2020   2019   2020   2019 
Derivatives not Designated as Hedging Instruments                
Interest Rate Lock Commitments – Mortgage Loans  $(5)  $(1)  $6   $- 
Forward Sale Contracts – Mortgage Loans   5    1    (6)   - 
Interest Rate Swap Contracts – Commercial Loans   (108)   (17)   (199)   (27)
     Total Derivative Loss  $(108)  $(17)  $(199)  $(27)

 

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

 

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets for the periods presented:

 

   Asset Derivatives (Included in
Other Assets)
   Liability Derivatives (Included in
Other Liabilities)
 
(Dollars in Thousands)  June 30,
2020
   December 31,
2019
   June 30,
2020
   December 31,
2019
 
Derivatives not Designated as Hedging Instruments                
Gross Amounts Recognized  $3,352   $625   $3,600   $674 
Gross Amounts Offset   -    -    -    - 
Net Amounts Presented in the Consolidated Balance Sheets   3,352    625    3,600    674 
Gross Amounts Not Offset (1)   -    -    (3,420)   (860)
Net Amount  $3,352   $625   $180   $(186)

 

(1)  Amounts represent collateral posted for the periods presented.

 

 34 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 8 – LONG-TERM BORROWINGS

 

Long-term borrowings are for original terms greater than or equal to one year and are comprised of Federal Home Loan Bank (“FHLB”) advances. Our long-term borrowings at the FHLB Atlanta were $35.0 million as of June 30, 2020 and $10.0 million as of December 31, 2019. FHLB borrowings are secured by a blanket lien on select residential mortgages at June 30, 2020. Total loans pledged as collateral were $304.7 million and $284.6 million at June 30, 2020 and December 31, 2019, respectively. There were no securities available-for-sale pledged as collateral at June 30, 2020. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $214.0 million based upon qualifying collateral, to a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of June 30, 2020.

 

The following table represents the balance of long-term borrowings and the weighted average interest rate as of the periods presented:

 

(Dollars in Thousands)  June 30, 2020   December 31, 2019 
Long-term Borrowings  $35,000   $10,000 
Weighted Average Interest Rate   1.13%   1.63%

 

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to June 30, 2020 and thereafter are as follows:

 

       Weighted 
(Dollars in Thousands)  Balance   Average Rate 
1 year  $-    0.00%
2 years   3,000    1.68%
3 years   14,000    1.09%
4 years   10,000    0.94%
5 years   8,000    1.25%
Thereafter   -    0.00%
     Total FHLB Borrowings  $35,000    1.13%

 

NOTE 9 – INCENTIVE AND RESTRICTED STOCK PLAN

 

The Board of Directors of the Bank adopted the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Plan”) on March 29, 2018 based on the recommendation of the Nominating and Compensation Committee (the “Committee”). The Plan became effective on June 27, 2018 and reserves 2,000,000 shares of common stock for issuance. The Plan provides for the grant to key employees and non-employee directors of awards that may include one or more of the following: stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units and performance cash awards (collectively, the “awards”). Subject to accelerated vesting under certain circumstances, the Plan requires a minimum vesting period of one year for awards subject to time-based conditions and a minimum performance period of one year for awards subject to achievement or satisfaction of performance goals. These minimums are applicable to awards other than those granted as part of a retainer for the service of non-employee directors. The Committee will set the vesting period on the awards. No awards may be granted under the Plan more than ten years from the effective date of the Plan.

 

 35 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Restricted Stock

 

The Bank periodically issues restricted stock to non-employee directors, executive officers and employees pursuant to our Plan. As of June 30, 2020, 129,927 restricted shares have been granted under the Plan, 2,887 shares have been forfeited and 36,500 shares have vested.

 

The Bank granted 36,919 and 47,009 restricted shares of common stock to key personnel under the Plan during the six months ended June 30, 2020 and 2019, respectively. Totals grants of restricted stock to key personnel totaled 96,641 shares as of June 30, 2020. Forfeitures of restricted stock were 2,484 and 403 shares during the first six months of 2020 and 2019, respectively. During the first six months of 2020, 15,356 shares of restricted stock vested. No shares of restricted stock vested during the first six months of 2019. These grants were approved by the Committee as compensation for substantial contributions to Bank performance, including contribution during our recent core system conversion. These key personnel restricted shares fully vest three years after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

The Bank granted 16,137 and 17,149 restricted shares of common stock to non-employee directors under the Plan during the six months ended June 30, 2020 and 2019, respectively. Total grants of restricted shares to non-employee directors totaled 33,286 shares as of June 30, 2020. There were no forfeitures of restricted stock during the first six months of 2020 or 2019. During the first six months of 2020, 17,149 shares of restricted stock vested. No shares of restricted stock vested during the first six months of 2019. These grants were approved by the Committee as compensation for Bank performance. These restricted shares were originally approved to fully vest three years after the grant date. However, the Committee approved accelerated vesting of these non-employee director restricted shares in January 2020 to fully vest one year after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

If any award granted under this Plan terminates, expires, or lapses for any reason other than by virtue of exercise or settlement of the award, or if shares issued pursuant to awards are forfeited, any stock subject to such award again shall be available for future awards under the Plan.

 

Compensation expense for restricted shares of stock is recognized ratably over the period of service, generally the entire vesting period, based on fair value on the grant date. During the second quarter of 2020 and 2019, the Bank recognized compensation expense of $223 thousand and $111 thousand, respectively. During the six months ended June 30, 2020 and 2019, respectively, the Bank recognized compensation expense of $575 thousand and $158 thousand.

 

As of June 30, 2020, there was $1.4 million of total unrecognized compensation cost related to restricted stock that will be recognized as compensation expense over a weighted average period of 1.95 years.

 

 36 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following table provides information about restricted stock grants, vesting’s and forfeitures under the Plan for the six months ended June 30, 2020 and the year ended December 31, 2019:

 

       Weighted Average 
       Grant Date 
   Restricted Shares   Fair Value 
Non-vested at December 31, 2018   12,413    17.86 
Granted   64,458    17.39 
Vested   (3,995)   17.86 
Forfeited   (403)   17.86 
Non-vested at December 31, 2019   72,473   $17.44 
Granted   53,056    19.72 
Vested   (32,505)   16.66 
Forfeited/Denials   (2,484)   19.19 
Non-vested at June 30, 2020   90,540   $19.00 

 

NOTE 10 – OFF-BALANCE SHEET ARRANGEMENTS

 

Commitments to extend credit, which amounted to $504.9 million at June 30, 2020 and $488.9 million at December 31, 2019, respectively, represent agreements to lend to customers with fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements. Standby letters of credit are conditional commitments issued by the Bank guaranteeing the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The Bank had outstanding letters of credit in the amount of $31.8 million at June 30, 2020 and $39.5 million at December 31, 2019.

 

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and unconditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.

 

Our allowance for unfunded commitments is determined using a methodology similar to that used to determine the ALL. Amounts are added to the allowance for unfunded commitments through a charge to current earnings in noninterest expense. The balance in the allowance for unfunded commitments was $1.0 million at June 30, 2020 and $0.4 million at December 31, 2019. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The reserve is calculated by applying historical loss rates to our unfunded commitments.

 

 37 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or (“MD&A”), represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations as of and for the three and six month periods ended June 30, 2020 and 2019. Our MD&A should be read in conjunction with our Consolidated Financial Statements and notes thereto. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.

 

Important Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains or incorporates statements that we believe are “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; loan quality; levels of net charge-offs; changes in appraised values of collateral securing loans; the Bank’s liquidity and capital positions; interest rates; 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 Bank's borrowers to satisfy their obligations to the Bank, on the value of collateral securing loans, on the demand for the Bank's loans or its other products and services, on incidents of cyberattack and fraud, on the Bank’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Bank's business operations and on financial markets and economic growth; rates of customer loan payoffs; cyber-security concerns; rapid technological developments and changes; the impact of the information technology systems upgrade; efforts to restructure the balance sheet; 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; our ability to retain existing deposits and attract new deposits; 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; 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 Annual Report on Form 10-K for the year ended December 31, 2019, including Part I, Item 1A, Risk Factors and any of our subsequent filings with the FDIC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Bank cautions 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 the Bank undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement are made.

 

 38 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

  

Critical Accounting Policies and Estimates

  

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2020 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2019 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

Overview

 

Carter Bank & Trust (the “Bank”) is a non-member state Bank headquartered in Martinsville, Virginia with assets of $4.2 billion at June 30, 2020.  The Bank operates branches in Virginia and North Carolina. The Bank provides a full range of financial services with retail, and commercial banking products and insurance. Our common stock began trading on Nasdaq Global Select Market effective March 25, 2019, under the ticker symbol “CARE.” Prior to March 25, 2019, our common stock traded on the Over the Counter (“OTCQX”) Best Market under the ticker symbol “CARE.”

 

The Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. The Bank incurs expenses for the cost of deposits, provision for loan losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

 

Our mission is that the Bank strives to be the preferred lifetime financial partner for our customers and shareholders, and the employer of choice in the communities the Bank is privileged to serve. Our strategic plan focuses on restructuring the balance sheet to provide more diversification and higher yielding assets to increase the net interest margin. Another area of focus is the transformation of the infrastructure of the Bank to provide a foundation for operational efficiency and provide new products and services for our customers that will ultimately increase noninterest income.

 

 39 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Our focus continues to be on loan and deposit growth with a shift in the composition of deposits to more low cost core deposits with less dependence in higher cost certificates of deposits, as well as, implementing opportunities to increase fee income while closely monitoring our operating expenses. The Bank is focused on executing our strategy to successfully build our brand and grow our business in our markets. The Bank’s net interest margin has benefited due to our strategy to deploy our excess cash into higher yielding and diversified investment securities and purchased loans, as well as, the runoff of higher cost deposits.

 

COVID-19 Recent Developments

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act is an emergency stimulus measure providing assistance and relief in a variety of ways to certain individuals, businesses, and industries. The CARES Act established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the PPP. In addition to the general impact of COVID-19, certain provisions of the CARES act as well as other legislative and regulatory relief efforts are expected to have a material impact on our operation. It is impossible to determine the extent of these impacts at the date of this filing; however, we are disclosing potentially material items of which we are aware.

  

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of the Treasury, the FDIC, the FRB and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Bank.

 

Set forth below is a brief overview of certain provisions of the CARES Act and certain other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Such statutes, regulations, and policies are subject to ongoing review by U.S. Congress and federal regulatory authorities. Future amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Bank could have a material effect on the Bank. Many of the requirements called for in the CARES Act and related regulations and supervisory guidance will be implemented over time and most will be subject to implementing regulations over the course of the coming weeks. The Bank will continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

 

FRB Reserve Programs and Initiatives

 

The CARES Act encourages the FRB, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities, including (i) a Midsize Business/Nonprofit Organization Program to provide financing to banks and other lenders to make direct loans to eligible businesses and nonprofit organizations with between 500 and 10,000 employees and (ii) the Municipal Liquidity Facility, provide liquidity to the financial system that supports states and municipalities. On April 9, 2020, the FRB announced and solicited comments regarding the Main Street Lending Program, which would implement certain of these recommendations. Further action regarding the Main Street Lending Program is expected soon.

 

 40 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Separately and in response to COVID-19, the FRB’s Federal Open Market Committee (the “FOMC”) has set the federal funds target rate – i.e., the interest rate at which depository institutions such as the Bank lend reserve balances to other depository institutions overnight on an uncollateralized basis – to an historic low. On March 16, 2020, the FOMC set the federal funds target rate at 0-0.25%. Consistent with FRB policy, the FRB has committed to the use of overnight reverse repurchase agreements as a supplementary policy tool, as necessary, to help control the federal funds rate and keep it in the target range set by the FOMC.

 

In addition, the FRB has expanded the size and scope of three existing programs to mitigate the economic impact of the COVID-19 outbreak: (i) the Primary Market Corporate Credit Facility; (ii) the Secondary Market Corporate Credit Facility; and (iii) the Term Asset-Backed Securities Loan Facility. The FRB has also established two new program facilities – the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility – to broaden its support for the flow of credit to households and businesses during COVID-19.

 

Temporary Regulatory Capital Relief related to Impact of CECL

  

Concurrent with enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement CECL before the end of 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.

 

Temporary Bank Secrecy Act (“BSA”) Reporting Relief

 

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has provided targeted relief from certain BSA reporting requirements and have provided updated guidance to financial institutions on complying with such requirements during COVID-19. Specifically, FinCEN has (i) granted targeted relief to financial institutions participating in the PPP, stating that PPP loans to existing customers will not require re-verification under applicable BSA requirements, unless re-verification is otherwise required under the financial institution’s risk-based BSA compliance program, (ii) acknowledged that there may be “reasonable delays in compliance” due to COVID-19, and (iii) temporarily suspended implementation if its February 2020 ruling, which would have entailed significant changes to currency transaction reporting filing requirements for transactions involving sole proprietorships and entities operating under a “doing business as” or other assumed name.

 

Bank’s Response to COVID-19

 

Lending Operations

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the 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 Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

 41 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank quickly responded to the pandemic and the CARES Act, offering the option of payment deferrals, participation in the PPP, fee waivers and other relief actions to customers. Banks have been identified as essential services and have remained open during the order. The Bank has opened the lobbies of 38 branches effective as of July 6, 2020. However, the Bank continues to serve its customers in the remaining branches through modified hours in both the drive-ins and branch services via appointment. Every opportunity is being taken to protect both customers and employees through enhanced cleaning services, social distancing and personal protective equipment requirements for both. Approximately 20% of the Bank’s workforce is working remotely.

 

Under the CARES Act, PPP is an amendment to the Small Business Administration (“SBA”) 7-A loan program. The Bank recently became an approved SBA 7-A lender. PPP is a guaranteed, unsecured loan program created to fund certain payroll and operating costs of eligible businesses, organizations and self-employed persons during COVID-19.  Initially, $349 billion were approved and designated for PPP in order for the SBA to guarantee 100% of collective loans made under the program to eligible small businesses, nonprofits, veteran’s organizations, and tribal businesses. The Bank participated in the initial round of funding though a referral relationship with a third-party, non-bank lender. When an additional $310 billion in funds were approved and designated for PPP, the Bank opted to stand up an internal, automated loan process utilizing its core system provider. As of June 30, 2020 the Bank had processed either through a third party or internally 970 PPP loans totaling $55.8 million, represented by $15.9 million and $39.9 million processed in round one and round two, respectively.

 

The FRB implemented a liquidity facility available to financial institutions participating in the PPP.  We believe we have sufficient liquidity sources to fund all pending PPP loans and to continue to provide this important service to local businesses.  These loans are fully guaranteed by the SBA and do not represent a credit risk.

 

The Bank is providing deferrals to customers under Section 4013 of the CARES Act, which suspends the requirement to categorize these deferrals as TDRs. These deferrals may provide deferrals of both principal and interest for up to 180 days. At the end of the deferral period, for loan terms, payments will be applied to accrued interest first and will resume principal payments once accrued interest is current. In the event deferred principal is not paid current during the remaining term of the loan, it will be due at maturity. For interest only loans, such as lines of credit, deferred interest will be due at maturity. As of June 30, 2020, we have had 958 commercial and consumer customers opt for deferrals with an aggregate principal balance of $1.2 billion with $32.4 million in deferred principal and interest payments. Approximately $462.6 million of these modifications were in the hospitality industry comprised of deferrals on 85 loans. The average deferment period for these customers has been 4.7 months.

 

 42 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table provides detail of the Bank’s deferred payments.

 

               Weighted     
               Average     
   Number   Loan   Percent of   Deferment   Total Deferred  
(Dollars in Thousands)  of Loans   Principal   Outstanding   Period   Principal   Interest 
Commercial                              
Commercial Real Estate   255   $848,935    61.8%   4.15   $9,778   $14,988 
Commercial and Industrial   106    93,215    33.4%   3.11    1,513    1,080 
Obligations of State and Political Subdivisions   -    -    0.0%   -    -    - 
Commercial Construction   33    169,621    45.3%   3.61    652    2,248 
Total Commercial Loans   394    1,111,771    47.0%   3.98    11,943    18,316 
Consumer                              
Residential Mortgages   171    95,721    18.8%   3.58    526    1,157 
Other Consumer   393    4,213    6.0%   2.48    352    69 
Consumer Construction   -    -    0.0%   -    -    - 
Total Consumer Loans   564    99,934    16.9%   3.53    878    1,226 
Total Deferred Payments   958   $1,211,705    41.0%   3.94   $12,821   $19,542 

  

Our interest income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. Interest and fees will still accrue to income through normal GAAP accounting. Should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

 

The Bank’s exposure to hospitality at June 30, 2020 equated to approximately $498.3 million, or 16.9% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to operate at occupancy levels below breakeven which has caused, or will continue to cause, them to draw on their existing lines of credit with other financial institutions or other sources of liquidity and may adversely affect their ability to repay existing indebtedness. These developments, together with the current economic conditions generally, may impact the value of real estate collateral in hospitality and other commercial real estate exposure. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected

 

The allowance for loan loss at June 30, 2020 includes an increase in qualitative loss factors as a result of the projected economic impact of COVID-19 of $6.0 million. The Bank 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.

 

 43 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Retail Operations

 

The Bank will continue to promote our digital banking options through our website. Customers are encouraged to utilize online and mobile banking tools, and our customer service and retail departments are fully staffed and available to assist customers remotely.

 

We initially closed all branches to customer activity, except for drive-up and appointment only services. However, we have now opened the lobbies of 38 branches as of July 6, 2020 and we are currently evaluating a plan to open the remainder of our branches. We continue to pay all employees according to their normal work schedule, even if their work has been reduced. No employees have been furloughed. Employees whose job responsibilities can be effectively carried out remotely are working from home. Employees whose critical duties require their continued presence on-site are observing social distancing and cleaning protocols.

 

Our fee income has been impacted to COVID-19 approximating $1.3 million. In keeping with guidance from regulators, we are actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees and account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. We expect fee waivers to slow beginning in the third quarter of 2020. The breadth of the economic impact is likely to continue to impact our fee income in future periods.

  

Capital Resources and Liquidity

 

As of June 30, 2020, all of the Bank’s capital ratios were in excess of all regulatory requirements. An extended economic recession brought about by COVID-19 could adversely impact our reported regulatory capital ratios.

 

We maintain access to multiple sources of liquidity. Funding sources accessible to the Bank include borrowing availability at the FHLB, equal to 25% of the Bank’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 $115.0 million and access to the institutional CD market through brokered CDs and brokered CD market. In addition to the above resources, the Bank also has $624.5 million of unpledged available-for-sale securities as an additional source of liquidity at June 30, 2020. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

 

The Bank is monitoring and will continue to monitor the impact of the COVID-19 pandemic and has taken and will continue to take steps to mitigate the potential risks and impact on our liquidity and capital resources. Due to the economic uncertainty, we are taking a prudent approach to capital management and have established access to the FRB’s PPP Lending Facility.

 

Goodwill and Other Intangibles

 

At June 30, 2020, the Bank considered the on-going economic market disruption, the movement of the Bank’s stock price in relation to other bank indexes and the length of time that the market value of the reporting unit has been below its book value as triggering events and has completed a quantitative analysis to assess whether or not goodwill was impaired. The analysis estimated fair value of the reporting unit to be $527.7 million, or $20.00 per share and the Bank has concluded that goodwill was not impaired at June 30, 2020.

 

 44 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The determination of the fair value of the reporting unit incorporates assumptions that marketplace participants would use in their estimates of fair value in a change in control transaction, as prescribed by ASC Topic 820.  To arrive at a conclusion of fair value, we utilized both the income approach and the market approach and then applied weighting factors to each approach.  Weighting factors represent our best business judgement of the weightings a market participant would utilize in arriving at fair value of the reporting unit.  In performing the analysis, Bank management made numerous assumptions with respect to industry performance, reporting unit business performance, economic and market conditions and various other matters, many of which require significant management judgement.  Projections related to business unit performance over the next five years assumed an economic downturn over a 12-month time horizon subsequently returning to conservative positive growth rates in loan and deposits after that time period.  The analysis performed and the assumptions that are incorporated into the analysis reflect the best currently available estimates and judgements as to the expected future financial performance of the reporting unit.

 

Further and sustained declines in the Bank’s stock price, may require further quantitative and qualitative analysis and could result in an impairment charge being recorded for that period. In the event that the Bank concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

 

Earnings Summary

 

Net income decreased $3.3 million, or 43.1%, for the three months ended June 30, 2020 as compared to the same period in 2019. Net income for the three months ended June 30, 2020 was $4.5 million, or $0.17 diluted earnings per share, as compared to $7.8 million, or $0.30 diluted earnings per share, for the same period in 2019. The decrease in net income for the three month period ended June 30, 2020 was primarily due to an increase of $4.1 million in the provision for loan losses. Included in the provision for loan losses was an increase in qualitative loss factors as a result of the projected economic impact of COVID-19 of $3.4 million, or $(0.10) per share, during the second quarter of 2020. Net income decreased $6.5 million, or 42.2%, for the six months ended June 30, 2020 as compared to the same period in 2019. Net income for the six months ended June 30, 2020 was $8.9 million, or $0.34 diluted earnings per share, as compared to $15.4 million, or $0.58 diluted earnings per share, for the same period in 2019. The decrease in net income for the six month period ended June 30, 2020 was primarily due to an increase of $7.3 million in the provision for loan losses. Included in the provision for loan losses was an increase in qualitative loss factors as a result of the projected economic impact of COVID-19 of $6.0 million, or $(0.18) per share, during the first half of 2020.

 

Net interest income decreased $1.7 million, or 6.1%, to $26.3 million during the second quarter of 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, decreased 23 basis points to 2.79% in the second quarter of 2020 over the 2019 comparison. Net interest income decreased $2.3 million, or 4.2%, for the six months ended June 30, 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, declined 18 basis points to 2.88% over the past twelve months. The decreases in short-term interest rates had a negative impact on both net interest income and the net interest margin, but are offset by a lower cost of funds. The yield on interest-earning assets decreased 35 basis points, offset by an 18 basis point decline in funding costs as compared to the same period of 2019. Net interest margin is reconciled to net interest income adjusted to a fully taxable equivalent basis (“FTE”) below in the “Net Interest Income” section of this Management Discussion and Analysis (“MD&A”).

 

 45 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The provision for loan losses totaled $5.5 million for the quarter ended June 30, 2020 as compared to $1.4 million for the same period of 2019, an increase of $4.1 million or 299.8%. For the six months ended June 30, 2020 and 2019, respectively, the provision for loan losses totaled $10.3 million and $3.0 million, an increase of $7.3 million or 242.8%. Included in the provision expense for the quarter ended June 30, 2020 is the impact of increases in qualitative loss factors of $3.4 million, driven by economic and market conditions as a result of COVID-19. Included in the provision expense for the six month period ended June 30, 2020 is the impact of increases in qualitative loss factors totaling $6.0 million as a result of COVID-19. As part of the process to adjust qualitative factors in response to COVID-19, we considered the loss rates we experienced during the last economic downturn, the level of loan deferrals in the loan portfolio and industries we considered at risk to determine the necessary level of probable incurred loss.

 

At June 30, 2020, nonperforming loans were $40.6 million as compared to $42.1 million at December 31, 2019, a decrease of $1.5 million, or 3.6%. Net charge-offs were $1.6 million in the first six months of 2020 as compared to $2.2 million in the same period of 2019. As a percentage of total portfolio loans, on an annualized basis, net charge-offs were 0.11% and 0.15% for the six month periods ending June 30, 2020 and 2019, respectively.

 

Nonperforming loans as a percentage of total portfolio loans were 1.37%, 1.46% and 1.57% as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

 

Noninterest income increased $0.2 million, or 5.7%, to $3.9 million, excluding net securities gains, for the three months ending June 30, 2020 as compared to the same period of 2019. Noninterest income increased $2.2 million, or 30.4%, to $9.5 million from $7.3 million, excluding net securities gains, for the six months ending June 30, 2020 as compared to the same period in 2019. The increase in the six month comparison was primarily due to $1.5 million of commercial loan swap fee income due to the high demand for this product in the current rate environment, $1.0 million of higher insurance commissions, $0.2 million of higher debit card interchange fees, all offset by lower service charges on deposit accounts of $0.3 million due to COVID-19 waivers and OREO income of $0.3 million. OREO income declined due to the sale of several large commercial properties that generated income.

 

Securities gains of $3.5 million and $0.9 million were realized during the first six months of 2020 and 2019, respectively, to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Total noninterest expense increased $0.2 million, or 0.8%, for the second quarter of 2020 to $23.0 million as compared to $22.8 million in the same period of 2019. Total noninterest expense increased $2.9 million, or 6.4%, to $47.6 million for the first six months of 2020 as compared to the same period of 2019. The increase in the six month comparison was primarily driven by salaries and employee benefits and occupancy expenses in the amounts of $1.2 million and $1.0 million, respectively. Other increases include $0.5 million in advertising, $0.4 million in unfunded loan commitment expense, and $0.2 million in legal and professional fees. Offsetting these increases were decreases of $0.6 million in tax credit amortization expense and $0.5 million in debit card and data processing expense.

 

 46 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The (benefit) provision for income taxes was $(0.5) million in the second quarter of 2020 as compared to $0.5 million during the same period of 2019. The (benefit) provision for income taxes was $(0.2) million for the six months ended June 30, 2020 as compared to $0.9 million during the same period of 2019.

 

The effective tax rate for the second quarter of 2020 and 2019 was negative 12% and 6%, respectively. The effective tax rate for the six month periods ended June 30, 2020 and 2019 was negative 3% and 6%, respectively. The Bank ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects, which are relatively consistent regardless of the level of pretax income.

 

Explanation of Use of Non-GAAP Financial Measures

 

In addition to the results of operations presented in accordance with generally accepted accounting principles, or GAAP, in the United States, management uses, and this quarterly report references, net interest income on a fully taxable equivalent, or (“FTE”), basis, which is a non-GAAP financial measure. Management believes this measure provides information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies.

 

The Bank believes the presentation of net interest income on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Net interest income per the Consolidated Statements of Income is reconciled to net interest income adjusted to an FTE basis in the Net Interest Income section of the "Results of Operations – Three and Six Months Ended June 30, 2020 Compared to Three and Six Months Ended June 30, 2019".

  

RESULTS OF OPERATIONS

 

Three and Six Months Ended June 30, 2020 Compared to Three and Six Months Ended June 30, 2019

 

Net Interest Income

 

Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee (“ALCO”) in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Bank believes is an acceptable level of net interest income.

 

 47 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal corporate tax rate for each period (which was 21% for all periods presented) and the dividend-received deduction for equity securities. The Bank believes this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.

 

The following table reconciles net interest income per the Consolidated Statements of Income to net interest income on an FTE basis for the periods presented:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30,   June 30,   June 30, 
(Dollars in Thousands)  2020   2019   2020   2019 
Total Interest Income  $35,617   $40,068   $73,453   $79,207 
Total Interest Expense   9,355    12,113    19,927    23,356 
Net Interest Income   26,262    27,955    53,526    55,851 
Adjustment to FTE Basis   626    816    1,227    1,726 
Net Interest Income (FTE) (non-GAAP)  $26,888   $28,771   $54,753   $57,577 
Net Interest Margin   2.72%   2.93%   2.81%   2.97%
Adjustment to FTE Basis   0.07%   0.09%   0.07%   0.09%
Net Interest Income (FTE) (non-GAAP)   2.79%   3.02%   2.88%   3.06%

 

Net interest income, on a fully taxable equivalent basis, decreased $1.9 million, or 6.5%, and decreased $2.8 million, or 4.9%, in the three and six month ending June 30, 2020 as compared to the same periods of 2019. Interest income, on a fully taxable equivalent basis, decreased $4.6 million and interest expense decreased $2.7 million in the second quarter of 2020 as compared to the same period of 2019. Interest income, on a fully taxable equivalent basis, decreased $6.2 million and interest expense decreased $3.4 million in the second quarter of 2020 as compared to the same period of 2019. The decreases in short-term interest rates had a negative impact on both net interest income and the net interest margin, but are offset by a lower cost of funds. The net interest margin, on a fully taxable equivalent basis, decreased 23 basis points to 2.79% in the three months ending June 30, 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, decreased 18 basis points over the past twelve months, primarily due to the lower interest rate environment. The lower interest rate environment and the intentional runoff of higher cost certificates of deposits helped to lower the overall cost of funds.

 

 48 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented:

 

Average Balance Sheet and Net Interest Income Analysis (FTE)

 

   Three Months Ended June 30, 2020   Three Months Ended June 30, 2019 
(Dollars in Thousands)  Average
Balance
   Income/
Expense
   Rate   Average
Balance
   Income/
 Expense
   Rate 
ASSETS                              
Interest-Bearing Deposits with Banks  $106,710   $26    0.10%  $127,377   $763    2.40%
Tax-Free Investment Securities   49,633    416    3.35%   91,148    795    3.50%
Taxable Investment Securities   685,468    3,594    2.09%   737,949    4,283    2.33%
Tax-Free Loans   322,739    2,563    3.17%   387,053    3,088    3.20%
Taxable Loans   2,651,873    29,577    4.44%   2,473,376    31,929    5.18%
Federal Home Loan Bank Stock   5,093    67    5.23%   1,581    26    6.60%
     Total Interest-Earning Assets  $3,821,516   $36,243    3.77%  $3,818,484   $40,884    4.29%
                               
LIABILITIES                              
Deposits:                              
     Interest-Bearing Demand  $297,815   $242    0.33%  $257,754   $595    0.93%
     Money Market   183,542    211    0.46%   136,271    517    1.52%
     Savings   592,193    157    0.11%   586,923    498    0.34%
     Certificates of Deposit   1,845,294    8,627    1.88%   2,075,899    10,483    2.03%
          Total Interest-Bearing Deposits  $2,918,844   $9,237    1.27%  $3,056,847   $12,093    1.59%
Borrowings:                              
     FED Funds Purchased   -    -    -    -    -    - 
     FHLB Borrowings   35,000    100    1.13%   -    -    - 
    Other Borrowings   1,245    18    5.58%   1,029    20    7.80%
          Total Borrowings   36,245    118    1.28%   1,029    20    7.80%
               Total Interest-Bearing Liabilities  $2,955,089   $9,355    1.27%  $3,057,876   $12,113    1.59%
Net Interest Income       $26,888             $28,771      
Net Interest Margin             2.79%             3.02%

 

 49 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

   Six Months Ended June 30, 2020   Six Months Ended June 30, 2019 
(Dollars in Thousands)  Average
Balance
   Income/
 Expense
   Rate   Average
Balance
   Income/
Expense
   Rate 
ASSETS                              
Interest-Bearing Deposits with Banks  $84,836   $236    0.55%  $149,643   $1,784    2.40%
Tax-Free Investment Securities   35,543    620    3.49%   100,997    1,813    3.62%
Taxable Investment Securities   698,786    8,096    2.31%   719,770    8,405    2.35%
Tax-Free Loans   330,298    5,223    3.16%   394,021    6,402    3.28%
Taxable Loans   2,618,395    60,374    4.58%   2,434,977    62,503    5.18%
Federal Home Loan Bank Stock   4,755    131    5.52%   795    26    6.60%
     Total Interest-Earning Assets  $3,772,613   $74,680    3.94%  $3,800,203   $80,933    4.29%
                               
LIABILITIES                              
Deposits:                              
     Interest-Bearing Demand  $297,605   $688    0.46%  $264,447   $1,235    0.94%
     Money Market   169,053    481    0.57%   113,562    760    1.35%
     Savings   577,453    302    0.11%   596,566    984    0.33%
     Certificates of Deposit   1,882,067    18,261    1.95%   2,087,216    20,337    1.96%
          Total Interest-Bearing Deposits  $2,926,178   $19,732    1.36%  $3,061,791   $23,316    1.54%
Borrowings:                              
     FED Funds Purchased   110    1    1.62%   -    -    - 
     FHLB Borrowings   26,209    159    1.20%   -    -    - 
    Other Borrowings   1,363    35    5.16%   692    40    11.66%
          Total Borrowings   27,682    195    1.40%   692    40    11.66%
               Total Interest-Bearing Liabilities  $2,953,860   $19,927    1.36%  $3,062,483   $23,356    1.54%
Net Interest Income       $54,753             $57,577      
Net Interest Margin             2.88%             3.06%

 

Interest income, on a fully taxable equivalent basis, decreased $4.6 million, or 11.4%, and decreased $6.2 million, or 7.7%, respectively, for the three and six months ended June 30, 2020, as compared to the same periods in 2019. The decrease is primarily due to balance sheet repricing driven by the impact of the lower interest rate environment. The overall rate earned on interest-bearing deposits with banks decreased by 2.30% and 1.85%, respectively, for the three and six months ended June 30, 2020 as compared to the same periods of 2019. The Bank is currently maintaining higher liquidity levels as a result of COVID-19. Income on tax-free investment securities declined primarily due to a decrease in volume. Taxable investment securities volume declined $52.5 million and $21.0 million, respectively, in the quarter over quarter and six month comparisons. An additional contributing factor to the decline in income of both tax-free investments and taxable investment securities is a decline in rates. Tax-free loan volume decreased by $64.3 million and $63.7 million, respectively, in the three and six months ended June 30, 2020 as compared to the same period of 2019. Taxable loan volume increased $178.5 million and $183.4 million, respectively, but interest income was offset by a decline in rate of 74 basis points and 60 basis points, respectively, for the three and six month comparison of June 30, 2020 to 2019. The overall rate earned on total interest-earning assets decreased by 52 basis points and 35 basis points in the three and six month comparisons June 30, 2020 as compared to the same period of 2019.

 

 50 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Interest expense decreased $2.7 million, or 22.8%, and decreased $3.4 million, or 14.7%, respectively, for the three and six months ended June 30, 2020, as compared to the same periods in 2019. These decreases were primarily due to a decrease in all categories of deposits. The decrease in expense of interest-bearing demand deposits, money market accounts, and savings accounts was primarily driven by a decrease in the rates of these products in the three and six month comparisons ended June 30, 2020 as compared to 2019. However, the decrease in expense of certificates of deposits was driven by a decrease in rates and volume in the second quarter of 2020 as compared to the same period of 2019. The decrease in expense of this same category was driven by a $2.6 million decrease in volume, offset by a $0.5 million increase in rates during the six month comparison of 2020 as compared to the same period of 2019. The average balance of certificates of deposits decreased $230.6 million and $205.1 million, respectively, in the three and six months ended June 30, 2020 as compared to the same period of 2019 primarily due to the intentional runoff of these higher cost deposits. The overall rate on these certificates of deposits decreased 15 basis points in the quarterly comparison, but decreased 1 basis point in the six month comparison.

 

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:

 

   Three Months ended June 30, 2020 
   compared to June 30, 2019 
(Dollars in Thousands)  Increase/
(Decrease)
   Increase/(Decrease)
Rate
   Increase/(Decrease)
Volume
 
ASSETS               
Interest-Bearing Deposits with Banks  $(737)  $(630)  $(107)
Tax-Free Investment Securities   (379)   (33)   (346)
Taxable Investment Securities   (689)   (408)   (281)
Tax-Free Loans   (525)   (28)   (497)
Taxable Loans   (2,352)   (4,626)   2,274 
Federal Home Loan Bank Stock   41    (6)   47 
     Total Interest-Earning Assets  $(4,641)  $(5,731)  $1,090 
                
LIABILITIES               
Deposits:               
     Interest-Bearing Demand  $(353)  $(434)  $81 
     Money Market   (306)   (444)   138 
     Savings   (341)   (345)   4 
     Certificates of Deposit   (1,856)   (741)   (1,115)
          Total Interest-Bearing Deposits   (2,856)   (1,964)   (892)
Borrowings:               
     FED Funds Purchased   -    -    - 
     FHLB Borrowings   100    -    100 
    Other Borrowings   (2)   (6)   4 
          Total Borrowings   98    (6)   104 
               Total Interest-Bearing Liabilities  $(2,758)  $(1,970)  $(788)
Net Interest Income  $(1,883)  $(3,761)  $1,878 

 

 51 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

   Six Months ended June 30, 2020 
   compared to June 30, 2019 
(Dollars in Thousands)  Increase/
(Decrease)
   Increase/(Decrease)
Rate
   Increase/(Decrease)
Volume
 
ASSETS               
Interest-Bearing Deposits with Banks  $(1,548)  $(991)  $(557)
Tax-Free Investment Securities   (1,193)   (63)   (1,130)
Taxable Investment Securities   (309)   (114)   (195)
Tax-Free Loans   (1,179)   (218)   (961)
Taxable Loans   (2,129)   (7,000)   4,871 
Federal Home Loan Bank Stock   105    (5)   110 
     Total Interest-Earning Assets  $(6,253)  $(8,391)  $2,138 
                
LIABILITIES               
Deposits:               
     Interest-Bearing Demand  $(547)  $(510)  $(37)
     Money Market   (279)   (329)   50 
     Savings   (682)   (641)   (41)
     Certificates of Deposit   (2,076)   480    (2,556)
          Total Interest-Bearing Deposits   (3,584)   (1,000)   (2,584)
Borrowings:               
     FED Funds Purchased   1    -    1 
     FHLB Borrowings   159    -    159 
    Other Borrowings   (5)   (30)  $25 
          Total Borrowings   155    (30)   185 
               Total Interest-Bearing Liabilities  $(3,429)  $(1,030)  $(2,399)
Net Interest Income  $(2,824)  $(7,361)  $4,537 

 

Provision for Loan Losses

 

The provision for loan losses is the amount to be added to the allowance for loan losses, or (“ALL”), after considering loan charge-offs and recoveries, to bring the ALL to a level determined to be appropriate in management's judgment to absorb probable losses inherent in the loan portfolio.

 

The provision for loan losses totaled $10.3 million and $3.0 million for the six month period ended June 30, 2020 and 2019. The Bank was subject to the adoption of the CECL accounting method under FASB Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326). However, the Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020. Included in the provision expense for the six months ended June 30, 2020 is the impact of an increase in qualitative loss factors as a result of the projected economic impact of COVID-19 of $6.0 million, or $(0.18) per share. This represents a 242.8% increase in the provision expense as compared to the same period of 2019. The Bank 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. An additional contributing factor to the increase in provision for loan loss expense is an increase in specific reserves of $1.7 million at June 30, 2020 as compared to December 31, 2019.

 

 52 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Net charge-offs were $1.6 million in the first six months of 2020 as compared to $2.2 million in the same period of 2019. As a percentage of total portfolio loans, on an annualized basis, net charge-offs were 0.11% and 0.15% for the six month periods ending June 30, 2020 and 2019, respectively.

 

Nonperforming loans decreased $1.5 million at June 30, 2020, to $40.6 million, as compared to $42.1 million at December 31 2019. The allowance for loan losses was 116.8% of nonperforming loans as of June 30, 2020, as compared to 92.0% of nonperforming loans as of December 31, 2019.

 

The ALL was $47.4 million at June 30, 2020, as compared to $38.8 million at December 31, 2019. The ALL as a percentage of total portfolio loans was 1.60% at June 30, 2020 and 1.34% at December 31, 2019. General reserves as a percentage of portfolio total loans were 1.33% at June 30, 2020, as compared to 1.13% as of December 31, 2019. Specific reserves increased by $1.7 million to $7.9 million at June 30, 2020 as compared to $6.2 million at December 31, 2019.

 

Loans past due 30 to 89 days decreased to $2.8 million at June 30, 2020 as compared to $4.1 million at December 31, 2019. Total past dues on commercial loans remained relatively unchanged; however, total past dues on consumer loans decreased by $1.3 million in the residential mortgages and other consumer categories.

 

Noninterest Income

 

   Three Months Ended June 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Gains on Sales of Securities, net  $2,321   $211   $2,110    1,000.0%
Service Charges, Commissions and Fees   190    892    (702)   (78.7)%
Debit Card Interchange Fees   1,468    1,320    148    11.2%
Insurance   332    369    (37)   (10.0)%
Bank Owned Life Insurance Income   350    356    (6)   (1.7)%
Gains on Sales of Other Real Estate Owned, net   137    -    137    N/M 
Gains on Sales of Bank Premises, net   -    178    (178)   N/M 
Other Real Estate Owned Income   82    231    (149)   (64.5)%
Commercial Loan Swap Fee Income   1,125    -    1,125    N/M 
Other   196    324    (128)   (39.5)%
     Total Noninterest Income  $6,201   $3,881   $2,320    59.8%

NM - percentage not meaningful          

 

 53 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

   Six Months Ended June 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Gains on Sales of Securities, net  $3,535   $940   $2,595    276.1%
Service Charges, Commissions and Fees   1,840    2,118    (278)   (13.1)%
Debit Card Interchange Fees   2,711    2,494    217    8.7%
Insurance   1,641    643    998    155.2%
Bank Owned Life Insurance Income   703    717    (14)   (2.0)%
Gains on Sales of Bank Premises, net   -    8    (8)   N/M 
Other Real Estate Owned Income   221    521    (300)   (57.6)%
Commercial Loan Swap Fee Income   1,548    -    1,548    N/M 
Other   817    772    45    5.8%
     Total Noninterest Income  $13,016   $8,213   $4,803    58.5%

NM - percentage not meaningful          

 

Noninterest income increased $0.2 million, or 5.7%, to $3.9 million, excluding net securities gains, for the three months ending June 30, 2020 as compared to the same period of 2019. Noninterest income increased $2.2 million, or 30.4%, to $9.5 million from $7.3 million, excluding net securities gains, for the six months ending June 30, 2020 as compared to the same period in 2019. The increase was primarily due to commercial loan swap fee income of $1.1 million and $1.5 million in the three and six month periods ended June 30, 2020 as compared to the same periods in 2019, respectively, due to the high demand for this product in the current low interest rate environment. Also contributing to the increase in the six month comparison is an increase of $1.0 million in insurance income related to the adoption of ASU 2014-09, Topic 606, Revenue from Contracts with Customers, by our provider. Debit card interchange fees increased by $0.1 million and $0.2 million in the three and six month periods ended June 30, 2020, respectively, as compared to the same periods in 2019. Offsetting these increases were decreases in service charges, commissions and fees of $0.7 million and $0.3 million in the three and six month comparisons of 2020, respectively, as compared to the same periods of 2019 due to COVID-19 waivers. OREO income declined due to the sale of several large commercial properties that generated income. This resulted in a decrease of $0.1 million and $0.3 million, respectively, in the three and six months period comparisons of 2020 as compared to the same periods of 2019. In addition, gains on sales of bank premises, net decreased by $0.2 million in the second quarter of 2020 comparison to 2019.

 

 54 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Noninterest Expense

 

   Three Months Ended June 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Salaries and Employee Benefits  $12,489   $12,809   $(320)   (2.5)%
Occupancy Expense, net   3,415    2,836    579    20.4%
FDIC Insurance Expense   537    433    104    24.0%
Other Taxes   788    711    77    10.8%
Advertising Expense   400    326    74    22.7%
Telephone Expense   573    562    11    2.0%
Professional and Legal Fees   1,399    980    419    42.8%
Data Processing   595    469    126    26.9%
Losses on Sales and Write-downs of Other Real Estate Owned, net   -    88    (88)   N/M 
Losses on Sales and Write-downs of Bank Premises, net   59    -    59    N/M 
Debit Card Expense   671    830    (159)   (19.2)%
Tax Credit Amortization   272    563    (291)   (51.7)%
Unfunded Loan Commitment Expense   (383)   173    (556)   (321.4)%
Other Real Estate Owned Expense   177    (31)   208    N/M 
Other   2,031    2,085    (54)   (2.6)%
     Total Noninterest Expense  $23,023   $22,834   $189    0.8%

NM - percentage not meaningful          

 

   Six Months Ended June 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Salaries and Employee Benefits  $26,070   $24,844   $1,226    4.9%
Occupancy Expense, net   6,664    5,663    1,001    17.7%
FDIC Insurance Expense   1,081    1,147    (66)   (5.8)%
Other Taxes   1,534    1,354    180    13.3%
Advertising Expense   1,006    497    509    102.4%
Telephone Expense   1,147    1,067    80    7.5%
Professional and Legal Fees   1,836    1,629    207    12.7%
Data Processing   1,081    1,219    (138)   (11.3)%
Losses on Sales and Write-downs of Other Real Estate Owned, net   52    276    (224)   (81.2)%
Losses on Sales and Write-downs of Bank Premises, net   71    -    71    N/M 
Debit Card Expense   1,225    1,540    (315)   (20.5)%
Tax Credit Amortization   544    1,126    (582)   (51.7)%
Unfunded Loan Commitment Expense   599    218    381    174.8%
Other Real Estate Owned Expense   317    66    251    N/M 
Other   4,407    4,128    279    6.8%
     Total Noninterest Expense  $47,634   $44,774   $2,860    6.4%

NM - percentage not meaningful          

 

Total noninterest expense increased $0.2 million, or 0.8%, in the second quarter of 2020 to $23.0 million as compared to $22.8 million in the same period of 2019. Total noninterest expense increased $2.9 million, or 6.4%, to $47.6 million for the first six months of 2020 as compared to the same period of 2019. The increase in the six month comparison was primarily driven by salaries and employee benefits and occupancy expenses. The increase of $1.2 million in salaries and employee benefits were primarily attributable to a $0.8 million increase of normal merit increases and a $0.4 million decrease in salary deferrals on new loan originations in the first six months of 2020. There have not been any permanent or temporary reductions in employees as a result of COVID-19. The $1.0 million increase in occupancy expense is a result of higher depreciation for software and equipment for ancillary products and services. Occupancy expenses increased by $0.6 million in the second quarter comparison of 2020 as compared to the same period in 2019. Advertising expense increased by $0.1 million and $0.5 million, respectively, in the three and six month comparisons of 2020 as compared to the same period of 2019 due to our deposit acquisition strategy. Unfunded loan commitment expense increased $0.4 million in the six month comparison of 2020 to 2019, but decreased $0.6 million in the second quarter comparison. During the first quarter of 2020, several new commitments were approved and there were increased commitments on existing lines of credit. However, total unfunded commitments are down during the second quarter of 2020 as compared to the first quarter of 2020. This decrease, which resulted in a quarterly negative expense, is primarily due to slowed loan demand as a result of COVID-19 and the ongoing funding mechanism on construction draws. Tax credit amortization expense decreased $0.3 million and $0.6 million, respectively, in the three and six month periods ending June 30, 2020 as compared to the same periods of 2019. Legal and professional fees increased $0.4 million and $0.2 million in the three and six months ended June 30, 2020 as compared to the same periods of 2019, respectively. Debit card and data processing expenses decreased $0.5 million collectively in the first six months of 2020 as compared to the same period of 2019.

 

 55 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Provision for Income Taxes

 

The (benefit) provision for income taxes was $(0.5) million in the second quarter of 2020 as compared to $0.5 million during the same period of 2019. The (benefit) provision for income taxes was $(0.2) million for the six months ended June 30, 2020 as compared to $0.9 million during the same period of 2019.

 

We applied the “annual effective tax rate approach” to determine the provision for income taxes, which applies an annual forecast of tax expense as a percentage of expected full year income, for the three and six months ended June 30, 2020 and 2019. This results in a tax benefit due to tax-exempt income comprised a higher percentage of pre-tax income as of June 30, 2020.

 

The effective tax rate for the second quarter of 2020 and 2019 was negative 12% and 6%, respectively. The effective tax rate for the six month periods ended June 30, 2020 and 2019 was negative 3% and 6%, respectively. The Bank ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects, which are relatively consistent regardless of the level of pretax income.

 

Financial Condition

 

June 30, 2020

 

Total assets were $4.2 billion as of June 30, 2020 and $4.0 billion at December 31, 2019. Total portfolio loans increased $72.6 million, or 5.0% on an annualized basis, to $3.0 billion as of June 30, 2020 as compared to December 31, 2019. Nonperforming loans decreased $1.5 million to $40.6 million, or 3.6%, as of June 30, 2020 as compared to $42.1 million at December 31, 2019. OREO decreased $1.1 million at June 30, 2020 as compared to December 31, 2019. The book value of closed retail offices, included in OREO, declined $0.5 million from December 31, 2019 and have a remaining book value of $2.5 million at June 30, 2020.

 

 56 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Federal Reserve Bank excess reserves increased $96.0 million at June 30, 2020 as compared to December 31, 2019 due to maintaining higher liquidity levels as a result of COVID-19.

 

The securities portfolio increased $6.4 million from December 31, 2019 and currently comprises 18.0% of total assets at June 30, 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 $102.5 million to $3.6 billion as of June 30, 2020 as compared to December 31, 2019. Core deposits, including noninterest-bearing and interest-bearing demand deposits, money market accounts and savings, increased by $237.1 million, or 15.4%, as compared to December 31, 2019. Offsetting these increases was the intentional runoff of $134.6 million of higher cost certificates of deposits. Noninterest-bearing deposits comprised 18.4% and 15.8% of total deposits at June 30, 2020 and December 31, 2019, respectively.

 

The allowance for loan losses was 1.60% of total portfolio loans as of June 30, 2020, as compared to 1.34% as of December 31, 2019. General reserves as a percentage of total portfolio loans were 1.33% at June 30, 2020, as compared to 1.13% as of December 31, 2019. Included in the allowance is an increase in qualitative loss factors as a result of the projected economic impact of COVID-19 of $6.0 million. The allowance for loan losses was 116.8% of nonperforming loans as of June 30, 2020 as compared to 92.0% of nonperforming loans as of December 31, 2019. 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 decreased to 13.32% as of June 30, 2020, as compared to 13.58% as of December 31, 2019. The Bank’s leverage ratio was 10.30% at June 30, 2020, as compared to 10.33% as of December 31, 2019. The Bank’s Total Risk-Based Capital ratio was 14.57% at June 30, 2020, as compared to 14.83% at December 31, 2019.

 

Securities Activity

 

The following table presents the composition of available-for-sale securities:

 

(Dollars in Thousands)  June 30, 2020   December 31, 2019   $ Change 
Residential Mortgage-Backed Securities  $54,414   $52,644   $1,770 
Commercial Mortgage-Backed Securities   10,883    19,006    (8,123)
Asset Backed Securities   118,600    109,639    8,961 
Collateralized Mortgage Obligations   239,278    292,224    (52,946)
Small Business Administration   98,117    105,736    (7,619)
States and Political Subdivisions   209,205    148,480    60,725 
Corporate Notes   18,532    14,888    3,644 
Total Debt Securities  $749,029   $742,617   $6,412 

 

The Bank invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to the Bank. Security purchases are subject to our Investment Policy approved annually by our Board of Directors and administered through ALCO and our treasury function.

 

 57 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The securities portfolio increased $6.4 million, or 0.9%, and is currently 18.0% of total assets at June 30, 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.

 

The Bank’s entire securities portfolio is classified as available-for-sale, which allows for greater flexibility in using the securities portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exist. Sales of securities, which resulted in a net realized gain of $3.5 million and $0.9 million during the first six months of 2020 and 2019, respectively, were transacted to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Management evaluates the securities portfolio for OTTI on a quarterly basis. During the three and six months ended June 30, 2020 and 2019, the Bank did not record any OTTI. The performance of the debt and equity securities markets could generate impairments in future periods requiring realized losses to be reported.

 

Loan Composition

 

The composition of the loan portfolio by dollar amount is shown in the table below:

 

   June 30,     
   2020   December 31, 
(Dollars in Thousands)  (Unaudited)   2019 
Commercial          
     Commercial Real Estate  $1,374,242   $1,365,310 
     Commercial and Industrial   279,143    256,798 
     Obligations of State and Political Subdivisions   338,190    364,869 
     Commercial Construction   374,609    292,827 
          Total Commercial Loans   2,366,184    2,279,804 
Consumer          
     Residential Mortgages   508,388    514,538 
     Other Consumer   69,884    73,688 
     Consumer Construction   12,888    16,736 
          Total Consumer Loans   591,160    604,962 
               Total Portfolio Loans   2,957,344    2,884,766 
Loans Held-for-Sale   9,345    19,714 
                    Total Loans  $2,966,689   $2,904,480 

 

Our loan portfolio represents our most significant source of interest income. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay.

 

 58 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Total portfolio loans increased $72.6 million, or 2.5%, to $3.0 billion as of June 30, 2020 as compared to December 31, 2019. Commercial loans increased $86.4 million, or 3.8%, as of June 30, 2020 as compared to December 31, 2019. This increase in commercial loans is primarily in the commercial construction category. Consumer loans decreased $13.8 million, or 2.3% since December 31, 2019. Consumer loans decreased primarily in the residential mortgage category.

 

Total commercial loans represented 80.0% of total portfolio loans at June 30, 2020 and 79.0% of total portfolio loans at December 31, 2019. Within our commercial portfolio, the Commercial Real Estate (“CRE”) and Commercial Construction portfolios combined comprised $1.7 billion or 73.9% of total commercial loans and 59.1% of total portfolio loans at June 30, 2020 and comprised $1.7 billion or 72.7% of total commercial loans and 57.5% of total portfolio loans at December 31, 2019. Net deferred costs included in the portfolio balances above were $3.5 million and $5.1 million at June 30, 2020 and December 31, 2019, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $234 thousand and $250 thousand at June 30, 2020 and December 31, 2019, respectively.

 

The commercial portfolio is monitored for potential concentrations of credit risk by market, type of lending, CRE property type, Commercial & Industrial (“C&I”) and owner-occupied CRE by industry, investment CRE dependent on common tenants and industries or property types that are similarly impacted by external factors.

 

The economic slowdown associated with COVID-19 may have an adverse impact on the growth and asset quality of our loan portfolio, especially those industry segments being severely impacted by the pandemic.

 

The Bank’s exposure to hospitality at June 30, 2020 equated to approximately $498.3 million, or 16.9% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to operate at occupancy levels below breakeven which has caused, or will continue to cause, them to draw on their existing lines of credit with other financial institutions or other sources of liquidity and may adversely affect their ability to repay existing indebtedness. These developments, together with the current economic conditions generally, may impact the value of real estate collateral in hospitality and other commercial real estate exposure. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

Portfolio loan balances to our top 10 credit relationships were $689.4 million at June 30, 2020, with a total commitment exposure of $748.1 million. These loans are in the hospitality, golf course, agricultural, land holdings, commercial real estate (multi-family and office/retail), energy, land development, and lumber industries.

 

Line utilization, unused commitments, excluding consumer overdraft lines, were $387.0 million at June 30, 2020 as compared to $355.5 million at December 31, 2019. Total utilization, excluding consumer overdraft lines, was 47.20% at June 30, 2020, as compared to 51.05% at December 31, 2019. Commercial line utilization was 47.69% at June 30, 2020, as compared to 50.80% at December 31, 2019.

 

 59 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

From time to time, the Bank has loans held-for-sale derived from two sources. First, the Bank purchases mortgage loans from another financial institution with fully executed contracts with investors. Secondly, the Bank originates and closes mortgages with fully executed contracts with investors to purchase shortly after closing. The Bank then holds the loans from both sources until funded by the investor, typically a two-week period. Loans held-for-sale were $9.3 million and $19.7 million at June 30, 2020 and December 31, 2019, respectively.

 

Credit Quality

 

On a monthly basis, a criticized asset committee meets to review all special mention and substandard loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to us. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral.

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total CRE balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Investment real estate property types and purchased loan programs have aggregate dollar limits and are monitored by management on a weekly basis. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, debt service coverage ratios and amortization periods.

 

Unsecured loans pose higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses that operate with low financial and operating leverage and demonstrate an ability to amortize the commitment within seven to ten years. The repayment capacity of the borrower should exceed all policy and guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

On a quarterly basis, the Credit Risk Committee of the Board of Directors meets to review our loan portfolio metrics, adequacy of the Allowance for Loan and Lease Losses, industry research, segmentation limits, policy and guideline exceptions, and loan review findings from the previous quarter. Annually, this same committee reviews credit related policies and policy enhancements as they become available.

 

Additional credit risk management practices include periodic review and update of our lending policies and procedures to support sound underwriting practices and portfolio management through portfolio stress testing. Our Loan Review department serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all corporate lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of purchased loans and consumer and mortgage underwriting, as well as providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms unless the loan is well secured and in the process of collection.

 

 60 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank has a loan review policy and annual scope report that details the level of loan review for commercial loans in a given year. Primary objectives of loan reviews include the identification of unknown risks and patterns that might influence potential future losses. In concert with significant enhancements to the underwriting process, the scope of loan review has been broadened since 2019 to include assurance testing with respect to the accuracy of the underwriting function. During 2020, the Bank used a four step approach for loan review in the following segments:

 

·A review of the largest twenty pass-rated loan relationships, which represents approximately a quarter of total loans;

 

·A sampling of new loans originated to include an examination of the evidence of appropriate approval, adherence to loan policy and the completeness and accuracy of the analysis contained in the approval document;

 

·A sampling of Large Loan Relationships (“LLRs”) which are defined as loan relationships with aggregate exposure of at least $2 million that are not part of the top twenty review; and

 

·Concentration focus reviews of identified segments that represent concentration risk, represented by collateral types including but not limited to Hospitality, Multifamily and Retail with the goal of examining patterns of loss history, document exceptions, policy exceptions and emerging trends in risk characteristics. The Bank does not typically structure these with a 30 day cleanout feature since that is difficult to measure and enforce. Instead we usually set higher debt service standards and underwrite to the ability to amortize the loan on unsecured terms.

 

Allowance for Loan Losses

 

The Bank maintains its allowance for loan losses at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ALL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ALL has two main components: evaluation and impairment tests of individual loans and evaluation and impairment tests of certain groups of homogeneous loans with similar risk characteristics.

 

An inherent risk to the loan portfolio as a whole is the condition of the economy in our markets. In addition, each loan segment carries with it risks specific to the segment. The Bank develops and documents a systematic ALL methodology based on the following portfolio segments: 1) CRE, 2) C&I, 3) Obligations of States and Political Subdivisions, 4) Commercial Construction, 5) Residential Mortgages, 6) Other Consumer, and 7) Consumer Construction. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ALL.

 

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

 

 61 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

 

Obligations of States and Political Subdivision loans are made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up fit and expansion, or to purchase new equipment. This segment of loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Bank. The primary repayment source for these loans include the tax basis of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Bank’s loan portfolio.

 

Commercial Construction loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

 

Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

 

Consumer loans are made to individuals and may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

 

Consumer Construction loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed.

 

 62 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The ALL was $47.4 million, or 1.60% of total portfolio loans at June 30, 2020, as compared to $38.8 million, or 1.34% of total portfolio loans at December 31, 2019.

 

The increase in the ALL of $8.6 million was primarily due to a $1.7 million increase in the specific reserve for impaired loans combined with a $6.9 million increase in the reserve for loans collectively evaluated for impairment at June 30, 2020, as compared to December 31, 2019. Included in the general reserve is the impact of an increase in qualitative loss factors as a result of the projected economic impact of COVID-19 of $6.0 million. The Bank 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. The $1.7 million increase in the specific reserve for impaired loans since December 31, 2019 was due to the addition of a $1.1 million reserve on one credit relationship and a collective addition of $0.6 million to the existing impaired relationships at December 31, 2019. Please reference Note 5 Allowance for Loan Losses for additional information.

 

Net charge-offs were $1.6 million for the six month period ended June 30, 2020. Special mention, substandard and doubtful loans at June 30, 2020 decreased by $7.5 million to $426.7 million compared to $434.2 million at December 31, 2019, with an increase of $6.8 million in special mention and a decrease of $14.3 million in substandard.

 

The Bank individually evaluates all impaired loans equal to or greater than $1.0 million for additional impairment. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts when due according to the contractual terms of the loan agreement. Our methodology for evaluating whether a loan is impaired includes risk-rating credits on an individual basis and consideration of the borrower’s overall financial condition, payment history and available cash resources. In measuring impairment, the Bank primarily utilizes fair market value of the collateral; however, the Bank also uses the discounted cash flow method for loans that are not deemed to be collateral dependent at the time of impairment.

 

Troubled debt restructurings, or (“TDRs”), whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where the Bank for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that the Bank would not otherwise grant. The Bank strives to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant.

 

An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before the modification. All TDRs are considered to be impaired loans and will be reported as impaired loans for their remaining lives, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and the Bank fully expects that the remaining principal and interest will be collected according to the restructured agreement. The Bank individually evaluates all impaired loans, which includes TDRs, equal to or greater than $1.0 million for additional impairment. In addition, the Bank evaluates credits with balances less than $1.0 million for impairment that may have complex loan structures. Nonaccruing TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

 

 63 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

As an example, consider a substandard commercial construction loan that is currently 90 days past due where the loan is restructured to extend the maturity date for a period longer than would be considered an insignificant period of time. The post-modification interest rate given to the borrower is considered to be lower than the current market rate for new debt with similar risk and all other terms remain the same according to the original loan agreement. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted due to the long extension, resulting in payment delay as well as the rate being lower than current market rate for new debt with similar risk. The loan will be reported as a nonaccrual TDR and an impaired loan. In addition, the loan could be charged down to the fair value of the collateral if a confirmed loss exists. If the loan subsequently performs, by means of making on-time principal and interest payments according to the newly restructured terms for a period of six months, and it is expected that all remaining principal and interest will be collected according to the terms of the restructured agreement, the loan will be returned to accrual status and reported as an accruing TDR. The loan will remain an impaired loan for the remaining life of the loan because the interest rate was not adjusted to be equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk.

 

The following table summarizes the Bank’s troubled debt restructured loans as of the dates presented:

 

   June 30, 2020   December 31, 2019 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Commercial                              
Commercial Real Estate  $3,138   $29,010    32,148   $3,183   $30,073   $33,256 
Commercial and Industrial   -    240    240    -    390    390 
Obligations of State and Political Subdivisions   -    -    -    -    -    - 
Commercial Construction   52,481    4,252    56,733    53,116    4,242    57,358 
Total Commercial TDRs   55,619    33,502    89,121    56,299    34,705    91,004 
Consumer                              
Residential Mortgages   51,665    -    51,665    52,966    -    52,966 
Other Consumer   -    -    -    -    -    - 
Consumer Construction   -    -    -    -    -    - 
Total Consumer TDRs   51,665    -    51,665    52,966    -    52,966 
Total TDRs  $107,284   $33,502   $140,786   $109,265   $34,705   $143,970 

 

 64 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

TDRs decreased $3.2 million to $140.8 million at June 30, 2020, as compared to $144.0 million at December 31, 2019. The decrease is primarily due to principal pay-downs in the amount of $3.7 million, offset by $0.5 million of draws on commitments. Total TDRs of $33.5 million and $34.7 million were on nonaccrual at June 30, 2020 and December 31, 2019, respectively. There were minimal commitments to lend additional funds on relationships identified as TDRs.

 

Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes quantifiable, regardless of the delinquency status of the loan. The Bank may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to:

 

• The status of a bankruptcy proceeding

• The value of collateral and probability of successful liquidation; and/or

• The status of adverse proceedings or litigation that may result in collection

 

Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.

 

Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.

 

 65 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Nonperforming assets consist of nonaccrual loans, nonaccrual TDRs and OREO. The following table summarizes nonperforming assets for the dates presented:

 

(Dollars in Thousands)  June 30,   December 31, 
Nonperforming Loans  2020   2019 
Commercial Real Estate  $247   $1,017 
Commercial and Industrial   155    77 
Obligations of State and Political Subdivisions   -    - 
Commercial Construction   3,162    3,210 
Residential Mortgages   3,326    2,857 
Other Consumer   206    267 
Consumer Construction   -    - 
     Total Nonperforming Loans   7,096    7,428 
           
Nonperforming Troubled Debt Restructurings          
Commercial Real Estate   29,010    30,073 
Commercial and Industrial   240    390 
Obligations of State and Political Subdivisions   -    - 
Commercial Construction   4,252    4,242 
Residential Mortgages   -    - 
Other Consumer   -    - 
Consumer Construction   -    - 
     Total Nonperforming Troubled Debt Restructurings   33,502    34,705 
     Total Nonperforming Loans and Troubled Debt Restructurings   40,598    42,133 
Other Real Estate Owned   17,245    18,324 
     Total Nonperforming Assets  $57,843   $60,457 
           
Nonperforming Loans and Troubled Debt Restructurings to Total Portfolio Loans   1.37%   1.46%
Nonperforming Assets to Total Portfolio Loans plus OREO   1.94%   2.08%

 

Nonperforming assets, or NPAs, decreased $2.6 million to $57.8 million at June 30, 2020 as compared to December 31, 2019. The decrease was due to a decline in nonperforming loans and OREO. The decrease in nonperforming loans was primarily due to pay-downs during the first half of 2020, offset by draws on minimal commitments. The decrease in OREO was due to the sale of properties during the first half of 2020, offset by the transfer of one loan to OREO during the same period. The book value of closed retail bank offices, included in OREO, declined $0.5 million from December 31, 2019 and have a remaining book value of $2.5 million at June 30, 2020.

 

 66 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

The following table summarizes loans past due 30-89 days for the periods presented:

 

   June 30,   December 31, 
(Dollars in Thousands)  2020   2019 
Loans 30 to 89 Days Past Due          
Commercial          
     Commercial Real Estate  $134   $1,220 
     Commercial and Industrial   130    161 
     Obligations of State and Political Subdivisions   -    236 
     Commercial Construction   1,601    228 
          Total Commercial Loans   1,865    1,845 
Consumer          
     Residential Mortgages   429    942 
     Other Consumer   543    1,283 
     Consumer Construction   -    - 
          Total Consumer Loans   972    2,225 
               Total Loans 30 to 89 Days Past Due  $2,837   $4,070 

 

Loans past due 30 to 89 days decreased to $2.8 million at June 30, 2020 as compared to $4.1 million at December 31, 2019. Total past dues on commercial loans remained relatively unchanged; however, total past dues on consumer loans decreased by $1.3 million in the residential mortgages and other consumer categories.

 

There were no loans past due 90 days or more and still accruing at June 30, 2020 or December 31, 2019.

 

Deposits

 

The following table presents the composition of deposits:

 

(Dollars in Thousands)  June 30, 2020   December 31, 2019   $ Change   % Change 
Noninterest-Bearing Demand  $662,639   $554,875   $107,764    19.4%
Interest-Bearing Demand   318,903    286,561    32,342    11.3%
Money Market   190,664    140,589    50,075    35.6%
Savings   608,716    561,814    46,902    8.3%
Certificates of Deposits   1,825,785    1,960,406    (134,621)   (6.9)%
     Total  $3,606,707   $3,504,245   $102,462    2.9%

 

Total deposits increased $102.5 million, or 2.9%, to $3.6 billion as of June 30, 2020 as compared to December 31, 2019. Certificates of deposits decreased $134.6 million, or 6.9%, as of June 30, 2020 as compared to December 31, 2019 due to an intentional runoff of these higher cost deposits. Noninterest-bearing deposits increased by $107.8 million, or 19.4%, to $662.6 million as of June 30, 2020 as compared to December 31, 2019. Interest-bearing demand deposits and money market accounts increased by $82.4 million as of June 30, 2020 as compared to December 31, 2019. Money market accounts increased due to recent special rate promotions. Savings accounts increased $46.9 million, or 8.3%, as of June 30, 2020 as compared to December 31, 2019. Noninterest-bearing deposits comprised 18.4% and 15.8% of total deposits at June 30, 2020 and December 31, 2019, respectively.

 

 67 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

We expect core deposits to increase in the coming months. Many consumers are working from home or temporarily unemployed, but still receiving income through unemployment insurance. Additionally, many Americans are receiving their tax refunds for the 2019 filing year and stimulus payments from the CARES Act. Since consumers have fewer ways to spend their money during the stay at home orders and social distancing practices brought on by the COVID-19 pandemic, we expect our retail deposit base to increase, until such time, as the threat from the virus dissipates and states are allowed to open their businesses once again The increases due to these factors may be offset by deposit decreases as a result of individuals utilizing savings due to job losses along with school districts decreasing reserves.

 

Long-Term Borrowings

 

Borrowings are an additional source of liquidity for the Bank. Long-term borrowings are for terms greater than one year and consist of Federal Home Loan Bank (“FHLB”) advances. FHLB borrowings were $35.0 million and $10.0 million at June 30, 2020 and December 31, 2019, respectively. FHLB borrowings are fixed rate advances for various terms and are secured by a blanket lien on select residential mortgages at June 30, 2020. Total loans pledged as collateral were $304.7 million and $284.6 million at June 30, 2020 and December 31, 2019, respectively. There were no securities available-for-sale pledged as collateral at June 30, 2020. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $214.0 million based upon qualifying collateral, to a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of June 30, 2020.

 

Information pertaining to long-term borrowings is summarized in the table below:

 

(Dollars in Thousands)  June 30, 2020   December 31, 2019 
Balance at Period End  $35,000   $10,000 
Average Balance during Period   26,209    2,329 
Average Interest Rate during the Period   1.22%   1.63%
Maximum Month-end Balance during the Period   35,000    10,000 
Average Interest Rate at Period End   1.13%   1.63%

 

The Bank held FHLB Atlanta stock of $5.1 million and $4.1 million at June 30, 2020 and December 31, 2019, respectively. Dividends received on this restricted stock were $67 thousand and $131 thousand for the quarter and six month period ended June 30, 2020, respectively. Dividends received were $26 thousand for the six month period ended June 30, 2019. The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Atlanta. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. The Bank reviewed and evaluated FHLB stock for OTTI at June 30, 2020. The Bank reviews factors such as earnings, capital ratios, and dividend paying capacity in its evaluation of impairment. The Bank believes that there is sufficient evidence to conclude that there is no impairment at June 30, 2020.

 

 68 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Liquidity and Capital Resources

 

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers access to funds to meet their credit needs. In order to manage liquidity risk our Board of Directors has delegated authority to the ALCO for formulation, implementation and oversight of liquidity risk management for the Bank. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and by having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

 

Our primary funding and liquidity source is a stable customer deposit base. The Bank believes we have the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Bank has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Bank include borrowing availability at the FHLB of Atlanta, equal to 25% of the Bank’s assets approximating $1.0 billion, subject to the amount of eligible collateral pledged, federal funds lines with six other correspondent financial institutions in the amount of $115.0 million and the brokered deposit market. In addition to the lines referenced above, the Bank also has its available-for-sale investment securities portfolio as an additional source of liquidity.

 

As a result of the onset of the COVID-19 pandemic, there is an increased emphasis on solidifying, monitoring and managing our liquidity position. We believe our liquidity position is strong. An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. At June 30, 2020, the Bank had $776.0 million in highly liquid assets, which consisted of $142.1 million of interest-bearing deposits with banks and Federal Reserve Bank Excess Reserves, $624.6 million in unpledged securities and $9.3 million in loans held-for-sale. This resulted in highly liquid assets to total assets ratio of 18.7% at June 30, 2020.

 

The following table provides detail of liquidity sources as of the periods presented:

 

(Dollars in Thousands)  June 30, 2020   December 31, 2019 
Cash and Due From Banks  $53,621   $85,628 
Interest Bearing Deposits   400    914 
Excess Reserves   135,237    39,270 
Unpledged Investment Securities   624,545    592,065 
Excess Pledged Securities   16,537    16,030 
FHLB Borrowing Availability   213,989    242,188 
Unsecured Lines of Credit   115,000    115,000 
Total Liquidity Sources  $1,159,329   $1,091,095 

 

 69 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Regulatory Capital Requirements

 

Shareholders’ equity increased $15.9 million, or 3.4%, to $489.1 million at June 30, 2020, as compared to December 31, 2019. The increase in shareholders’ equity is primarily due to net income of $8.9 million and other comprehensive income in the amount of $10.2 million, reduced by a special dividend of $3.7 million paid in March of 2020. Other comprehensive income of $10.2 million was primarily due to the increase in net unrealized gains on securities available-for-sale driven by a decrease in interest rates during the period. The remaining difference of $0.5 million is related to restricted stock activity during the first six months of 2020.

 

The Bank continues to maintain its capital position with a leverage ratio of 10.30% as compared to the regulatory guideline of 5.0% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 13.32% compared to the regulatory guideline of 6.5% to be well-capitalized. Our risk-based Tier 1 and Total Capital ratios were 13.32% and 14.57%, respectively, which places the Bank above the federal bank regulatory agencies’ well-capitalized guidelines of 8.0% and 10.0%, respectively. We believe that we have the ability to raise additional capital, if necessary.

 

In July 2013 the federal banking agencies issued a final rule to implement Basel III (which were agreements reached in July 2010 by the international oversight body of the Basel Committee on Banking Supervision to require more and higher quality capital) and the minimum leverage and risk-based capital requirements of the Dodd-Frank Act. The final rule established a comprehensive capital framework and went into effect on January 1, 2015 for smaller banking organizations such as the Bank. The rule also required the Bank to maintain a capital conservation buffer composed of Common Equity Tier 1 capital in an amount greater than 2.50% of total risk-weighted assets beginning in 2019. The capital conservation buffer was scheduled to phase in over several years. The capital conservation buffer was .25% in 2016, .50% in 2017, .75% in 2018, and increased to 1.00% in 2019 and beyond. As a result, starting in 2019, the Bank must maintain a Common Equity Tier I risk-based capital ratio greater than 7.0%, a Tier 1 risk-based capital ratio greater than 8.5%, and a Total risk-based capital ratio greater than 10.5%; otherwise, the Bank will be subject to restrictions on capital distributions and discretionary bonus payments. Now that the new rule is fully phased in, the minimum capital requirements plus the capital conservation buffer exceeds the regulatory capital ratios required for an insured depository institution to be well-capitalized under the FDIC’s prompt corrective action framework.

 

Federal regulators periodically propose amendments to the regulatory capital rules and the related regulatory framework and consider changes to the capital standards that could significantly increase the amount of capital needed to meet applicable standards. The timing of adoption, ultimate form and effect of any such proposed amendments cannot be predicted.

 

 70 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

The following table summarizes capital amounts and ratios for the Bank for the dates presented:

 

           June 30, 2020   December 31, 2019 
(Dollars in Thousands)  Minimum
Value (1)
   Well-
Capitalized (2)
   Amount   Ratio   Minimum
Amount (1)
   Amount   Ratio   Minimum
Amount (1)
 
Tier 1 Leverage Ratio   4.00%   5.00%  $416,556    10.30%   161,776   $410,793    10.33%   158,993 
Common Equity Tier 1 Capital Ratio   4.50%   6.50%   416,556    13.32%   140,722    410,793    13.58%   136,126 
Tier 1 Capital Ratio   6.00%   8.00%   416,556    13.32%   187,629    410,793    13.58%   181,501 
Total Risk-Based Capital Ratio   8.00%   10.00%   455,760    14.57%   250,172    448,622    14.83%   242,002 

 

(1) Minimum requirements to remain adequately capitalized.

(2) Well-capitalized under prompt corrective action regulations.              

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk

 

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.

 

The ALCO utilizes an asset liability model (ALM) to monitor and manages market risk through net interest income simulation for various rate shock scenarios and economic value of equity, or (“EVE”), simulation for various rate shock scenarios. The rate shock scenarios used in the ALM span over multiple time horizons and yield curve shapes and include parallel and non-parallel shifts to ensure the ALCO can mitigate future earnings and market value fluctuations due to changes in market interest rates.

 

Within the context of the ALM, net interest income rate shock simulations explicitly measure the exposure to earnings from changes in market rates of interest over a defined time horizon. These robust simulations include assumptions of how the balance sheet will react in different rate environments including loan pre-payment speeds, average life of non maturing deposits, and how sensitive each interest-earning asset and interest-bearing liability is to changes in market rates (betas). Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. Reviewing these various measures provides us with a more comprehensive view of our interest rate risk profile.

 

 71 

 

 

CARTER BANK & TRUST

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

 

Net interest income rate shock simulation results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 months and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static and growth balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. Our policy guidelines limit the change in pretax net interest income over a 12 month horizon using rate shocks of +/- 100, 200, 300 and 400 basis points. We have temporarily suspended the -200, -300 and -400 basis point rate shock analyses in 2020 because the Bank does not shock for negative interest rates. Due to the low interest rate environment, we believe the impact to net interest income when evaluating the -200, -300 and -400 basis point rate shock scenarios does not provide meaningful insight into our interest rate risk position.

 

In order to monitor interest rate risk beyond the 24 month time horizon of rate shocks, we also perform EVE analyses. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. EVE rate change results are compared to a base case to determine the impact that market rate changes may have on our EVE. As with rate shock analysis, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and the behavior and value of non-maturity deposit products. Our policy guidelines limit the change in EVE given changes in rates of +/- 100, 200, 300 and 400 basis points. We have also temporarily suspended the EVE -200, -300 and -400 basis point scenarios in 2020 due to the low interest rate environment.

 

The tables below reflect the net interest income rate shock analyses and EVE analyses results for the periods presented utilizing a static balance sheet. All percentage changes presented are within prescribed ranges set by management.

 

    June 30, 2020 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
400    30.8%   15.4%
300    23.9%   13.2%
200    16.4%   10.6%
100    8.4%   6.6%
(100)   -1.8%   -5.0%

 

    December 31, 2019 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
400    24.1%   1.4%
300    19.1%   2.2%
200    13.4%   2.9%
100    7.1%   2.5%
(100)   -8.6%   -7.0%
(200)    -15.9%   -14.1%

 

 72 

 

 

CARTER BANK & TRUST

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

 

The results from the net interest income rate shock analysis are consistent with having an asset sensitive balance sheet, when adjusted for repricing correlations (betas). The above table indicates that in a rising interest rate environment, the Bank is positioned to have increased pretax net interest income for the same asset base due to the balance sheet composition, related maturity structures, repricing floors, and repricing correlations to market interest rates for assets and liabilities. Conversely, in a declining interest rate environment the Bank is positioned to have decreased pretax net interest income for the same reasons discussed above.

 

In addition to rate shocks and EVE analyses, sensitivity analyses are performed to help us identify which model assumptions are critical and cause the greatest impact on pretax net interest income. Sensitivity analyses include changing prepayment behavior of loans and securities with optionality, repricing correlations, and the impact of interest rate changes on non-maturity deposit products (decay rates).

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Based on the evaluation required by Securities Exchange Act Rules 13a-15(b) and 15d-15(b), the Bank’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), at June 30, 2020.  Based on and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective due to a material weakness in the Bank’s internal controls over financial reporting, as described below. Other than the material weakness which was identified as a result of an error that occurred during the quarter ended December 31, 2019, there have been no other changes in Bank’s internal control over financial reporting that occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Banks’s internal control over financial reporting.

 

As of December 31, 2019, management including the CEO and CFO, assessed the effectiveness of the Bank’s internal control over financial reporting based on the criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Based upon this assessment, management determined that, as of December 31, 2019, the control deficiency described in the following paragraph constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Bank’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

As of December 31, 2019, we did not maintain effective controls over the completeness and accuracy of impaired loans, including calculations and supporting information.  A material weakness existed related to ineffective control of the valuation and existence of unique, complex collateral associated with two collateral-dependent impaired loans that are part of the same relationship. The Bank relied on stale appraisal information in order to support the underlying assumptions and methodologies to determine fair value and existence of the complex collateral. The appraisals were incomplete and did not adequately support the valuation and existence of the complex, unique collateral.

 

 73 

 

 

CARTER BANK & TRUST

ITEM 4 - CONTROLS AND PROCEDURES (Continued)

 

As a result of this material weakness, we concluded that the Bank did not maintain effective internal control over financial reporting as of December 31, 2019, based on the criteria established in “Internal Control—Integrated Framework” issued by COSO.

 

Plan for Remediation of Material Weakness that Existed as of December 31, 2019

 

Management is committed to continuing efforts to improve the design and operation of our internal controls, including taking all necessary steps to remediate the material weakness identified above. We are addressing the material weakness by defining expectations for validating assumptions accompanying appraisals and plan to test and remediate in 2020.

 

PART II – OTHER INFORMATION

 

ITEM 1- LEGAL PROCEEDINGS

 

As of June 30, 2020, no material legal proceedings were pending or threatened against Carter Bank & Trust.

 

ITEM 1A – RISK FACTORS

 

As of June 30, 2020, there have been no material changes in the risk factors faced by the Bank from those disclosed in the Bank’s 2019 Annual Report on Form 10-K.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5 - OTHER INFORMATION

 

None.

 

 74 

 

 

CARTER BANK & TRUST

PART II – OTHER INFORMATION

ITEM 6 - EXHIBITS

Exhibits:

 

3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Bank’s Form 8-A filed with the FDIC February 23, 2007)  
   
3.2 Amended and restated Bylaws (as adopted by the Board of Directors on December 19, 2018) (incorporated by reference to Exhibit 3.2 to the Bank’s Form 8-K filed with the FDIC December 19, 2018)  
   
4.1 Description of Common Stock (incorporated by reference to Exhibit 4.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
   
10.1* Qualified Profit Sharing Plan of Carter Bank & Trust (formerly the Qualified Profit Sharing Plan of each of the Merged Banks and MCOV) (incorporated by reference to Exhibit 10.1 to the Bank’s 2006 Form 10K filed with the FDIC July 6, 2007)  
   
10.2* Nonqualified Profit Sharing Plan of Carter Bank & Trust (formerly the Nonqualified Profit Sharing Plan of MCOV) (incorporated by reference to Exhibit 10.2 to the Bank’s 2006 Form 10K filed with the FDIC July 6, 2007)  
   
10.3* Employment Agreement, dated as of June 19, 2017, by and between Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3 to the Bank’s Form 8-K filed with the FDIC June 20, 2017)  
   
10.3.1* First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
   
10.4* Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Litz Van Dyke (incorporated by reference to Exhibit 10.4 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)  
   
10.5* First Amended and Restated Employment Agreement, dated as of December 16, 2019, by and between Carter Bank & Trust and Phyllis Q. Karavatakis (incorporated by reference to Exhibit 10.5 to the Bank’s Form 8-K/A filed with the FDIC December 17, 2019)  
   
10.6* Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Jane Ann Davis (incorporated by reference to Exhibit 10.6 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)  
   
10.7* Employment Agreement, dated as of May 31, 2017, by and between Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.7 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)  
   
10.7.1* First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.7.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
   
10.8* Employment Agreement, dated as of June 15, 2017, by and between Carter Bank & Trust and Matthew M. Speare (incorporated by reference to Exhibit 10.8 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)  

 

 75 

 

 

CARTER BANK & TRUST

PART II – OTHER INFORMATION

ITEM 6 - EXHIBITS (Continued)

Exhibits:

 

10.9* Carter Bank & Trust 2018 Omnibus Equity Inventive Plan (incorporated by reference to the Bank’s Proxy Statement filed with the FDIC April 30, 2018)  
   
10.9.1* Form of Time-Based Restricted Stock Agreement (for employee) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.9.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
   
10.9.2* Form of Time-Based Restricted Stock Agreement (for non-employee director) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.9.2 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)  
   
10.10 Carter Bank & Trust Annual Incentive Plan as adopted November 15, 2018 (incorporated by reference to Exhibit 10.10 to the Bank’s Form 10-Q filed with the FDIC May 9, 2019)  
   
31.1 Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith)  
   
31.2 Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith)  
   
32 Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350 (filed herewith)  
   
* Denotes management contract.

 

 76 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 CARTER BANK& TRUST
               (Registrant)
   
   
Date: August 7, 2020 /s/ Litz H. Van Dyke
  Litz H. Van Dyke
  Chief Executive Officer
  (Principal Executive Officer)
   
   
Date: August 7, 2020  
  /s/ Wendy S. Bell
  Wendy S. Bell
  Senior Executive Vice President
  Chief Financial Officer
  (Principal Financial Officer)

 

 77 

 

 

Exhibit 31.1

 

CERTIFICATIONS

 

I, Litz H. Van Dyke, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Carter Bank & Trust;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: August 7, 2020 /s/ Litz H. Van Dyke
  Litz H. Van Dyke
  Chief Executive Officer
  (Principal Executive Officer)

 

 78 

 

 

Exhibit 31.2

 

I, Wendy Bell, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Carter Bank & Trust;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: August 7, 2020 /s/ Wendy S. Bell
  Wendy S. Bell
  Senior Executive Vice President
  Chief Financial Officer
  (Principal Financial Officer)

 

 79 

 

 

Exhibit 32

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

 

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

 

The undersigned, as the principal executive officer and principal financial officer of Carter Bank & Trust, respectively, certify that, to the best of their knowledge and belief, the Quarterly Report on Form 10-Q for the period ended June 30, 2020, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Carter Bank & Trust at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaim any obligation to update the foregoing certification except as required by law.

 

 

Date: August 7, 2020 /s/ Litz H. Van Dyke
  Litz H. Van Dyke
  Chief Executive Officer
  (Principal Executive Officer)
   
   
Date: August 7, 2020 /s/ Wendy S. Bell
  Wendy S. Bell
  Senior Executive Vice President
  Chief Financial Officer
  (Principal Financial Officer)

 

 80 

 

EX-99.4 9 tm2036036d1_ex99-4.htm EXHIBIT 99.4

Exhibit 99.4

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _______

 

Commission File Number: n/a

 

CARTER BANK & TRUST

(Name of registrant as specified in its charter)

Virginia   20-5539935
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
1300 Kings Mountain Road, Martinsville, Virginia   24112
(Address of principal executive offices)   (Zip Code)

 

(276) 656-1776

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $1 par value CARE Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer   ¨   (Do not check if smaller reporting company) Smaller reporting company ¨
Emerging growth company ¨  

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

As of November 2, 2020 there were 26,386,901 shares of the registrant’s common stock issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION 3
   
ITEM 1 - FINANCIAL STATEMENTS 3
   
Consolidated Balance Sheets - September 30, 2020 (unaudited) and December 31, 2019 3
   
Consolidated Statements of (Loss) Income - Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) 4
   
Consolidated Statements of Comprehensive (Loss) Income - Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) 5
   
Consolidated Statements of Changes in Shareholders' Equity - Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) 6
   
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019 (unaudited) 7
   
Notes To Unaudited Consolidated Financial Statements 9
   
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 39
   
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 73
   
ITEM 4 - CONTROLS AND PROCEDURES 75
   
PART II – OTHER INFORMATION 76
   
ITEM 1 - LEGAL PROCEEDINGS 76
   
ITEM 1A – RISK FACTORS 76
   
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 76
   
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 76
   
ITEM 4 –MINE SAFETY DISCLOSURES 76
   
ITEM 5 - OTHER INFORMATION 76
   
ITEM 6 - EXHIBITS 77
   
SIGNATURES 79

 

2

 

 

PART I - FINANCIAL INFORMATION 

Item 1 - FINANCIAL STATEMENTS

CARTER BANK & TRUST

CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)     
   September 30,   *December 31, 
(Dollars in Thousands Except Per Share Data)  2020   2019 
ASSETS          
Cash and Due from Banks  $37,688   $41,386 
Interest-Bearing Deposits in Other Financial Institutions   6,267    45,156 
Federal Reserve Bank Excess Reserves   107,219    39,270 
Total Cash and Cash Equivalents   151,174    125,812 
Securities Available-for-Sale, at Fair Value   777,986    742,617 
Loans Held-for-Sale   32,104    19,714 
Portfolio Loans   2,985,921    2,884,766 
Allowance for Loan Losses   (49,965)   (38,762)
Portfolio Loans, net   2,935,956    2,846,004 
Bank Premises and Equipment, net   87,439    85,942 
Other Real Estate Owned, net   16,410    18,324 
Goodwill   -    62,192 
Federal Home Loan Bank Stock, at Cost   5,093    4,113 
Bank Owned Life Insurance   53,651    52,597 
Other Assets   74,312    48,793 
Total Assets  $4 ,134,125   $4,006,108 
           
LIABILITIES          
Deposits:          
Noninterest-Bearing Demand  $665,813   $554,875 
Interest-Bearing Demand   351,066    286,561 
Money Market   211,465    140,589 
Savings   622,806    561,814 
Certificates of Deposit   1,762,645    1,960,406 
Total Deposits   3,613,795    3,504,245 
Federal Home Loan Bank Borrowings   35,000    10,000 
Other Liabilities   50,523    18,752 
Total Liabilities   3,699,318    3,532,997 
           
SHAREHOLDERS' EQUITY          
Common Stock, Par Value $1 Per Share, Authorized 100,000,000 Shares; 26,386,901 Outstanding at September 30, 2020 and 26,334,229 at December 31, 2019           26,387               26,334    
Additional Paid-in-Capital   143,244    142,492 
Retained Earnings   251,669    304,158 
Accumulated Other Comprehensive Income   13,507    127 
Total Shareholders' Equity   434,807    473,111 
Total Liabilities and Shareholders' Equity  $4,134,125   $4,006,108 

 

See accompanying notes to unaudited consolidated financial statements.

*Derived from audited consolidated financial statements.

 

3

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(Dollars in Thousands except Per Share Data)  2020   2019   2020   2019 
INTEREST INCOME                    
Loans, including fees                    
Taxable  $28,511   $32,270   $88,885   $94,773 
Non-Taxable   1,894    2,309    6,020    7,366 
Investment Securities                    
Taxable   3,150    4,697    11,246    13,102 
Non-Taxable   360    263    850    1,695 
FRB Excess Reserves   31    228    193    1,280 
Interest on Bank Deposits   1    329    75    1,061 
Dividend Income   39    58    170    84 
Total Interest Income   33,986    40,154    107,439    119,361 
Interest Expense                    
Interest Expense on Deposits   8,432    12,065    28,164    35,381 
Interest Expense on Federal Funds Purchased   -    -    1    - 
Interest on Other Borrowings   118    19    312    59 
Total Interest Expense   8,550    12,084    28,477    35,440 
NET INTEREST INCOME   25,436    28,070    78,962    83,921 
Provision for Loan Losses   2,914    1,390    13,185    4,386 
Net Interest Income After Provision for Loan Losses   22,522    26,680    65,777    79,535 
NONINTEREST INCOME                    
Gain on Sales of Securities, net   2,388    659    5,923    1,599 
Service Charges, Commissions and Fees   1,205    1,111    3,045    3,229 
Debit Card Interchange Fees   1,559    1,340    4,270    3,834 
Insurance   482    454    2,123    1,097 
Bank Owned Life Insurance Income   351    362    1,054    1,079 
Other Real Estate Owned Income   58    96    279    617 
Fee Income on Interest Rate Swap   1,572    -    3,120    - 
Other   360    134    1,177    906 
Total Noninterest Income   7,975    4,156    20,991    12,361 
NONINTEREST EXPENSE                    
Salaries and Employee Benefits   13,036    12,952    39,106    37,796 
Occupancy Expense, net   3,413    3,040    10,077    8,703 
FDIC Insurance Expense   547    (426)   1,628    721 
Other Taxes   809    747    2,343    2,101 
Advertising Expense   404    205    1,410    702 
Telephone Expense   578    557    1,725    1,624 
Professional and Legal Fees   1,474    1,318    3,310    2,947 
Data Processing   836    556    1,917    1,775 
Losses on Sales and Write-downs of Other Real Estate Owned, net   1,305    293    1,357    569 
Loss on Sales and Write-downs of Bank Premises   17    31    88    23 
Debit Card Expense   764    620    1,989    2,160 
Tax Credit Amortization   272    563    816    1,689 
Unfunded Loan Commitment Expense   (348)   158    251    376 
Other Real Estate Owned Expense   94    167    411    233 
Goodwill Impairment Expense   62,192    -    62,192    - 
Other   1,907    1,996    6,314    6,124 
Total Noninterest Expense   87,300    22,777    134,934    67,543 
(Loss) Income Before Taxes   (56,803)   8,059    (48,166)   24,353 
Income Tax Provision   875    458    634    1,384 
Net (Loss) Income  $(57,678)  $7,601   $(48,800)  $22,969 
Earnings per Common Share                    
Basic (Loss) Earnings Per Common Share  $(2.19)  $0.29   $(1.85)  $0.87 
Diluted (Loss) Earnings Per Common Share  $(2.19)  $0.29   $(1.85)  $0.87 
Average Shares Outstanding-Basic   26,385,189    26,333,929    26,377,626    26,320,472 
Average Shares Outstanding-Diluted   26,385,189    26,352,910    26,377,626    26,331,268 

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
(Dollars in Thousands)  2020   2019   2020   2019 
Net (Loss) Income  $(57,678)  $7,601   $(48,800)  $22,969 
Other Comprehensive Income:                    
Net Unrealized Gains on Securities Available-for-Sale:                    
Net Unrealized Gains Arising during the Period   6,434    3,320    22,860    20,394 
Reclassification Adjustment for Gains included in Net (Loss) Income   (2,388)   (659)   (5,923)   (1,599)
Net Unrealized Gains Recognized in Other Comprehensive Income   4,046    2,661    16,937    18,795 
Tax Effect   (850)   (559)   (3,557)   (3,947)
Other Comprehensive Income   3,196    2,102    13,380    14,848 
Comprehensive (Loss) Income  $(54,482)  $9,703   $(35,420)  $37,817 

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

   For the Three Months Ended September 30, 2020 and 2019 
Dollars in Thousands)  Common
Stock
   Additional
Paid-in-
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income
   Total
Shareholders'
Equity
 
Balance June 30, 2020  $26,385   $143,016   $309,347   $10,311   $489,059 
Net Loss   -    -    (57,678)   -    (57,678)
Other Comprehensive Income, Net of Tax   -    -    -    3,196    3,196 
Issuance of Restricted Stock (2,100 shares)   2    (2)   -    -    - 
Recognition of Restricted Stock Compensation Expense   -    230    -    -    230 
Balance September 30, 2020 (Unaudited)  $26,387   $143,244   $251,669   $13,507   $434,807 
                          
Balance June 30, 2019  $26,334   $142,268   $292,951   $2,680   $464,233 
Net Income   -    -    7,601    -    7,601 
Other Comprehensive Income, Net of Tax   -    -    -    2,102    2,102 
Recognition of Restricted Stock Compensation Expense   -    112    -    -    112 
Balance September 30, 2019 (Unaudited)  $26,334   $142,380   $300,552   $4,782   $474,048 

 

   For the Nine Months Ended September 30, 2020 and 2019 
Dollars in Thousands)  Common
Stock
   Additional
Paid-in-
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Income (Loss)
   Total
Shareholders'
Equity
 
Balance December 31, 2019  $26,334   $142,492   $304,158   $127   $473,111 
Net Loss   -    -    (48,800)   -    (48,800)
Other Comprehensive Income, Net of Tax   -    -    -    13,380    13,380 
Dividends Declared ($0.14 per share)   -    -    (3,689)   -    (3,689)
Forfeiture of Restricted Stock (2,484 shares)   (2)   2    -    -    - 
Recognition of Restricted Stock Compensation Expense   -    805    -    -    805 
Issuance of Restricted Stock (55,156 shares)   55    (55)   -    -    - 
Balance September 30, 2020 (Unaudited)  $26,387   $143,244   $251,669   $13,507   $434,807 
                          
Balance December 31, 2018  $26,270   $142,175   $277,835   $(10,066)  $436,214 
Cumulative Effect of Adopting New Lease Standard   -    -    (252)   -    (252)
Balance December 31, 2018 adjusted for Cumulative Effect  $26,270   $142,175   $277,583   $(10,066)  $435,962 
Net Income   -    -    22,969    -    22,969 
Other Comprehensive Income, Net of Tax   -    -    -    14,848    14,848 
Forfeiture of Restricted Stock (403 shares)   -    -    -    -    - 
Recognition of Restricted Stock Compensation Expense   -    269    -    -    269 
Issuance of Restricted Stock (64,158 shares)   64    (64)   -    -    - 
Balance September 30, 2019 (Unaudited)  $26,334   $142,380   $300,552   $4,782   $474,048 

 

See accompanying notes to unaudited consolidated financial statements.

 

6

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

         
(Unaudited)
(Dollars in Thousands)
  Nine Months Ended
September 30, 2020
   Nine Months Ended
September 30, 2019
 
OPERATING ACTIVITIES          
Net (loss) income  $(48,800)  $22,969 
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used In) Provided by Operating Activities:                                
Provision for Loan Losses   13,185    4,386 
Goodwill Impairment   62,192    - 
Origination of Loans Held-for-Sale   (511,344)   (164,098)
Proceeds From Loans Held-for-Sale   498,954    146,143 
Depreciation of Bank Premises and Equipment, Net   4,589    3,909 
Deferred Income Tax (Benefit) Provision   (1,268)   1,586 
Net Amortization of Securities   2,529    3,023 
Tax Credit Amortization   816    1,689 
Gains on Sales of Securities, Net   (5,923)   (1,599)
Write-downs of Other Real Estate Owned, Net   1,420    327 
(Gains) Loss on Sales of Other Real Estate Owned, Net   (63)   242 
Loss on Sales and Write-downs of Bank Premises and Equipment   88    23 
Increase in the Value of Life Insurance Contracts   (1,054)   (1,079)
Recognition of Restricted Stock Compensation Expense   805    269 
(Increase) Decrease in Other Assets   (28,624)   8,753 
Increase in Other Liabilities   1,313    2,090 
Net Cash (Used In) Provided By Operating Activities   (11,185)   28,633 
           
INVESTING ACTIVITIES          
Securities Available-for-Sale:          
Proceeds from Sales   149,301    312,727 
Proceeds from Maturities, Redemptions, and Pay downs   61,127    146,744 
Purchases   (195,008)   (385,089)
Purchase of Bank Premises and Equipment, Net   (8,395)   (6,463)
Proceeds from Sales of Bank Premises and Equipment, Net   -    1,135 
Loan Originations and Payments, Net   (103,844)   (203,465)
Other Real Estate Owned Improvements   (19)   - 
Purchase of Federal Home Loan Bank Stock   (1,062)   (3,688)
Redemption of Federal Home Loan Bank Stock   82    - 
Proceeds from Sales and Payments of Other Real Estate Owned   3,504    11,008 
Net Cash Used In Investing Activities   (94,314)   (127,091)
           
FINANCING ACTIVITIES          
Net Change in Demand, Money Markets and Savings Accounts   307,311    7,295 
Decrease in Time Deposits   (197,761)   (76,495)
Proceeds from Federal Home Loan Bank Borrowings   25,000    - 
Cash Dividends Paid   (3,689)   - 
Net Cash Provided by (Used In) Financing Activities   130,861    (69,200)
           
Net Increase (Decrease) in Cash and Cash Equivalents   25,362    (167,658)
Cash and Cash Equivalents at Beginning of Period   125,812    293,823 
           
Cash and Cash Equivalents at End of Period  $151,174   $126,165 

 

See accompanying notes to unaudited consolidated financial statements.

 

7

 

 

CARTER BANK & TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

 

(Unaudited)
(Dollars in Thousands)
  Nine Months Ended
September 30, 2020
   Nine Months Ended
September 30, 2019
 
Supplementary Data:          
Cash Paid for Interest  $29,041   $34,833 
Cash Paid for Income Taxes  $416   $200 
Transfer from Loans to Other Real Estate Owned  $707   $302 
Transfer from Bank Premises and Equipment to Other Real Estate Owned  $2,221   $706 
Security (Purchases) Sales Settled in Subsequent Period  $(30,458)  $(8,706)
Right-of-use Asset Recorded in Exchange for Lease Liabilities  $621   $1,659 

 

See accompanying notes to unaudited consolidated financial statements.

 

8

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION

 

Principles of Consolidation:  The interim Consolidated Financial Statements include the accounts of Carter Bank & Trust and its wholly owned subsidiary. All significant intercompany transactions have been eliminated in consolidation.

 

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with applicable quarterly reporting regulations of the Securities and Exchange Commission (the “SEC”). They do not include all of the information and notes required by GAAP for complete financial statements. Therefore, these Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Carter Bank & Trust Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, the accompanying interim financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.

 

Reclassification: Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

 

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided. Actual results could differ from those estimates.

 

Goodwill and Long-Lived Assets: Goodwill represents the excess of the purchase price over the sum of the estimated fair values of tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. Long-lived assets are those that provide the Bank with a future economic benefit beyond the current year or operating period. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset is greater than the fair value of the asset. Assets to be disposed of are reported at the lower of the cost or the fair value, less costs to sell.

 

Effective January 1, 2020, the Bank adopted Accounting Standards Update (“ASU”) No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit.

 

9

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Management has determined that the Bank has one reporting unit. At September 30, 2020, the Bank considered the anticipated reduction in earnings due to the on-going economic market disruption, the sustained decline of the Bank’s stock price in relation to other bank indexes and the length of time that the market value of the reporting unit has been below its book value as triggering events. Therefore, the Bank completed a quantitative analysis to assess whether or not goodwill was impaired.  The analysis estimated fair value of the reporting unit to be less than the carrying value. The Bank has recorded an impairment charge of $62.2 million as of September 30, 2020. The impairment charge is a non-cash charge that does not affect regulatory capital ratios, liquidity, or our overall financial strength.

 

Derivative Financial Instruments-Interest Rate Swaps: In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the balance sheet at fair value. Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution, or counterparty. In connection with each transaction, the Bank originates a floating rate loan to the customer at a notional amount. In turn, the customer contracts with the counterparty to swap the stream of cash flows associated with the floating interest rate loan with the Bank for a stream of fixed interest rate cash flows based on the same notional amount as the Bank’s loan. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate loan with The Bank receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.

 

Pursuant to our agreements with various financial institutions, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

 

Derivatives contain an element of credit risk, the possibility that we will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by our Asset and Liability Committee (“ALCO”) and all derivatives with customers are approved by a team of qualified members from senior management who have been trained to understand the risk associated with interest rate swaps and have past industry experience. Interest rate swaps are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings in the Consolidated Statements of Comprehensive (Loss) Income.

 

The Cares Act:

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law, which, in part, established a loan program administered through the Small Business Administration ("SBA"), referred to as the Paycheck Protection Program ("PPP"). Under the PPP, small businesses, sole proprietorships, independent contractors, non-profit organizations and self-employed individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP program. All loans have a 1% interest rate and the Bank earns a fee that is based upon a tiered schedule corresponding with the amount of the loan to the borrower, which is deferred and recognized over the life of the loan. Based upon the borrower meeting certain criteria as defined by the CARES act, the loan maybe forgiven by the SBA. The Bank reports these loans at their principal amount outstanding, net of unearned income, unamortized deferred loan fee income and loan origination costs. Interest is accrued as earned and loan origination fees and direct costs are deferred and accreted or amortized into interest income, as an adjustment to the yield, over the life of the loan using the level yield method. When a PPP loan is paid off or forgiven by the SBA, the remaining unaccreted or unamortized net origination fees or costs are immediately recognized into income.

 

10

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” allows financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time during the COVID-19 pandemic. On April 7, 2020, the joint federal regulatory agencies issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement)”), which further discusses loan modifications related to COVID-19. The Bank has extended up to a 180 day delay in loan principal and/or interest payments for customers affected by the COVID-19 pandemic. These customers must meet certain criteria, such as they were in good standing and not more than 30 days past due either as of December 31, 2019, or as of the implementation of the modification program under the Interagency Statement, as well other requirements noted in the regulatory agencies’ revised statement. Based on the CARES Act provisions and the guidance noted above, The Bank does not classify the COVID-19 loan modifications as TDRs, nor are the customers considered past due with regards to their delayed payments to the extent they meet the criteria. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. In the third quarter of 2020, The Bank began Phase II of the modification deferral program under the CARES Act. The Bank did a comprehensive evaluation of the ability of the borrower to repay and evaluated the appropriateness of an additional deferral program, which would required more scrutiny, including the borrower’s ability to repay.

 

Newly Adopted Pronouncements in 2020: In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This accounting guidance became effective on January 1, 2020. The adoption of the guidance did not have a material effect on the Bank’s financial position, results of operation or disclosures.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The Bank adopted this ASU on January 1, 2020. The amendments in this ASU did not materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

 

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The main objective of ASU is to simplify the current requirements for testing goodwill for impairment by eliminating step two from the goodwill impairment test. The amendments are expected to reduce the complexity and costs associated with performing the goodwill impairment test, which could result in recording impairment charges sooner. The Bank adopted the amendments of this ASU on January 1, 2020. During the third quarter of 2020, the Bank recorded an impairment charge of $62.2 million as the estimated fair value of the reporting unit was less than the carrying value.

 

11

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Accounting Statements Issued But Not Yet Adopted: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance. The amendments in this ASU will be effective on January 1, 2021 and are not expected to have any impact on our consolidated financial statements.

 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in US GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, universally referred to as Current Expected Credit Loss (“CECL”). The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For periodic report filers that are not smaller reporting companies, such as the Bank, this standard (Topic 326) is effective as of January 1, 2020.

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the CECL accounting method under FASB ASU 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326). However, the Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

The Bank’s CECL Committee, which includes members from Credit Administration, Accounting/Finance, Risk Management and Internal Audit, has oversight by the Chief Executive Officer, Chief Financial Officer, and Chief Credit Officer. We engaged a third-party to assist us in developing our CECL model and to assist with evaluation of data and methodologies related to this standard.

 

12

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

As part of its process of adopting CECL, management implemented a third party software solution and determined appropriate loan segments, methodologies, model assumptions and qualitative components. Our CECL model includes portfolio loan segmentation based upon similar risk characteristics and both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables. Our implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls. Management had a third party independent consultant review and validate our CECL model.

 

Parallel runs utilizing data from the current and previous quarters in 2020 and 2019, incorporate elements of our operational procedures and internal controls. Our current parallel run includes the composition, characteristics and quality of our loan portfolio as well as current market economic conditions and forecasts as of the adoption date.

 

In addition, ASU 2016-13 amends the accounting for credit losses on certain debt securities. Based upon the nature and characteristics of our securities portfolio at the adoption date, management does not expect to record any allowance for credit losses on its debt securities as a result of adopting ASU 2016-13.

 

The ultimate impact of adopting ASU 2016-13, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available-for-sale securities portfolio, along with other management judgments. The transition adjustment to record the allowance for loan losses (“ALL”) will be applied using a cumulative effect adjustment to retained earnings.

 

NOTE 2 – EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the two-class method. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For all periods presented, the dilutive effect on average shares outstanding is the result of unvested restricted stock grants.

 

The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented:

 

  Three Months ended
September 30,
   Nine Months ended
September 30,
 
(Dollars in Thousands, except share and per share data)  2020   2019   2020   2019 
Numerator for Earnings per Share- Basic:                    
Net (Loss) Income Allocated to Common Shareholders  $(57,678)  $7,601   $(48,800)  $22,969 
Numerator for Earnings per Share- Diluted:                    
Net (Loss) Income Allocated to Shareholders  $(57,678)  $7,601   $(48,800)  $22,969 
Denominators:                    
Weighted Average Shares Outstanding- Basic   26,385,189    26,333,929    26,377,626    26,320,472 
Add: Average Participating Shares Outstanding   -    18,981    -    10,796 
Denominator for Two-Class Method-Diluted   26,385,189    26,352,910    26,377,626    26,331,268 
(Loss) Earnings per Common Share-Basic  $(2.19)  $0.29   $(1.85)  $0.87 
(Loss) Earnings per Common Share-Diluted  $(2.19)  $0.29   $(1.85)  $0.87 

 

13

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

There were 86,777 shares and 44,346 shares not included in the average participating shares outstanding because they would be considered to be anti-dilutive for the quarter and nine month period ended September 30, 2020, respectively. There were no weighted average shares considered anti-dilutive in the calculation for the quarter and nine month period ended September 30, 2019.

 

NOTE 3 – INVESTMENT SECURITIES

 

The following table sets forth a summary of the available-for-sale investment securities portfolio as of the periods indicated:

 

   September 30, 2020 
(Dollars in Thousands)  Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
 
Residential Mortgage-Backed Securities  $40,541   $1,120   $(245)  $41,416 
Commercial Mortgage-Backed Securities   10,395    435    -    10,830 
Asset Backed Securities   131,524    632    (2,573)   129,583 
Collateralized Mortgage Obligations   230,654    6,800    (337)   237,117 
Small Business Administration   97,683    314    (883)   97,114 
States and Political Subdivisions   224,600    11,579    (80)   236,099 
Corporate Notes   25,492    335    -    25,827 
Total Debt Securities  $760,889   $21,215   $(4,118)  $777,986 

 

   December 31, 2019 
(Dollars in Thousands)  Amortized
Cost
   Gross Unrealized Gains   Gross Unrealized Losses   Fair
Value
 
Residential Mortgage-Backed Securities  $51,600   $1,136   $(92)  $52,644 
Commercial Mortgage-Backed Securities   18,972    147    (113)   19,006 
Asset Backed Securities   110,943    285    (1,589)   109,639 
Collateralized Mortgage Obligations   291,139    2,425    (1,340)   292,224 
Small Business Administration   106,485    347    (1,096)   105,736 
States and Political Subdivisions   148,596    1,669    (1,785)   148,480 
Corporate Notes   14,721    167    -    14,888 
Total Debt Securities  $742,456   $6,176   $(6,015)  $742,617 

 

At September 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S. Government and its Agencies, in an amount greater than 10% of shareholders’ equity.

 

The carrying value of securities pledged to various regulatory and legal requirements was $126.4 million at September 30, 2020 and $150.6 million at December 31, 2019.

 

14

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Sales of securities were as follows:

 

   Three Months ended
September 30,
   Nine Months ended
September 30,
 
(Dollars in Thousands)  2020   2019   2020   2019 
Proceeds from Sales of Securities Available-for-Sale  $52,632   $148,819   $149,301   $312,727 
                     
Gross Realized Gains  $2,405   $1,457   $5,976   $3,404 
Gross Realized Losses   (17)   (798)   (53)   (1,805)
Net Realized Gains  $2,388   $659   $5,923   $1,599 
Tax Impact  $501   $138   $1,244   $336 

 

Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold. The net realized gains above represent reclassification adjustments in the calculation of other comprehensive income. The net realized gains are included in noninterest income as gains on sales of securities, net in the Consolidated Statements of (Loss) Income. The tax impact is included in income tax provision in the Consolidated Statements of (Loss) Income.

 

The amortized cost and fair value of securities available-for-sale by contractual maturity at September 30, 2020 are included in the table below. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single date are shown separately.

 

(Dollars in Thousands)  Amortized   Fair 
September 30, 2020  Cost   Value 
Due in One Year or Less   $3,865   $3,923 
Due after One Year through Five Years   8,004    8,237 
Due after Five Years through Ten Years   110,227    111,981 
Due after Ten Years       225,679    234,899 
Residential Mortgage-Backed Securities   40,541    41,416 
Commercial Mortgage-Backed Securities   10,395    10,830 
Collateralized Mortgage Obligations   230,654    237,117 
Asset Backed Securities    131,524    129,583 
Total Securities  $760,889   $777,986 

 

15

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Available-for-sale securities with unrealized losses at September 30, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 

   September 30, 2020 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of
Securities
   Fair
Value
   Unrealized
Losses
   Number of
Securities
   Fair
Value
   Unrealized
Losses
   Number of
Securities
   Fair
Value
   Unrealized
Losses
 
Residential Mortgage-Backed Securities   6   $16,328   $(244)   3   $46   $(1)   9   $16,374   $(245)
Asset Backed Securities   21    44,526    (970)   26    59,446    (1,603)   47    103,972    (2,573)
Collateralized Mortgage Obligations   6    11,929    (138)   15    46,759    (199)   21    58,688    (337)
Small Business Administration   7    11,732    (35)   75    50,823    (848)   82    62,555    (883)
States and Political Subdivisions   12    13,907    (80)   -    -    -    12    13,907    (80)
Total Debt Securities   52   $98,422   $(1,467)   119   $157,074   $(2,651)   171   $255,496   $(4,118)

 

   December 31, 2019 
   Less Than 12 Months   12 Months or More   Total 
(Dollars in Thousands)  Number of
Securities
   Fair
Value
   Unrealized
Losses
   Number of
Securities
   Fair
Value
   Unrealized
Losses
   Number of
Securities
   Fair
Value
   Unrealized
Losses
 
Residential Mortgage-Backed Securities  5   $9,972   $(92)   1   $2   $-    6   $9,974   $(92)
Commercial Mortgage-Backed Securities  3    7,713    (113)   -    -    -    3    7,713    (113)
Asset Backed Securities  22    50,530    (549)   16    39,153    (1,040)   38    89,683    (1,589)
Collateralized Mortgage Obligations  37    144,543    (1,051)   6    18,107    (289)   43    162,650    (1,340)
Small Business Administration  13    25,380    (91)   69    47,616    (1,005)   82    72,996    (1,096)
States and Political Subdivisions  37    70,678    (1,785)   -    -    -    37    70,678    (1,785)
Total Debt Securities  117   $308,816   $(3,681)   92   $104,878   $(2,334)   209   $413,694   $(6,015)

 

16

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Securities are evaluated for other-than-temporary impairment (“OTTI”) quarterly and more frequently if economic or market concerns warrant. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, the credit quality of the issuer and whether the Bank intends to sell the security or may be required to sell the security prior to maturity. The Bank has reviewed all securities for OTTI.

 

As of September 30, 2020, no OTTI has been identified for any investment securities in the Bank’s portfolio. The Bank does not believe any individual unrealized loss as of September 30, 2020 represents an other than temporary impairment, or OTTI. At September 30, 2020 there were 171 debt securities in an unrealized loss position and at December 31, 2019 there were 209 debt securities in an unrealized loss position. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities are determined to be investment grade and are paying principal and interest according to the contractual terms of the security. The Bank generally does not intend to sell and it is not more likely than not that the Bank will be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.

 

NOTE 4 – LOANS AND LOANS HELD-FOR-SALE

 

The composition of the loan portfolio by dollar amount is shown in the table below:

 

   September 30,     
   2020   December 31, 
(Dollars in Thousands)  (Unaudited)   2019 
Commercial          
Commercial Real Estate  $1,417,164   $1,365,310 
Commercial and Industrial   300,951    256,798 
Obligations of State and Political Subdivisions   310,610    364,869 
Commercial Construction   386,343    292,827 
Total Commercial Loans   2,415,068    2,279,804 
Consumer          
Residential Mortgages   490,343    514,538 
Other Consumer   66,177    73,688 
Consumer Construction   14,333    16,736 
Total Consumer Loans   570,853    604,962 
Total Portfolio Loans  $2,985,921   $2,884,766 

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Certain investment real estate property types and purchased loan programs have aggregate dollar limits based on management’s assessment of industry specific risks and portfolio performance. In addition, lending relationships are governed by transaction and relationship limits and guidelines are provided to promote targeted loan-to-value ratios, loan terms, and amortization periods.

 

17

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Unsecured loans pose higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses, operate with low financial and operating leverage and demonstrate an ability to clear the outstanding balance on lines of credit for at least thirty consecutive days annually. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

Total commercial loans represented 80.9% of total portfolio loans at September 30, 2020 and 79.0% of total portfolio loans at December 31, 2019. Within the Bank’s commercial portfolio, the Commercial Real Estate (“CRE”) and Commercial Construction portfolios combined comprised $1.8 billion or 74.7% of total commercial loans and 60.4% of total portfolio loans at September 30, 2020 and comprised $1.7 billion or 72.7% of total commercial loans and 57.5% of total portfolio loans at December 31, 2019. Net deferred costs included in the portfolio balances above were $3.3 million and $5.1 million at September 30, 2020 and December 31, 2019, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $226 thousand and $250 thousand at September 30, 2020 and December 31, 2019, respectively.

 

As of September 30, 2020, the Bank had processed either through a third party or internally 962 PPP loans totaling $55.8 million, represented by $15.9 million and $39.9 million processed in round one and round two, respectively. These PPP loans generated $1.5 million in fees which will be recognized in income when the loan is forgiven or over the remaining life of the loan. The PPP loans had zero allowance reserves associated with them since they are 100% guaranteed by the SBA.

 

Loans held-for-sale, which are residential mortgage loans, were $32.1 million and $19.7 million at September 30, 2020 and December 31, 2019, respectively.

 

18

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 5 - ALLOWANCE FOR LOAN LOSSES

 

The following table presents, by portfolio segment, the changes in the ALL and the allocation of the ALL for the three and nine month periods ended September 30, 2020 and 2019:

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Three Months Ended September 30, 2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Balance: Beginning of Period  $28,546   $3,816   $1,015   $8,326   $2,186   $3,465   $51   $47,405 
Provision Charged to Expense   1,662    111    165    710    219    31    16    2,914 
Losses Charged Off   -    -    -    -    -    (680)   -    (680)
Recoveries   -    119    -    -    1    206    -    326 
Balance, End of Period  $30,208   $4,046   $1,180   $9,036   $2,406   $3,022   $67   $49,965 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Three Months Ended September 30, 2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Balance: Beginning of Period  $26,713   $2,730   $406   $4,998   $2,090   $2,997   $74   $40,008 
Provision Charged to Expense   (15)   (37)   (11)   448    9    992    4    1,390 
Losses Charged Off   -    (1)   -    -    (174)   (1,080)   -    (1,255)
Recoveries   -    -    -    -    -    188    -    188 
Balance, End of Period  $26,698   $2,692   $395   $5,446   $1,925   $3,097   $78   $40,331 

 

19 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Nine Months Ended September 30, 2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Balance: Beginning of Period  $24,706   $3,236   $365   $5,377   $1,736   $3,299   $43   $38,762 
Provision Charged to Expense   4,835    735    815    3,659    689    2,428    24    13,185 
Losses Charged Off   (40)   (46)   -    -    (20)   (3,301)   -    (3,407)
Recoveries   707    121    -    -    1    596    -    1,425 
Balance, End of Period  $30,208   $4,046   $1,180   $9,036   $2,406   $3,022   $67   $49,965 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
Nine Months Ended September 30, 2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Balance: Beginning of Period  $23,897   $626   $432   $5,214   $6,129   $2,728   $173   $39,199 
Provision Charged to Expense   2,870    2,069    (37)   625    (4,007)   2,961    (95)   4,386 
Losses Charged Off   (69)   (3)   -    (393)   (197)   (3,039)   -    (3,701)
Recoveries   -    -    -    -    -    447    -    447 
Balance, End of Period  $26,698   $2,692   $395   $5,446   $1,925   $3,097   $78   $40,331 

 

20 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following table presents the balances in the ALL and the recorded investment in the loan balances based on impairment method as of September 30, 2020 and December 31, 2019:

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
September 30,  2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Individually Evaluated for Impairment  $6,594   $-   $-   $1,434   $-   $-   $-   $8,028 
Collectively Evaluated for Impairment   23,614    4,046    1,180    7,602    2,406    3,022    67    41,937 
Total Allowance for Loan Losses  $30,208   $4,046   $1,180   $9,036   $2,406   $3,022   $67   $49,965 
                                         
Total Portfolio Loans:                                        
Individually Evaluated for Impairment  $34,607   $-   $-   $59,417   $51,666   $-   $-   $145,690 
Collectively Evaluated for Impairment   1,382,557    300,951    310,610    326,926    438,677    66,177    14,333    2,840,231 
Total Portfolio Loans  $1,417,164   $300,951   $310,610   $386,343   $490,343   $66,177   $14,333   $2,985,921 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
December 31,  2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Allowance for Loan Losses:                                        
Individually Evaluated for Impairment  $5,779   $390   $   $   $-   $-   $-   $6,169 
Collectively Evaluated for Impairment   18,927    2,846    365    5,377    1,736    3,299    43    32,593 
Total Allowance for Loan Losses  $24,706   $3,236   $365   $5,377   $1,736   $3,299   $43   $38,762 
                                         
Total Portfolio Loans:                                        
Individually Evaluated for Impairment  $33,256   $390   $   $59,053   $52,966   $   $   $145,665 
Collectively Evaluated for Impairment   1,332,054    256,408    364,869    233,774    461,572    73,688    16,736    2,739,101 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 

 

The recorded investment in loans excludes accrued interest receivable.

 

21 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Impaired Loans

 

The following table includes the recorded investment and unpaid principal balance for impaired loans with the associated allowance, if applicable, at September 30, 2020, December 31, 2019 and September 30, 2019:

 

                   Three Months Ended   Nine Months Ended 
                   September 30, 2020   September 30, 2020 
(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average  Investment   Interest Income   Interest Income 
September 30, 2020  Balance   Balance   Allowance   in Impaired Loans   Recognized   Recognized 
Loans without a Specific Valuation Allowance                               
Commercial Real Estate  $6,320   $6,320   $-   $4,442   $154   $218 
Commercial Construction   57,678    57,678    -    57,365    432    1,440 
Residential Mortgages   51,666    51,666    -    51,990    429    1,477 
                               
Loans with a Specific Valuation Allowance                              
Commercial Real Estate   28,287    28,287    6,594    28,617    -    - 
Commercial & Industrial   -    -    -    230    -    - 
Commercial Construction   1,739    1,739    1,434    1,739    -    - 
Residential Mortgages   -    -    -    -    -    - 
                               
Total by Category                              
Commercial Real Estate   34,607    34,607    6,594    33,059    154    218 
Commercial & Industrial   -    -    -    230    -    - 
Commercial Construction   59,417    59,417    1,434    57,365    432    1,440 
Residential Mortgages   51,666    51,666    -    53,729    429    1,477 
Total Impaired Loans  $145,690   $145,690   $8,028   $144,383   $1,015   $3,135 

 

22 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Interest Income 
December 31, 2019  Balance   Balance   Allowance   in Impaired Loans   Recognized 
Loans without a Specific Valuation Allowance                         
Commercial Real Estate  $4,487   $4,487   $-   $5,885   $131 
Commercial Construction   59,053    59,053    -    59,558    3,056 
Residential Mortgages   52,966    52,966    -    57,079    5,862 
                          
Loans with a Specific Valuation Allowance                         
Commercial Real Estate   28,769    28,769    5,779    31,201    - 
Commercial & Industrial   390    390    390    434    - 
Commercial Construction   -    -    -    1,716    - 
                          
Total by Category                         
Commercial Real Estate   33,256    33,256    5,779    37,086    131 
Commercial & Industrial   390    390    390    434    - 
Commercial Construction   59,053    59,053    -    61,274    3,056 
Residential Mortgages   52,966    52,966    -    57,079    5,862 
Total Impaired Loans  $145,665   $145,665   $6,169   $155,873   $9,049 

 

23 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

                   Three Months Ended   Nine Months Ended 
                   September 30, 2019   September 30, 2019 
(Dollars in Thousands)  Unpaid Principal   Recorded   Specific   Average Investment   Interest Income   Interest Income 
September 30, 2019  Balance   Balance   Allowance   in Impaired Loans   Recognized   Recognized 
Loans without a Specific Valuation Allowance                              
Commercial Real Estate  $4,391   $4,391   $-   $6,443   $33   $98 
Commercial Construction   60,394    60,394    -    59,476    1,238    2,413 
Residential Mortgages   57,966    57,966    -    58,107    812    5,145 
                               
Loans with a Specific Valuation Allowance                              
Commercial Real Estate   32,897    32,897    5,995    31,882    -    - 
Commercial Construction   -    -    -    2,517    -    - 
                               
Total by Category                              
Commercial Real Estate   37,288    37,288    5,995    38,325    33    98 
Commercial Construction   60,394    60,394    -    61,993    1,238    2,413 
Residential Mortgages   57,966    57,966    -    58,107    812    5,145 
Total Impaired Loans  $155,648   $155,648   $5,995   $158,425   $2,083   $7,656 

 

For the three months ended September 30, 2020 and 2019, interest income recognized on impaired loans was $1.0 million and $2.1 million, respectively. For the nine months ended September 30, 2020 and 2019, interest income recognized on impaired loans was $3.1 million and $7.7 million, respectively. For the year ended December 31, 2019, interest income recognized on impaired loans was $9.0 million.

 

24 

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Troubled Debt Restructurings

 

The following table summarizes the Bank’s troubled debt restructured loans as of the dates presented:

 

   September 30, 2020   December 31, 2019 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Commercial                              
Commercial Real Estate  $6,174   $28,599   $34,773   $3,183   $30,073   $33,256 
Commercial and Industrial   -    -    -    -    390    390 
Obligations of State and Political Subdivisions   -    -    -    -    -    - 
Commercial Construction   52,481    4,249    56,730    53,116    4,242    57,358 
Total Commercial TDRs   58,655    32,848    91,503    56,299    34,705    91,004 
Consumer                              
Residential Mortgages   51,665    -    51,665    52,966    -    52,966 
Other Consumer   -    -    -    -    -    - 
Consumer Construction   -    -    -    -    -    - 
Total Consumer TDRs   51,665    -    51,665    52,966    -    52,966 
Total TDRs  $110,320   $32,848   $143,168   $109,265   $34,705   $143,970 

 

In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized when there is a reasonable chance that an appropriate modification would allow our client to continue servicing the debt. A loan is a TDR if both of the following exist: 1) the debtor is experiencing financial difficulties and 2) a creditor has granted a concession to the debtor that it would not normally grant. Nonaccrual loans that are modified can be placed back on accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

 

The Bank had one commercial real estate loan modified as a TDR during the third quarter of 2020, but there were no modifications during the second quarter of 2020. The customer has been an interest only loan for an extended period of time and the borrower cannot amortize the loan at the present time. In addition, interest that has been waived under COVID-19 is not being collected at this time. An updated appraisal on the the collateral for this loan has been ordered. The Bank had one consumer automobile loan modified as a TDR during the first quarter of 2020. The customer was experiencing financial difficulties, but sold the vehicle and the proceeds from that sale were applied to the loan balance. The remaining balance was charged-off, but the loan has been re-amortized for the customer to repay the balance by the end of 2021.

 

The Bank did not have any loans modified as TDRs during the three and nine month periods ended September 30, 2019.

 

At September 30, 2020 and December 31, 2019, the Bank had $32.8 million and $34.7 million in loans, respectively, modified as TDRs in previous years which had experienced a payment default subsequent to the rework date and were classified as nonperforming. The nonaccrual TDRs are primarily due to one credit relationship. There were no TDR payment defaults during the three or nine month periods ending September 30, 2020 and 2019. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

 

25

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The specific reserve portion of the ALL on TDRs, if required, is determined by discounting the restructured cash flow at the original effective rate of the loan before modification or is based on the fair value of the collateral less cost to sell, if repayment of the loan is collateral dependent. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance as a component of the ALL or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. As of September 30, 2020, specific reserves were recorded in the amount of $8.0 million on three credit relationships. As of December 31, 2019, specific reserves were recorded in the amount of $6.2 million on two credit relationships. There were minimal commitments to lend additional funds on relationships identified as TDRs in the amount of $0.5 million as of September 30, 2020.

 

As of September 30, 2020 and December 31, 2019, the Bank had $244 thousand and $290 thousand, respectively of residential real estate in the process of foreclosure. The Bank had $63 thousand at September 30, 2020 and $69 thousand at December 31, 2019 in residential real estate included in other real estate owned (“OREO”).

 

Portfolio Quality Indicators:

 

The Bank’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Bank’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.

 

The Bank’s internally assigned grades are as follows:

 

Pass – The loan is currently performing and is of high quality.

 

Special Mention – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

 

Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

 

Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

 

26

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following tables represent credit exposures by internally assigned grades as of September 30, 2020 and December 31, 2019:

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
September 30,  2020  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Pass  $1,246,957   $222,719   $310,610   $266,960   $433,440   $65,965   $14,333   $2,560,984 
Special Mention   7,703    47    -    640    982    7    -    9,379 
Substandard   162,504    78,185    -    118,743    55,921    205    -    415,558 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
Total Portfolio Loans  $1,417,164   $300,951   $310,610   $386,343   $490,343   $66,177   $14,333   $2,985,921 
                                         
Performing Loans  $1,388,330   $300,792   $310,610   $378,346   $487,033   $66,025   $14,333   $2,945,469 
Non-Accrual Loans   28,834    159    -    7,997    3,310    152    -    40,452 
Total Portfolio Loans  $1,417,164   $300,951   $310,610   $386,343   $490,343   $66,177   $14,333   $2,985,921 

 

   Commercial       Obligations                     
(Dollars in Thousands)  Real   Commercial   Of States and   Commercial   Residential   Other   Consumer     
December 31, 2019  Estate   & Industrial   Political Sub.   Construction   Mortgages   Consumer   Construction   Total 
Pass  $1,198,269   $167,326   $364,869   $173,176   $456,859   $73,345   $16,736   $2,450,580 
Special Mention   1,368    203    -    1,476    1,178    9    -    4,234 
Substandard   165,673    89,269    -    118,175    56,501    334    -    429,952 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 
                                         
Performing Loans  $1,334,220   $256,331   $364,869   $285,375   $511,681   $73,421   $16,736   $2,842,633 
Non-Accrual Loans   31,090    467    -    7,452    2,857    267    -    42,133 
Total Portfolio Loans  $1,365,310   $256,798   $364,869   $292,827   $514,538   $73,688   $16,736   $2,884,766 

 

27

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Age Analysis of Past-Due Loans by Class

 

The following table includes an aging analysis of the recorded investment of past due loans as of September 30, 2020 and December 31, 2019.

 

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
September 30,  2020  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Commercial Real Estate  $80   $-   $-   $80   $1,388,250   $28,834   $1,417,164   $- 
Commercial & Industrial   108    18    -    126    300,666    159    300,951    - 
Obligations of States and Political Sub.   -    -    -    -    310,610    -    310,610    - 
Commercial Construction   172    -    -    172    378,174    7,997    386,343    - 
Residential Mortgages   1,467    32    -    1,499    485,534    3,310    490,343    - 
Other Consumer   386    185    -    571    65,454    152    66,177    - 
Consumer Construction   -    -    -    -    14,333    -    14,333    - 
Total  $2,213   $235   $-   $2,448   $2,943,021   $40,452   $2,985,921   $- 

  

                               Accruing 
   Loans   Loans   Loans 90 or                   Loans More 
(Dollars in Thousands)  30-59 Days   60-89 Days   More Days   Total   Current   Non-Accrual   Total   Than 90 Days 
December 31, 2019  Past Due   Past Due   Past Due   Past Due   Loans   Loans   Loans   Past Due 
Commercial Real Estate  $307   $913   $-   $1,220   $1,333,000   $31,090   $1,365,310   $- 
Commercial & Industrial   146    15    -    161    256,170    467    256,798    - 
Obligations of States and Political Sub.   236    -    -    236    364,633    -    364,869    - 
Commercial Construction   58    170    -    228    285,147    7,452    292,827    - 
Residential Mortgages   937    5    -    942    510,739    2,857    514,538    - 
Other Consumer   894    389    -    1,283    72,138    267    73,688    - 
Consumer Construction   -    -    -    -    16,736    -    16,736    - 
Total  $2,578   $1,492   $-   $4,070   $2,838,563   $42,133   $2,884,766   $- 

 

28

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 6 – FAIR VALUE MEASUREMENTS

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. These include discounted cash flow models, appraisals, internal valuations, and other similar techniques.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair value:

 

Securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.

 

Impaired Loans: Impaired loans with an outstanding balance equal to or greater than $1.0 million are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent.  All impaired loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

 

29

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Fair value for collateral dependent loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 

Subsequent to the initial impairment date, existing impaired loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For collateral dependent loans, the first stage of our impairment analysis involves management’s inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal. In circumstances where the Bank feels confident in its ability to collect and analyze salient information on the subject collateral and its surrounding real estate market, an in house valuation shall be utilized.  Factors which should be considered in an in house valuation are timing of sale, location and neighborhood, size of the structure and land component, age of any improvements, and other attributes as warranted by the Bank.  This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and our assessment of deterioration of real estate values in the market in which the property is located. When the Bank feels it cannot collect and analyze salient information on the subject collateral or the collateral’s real estate market, a full appraisal will be utilized.

 

For non-collateral dependent loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

 

OREO: OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market, or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to revalue the assets, at minimum, once every twenty-four months based on the size of the exposure. Write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its carring value or fair value less cost to sell. Such adjustments can be significant and result in a Level 3 classification of the inputs for determining fair value. At September 30, 2020 the Bank’s OREO assets were in compliance with the Bank’s OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third party real estate brokers.

 

30

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Financial assets measured at fair value on a recurring basis at September 30, 2020 are summarized below:

 

       Quoted Prices In       Significant 
       Active Markets for   Significant Other   Unobservable 
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $777,986   $-   $767,986   $10,000 
Derivatives   4,765    -    4,765    - 
Total  $782,751   $-   $772,751   $10,000 
                     
Liabilities                    
Derivatives  $5,099   $-   $5,099   $- 
Total  $5,099   $-   $5,099   $- 

 

Financial assets measured at fair value on a recurring basis at December 31, 2019 are summarized below:

 

       Quoted Prices In       Significant 
       Active Markets for   Significant Other   Unobservable 
   Carrying   Identical Assets   Observable Inputs   Inputs 
(Dollars in Thousands)  Value   (Level 1)   (Level 2)   (Level 3) 
Assets                    
Securities Available-for-Sale  $742,617   $-   $737,617   $5,000 
Derivatives   626    -    626    - 
Total  $743,243   $-   $738,243   $5,000 
                     
Liabilities                    
Derivatives  $675   $-   $675   $- 
Total  $675   $-   $675   $- 

 

Financial assets measured at fair value on a non-recurring basis are summarized below:

 

(Dollars in Thousands)                
September 30, 2020  Level 1   Level 2   Level 3   Fair Value 
OREO  $-   $-   $16,410   $16,410 
Impaired Loans  $-   $-   $21,998   $21,998 

 

(Dollars in Thousands)                
December 31, 2019  Level 1   Level 2   Level 3   Fair Value 
OREO  $-   $-   $18,324   $18,324 
Impaired Loans  $-   $-   $22,989   $22,989 

 

Impaired loans had a net carrying amount of $22.0 million at September 30, 2020 with a valuation allowance of $8.0 million, resulting in a $1.8 million increase in provision for loan losses for the nine months ended September 30, 2020. During the three months ended September 30, 2020, there was a $0.1 million increase in provision for loan losses on impaired loans. At December 31, 2019, impaired loans had a net carrying amount of $23.0 million, with a valuation allowance of $6.2 million.

 

31

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $16.4 million as of September 30, 2020, compared with $18.3 million at December 31, 2019, a decrease of $1.9 million. Write-downs of $1.3 million were recorded on OREO for the three months ended September 30, 2020 compared to $237 thousand for the three months ended September 30, 2019, respectively. Write-downs of $1.4 million and $327 thousand were recorded on OREO for the nine months ended September 30, 2020 and 2019, respectively.

 

The following table summarizes the Bank’s assets that were measured at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019:

 

(Dollars in Thousands)  Fair   Valuation  Unobservable  Weighted     
September 30,  2020  Value   Technique  Inputs  Range   Average 
Assets                     
Impaired Loans  $1,849   Discounted Appraisals  Management’s Discount, Estimated Selling Cost & Other Expenses   47.2%   47.2%
Impaired Loans   19,844   Discounted Appraisals  Estimated Selling Costs & Qualitative Adjustments   0.0% - 50.0%   19.8%
Impaired Loans   305   Discounted Appraisals  Estimated Selling Costs & Other Expenses   14.9%   14.9%
Total Impaired Loans  $21,998                 
                      
Other Real Estate Owned  $12,544   Appraisals  Estimated Selling Costs   6.0% - 10.0%   6.5%
Other Real Estate Owned   1,376   Discounted Cash Flow  Discount Rate   6.3%   6.3%
Other Real Estate Owned   1,583   Internal Valuations  Estimated Selling Costs   5.0%   5.0%
Other Real Estate Owned   907   Discounted Internal Valuations  Management’s Discount & Estimated Selling Costs   33.7% - 73.5%   55.5%
Total Other Real Estate Owned  $16,410                 
                   
   Fair   Valuation  Unobservable  Weighted     
December 31,  2019  Value   Technique  Inputs  Range   Average 
Assets                     
Impaired Loans  $2,700   Purchase Contract  Pending Close of Contract,
Net of Closing Costs
   25.0%   25.0%
Impaired Loans   20,289   Discounted Appraisals  Management’s Discount &
Selling Costs
   2.6% - 84.6%   24.1%
Total Impaired Loans  $22,989                 
                      
Other Real Estate Owned  $13,596   Appraisals  Selling Costs   6.0% - 10.0%   6.4%
Other Real Estate Owned   1,735   Discounted Cash Flow  Discount Rate   6.3%   6.3%
Other Real Estate Owned   2,993   Internal Valuations  Selling Costs   5.0%   5.0%
Total Other Real Estate Owned  $18,324                 

 

The carrying values and estimated fair values of the Bank’s financial instruments at September 30, 2020 and December 31, 2019 are presented in the following tables. Fair values for September 30, 2020 and December 31, 2019 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”.

 

32

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

      Fair Value Measurements at September 30, 2020 
(Dollars in Thousands)  Carrying Value   Level 1   Level 2   Level 3   Total 
Financial Assets:                         
Cash and Cash Equivalents  $151,174   $37,688   $113,486   $-   $151,174 
Securities Available-for-Sale   777,986    -    767,986    10,000    777,986 
Loans Held-for-Sale   32,104    -    -    32,104    32,104 
Portfolio Loans   2,985,921    -    -    2,958,185    2,958,185 
Federal Home Loan Bank Stock, at Cost   5,093    -    -    N/A    N/A 
Other Assets- Interest Rate Derivatives   4,765    -    4,765    -    4,765 
Accrued Interest Receivable   35,923    -    2,811    33,112    35,923 
                          
Financial Liabilities:                         
Deposits  $3,613,795   $665,813   $1,185,337   $1,769,080   $3,620,230 
Other Liabilities- Interest Rate Derivatives   5,099    -    5,099    -    5,099 
FHLB Borrowings   35,000    -    -    35,566    35,566 
Accrued Interest Payable   2,437    -    -    2,437    2,437 

 

      Fair Value Measurements at December 31, 2019 
(Dollars in Thousands)  Carrying Value   Level 1   Level 2   Level 3   Total 
Financial Assets:                         
Cash and Cash Equivalents  $125,812   $41,386   $84,426   $-   $125,812 
Securities Available-for-Sale   742,617    -    737,617    5,000    742,617 
Loans Held-for-Sale   19,714    -    -    19,714    19,714 
Portfolio Loans   2,884,766    -    -    2,857,986    2,857,986 
Federal Home Loan Bank Stock, at Cost   4,113    -    -    N/A    N/A 
Other Assets- Interest Rate Derivatives   626    -    626    -    626 
Accrued Interest Receivable   13,751    -    3,018    10,733    13,751 
                          
Financial Liabilities:                         
Deposits  $3,504,245   $554,875   $988,964   $1,967,563   $3,511,402 
Other Liabilities- Interest Rate Derivatives   675    -    675    -    675 
FHLB Borrowings   10,000    -    -    9,886    9,886 
Accrued Interest Payable   3,001    -    -    3,001    3,001 

 

NOTE 7 – GOODWILL AND OTHER INTANGIBLES

 

Goodwill has an indefinite useful live and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset would more-likely-than-not reduce the fair value below the carrying amount. The Bank has one reporting unit, which is the core banking operation. The Bank has historically performed its impairment evaluation on an annual basis.

 

As of September 30, 2020, the Bank considered the anticipated reduction in earnings due to the on-going economic market disruptiondue to the COVID-19 pandemic, the sustained decline of the Bank’s stock price in relation to other bank indexes and the length of time that the market value of the reporting unit has been below its book value as triggering events. Therefore, the Bank completed a quantitative analysis to assess whether or not goodwill was impaired.  The analysis estimated fair value of the reporting unit to be less than the carrying value. The Bank has recorded an impairment charge of $62.2 million as of September 30, 2020.

 

33

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The table below shows goodwill balances as of the dates presented:

 

(Dollars in Thousands)  September 30, 2020   December 31, 2019 
Beginning Balance  $62,192   $62,192 
Impairment Losses   (62,192)   - 
Ending Balance  $-   $62,192 

 

NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the balance sheet at fair value. Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution, or counterparty. In connection with each transaction, the Bank originates a floating rate loan to the customer at a notional amount. In turn, the customer contracts with the counterparty to swap the stream of cash flows associated with the floating interest rate loan with the Bank for a stream of fixed interest rate cash flows based on the same notional amount as the Bank’s loan. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate loan with The Bank receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.

 

Pursuant to our agreements with various financial institutions, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

 

Derivatives contain an element of credit risk, the possibility that we will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by our Asset and Liability Committee (“ALCO”) and all derivatives with customers are approved by a team of qualified members from senior management who have been trained to understand the risk associated with interest rate swaps and have past industry experience. Interest rate swaps are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings in the Consolidated Statements of Comprehensive (Loss) Income.

 

34

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following table indicates the amounts representing the value of derivative assets and derivative liabilities at September 30, 2020 and December 31, 2019:

 

   Fair Values of Derivative Instruments 
   Asset Derivatives (Included in Other Assets) 
(Dollars in Thousands)  September 30, 2020   December 31, 2019 
  

Number of

Transactions

  

Notional

Amount

   Fair Value  

Number of

Transactions

  

Notional

Amount

   Fair Value 
Derivatives not Designated as Hedging Instruments                              
Interest Rate Lock Commitments – Mortgage Loans   1   $133   $1    5   $937   $1 
Interest Rate Swap Contracts – Commercial Loans   28    202,482    4,764    2    18,773    625 
Total Derivatives not Designated as Hedging Instruments   29   $202,615   $4,765    7   $19,710   $626 

 

   Fair Values of Derivative Instruments 
   Liability Derivatives (Included in Other Liabilities) 
(Dollars in Thousands)  September 30, 2020   December 31, 2019 
  

Number of

Transactions

  

Notional

Amount

   Fair Value  

Number of

Transactions

  

Notional

Amount

   Fair Value 
Derivatives not Designated as Hedging Instruments                              
Forward Sale Contracts – Mortgage Loans   1   $133   $1    5   $937   $1 
Interest Rate Swap Contracts – Commercial Loans   28    202,482    5,098    2    18,773    674 
Total Derivatives not Designated as Hedging Instruments   29   $202,615   $5,099    7   $19,710   $675 

 

The following table indicates the loss recognized in income on derivatives for the periods presented:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30,   September 30,   September 30, 
(Dollars in Thousands)  2020   2019   2020   2019 
Derivatives not Designated as Hedging Instruments                    
Interest Rate Lock Commitments – Mortgage Loans  $(6)  $2   $-   $2 
Forward Sale Contracts – Mortgage Loans   6    (2)   -    (2)
Interest Rate Swap Contracts – Commercial Loans   (86)   (13)   (285)   (40)
Total Derivative Loss  $(86)  $(13)  $(285)  $(40)

 

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

 

35

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets for the periods presented:

 

   Asset Derivatives (Included in Other Assets)   Liability Derivatives (Included in Other Liabilities) 
(Dollars in Thousands)  September 30, 2020   December 31, 2019   September 30, 2020   December 31, 2019 
Derivatives not Designated as Hedging Instruments                    
Gross Amounts Recognized  $4,764   $625   $5,098   $674 
Gross Amounts Offset   -    -    -    - 
Net Amounts Presented in the Consolidated Balance Sheets   4,764    625    5,098    674 
Gross Amounts Not Offset (1)   -    -    (5,060)   (860)
Net Amount  $4,764   $625   $38   $(186)

 

(1)  Amounts represent collateral posted for the periods presented.

 

NOTE 9 – FEDERAL HOME LOAN BANK ADVANCES

 

Borrowings are an additional source of liquidity for the Bank. Long-term borrowings are for terms greater than one year and consist of Federal Home Loan Bank (“FHLB”) advances. FHLB borrowings were $35.0 million and $10.0 million at September 30, 2020 and December 31, 2019, respectively. FHLB borrowings are fixed rate advances for various terms and are currently secured by a blanket lien on select residential mortgages at September 30, 2020. Total loans pledged as collateral were $290.8 million and $284.6 million at September 30, 2020 and December 31, 2019, respectively. There were no securities available-for-sale pledged as collateral at September 30, 2020. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $205.5 million based upon current qualifying collateral and has a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of September 30, 2020.

 

The following table represents the balance of long-term borrowings and the weighted average interest rate as of the periods presented:

 

(Dollars in Thousands)  September 30, 2020   December 31, 2019 
Long-term Borrowings  $35,000   $10,000 
Weighted Average Interest Rate   1.13%   1.63%

 

36

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to September 30, 2020 and thereafter are as follows:

 

       Weighted 
(Dollars in Thousands)  Balance   Average Rate 
1 year  $-    0.00%
2 years   3,000    1.68%
3 years   14,000    1.09%
4 years   10,000    0.94%
5 years   8,000    1.25%
Thereafter   -    0.00%
Total FHLB Borrowings  $35,000    1.13%

 

NOTE 10 – INCENTIVE AND RESTRICTED STOCK PLAN

 

The Board of Directors of the Bank adopted the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (the “Plan”) on March 29, 2018 based on the recommendation of the Nominating and Compensation Committee (the “Committee”). The Plan became effective on June 27, 2018 and reserves 2,000,000 shares of common stock for issuance. The Plan provides for the grant to key employees and non-employee directors of awards that may include one or more of the following: stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units and performance cash awards (collectively, the “awards”). Subject to accelerated vesting under certain circumstances, the Plan requires a minimum vesting period of one year for awards subject to time-based conditions and a minimum performance period of one year for awards subject to achievement or satisfaction of performance goals. These minimums are applicable to awards other than those granted as part of a retainer for the service of non-employee directors. The Committee will set the vesting period on the awards. No awards may be granted under the Plan more than ten years from the effective date of the Plan.

 

Restricted Stock

 

The Bank periodically issues restricted stock to non-employee directors, executive officers and employees pursuant to its Plan. As of September 30, 2020, 132,027 restricted shares have been granted under the Plan, 2,887 shares have been forfeited and 37,967 shares have vested.

 

The Bank granted 39,019 and 47,009 restricted shares of common stock to key personnel under the Plan during the nine months ended September 30, 2020 and 2019, respectively. Totals grants of restricted stock to key personnel totaled 98,741 shares as of September 30, 2020. Forfeitures of restricted stock were 2,484 and 403 shares during the first nine months of 2020 and 2019, respectively. During the first nine months of 2020, 15,356 shares of restricted stock vested. No shares of restricted stock vested during the first nine months of 2019. These grants were approved by the Committee as compensation for substantial contributions to Bank performance, including contribution during our recent core system conversion. These key personnel restricted shares fully vest three years after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

37

 

 

CARTER BANK & TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The Bank granted 16,137 and 17,149 restricted shares of common stock to non-employee directors under the Plan during the nine months ended September 30, 2020 and 2019, respectively. Total grants of restricted shares to non-employee directors totaled 33,286 shares as of September 30, 2020. There were no forfeitures of these restricted stock shares during the first nine months of 2020 or 2019. During the first nine months of 2020, 18,616 shares of restricted stock vested. No shares of restricted stock vested during the first nine months of 2019. These grants were approved by the Committee as compensation for performance. These restricted shares were originally approved to fully vest three years after the grant date. However, the Committee approved accelerated vesting of these non-employee director restricted shares in January 2020 to fully vest one year after the grant date. The closing price of our stock was used to determine the fair value on the date of the grant.

 

If any award granted under this Plan terminates, expires, or lapses for any reason other than by virtue of exercise or settlement of the award, or if shares issued pursuant to awards are forfeited, any stock subject to such award again shall be available for future awards under the Plan.

 

Compensation expense for restricted shares of stock is recognized ratably over the period of service, generally the entire vesting period, based on fair value on the grant date. During the third quarter of 2020 and 2019, the Bank recognized compensation expense of $230 thousand and $112 thousand, respectively. During the nine months ended September 30, 2020 and 2019, respectively, the Bank recognized compensation expense of $805 thousand and $269 thousand.

 

As of September 30, 2020, there was $1.2 million of total unrecognized compensation cost related to restricted stock that will be recognized as compensation expense over a weighted average period of 1.80 years.

 

The following table provides information about restricted stock grants, vesting’s and forfeitures under the Plan for the nine months ended September 30, 2020 and the year ended December 31, 2019:

 

       Weighted Average 
       Grant Date 
   Restricted Shares   Fair Value 
Non-vested at December 31, 2018   12,413    17.86 
Granted   64,458    17.39 
Vested   (3,995)   17.86 
Forfeited   (403)   17.86 
Non-vested at December 31, 2019   72,473   $17.44 
Granted   55,156    19.23 
Vested   (33,972)   16.83 
Forfeited/Denials   (2,484)   19.19 
Non-vested at September 30, 2020   91,173   $18.70 

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Commitments to extend credit, which amounted to $573.4 million at September 30, 2020 and $488.9 million at December 31, 2019, respectively, represent agreements to lend to customers with fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements. Standby letters of credit are conditional commitments issued by the Bank guaranteeing the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The Bank had outstanding letters of credit in the amount of $31.0 million at September 30, 2020 and $39.5 million at December 31, 2019.

 

38

 

 

CARTER BANK & TRUST 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and unconditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.

 

The Bank’s allowance for unfunded commitments is determined using a methodology similar to that used to determine the allowance for loan loss (“ALL”). Amounts are added to the allowance for unfunded commitments through a charge to current earnings in noninterest expense. The balance in the allowance for unfunded commitments was $0.6 million at September 30, 2020 and $0.4 million at December 31, 2019. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The reserve is calculated by applying historical loss rates to our unfunded commitments.

 

Litigation

 

In the normal course of business, the Bank is subject to various legal and administrative proceedings and claims. While any type of litigation contains a level of uncertainty, we believe that the outcome of such proceedings or claims pending will not have a material adverse effect on our consolidated financial position or results of operations.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or (“MD&A”), represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations as of and for the three and nine month periods ended September 30, 2020 and 2019. Our MD&A should be read in conjunction with our Consolidated Financial Statements and notes thereto. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.

 

39

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Important Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains or incorporates statements that we believe are “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; loan quality; levels of net charge-offs; changes in appraised values of collateral securing loans; the Bank’s liquidity and capital positions; interest rates; 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 Bank's borrowers to satisfy their obligations to the Bank, on the value of collateral securing loans, on the demand for the Bank's loans or its other products and services, on incidents of cyberattack and fraud, on the Bank’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Bank's business operations and on financial markets and economic growth; rates of customer loan payoffs; cyber-security concerns; rapid technological developments and changes; the impact of the information technology systems upgrade; efforts to restructure the balance sheet; 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; our ability to retain existing deposits and attract new deposits; 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; 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 Annual Report on Form 10-K for the year ended December 31, 2019, including Part I, Item 1A, Risk Factors and any of our subsequent filings with the FDIC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Bank cautions 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 the Bank undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement are made.

 

Critical Accounting Policies and Estimates

 

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of September 30, 2020 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2019 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

40

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Overview

 

Carter Bank & Trust (the “Bank”) is a non-member state Bank headquartered in Martinsville, Virginia with assets of $4.1 billion at September 30, 2020.  The Bank operates branches in Virginia and North Carolina. The Bank provides a full range of financial services with retail, and commercial banking products and insurance. Our common stock began trading on Nasdaq Global Select Market effective March 25, 2019, under the ticker symbol “CARE.” Prior to March 25, 2019, our common stock traded on the Over the Counter (“OTCQX”) Best Market under the ticker symbol “CARE.”

 

The Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. The Bank incurs expenses for the cost of deposits, provision for loan losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

 

Our mission is that the Bank strives to be the preferred lifetime financial partner for our customers and shareholders, and the employer of choice in the communities the Bank is privileged to serve. Our strategic plan focuses on restructuring the balance sheet to provide more diversification and higher yielding assets to increase the net interest margin. Another area of focus is the transformation of the infrastructure of the Bank to provide a foundation for operational efficiency and provide new products and services for our customers that will ultimately increase noninterest income.

 

Our focus continues to be on loan and deposit growth with a shift in the composition of deposits to more low cost core deposits with less dependence in higher cost certificates of deposits, as well as, implementing opportunities to increase fee income while closely monitoring our operating expenses. The Bank is focused on executing our strategy to successfully build our brand and grow our business in our markets. The Bank’s net interest margin has benefited due to our strategy to deploy our excess cash into higher yielding and diversified investment securities and purchased loans, as well as, the runoff of higher cost deposits.

 

COVID-19 Recent Developments

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020. The CARES Act is an emergency stimulus measure providing assistance and relief in a variety of ways to certain individuals, businesses, and industries. The CARES Act established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the Small Business Administration (“SBA”), referred to as the PPP. In addition to the general impact of COVID-19, certain provisions of the CARES act as well as other legislative and regulatory relief efforts are expected to have a material impact on our operation. It is impossible to determine the extent of these impacts at the date of this filing; however, we are disclosing potentially material items of which we are aware.

 

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of the Treasury, the FDIC, the FRB and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Bank.

 

41

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Set forth below is a brief overview of certain provisions of the CARES Act and certain other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Such statutes, regulations, and policies are subject to ongoing review by U.S. Congress and federal regulatory authorities. Future amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Bank could have a material effect on the Bank. Many of the requirements called for in the CARES Act and related regulations and supervisory guidance will be implemented over time and most will be subject to implementing regulations over the course of the coming weeks. The Bank will continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

 

FRB Reserve Programs and Initiatives

 

The CARES Act encourages the FRB, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities, including (i) a Midsize Business/Nonprofit Organization Program to provide financing to banks and other lenders to make direct loans to eligible businesses and nonprofit organizations with between 500 and 10,000 employees and (ii) the Municipal Liquidity Facility, provide liquidity to the financial system that supports states and municipalities. On April 9, 2020, the FRB announced and solicited comments regarding the Main Street Lending Program, which would implement certain of these recommendations. Further action regarding the Main Street Lending Program is expected soon.

 

Separately and in response to COVID-19, the FRB’s Federal Open Market Committee (the “FOMC”) has set the federal funds target rate – i.e., the interest rate at which depository institutions such as the Bank lend reserve balances to other depository institutions overnight on an uncollateralized basis – to an historic low. On March 16, 2020, the FOMC set the federal funds target rate at 0-0.25%. Consistent with FRB policy, the FRB has committed to the use of overnight reverse repurchase agreements as a supplementary policy tool, as necessary, to help control the federal funds rate and keep it in the target range set by the FOMC.

 

In addition, the FRB has expanded the size and scope of three existing programs to mitigate the economic impact of the COVID-19 outbreak: (i) the Primary Market Corporate Credit Facility; (ii) the Secondary Market Corporate Credit Facility; and (iii) the Term Asset-Backed Securities Loan Facility. The FRB has also established two new program facilities – the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility – to broaden its support for the flow of credit to households and businesses during COVID-19.

 

42

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Temporary Regulatory Capital Relief related to Impact of CECL

 

Concurrent with enactment of the CARES Act, the federal bank regulatory authorities issued an interim final rule to provide banking organizations that are required to implement CECL before the end of 2020 the option to delay the estimated impact on regulatory capital by up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.

 

Temporary Bank Secrecy Act (“BSA”) Reporting Relief

 

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has provided targeted relief from certain BSA reporting requirements and have provided updated guidance to financial institutions on complying with such requirements during COVID-19. Specifically, FinCEN has (i) granted targeted relief to financial institutions participating in the PPP, stating that PPP loans to existing customers will not require re-verification under applicable BSA requirements, unless re-verification is otherwise required under the financial institution’s risk-based BSA compliance program, (ii) acknowledged that there may be “reasonable delays in compliance” due to COVID-19, and (iii) temporarily suspended implementation of its February 2020 ruling, which would have entailed significant changes to currency transaction reporting filing requirements for transactions involving sole proprietorships and entities operating under a “doing business as” or other assumed name.

 

Bank’s Response to COVID-19

 

Lending Operations

 

The Bank has elected to take advantage of Section 4014 of the CARES Act provision to temporarily delay adoption of the CECL methodology. The Bank was subject to the adoption of the 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 Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020.

 

The Bank quickly responded to the pandemic and the CARES Act, offering the option of payment deferrals, participation in the PPP, fee waivers and other relief actions to customers. Banks have been identified as essential services and have remained open during the order. The Bank has opened the lobbies of 31 branches effective as of October 31, 2020. However, the Bank continues to serve its customers in the remaining branches through modified hours in both the drive-ins and branch services via appointment. Every opportunity is being taken to protect both customers and employees through enhanced cleaning services, social distancing and personal protective equipment requirements for both. Approximately 20% of the Bank’s workforce is working remotely.

 

Under the CARES Act, PPP is an amendment to the SBA 7-A loan program. The Bank became an approved SBA 7-A lender in November of 2019. PPP is a guaranteed, unsecured loan program created to fund certain payroll and operating costs of eligible businesses, organizations and self-employed persons during COVID-19.  Initially, $349 billion were approved and designated for PPP in order for the SBA to guarantee 100% of collective loans made under the program to eligible small businesses, nonprofits, veteran’s organizations, and tribal businesses. The Bank participated in the initial round of funding though a referral relationship with a third-party, non-bank lender. When an additional $310 billion in funds were approved and designated for PPP, the Bank opted to stand up an internal, automated loan process utilizing its core system provider. As of September 30, 2020 the Bank had processed either through a third party or internally 962 PPP loans totaling $55.8 million, represented by $15.9 million and $39.9 million processed in round one and round two, respectively.

 

43

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The FRB implemented a liquidity facility available to financial institutions participating in the PPP. However, the Bank opted to fund all PPP loans through our internal liquidity sources. These loans are fully guaranteed by the SBA and do not represent a credit risk. We expect the vast majority of these PPP loans will be forgiven based upon a preliminary review of the loans.

 

The Bank provides deferrals to customers under Section 4013 of the CARES Act and regulatory interagency statements on loan modifications, which suspends the requirement to categorize these deferrals as TDRs. The Bank launched a deferral program in March of 2020 that ran through August of 2020 (Part I). The deferrals in the initial program typically provided deferral of both principal and interest for up to 180 days. The Bank is providing deferrals in another program that launched in August of 2020 and runs through December of 2020 (Part II). The deferrals in this program is needs based and requires the collection of update financial information. The majority of the deferrals in the second program will 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 accrured 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 October 27, 2020, we have had 116 total customers opt for deferrals under Part II of the program which continues through December 31, 2020, with an aggregate principal balance of $381.1 million with $6.1 million in deferred principal and interest payments. The weighted average deferment period for these loans is 3.98 months. Approximately $321.8 million of these modifications were in the hospitality industry comprised of deferrals on 58 loans.

 

The following table provides detail of the Bank’s deferred loans as of October 27, 2020:

  

               Weighted     
               Average     
   Number   Loan   Percent of   Deferment   Total Deferred 
(Dollars in Thousands)  of Loans   Principal   Outstanding   Period   Principal   Interest 
Commercial                        
Commercial Real Estate   83   $374,908    26.5%   3.98   $4,362   $1,604 
Commercial and Industrial   1    48    0.0%   -    -    - 
Obligations of State and Political Subdivisions   -    -    0.0%   -    -    - 
Commercial Construction   2    171    0.0%   4.00    11    - 
Total Commercial Loans   86    375,127    15.5%   3.98    4,373    1,604 
Consumer                              
Residential Mortgages   15    5,884    1.2%   3.72    37    68 
Other Consumer   15    134    0.2%   3.05    13    2 
Consumer Construction   -    -    0.0%   -    -    - 
Total Consumer Loans   30    6,018    1.1%   3.71    50    70 
Total Aggregate Deferred Payments   116   $381,145    12.8%   3.98   $4,423   $1,674 

 

 

44

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Our interest income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. Interest and fees will still accrue to income through normal GAAP accounting. Should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

 

The Bank’s exposure to hospitality at September 30, 2020 equated to approximately $491.3 million, or 16.5% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to operate at occupancy levels at or below breakeven which has caused, or will continue to cause, them to draw on their existing lines of credit with other financial institutions or other sources of liquidity and may adversely affect their ability to repay existing indebtedness. These developments, together with the current economic conditions generally, may impact the value of real estate collateral in hospitality and other commercial real estate exposure. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

The allowance for loan loss at September 30, 2020 includes an increase in qualitative loss factors as a result of the estimated economic impact of COVID-19 of $9.6 million. The Bank 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.

 

Retail Operations

 

The Bank will continue to promote our digital banking options through our website. Customers are encouraged to utilize online and mobile banking tools, and our customer service and retail departments are fully staffed and available to assist customers remotely.

 

We initially closed all branches to customer activity, except for drive-up and appointment only services. However, we have now opened the lobbies of 31 branches as of October 31, 2020 and we are currently examining a plan to open the remainder of our branches. We continue to pay all employees according to their normal work schedule, even if their work has been reduced. No employees have been furloughed. Employees whose job responsibilities can be effectively carried out remotely are working from home. Employees whose critical duties require their continued presence on-site are observing social distancing and cleaning protocols.

 

Our fee income has been impacted due to COVID-19 approximating $1.5 million. In keeping with guidance from regulators, we are actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees and account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. Beginning on July 20, 2020, certain fee waivers were reinstated. The breadth of the economic impact is likely to continue to impact our fee income in future periods.

 

45

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Capital Resources and Liquidity

 

As of September 30, 2020, all of the Bank’s capital ratios were in excess of all regulatory requirements. An extended economic recession brought about by COVID-19 could adversely impact our reported regulatory capital ratios.

 

We maintain access to multiple sources of liquidity. Funding sources accessible to the Bank include borrowing availability at the FHLB, equal to 25% of the Bank’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 $115.0 million and access to the institutional CD market through brokered CDs. In addition to the above resources, the Bank also has $651.6 million of unpledged available-for-sale securities as an additional source of liquidity at September 30, 2020. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

 

The Bank is monitoring and will continue to monitor the impact of the COVID-19 pandemic and has taken and will continue to take steps to mitigate the potential risks and impact on our liquidity and capital resources. Due to the economic uncertainty, we are taking a prudent approach to capital management and have established access to the FRB’s PPP Lending Facility.

 

Goodwill and Other Intangibles

 

At September 30, 2020, the Bank considered the anticipated reduction in earnings due to the on-going economic market disruption, the sustained decline of the Bank’s stock price in relation to other bank indexes and the length of time that the market value of the reporting unit has been below its book value as triggering events. Therefore, the Bank completed a quantitative analysis to assess whether or not goodwill was impaired.  The analysis estimated fair value of the reporting unit to be less than the carrying value. The Bank has recorded an impairment charge of $62.2 million as of September 30, 2020. The impairment charge is a non-cash charge that does not affect regulatory capital ratios, liquidity, or our overall financial strength.

 

The determination of the fair value of the reporting unit incorporates assumptions that marketplace participants would use in their estimates of fair value in a change in control transaction, as prescribed by ASC Topic 820.  To arrive at a conclusion of fair value, we utilized both the income approach and the market approach and then applied weighting factors to each approach.  Weighting factors represent our best business judgement of the weightings a market participant would utilize in arriving at fair value of the reporting unit.  In performing the analysis, Bank management made numerous assumptions with respect to industry performance, reporting unit business performance, economic and market conditions and various other matters, many of which require significant management judgement.  Projections related to business unit performance over the next five years assumed an economic downturn over a 12-month time horizon subsequently returning to conservative positive growth rates in loan and deposits after that time period.  The analysis performed and the assumptions that are incorporated into the analysis reflect the best currently available estimates and judgements as to the expected future financial performance of the reporting unit.

 

46

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Earnings Summary

 

Net income decreased $65.3 million, or 858.8%, for the three months ended September 30, 2020 as compared to the same period in 2019. This decrease was primarily due to the aforementioned full goodwill impairment charge of $62.2 million, or $(2.36) per share, that was recorded in the third quarter of 2020. Excluding this one-time charge, net income was $4.5 million, or $0.17 diluted earnings per share. Net loss for the three months ended September 30, 2020 was $57.7 million, or $2.19 per share, as compared to net income of $7.6 million, or $0.29 diluted earnings per share, for the same period in 2019. An additional factor contributing to the decrease in net income was an overall increase of $1.5 million in the provision for loan losses. Included in the provision for loan losses was an increase in qualitative loss factors as a result of the estimated economic impact of COVID-19 of $3.6 million, or $(0.11) per share, during the third quarter of 2020. Offsetting this increase to our qualitative loss factors was a decrease to our quantitative reserves due to decreases in historic loss rates which was partially offset by an increase in loan volume.

 

Net income decreased $71.8 million, or 312.5%, for the nine months ended September 30, 2020 as compared to the same period in 2019. This decrease was primarily due to the aforementioned full goodwill impairment charge of $62.2 million, or $(2.36) per share, that was recorded in the third quarter of 2020. Excluding this one-time charge, net income was $13.4 million, or $0.51 diluted earnings per share. Net loss for the nine months ended September 30, 2020 was $48.8 million, or $1.85 per share, as compared to net income of $23.0 million, or $0.87 diluted earnings per share, for the same period in 2019. An additional factor contributing to the decrease in net income was an overall increase of $8.8 million in the provision for loan losses. Included in the provision for loan losses was an increase in qualitative loss factors as a result of the estimated economic impact of COVID-19 of $9.6 million, or $(0.29) per share, during the first nine months of 2020.

 

Net interest income decreased $2.6 million, or 9.4%, to $25.4 million during the third quarter of 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, decreased 35 basis points to 2.66% in the third quarter of 2020 over the 2019 comparison. Net interest income decreased $5.0 million, or 5.9%, to $79.0 million during the nine months ended September 30, 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, declined 24 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 the net interest margin, but are offset by a lower cost of funds. The yield on interest-earning assets decreased 49 basis points over the past twelve months, offset by a 28 basis point decline in funding costs as compared to the same period of 2019. Net interest margin is reconciled to net interest income adjusted to a fully taxable equivalent basis (“FTE”) below in the “Net Interest Income” section of this Management Discussion and Analysis (“MD&A”).

  

The provision for loan losses totaled $2.9 million for the quarter ended September 30, 2020 as compared to $1.4 million for the same period of 2019, an increase of $1.5 million or 109.6%. For the nine months ended September 30, 2020 and 2019, respectively, the provision for loan losses totaled $13.2 million and $4.4 million, an increase of $8.8 million or 200.6%. Included in the provision expense for the quarter ended September 30, 2020 is the impact of increases in qualitative loss factors of $3.6 million, driven by economic and market conditions as a result of COVID-19. Offsetting this increase to our qualitative loss factors in the third quarter of 2020 was a decrease to our quantitative reserves due to decreases in historic loss rates which was partially offset by an increase in loan volume. Included in the provision expense for the nine month period ended September 30, 2020 is the impact of increases in qualitative loss factors totaling $9.6 million as a result of COVID-19. As part of the process to adjust qualitative factors in response to COVID-19, we considered the loss rates we experienced during the last economic downturn,the level of loan deferrals in the loan portfolio and industries we considered at risk to determine the necessary level of probable incurred loss.

 

47

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

At September 30, 2020, nonperforming loans were $40.5 million as compared to $42.1 million at December 31, 2019, a decrease of $1.6 million, or 4.0%. Net charge-offs were $2.0 million in the first nine months of 2020 as compared to $3.3 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 0.15% for the nine month periods ending September 30, 2020 and 2019, respectively.

 

Nonperforming loans as a percentage of total portfolio loans were 1.35%, 1.46% and 1.62% as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively.

 

Noninterest income increased $2.1 million, or 59.8%, to $5.6 million, excluding net securities gains, for the three months ending September 30, 2020 as compared to the same period of 2019. Noninterest income increased $4.3 million, or 40.0%, to $15.1 million from $10.8 million, excluding net securities gains, for the nine months ending September 30, 2020 as compared to the same period in 2019. The increase in the nine month comparison was primarily due to $3.1 million of commercial loan swap fee income due to the high demand for this product in the current low interest rate environment, $1.0 million of higher insurance commissions, $0.4 million of higher debit card interchange fees, all offset by lower service charges on deposit accounts of $0.2 million due to COVID-19 waivers and OREO income of $0.3 million. OREO income declined due to the sale of several large commercial properties that generated income.

 

Securities gains of $5.9 million and $1.6 million were realized during the first nine months of 2020 and 2019, respectively, to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Total noninterest expense increased $64.5 million, or 283.3%, for the third quarter of 2020 to $87.3 million as compared to $22.8 million in the same period of 2019. Total noninterest expense increased $67.4 million, or 99.8%, to $134.9 million for the first nine months of 2020 as compared to the same period of 2019. The increase in the quarterly and nine month comparisons were primarily driven by the aforementioned goodwill impairment charge of $62.2 million. Excluding the impact of the goodwill impairment charge, noninterest expense increased $5.2 million, or 7.7%, to $72.7 million for the first nine months of 2020 as compared to the same period of 2019. This increase was primarily driven by salaries and employee benefits and occupancy expenses in the amounts of $1.3 million and $1.4 million, respectively. Other increases include $0.9 million in FDIC expense and $0.7 million in advertising. Losses on sales and write-downs of OREO increased $0.8 million, primarily due to the write-down of $1.1 million on five closed retail branch offices moved to OREO in the third quarter of 2020.

 

The provision for income taxes was $0.9 million in the third quarter of 2020 as compared to $0.5 million during the same period of 2019. The provision for income taxes was $0.6 million for the nine months ended September 30, 2020 as compared to $1.4 million during the same period of 2019.

 

48

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

A full goodwill impairment charge in the amount of $62.2 million was recorded in the third quarter of 2020. Excluding the full goodwill impairment charge, the effective tax rate for the third quarter of 2020 was 16% as compared to 6% for the third quarter of 2019. This goodwill impairment charge was not tax deductible and is the reason for the increased effective tax rate for the three month period ended September 30, 2020. Excluding the full goodwill impairment charge, the effective tax rate for the nine months ended September 30, 2020 was 5% as compared to 6% for the same period of 2019. The Bank ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects, which are relatively consistent regardless of the level of pretax income.

 

Explanation of Use of Non-GAAP Financial Measures

 

In addition to the results of operations presented in accordance with generally accepted accounting principles, or GAAP, in the United States, management uses, and this quarterly report references, net interest income on a fully taxable equivalent, or (“FTE”), basis, which is a non-GAAP financial measure. Management believes this measure provides information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies.

 

The Bank believes the presentation of net interest income on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Net interest income per the Consolidated Statements of (Loss) Income is reconciled to net interest income adjusted to an FTE basis in the Net Interest Income section of the "Results of Operations – Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019".

 

RESULTS OF OPERATIONS

 

Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019

 

Net Interest Income

 

Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee (“ALCO”) in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Bank believes is an acceptable level of net interest income.

 

49

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal corporate tax rate for each period (which was 21% for all periods presented) and the dividend-received deduction for equity securities. The Bank believes this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.

 

The following table reconciles net interest income per the Consolidated Statements of (Loss) Income to net interest income on an FTE basis for the periods presented:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30,   September 30,   September 30, 
(Dollars in Thousands)  2020   2019   2020   2019 
Total Interest Income  $33,986   $40,154   $107,439   $119,361 
Total Interest Expense   8,550    12,084    28,477    35,440 
Net Interest Income   25,436    28,070    78,962    83,921 
Adjustment to FTE Basis   598    683    1,826    2,408 
Net Interest Income (FTE) (non-GAAP)  $26,034   $28,753   $80,788   $86,329 
Net Interest Margin   2.60%   2.94%   2.74%   2.96%
Adjustment to FTE Basis   0.06%   0.07%   0.06%   0.08%
Net Interest Income (FTE) (non-GAAP)   2.66%   3.01%   2.80%   3.04%

 

Net interest income, on a fully taxable equivalent basis, decreased $2.7 million, or 9.5%, and decreased $5.5 million, or 6.4%, respectively, in the three and nine months ending September 30, 2020 as compared to the same periods of 2019. Interest income, on a fully taxable equivalent basis, decreased $6.2 million and interest expense decreased $3.5 million in the third quarter of 2020 as compared to the same period of 2019. Interest income, on a fully taxable equivalent basis, decreased $12.5 million and interest expense decreased $7.0 million in the nine months ended September 30, 2020 as compared to the same period of 2019. The decreases in short-term interest rates had a negative impact on both net interest income and the net interest margin, but are offset by a lower cost of funds. The net interest margin, on a fully taxable equivalent basis, decreased 35 basis points to 2.66% in the three months ending September 30, 2020 as compared to the same period of 2019. The net interest margin, on a fully taxable equivalent basis, decreased 24 basis points to 2.80% over the past twelve months, primarily due to the lower interest rate environment. The lower interest rate environment and the intentional runoff of higher cost certificates of deposits helped to lower the overall cost of funds.

 

50

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented:

 

Average Balance Sheet and Net Interest Income Analysis (FTE)

 

   Three Months ended September 30, 2020   Three Months ended September 30, 2019 
(Dollars in Thousands)  Average
Balance
   Income/
Expense
   Rate   Average
Balance
   Income/
Expense
   Rate 
ASSETS                        
Interest-Bearing Deposits with Banks  $124,886   $32    0.10%  $99,827   $557    2.21%
Tax-Free Investment Securities   54,541    455    3.34%   33,452    332    3.94%
Taxable Investment Securities   693,330    3,150    1.81%   751,665    4,697    2.48%
Tax-Free Loans   302,351    2,397    3.17%   373,167    2,923    3.11%
Taxable Loans   2,694,747    28,511    4.18%   2,526,509    32,270    5.07%
Federal Home Loan Bank Stock   5,093    39    3.04%   3,688    58    6.24%
Total Interest-Earning Assets  $3,874,948   $34,584    3.53%  $3,788,308   $40,837    4.28%
                               
LIABILITIES                              
Deposits:                              
Interest-Bearing Demand  $330,402   $239    0.29%  $222,062   $404    0.72%
Money Market   200,303    210    0.42%   156,509    552    1.40%
Savings   616,414    168    0.11%   572,716    256    0.18%
Certificates of Deposit   1,801,535    7,815    1.73%   2,048,043    10,853    2.10%
Total Interest-Bearing Deposits  $2,948,654   $8,432    1.14%  $2,999,330   $12,065    1.60%
Borrowings:                              
FHLB Borrowings   35,000    101    1.13%   -    -    - 
Other Borrowings   1,183    17    5.72%   1,226    19    6.15%
Total Borrowings   36,183    118    1.28%   1,226    19    6.15%
Total Interest-Bearing Liabilities  $2,984,837   $8,550    1.14%  $3,000,556   $12,084    1.60%
Net Interest Income       $26,034             $28,753      
Net Interest Margin             2.66%             3.01%

 

51

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

   Nine Months ended Nine 30, 2020   Nine Months ended September 30, 2019 
(Dollars in Thousands)  Average
Balance
   Income/
Expense
   Rate   Average
Balance
   Income/
Expense
   Rate 
ASSETS                        
Interest-Bearing Deposits with Banks  $98,283   $268    0.36%  $132,855   $2,341    2.36%
Tax-Free Investment Securities   41,922    1,076    3.42%   78,235    2,145    3.67%
Taxable Investment Securities   696,954    11,246    2.15%   730,519    13,102    2.40%
Tax-Free Loans   320,914    7,620    3.16%   386,993    9,324    3.22%
Taxable Loans   2,644,031    88,885    4.45%   2,465,823    94,773    5.14%
Federal Home Loan Bank Stock   4,869    170    4.65%   1,770    84    6.35%
Total Interest-Earning Assets  $3,806,973   $109,265    3.80%  $3,796,195   $121,769    4.29%
                               
LIABILITIES                              
Deposits:                              
Interest-Bearing Demand  $308,617   $926    0.40%  $250,163   $1,639    0.88%
Money Market   179,546    692    0.51%   128,035    1,312    1.37%
Savings   590,534    470    0.11%   588,529    1,240    0.28%
Certificates of Deposit   1,855,027    26,076    1.88%   2,074,015    31,190    2.01%
Total Interest-Bearing Deposits  $2,933,724   $28,164    1.28%  $3,040,742   $35,381    1.56%
Borrowings:                              
Fed Funds Purchased   73    1    1.59%   -    -    - 
FHLB Borrowings   29,161    260    1.17%   -    -    - 
Other Borrowings   1,303    52    5.33%   872    59    9.05%
Total Borrowings   30,537    313    1.35%   872    59    9.05%
Total Interest-Bearing Liabilities  $2,964,261   $28,477    1.28%  $3,041,614   $35,440    1.56%
Net Interest Income       $80,788             $86,329      
Net Interest Margin             2.80%             3.04%

 

Interest income, on a fully taxable equivalent basis, decreased $6.2 million, or 15.3%, and decreased $12.5 million, or 10.3%, respectively, for the three and nine months ended September 30, 2020, as compared to the same periods in 2019. The decrease is primarily due to balance sheet repricing driven by the impact of the lower interest rate environment. The overall rate earned on interest-bearing deposits with banks decreased by 2.11% and 2.00%, respectively, for the three and nine months ended September 30, 2020 as compared to the same periods of 2019. The Bank is currently maintaining higher liquidity levels as a result of COVID-19. Income on tax-free investment securities declined in the nine month comparison primarily due to a decrease in volume. Taxable investment securities volume declined $58.3 million and $33.6 million, respectively, in the quarter over quarter and nine month comparisons. An additional contributing factor to the decline in income of both tax-free investments and taxable investment securities in the nine month comparison is a decline in rates. Tax-free loan volume decreased by $70.8 million and $66.1 million, respectively, in the three and nine months ended September 30, 2020 as compared to the same period of 2019. Taxable loan volume increased $168.2 million and $178.2 million, respectively, but interest income was offset by a decline in rate of 89 basis points and 69 basis points, respectively, for the three and nine month comparison of September 30, 2020 to 2019. The overall rate earned on total interest-earning assets decreased by 75 basis points and 49 basis points in the three and nine month comparisons as of September 30, 2020 as compared to the same period of 2019.

 

52

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Interest expense decreased $3.5 million, or 29.2%, and decreased $7.0 million, or 19.6%, respectively, for the three and nine months ended September 30, 2020, as compared to the same periods in 2019. These decreases were primarily due to an expense decrease in all categories of deposits. The decrease in expense of interest-bearing demand deposits, money market accounts, and savings accounts was primarily driven by a decrease in the rates of these products in the three and nine month comparisons ended September 30, 2020 as compared to 2019. However, the decrease in expense of certificates of deposits was driven by a decrease in rates and volume in the third quarter and nine month periods of 2020 as compared to the same periods of 2019. The average balance of certificates of deposits decreased $246.5 million and $219.0 million, respectively, in the three and nine months ended September 30, 2020 as compared to the same period of 2019 primarily due to the intentional runoff of these higher cost deposits. The overall rate on these certificates of deposits decreased 37 basis points in the quarterly comparison, but decreased 13 basis points in the nine month comparison.

 

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:

 

   Three Months ended September 30, 2020 
   compared to September 30, 2019 
(Dollars in Thousands)  Increase/
(Decrease)
   Increase/(Decrease)
Rate
   Increase/(Decrease)
Volume
 
ASSETS            
Interest-Bearing Deposits with Banks  $(525)  $(637)  $112 
Tax-Free Investment Securities   123    (57)   180 
Taxable Investment Securities   (1,547)   (1,202)   (345)
Tax-Free Loans   (526)   56    (582)
Taxable Loans   (3,759)   (5,837)   2,078 
Federal Home Loan Bank Stock   (19)   (36)   17 
Total Interest-Earning Assets  $(6,253)  $(7,713)  $1,460 
                
LIABILITIES               
Deposits:               
Interest-Bearing Demand  $(165)  $(308)  $143 
Money Market   (342)   (465)   123 
Savings   (88)   (106)   18 
Certificates of Deposit   (3,038)   (1,809)   (1,229)
Total Interest-Bearing Deposits   (3,633)   (2,688)   (945)
Borrowings:               
FHLB Borrowings   101    1    100 
Other Borrowings   (2)   (1)   (1)
Total Borrowings   99    -    99 
Total Interest-Bearing Liabilities  $(3,534)  $(2,688)  $(846)
Net Interest Income  $(2,719)  $(5,025)  $2,306 

 

53

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

   Nine Months ended September 30, 2020 
   compared to September 30, 2019 
(Dollars in Thousands)  Increase/
(Decrease)
   Increase/(Decrease)
Rate
   Increase/(Decrease)
Volume
 
ASSETS            
Interest-Bearing Deposits with Banks  $(2,073)  $(1,586)  $(487)
Tax-Free Investment Securities   (1,069)   (135)   (934)
Taxable Investment Securities   (1,856)   (1,285)   (571)
Tax-Free Loans   (1,704)   (171)   (1,533)
Taxable Loans   (5,888)   (12,725)   6,837 
Federal Home Loan Bank Stock   86    (28)   114 
Total Interest-Earning Assets  $(12,504)  $(15,930)  $3,426 
                
LIABILITIES               
Deposits:               
Interest-Bearing Demand  $(713)  $(1,034)  $321 
Money Market   (620)   (1,021)   401 
Savings   (770)   (774)   4 
Certificates of Deposit   (5,114)   (1,948)   (3,166)
Total Interest-Bearing Deposits   (7,217)   (4,777)   (2,440)
Borrowings:               
Fed Funds Purchased   1    -    1 
FHLB Borrowings   260    -    260 
Other Borrowings   (7)   (30)   23 
Total Borrowings   254    (30)   284 
Total Interest-Bearing Liabilities  $(6,963)  $(4,807)  $(2,156)
Net Interest Income  $(5,541)  $(11,123)  $5,582 

 

Provision for Loan Losses

 

The provision for loan losses is the amount to be added to the ALL, after considering loan charge-offs and recoveries, to bring the ALL to a level determined to be appropriate in management's judgment to absorb probable losses inherent in the loan portfolio.

 

The provision for loan losses totaled $13.2 million and $4.4 million for the nine month periods ended September 30, 2020 and 2019. The Bank was subject to the adoption of the CECL accounting method under FASB Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326). However, the Bank elected under the CARES Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020. Included in the provision expense for the nine months ended September 30, 2020 is the impact of an increase in qualitative loss factors as a result of the estimated economic impact of COVID-19 of $9.6 million, or $(0.29) per share. This represents a 200.6% increase in the provision expense as compared to the same period of 2019. The Bank 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. An additional contributing factor to the increase in provision for loan loss expense is an increase in specific reserves of $1.8 million at September 30, 2020 as compared to December 31, 2019.

 

54

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Net charge-offs were $2.0 million in the first nine months of 2020 as compared to $3.3 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 0.15% for the nine month periods ending September 30, 2020 and 2019, respectively.

 

Nonperforming loans decreased $1.6 million at September 30, 2020, to $40.5 million, as compared to $42.1 million at December 31 2019. The ALL was 123.5% of nonperforming loans as of September 30, 2020, as compared to 92.0% of nonperforming loans as of December 31, 2019.

 

The ALL was $50.0 million at September 30, 2020, as compared to $38.8 million at December 31, 2019. The ALL as a percentage of total portfolio loans was 1.67% at September 30, 2020 and 1.34% at December 31, 2019. General reserves as a percentage of portfolio total loans were 1.40% at September 30, 2020, as compared to 1.13% as of December 31, 2019. Specific reserves increased by $1.8 million to $8.0 million at September 30, 2020 as compared to $6.2 million at December 31, 2019.

 

Loans past due 30 to 89 days decreased $1.7 million to $2.4 million at September 30, 2020 as compared to $4.1 million at December 31, 2019. Total past dues on commercial loans decreased $1.5 million, primarily in the commercial real estate category. Total past dues on consumer loans decreased by $0.2 million primarily due to an increase in residential mortgages, offset by a decrease in the other consumer category.

 

Noninterest Income

 

   Three Months Ended September 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Gains on Sales of Securities, net  $2,388   $659   $1,729    262.4%
Service Charges, Commissions and Fees   1,205    1,111    94    8.5%
Debit Card Interchange Fees   1,559    1,340    219    16.3%
Insurance   482    454    28    6.2%
Bank Owned Life Insurance Income   351    362    (11)   (3.0)%
Other Real Estate Owned Income   58    96    (38)   (39.6)%
Commercial Loan Swap Fee Income   1,572    -    1,572    NM 
Other   360    134    226    168.7%
Total Noninterest Income  $7,975   $4,156   $3,819    91.9%
                     
NM - percentage not meaningful                    

 

55

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

   Nine Months Ended September 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Gains on Sales of Securities, net  $5,923   $1,599   $4,324    270.4%
Service Charges, Commissions and Fees   3,045    3,229    (184)   (5.7)%
Debit Card Interchange Fees   4,270    3,834    436    11.4%
Insurance   2,123    1,097    1,026    93.5%
Bank Owned Life Insurance Income   1,054    1,079    (25)   (2.3)%
Other Real Estate Owned Income   279    617    (338)   (54.8)%
Commercial Loan Swap Fee Income   3,120    -    3,120    NM 
Other   1,177    906    271    29.9%
Total Noninterest Income  $20,991   $12,361   $8,630    69.8%
                     
NM - percentage not meaningful                    

 

Noninterest income increased $2.1 million, or 59.8%, to $5.6 million, excluding net securities gain on sales, for the three months ending September 30, 2020 as compared to the same period of 2019. Noninterest income increased $4.3 million, or 40.0%, to $15.1 million from $10.8 million, excluding net securities gain on sales, for the nine months ending September 30, 2020 as compared to the same period in 2019.

 

The increase was primarily due to commercial loan swap fee income of $1.6 million and $3.1 million in the three and nine month periods ended September 30, 2020 as compared to the same periods in 2019, respectively, due to the high demand for this product in the current low interest rate environment.

 

Also contributing to the increase in the nine month comparison is an increase of $1.0 million in insurance income related to the adoption of ASU 2014-09, (Topic 606), Revenue from Contracts with Customers, by our provider. Debit card interchange fees increased by $0.2 million and $0.4 million in the three and nine month periods ended September 30, 2020, respectively, as compared to the same periods in 2019.

 

Offsetting these increases was a decrease in service charges, commissions and fees of $0.2 million in the nine month comparison of 2020 as compared to the same period of 2019 due to COVID-19 waivers.

 

OREO income declined due to the sale of several large commercial properties that generated income. This resulted in a decrease of $0.3 million in the nine month period comparison of 2020 as compared to the same period of 2019.

 

56

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Noninterest Expense

 

   Three Months Ended September 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Salaries and Employee Benefits  $13,036   $12,952   $84    0.6%
Occupancy Expense, net   3,413    3,040    373    12.3%
FDIC Insurance Expense   547    (426)   973    228.4%
Other Taxes   809    747    62    8.3%
Advertising Expense   404    205    199    97.1%
Telephone Expense   578    557    21    3.8%
Professional and Legal Fees   1,474    1,318    156    11.8%
Data Processing   836    556    280    50.4%
Losses on Sales and Write-downs of Other Real Estate Owned, net   1,305    293    1,012    NM 
Losses on Sales and Write-downs of Bank Premises, net   17    31    (14)   (45.2)%
Debit Card Expense   764    620    144    23.2%
Tax Credit Amortization   272    563    (291)   (51.7)%
Unfunded Loan Commitment Expense   (348)   158    (506)   NM 
Other Real Estate Owned Expense   94    167    (73)   (43.7)%
Other   1,907    1,996    (89)   (4.5)%
Total Noninterest Expense before Goodwill Impairment  $25,108   $22,777   $2,331    10.2%
Goodwill Impairment   62,192    -    62,192    NM 
Total Noninterest Expense  $87,300   $22,777   $64,523    283.3%
                     
NM - percentage not meaningful                    

 

   Nine Months Ended September 30, 
(Dollars in Thousands)  2020   2019   $ Change   % Change 
Salaries and Employee Benefits  $39,106   $37,796   $1,310    3.5%
Occupancy Expense, net   10,077    8,703    1,374    15.8%
FDIC Insurance Expense   1,628    721    907    125.8%
Other Taxes   2,343    2,101    242    11.5%
Advertising Expense   1,410    702    708    100.9%
Telephone Expense   1,725    1,624    101    6.2%
Professional and Legal Fees   3,310    2,947    363    12.3%
Data Processing   1,917    1,775    142    8.0%
Losses on Sales and Write-downs of Other Real Estate Owned, net   1,357    569    788    138.5%
Losses on Sales and Write-downs of Bank Premises, net   88    23    65    282.6%
Debit Card Expense   1,989    2,160    (171)   (7.9)%
Tax Credit Amortization   816    1,689    (873)   (51.7)%
Unfunded Loan Commitment Expense   251    376    (125)   (33.2)%
Other Real Estate Owned Expense   411    233    178    76.4%
Other   6,314    6,124    190    3.1%
Total Noninterest Expense before Goodwill Impairment  $72,742   $67,543   $5,199    7.7%
Goodwill Impairment   62,192    -    62,192    NM 
Total Noninterest Expense  $134,934   $67,543   $67,391    99.8%
                     
NM - percentage not meaningful                    

 

57

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Total noninterest expense increased $64.5 million, or 283.3%, in the third quarter of 2020 to $87.3 million as compared to $22.8 million in the same period of 2019. Total noninterest expense increased $67.4 million, or 99.8%, to $134.9 million from $67.5 million for the first nine months of 2020 as compared to the same period of 2019. These increases were primarily due to a full goodwill impairment charge of $62.2 million recorded in the third quarter of 2020. Excluding the impact of this full goodwill impairment charge, noninterest expense increased $2.3 million, or 10.2%, to $25.1 million in the third quarter of 2020 as compared to $22.8 million in the same period of 2019. Excluding the impact of the full goodwill impairment charge, noninterest expense increased $5.2 million, or 7.7%, to $72.7 million for the first nine month of 2020 as compared to $67.5 million in the same period of 2019.

 

The increase in the nine month comparison was primarily driven by salaries and employee benefits and occupancy expenses. The increase of $1.3 million in salaries and employee benefits were primarily attributable to a $0.7 million increase of normal merit increases and a $0.6 million decrease in salary deferrals on new loan originations in the first nine months of 2020. There have not been any permanent or temporary reductions in employees as a result of COVID-19.

 

The $1.4 million increase in occupancy expense is a result of higher depreciation for software and equipment for ancillary products and services. Occupancy expenses increased by $0.4 million in the third quarter comparison of 2020 as compared to the same period in 2019.

 

FDIC expense increased by $1.0 million and $0.9 million, respectively, in the three and nine month comparisons of 2020 as compared to the same periods of 2019. This increase was primarily due to the $1.1 million one-time credit for eligible institutions available in the third quarter of 2019.

 

Advertising expense increased by $0.2 million and $0.7 million, respectively, in the three and nine month comparisons of 2020 versus 2019 due to our deposit acquisition strategy.

 

Losses and write-downs of OREO increased $1.0 million and $0.8 million, respectively, in the three and nine month comparisons of 2020 as compared to 2019. During the third quarter of 2020, eight retail branch banking offices were closed as part of our branch optimization project. Five of these branches were moved to OREO and marketed for sale resulting in a $1.1 million write-down in September of 2020.

 

Unfunded loan commitment expense decreased $0.5 million and $0.1 million, respectively, in the three and nine month periods ended September 30, 2020 as compared to September 30, 2019. During the first quarter of 2020, several new commitments were approved and there were increased commitments on existing lines of credit. However, total unfunded commitments are down during the last two quarters of 2020 as compared to the first quarter of 2020. This decrease, which has resulted in a negative expense, is primarily due to slowed loan demand as a result of COVID-19 and the ongoing funding mechanism on construction draws.

 

Provision for Income Taxes

 

The provision for income taxes was $0.9 million in the third quarter of 2020 as compared to $0.5 million during the same period of 2019. The provision for income taxes was $0.6 million for the nine months ended September 30, 2020 as compared to $1.4 million during the same period of 2019.

 

58

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank applied the “annual effective tax rate approach” in accordance with GAAP to determine the provision for income taxes, which applies an annual forecast of tax expense as a percentage of expected full year income, for the three and nine months ended September 30, 2020 and 2019.

 

A full goodwill impairment charge in the amount of $62.2 million was recorded in the third quarter of 2020. Excluding the full goodwill impairment charge, the effective tax rate for the third quarter of 2020 was 16% as compared to 6% for the third quarter of 2019. This nondeductible goodwill impairment charge is the reason for the increased effective tax rate for the three month period ended September 30, 2020”. Excluding the full goodwill impairment charge, the effective tax rate for the nine months ended September 30, 2020 was 5% as compared to 6% for the same period of 2019. The Bank ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest and tax credit projects, which are relatively consistent regardless of the level of pretax income.

 

Financial Condition

 

September 30, 2020

 

Total assets were $4.1 billion as of September 30, 2020 and $4.0 billion at December 31, 2019. Total portfolio loans increased $101.2 million, or 3.5%, to $3.0 billion as of September 30, 2020 as compared to December 31, 2019. Nonperforming loans decreased $1.6 million to $40.5 million, or 4.0%, as of September 30, 2020 as compared to $42.1 million at December 31, 2019. OREO decreased $1.9 million at September 30, 2020 as compared to December 31, 2019. Closed retail bank offices have a remaining book value of $2.5 million at September 30, 2020 and $3.0 million at December 31, 2019.

 

Federal Reserve Bank excess reserves increased $67.9 million at September 30, 2020 as compared to December 31, 2019 due to maintaining higher liquidity levels as a result of COVID-19.

 

The securities portfolio increased $35.4 million from December 31, 2019 and currently comprises 18.8% of total assets at September 30, 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 $109.5 million to $3.6 billion as of September 30, 2020 as compared to December 31, 2019. Core deposits, including noninterest-bearing and interest-bearing demand deposits, money market accounts and savings, increased by $307.3 million, or 19.9%, as compared to December 31, 2019. Offsetting these increases was the intentional runoff of $197.8 million of higher cost certificates of deposits. Noninterest-bearing deposits comprised 18.4% and 15.8% of total deposits at September 30, 2020 and December 31, 2019, respectively.

 

The ALL was 1.67% of total portfolio loans as of September 30, 2020, as compared to 1.34% as of December 31, 2019. General reserves as a percentage of total portfolio loans were 1.40% at September 30, 2020, as compared to 1.13% as of December 31, 2019. Included in the allowance is an increase in qualitative loss factors as a result of the estimated economic impact of COVID-19 of $9.6 million. The ALL was 123.5% of nonperforming loans as of September 30, 2020 as compared to 92.0% of nonperforming loans as of December 31, 2019. In the view of management, the ALL is adequate to absorb probable incurred losses inherent in the loan portfolio.

 

59

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank remains well capitalized. The Bank’s Tier 1 Capital ratio decreased to 13.08% as of September 30, 2020, as compared to 13.58% as of December 31, 2019. The Bank’s leverage ratio was 10.12% at September 30, 2020, as compared to 10.33% as of December 31, 2019. The Bank’s Total Risk-Based Capital ratio was 14.33% at September 30, 2020, as compared to 14.83% at December 31, 2019.

 

Securities Activity

 

The following table presents the composition of available-for-sale securities:

 

(Dollars in Thousands)  September 30, 2020   December 31, 2019   $ Change 
Residential Mortgage-Backed Securities  $41,416   $52,644   $(11,228)
Commercial Mortgage-Backed Securities   10,830    19,006    (8,176)
Asset Backed Securities   129,583    109,639    19,944 
Collateralized Mortgage Obligations   237,117    292,224    (55,107)
Small Business Administration   97,114    105,736    (8,622)
States and Political Subdivisions   236,099    148,480    87,619 
Corporate Notes   25,827    14,888    10,939 
Total Debt Securities  $777,986   $742,617   $35,369 

 

The Bank invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to the Bank. Security purchases are subject to our Investment Policy approved annually by our Board of Directors and administered through ALCO and our treasury function.

 

The securities portfolio increased $35.4 million, or 4.8%, and is currently 18.8% of total assets at September 30, 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.

 

The Bank’s entire securities portfolio is classified as available-for-sale, which allows for greater flexibility in using the securities portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exist. Sales of securities, which resulted in a net realized gain of $5.9 million and $1.6 million during the first nine months of 2020 and 2019, respectively, were transacted to take advantage of market opportunities and reposition and diversify holdings in the securities portfolio.

 

Management evaluates the securities portfolio for OTTI on a quarterly basis. The Bank has determined that the unrealized losses present in our available-for-sale securities portfolio are due to changes in interest rates, not underlying credit issues with any individual securities. During the three and nine months ended September 30, 2020 and 2019, the Bank did not record any OTTI. The performance of the debt securities markets could generate impairments in future periods requiring realized losses to be reported.

 

60

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Loan Composition

 

The composition of the loan portfolio by dollar amount is shown in the table below:

 

   September 30,     
   2020   December 31, 
(Dollars in Thousands)  (Unaudited)   2019 
Commercial          
Commercial Real Estate  $1,417,164   $1,365,310 
Commercial and Industrial   300,951    256,798 
Obligations of State and Political Subdivisions   310,610    364,869 
Commercial Construction   386,343    292,827 
Total Commercial Loans   2,415,068    2,279,804 
Consumer          
Residential Mortgages   490,343    514,538 
Other Consumer   66,177    73,688 
Consumer Construction   14,333    16,736 
Total Consumer Loans   570,853    604,962 
Total Portfolio Loans   2,985,921    2,884,766 
Loans Held-for-Sale   32,104    19,714 
Total Loans  $3,018,025   $2,904,480 

 

Our loan portfolio represents our most significant source of interest income. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay.

 

Total portfolio loans increased $101.2 million, or 3.5%, to $3.0 billion as of September 30, 2020 as compared to December 31, 2019. Commercial loans increased $135.3 million, or 5.9%, as of September 30, 2020 as compared to December 31, 2019. This increase in commercial loans is primarily in the commercial construction category. Consumer loans decreased $34.1 million, or 5.6% since December 31, 2019. Consumer loans decreased primarily in the residential mortgage category.

 

Total commercial loans represented 80.9% of total portfolio loans at September 30, 2020 and 79.0% of total portfolio loans at December 31, 2019. Within our commercial portfolio, the Commercial Real Estate (“CRE”) and Commercial Construction portfolios combined comprised $1.8 billion or 74.7% of total commercial loans and 60.4% of total portfolio loans at September 30, 2020 and comprised $1.7 billion or 72.7% of total commercial loans and 57.5% of total portfolio loans at December 31, 2019. Net deferred costs included in the portfolio balances above were $3.3 million and $5.1 million at September 30, 2020 and December 31, 2019, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $226 thousand and $250 thousand at September 30, 2020 and December 31, 2019, respectively.

 

The commercial portfolio is monitored for potential concentrations of credit risk by market, type of lending, CRE property type, Commercial & Industrial (“C&I”) and owner-occupied CRE by industry, investment CRE dependent on common tenants and industries or property types that are similarly impacted by external factors.

 

61

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The economic slowdown associated with COVID-19 may have an adverse impact on the growth and asset quality of our loan portfolio, especially those industry segments being severely impacted by the pandemic.

 

The Bank’s exposure to hospitality at September 30, 2020 equated to approximately $491.3 million, or 16.5% of total portfolio loans. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, the Bank anticipates that a significant portion of the Bank’s borrowers in the hotel industry will continue to operate at occupancy levels at or below breakeven which has caused, or will continue to cause, them to draw on their existing lines of credit with other financial institutions or other sources of liquidity and may adversely affect their ability to repay existing indebtedness. These developments, together with the current economic conditions generally, may impact the value of real estate collateral in hospitality and other commercial real estate exposure. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

 

Portfolio loan balances to the Bank’s top 10 credit relationships were $691.5 million at September 30, 2020, with a total commitment exposure of $747.2 million. These loans are in the hospitality, golf course, agricultural, land holdings, commercial real estate (multi-family and office/retail), energy, land development, and lumber industries.

 

Line utilization, unused commitments, excluding consumer overdraft lines, were $360.8 million at September 30, 2020 as compared to $355.5 million at December 31, 2019. Total utilization, excluding consumer overdraft lines, was 45.32% at September 30, 2020, as compared to 51.05% at December 31, 2019. Commercial line utilization was 45.67% at September 30, 2020, as compared to 50.80% at December 31, 2019.

 

From time to time, the Bank has loans held-for-sale derived from two sources. First, the Bank purchases mortgage loans from another financial institution with fully executed contracts with investors. Secondly, the Bank originates and closes mortgages with fully executed contracts with investors to purchase shortly after closing. The Bank then holds the loans from both sources until funded by the investor, typically a two-week period. Loans held-for-sale were $32.1 million and $19.7 million at September 30, 2020 and December 31, 2019, respectively.

 

Credit Quality

 

On a monthly basis, a criticized asset committee meets to review watch, special mention and substandard loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to us. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral.

 

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and risk rating trends and through stress testing of the loans in these segments. The Bank has specific loan segment limits in its loan policy. Total CRE balances should not exceed the combination of 300% of total risk based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk based capital. Certain investment real estate property types and purchased loan programs have aggregate dollar limits based on management’s assessment of industry specific risks and portfolio performance. In addition, lending relationships are governed by transaction and relationship limits and guidelines are provided to promote targeted loan-to-value ratios, loan terms, and amortization periods.

 

62

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Unsecured loans pose higher risk for the Bank due to the lack of a well-defined secondary source of repayment. Unsecured loans are reserved for the best quality customers with well-established businesses that operate with low financial and operating leverage and demonstrate an ability to amortize the commitment within seven to ten years. The repayment capacity of the borrower should exceed all policy guidelines for secured loans. If the borrower is unable to comply with this requirement and the Bank is willing to renew the credit facility, the line should be secured and/or begin amortization.

 

On a quarterly basis, the Credit Risk Committee of the Board of Directors meets to review our loan portfolio metrics, adequacy of the Allowance for Loan and Lease Losses, industry research, segmentation limits, policy and guideline exceptions, and loan review findings from the previous quarter. Annually, this same committee reviews credit related policies and policy enhancements as they become available.

 

Additional credit risk management practices include periodic review and update of our lending policies and procedures to support sound underwriting practices and portfolio management through portfolio stress testing. Our Loan Review department serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all corporate lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of purchased loans and consumer and mortgage underwriting, as well as providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms unless the loan is well secured and in the process of collection.

 

The Bank has a loan review policy and annual scope report that details the level of loan review for commercial loans in a given year. Primary objectives of loan reviews include the identification of unknown risks and patterns that might influence potential future losses. In concert with significant enhancements to the underwriting process, the scope of loan review has been broadened since 2019 to include assurance testing with respect to the accuracy of the underwriting function. During 2020, the Bank used a four step approach for loan review in the following segments:

 

·A review of the largest twenty pass-rated loan relationships, which represents approximately a quarter of total loans;
·A sampling of new loans originated to include an examination of the evidence of appropriate approval, adherence to loan policy and the completeness and accuracy of the analysis contained in the approval document;
·A sampling of Large Loan Relationships (“LLRs”) which are defined as loan relationships with aggregate exposure of at least $2 million that are not part of the top twenty review; and
·Concentration focus reviews of identified segments that represent concentration risk, represented by collateral types including but not limited to Hospitality, Multifamily and Retail with the goal of examining patterns of loss history, document exceptions, policy exceptions and emerging trends in risk characteristics. The Bank does not typically structure these with a 30 day cleanout feature since that is difficult to measure and enforce. Instead we usually set higher debt service standards and underwrite to the ability to amortize the loan on unsecured terms.

 

63

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Allowance for Loan Losses

 

The Bank maintains its ALL at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ALL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ALL has two main components: evaluation and impairment tests of individual loans and evaluation and impairment tests of certain groups of homogeneous loans with similar risk characteristics.

 

An inherent risk to the loan portfolio as a whole is the condition of the economy in our markets. In addition, each loan segment carries with it risks specific to the segment. The Bank develops and documents a systematic ALL methodology based on the following portfolio segments: 1) CRE, 2) C&I, 3) Obligations of States and Political Subdivisions, 4) Commercial Construction, 5) Residential Mortgages, 6) Other Consumer, and 7) Consumer Construction. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ALL.

 

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

 

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

 

Obligations of States and Political Subdivision loans are made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up fit and expansion, or to purchase new equipment. This segment of loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Bank. The primary repayment source for these loans include the tax basis of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Bank’s loan portfolio.

 

Commercial Construction loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

 

64

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

 

Consumer loans are made to individuals and may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

 

Consumer Construction loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed.

 

The ALL was $50.0 million, or 1.67% of total portfolio loans at September 30, 2020, as compared to $38.8 million, or 1.34% of total portfolio loans at December 31, 2019.

 

The increase in the ALL of $11.2 million was primarily due to a $1.8 million increase in the specific reserve for impaired loans combined with a $9.4 million increase in the reserve for loans collectively evaluated for impairment at September 30, 2020, as compared to December 31, 2019. Included in the general reserve is the impact of an increase in qualitative loss factors as a result of the estimated economic impact of COVID-19 of $9.6 million. The Bank 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. The $1.8 million increase in the specific reserve for impaired loans since December 31, 2019 was due to the addition of a $1.4 million reserve on one credit relationship and a net collective addition of $0.4 million to the existing impaired relationships at December 31, 2019. Please reference Note 5 Allowance for Loan Losses for additional information.

 

Net charge-offs were $2.0 million for the nine month period ended September 30, 2020. Special mention, substandard and doubtful loans at September 30, 2020 decreased by $9.3 million to $424.9 million compared to $434.2 million at December 31, 2019, with an increase of $5.1 million in special mention and a decrease of $14.4 million in substandard.

 

65

 

 

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Bank individually evaluates all impaired loans equal to or greater than $1.0 million for additional impairment. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts when due according to the contractual terms of the loan agreement. Our methodology for evaluating whether a loan is impaired includes risk-rating credits on an individual basis and consideration of the borrower’s overall financial condition, payment history and available cash resources. In measuring impairment, the Bank primarily utilizes fair market value of the collateral; however, the Bank also uses the discounted cash flow method for loans that are not deemed to be collateral dependent at the time of impairment.

 

Troubled debt restructurings, or (“TDRs”), whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where the Bank for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that the Bank would not otherwise grant. The Bank strives to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant.

 

An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before the modification. All TDRs are considered to be impaired loans and will be reported as impaired loans for their remaining lives, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and the Bank fully expects that the remaining principal and interest will be collected according to the restructured agreement. The Bank individually evaluates all impaired loans, which includes TDRs, equal to or greater than $1.0 million for additional impairment. In addition, the Bank evaluates credits with balances less than $1.0 million for impairment that may have complex loan structures. Nonaccruing TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

 

As an example, consider a substandard commercial construction loan that is currently 90 days past due where the loan is restructured to extend the maturity date for a period longer than would be considered an insignificant period of time. The post-modification interest rate given to the borrower is considered to be lower than the current market rate for new debt with similar risk and all other terms remain the same according to the original loan agreement. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted due to the long extension, resulting in payment delay as well as the rate being lower than current market rate for new debt with similar risk. The loan will be reported as a nonaccrual TDR and an impaired loan. In addition, the loan could be charged down to the fair value of the collateral if a confirmed loss exists. If the loan subsequently performs, by means of making on-time principal and interest payments according to the newly restructured terms for a period of six months, and it is expected that all remaining principal and interest will be collected according to the terms of the restructured agreement, the loan will be returned to accrual status and reported as an accruing TDR. The loan will remain an impaired loan for the remaining life of the loan because the interest rate was not adjusted to be equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk.

 

66

 

  

CARTER BANK & TRUST 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

  

The following table summarizes the Bank’s troubled debt restructured loans as of the dates presented:

  

   September 30, 2020   December 31, 2019 
   Performing   Nonperforming   Total   Performing   Nonperforming   Total 
(Dollars in Thousands)  TDRs   TDRs   TDRs   TDRs   TDRs   TDRs 
Commercial                        
Commercial Real Estate  $6,174   $28,599   $34,773   $3,183   $30,073   $33,256 
Commercial and Industrial   -    -    -    -    390    390 
Obligations of State and Political Subdivisions   -    -    -    -    -    - 
Commercial Construction   52,481    4,249    56,730    53,116    4,242    57,358 
Total Commercial TDRs   58,655    32,848    91,503    56,299    34,705    91,004 
Consumer                              
Residential Mortgages   51,665    -    51,665    52,966    -    52,966 
Other Consumer   -    -    -    -    -    - 
Consumer Construction   -    -    -    -    -    - 
Total Consumer TDRs   51,665    -    51,665    52,966    -    52,966 
Total TDRs  $110,320   $32,848   $143,168   $109,265   $34,705   $143,970 

 

TDRs decreased $0.8 million to $143.2 million at September 30, 2020, as compared to $144.0 million at December 31, 2019. The decrease is primarily due to principal pay-downs in the amount of $4.4 million, offset by $0.5 million of draws on commitments and $3.1 million in new performing TDRs. Total TDRs of $32.8 million and $34.7 million were on nonaccrual at September 30, 2020 and December 31, 2019, respectively. There were minimal commitments to lend additional funds on relationships identified as TDRs in the amount of $0.5 million as of September 30, 2020.

 

Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes quantifiable, regardless of the delinquency status of the loan. The Bank may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to:

 

• The status of a bankruptcy proceeding

• The value of collateral and probability of successful liquidation; and/or

• The status of adverse proceedings or litigation that may result in collection

 

Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.

 

 67 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.

 

Nonperforming assets consist of nonaccrual loans, nonaccrual TDRs and OREO. The following table summarizes nonperforming assets for the dates presented:

  

(Dollars in Thousands)  September 30,   December 31, 
Nonperforming Loans  2020   2019 
Commercial Real Estate  $235   $1,017 
Commercial and Industrial   159    77 
Obligations of State and Political Subdivisions   -    - 
Commercial Construction   3,748    3,210 
Residential Mortgages   3,310    2,857 
Other Consumer   152    267 
Consumer Construction   -    - 
Total Nonperforming Loans   7,604    7,428 
           
Nonperforming Troubled Debt Restructurings          
Commercial Real Estate   28,599    30,073 
Commercial and Industrial   -    390 
Obligations of State and Political Subdivisions   -    - 
Commercial Construction   4,249    4,242 
Residential Mortgages   -    - 
Other Consumer   -    - 
Consumer Construction   -    - 
Total Nonperforming Troubled Debt Restructurings   32,848    34,705 
Total Nonperforming Loans and Troubled Debt Restructurings   40,452    42,133 
Other Real Estate Owned   16,410    18,324 
Total Nonperforming Assets  $56,862   $60,457 
           
Nonperforming Loans and Troubled Debt Restructurings to Total Portfolio Loans   1.35%   1.46%
Nonperforming Assets to Total Portfolio Loans plus OREO   1.89%   2.08%

 

Nonperforming assets, or NPAs, decreased $3.6 million to $56.9 million at September 30, 2020 as compared to $60.5 million at December 31, 2019. The decrease was due to a decline in nonperforming loans and OREO. The decrease in nonperforming loans was primarily due to pay-downs during the first nine months of 2020, offset by draws on minimal commitments. Total OREO decreased $1.9 million at September 30, 2020 as compared to December 31, 2019. This decrease was primarily due to sales of properties during the first nine months of 2020, offset by transfers into OREO during the same period. Eight retail branch banking offices were closed during the third quarter of 2020 as part of our branch optimization project. Five of these branches were moved to OREO during the third quarter of 2020 and marketed for sale resulting in a $1.1 million write-down. Closed retail bank offices have a remaining book value of $2.5 million at September 30, 2020 and $3.0 million at December 31, 2019.

 

 68 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The following table summarizes loans past due 30-89 days for the periods presented:

 

   September 30,   December 31, 
(Dollars in Thousands)  2020   2019 
Loans 30 to 89 Days Past Due          
Commercial          
Commercial Real Estate  $80   $1,220 
Commercial and Industrial   126    161 
Obligations of State and Political Subdivisions   -    236 
Commercial Construction   172    228 
Total Commercial Loans   378    1,845 
Consumer          
Residential Mortgages   1,499    942 
Other Consumer   571    1,283 
Consumer Construction   -    - 
Total Consumer Loans   2,070    2,225 
Total Loans 30 to 89 Days Past Due  $2,448   $4,070 

  

Loans past due 30 to 89 days decreased $1.7 million to $2.4 million at September 30, 2020 as compared to $4.1 million at December 31, 2019. Total past dues on commercial loans decreased $1.5 million, primarily in the commercial real estate category. Total past dues on consumer loans decreased by $0.2 million primarily due to an increase in residential mortgages, offset by a decrease in the other consumer category.

 

There were no loans past due 90 days or more and still accruing at September 30, 2020 or December 31, 2019.

 

Deposits

 

The following table presents the composition of deposits:

 

(Dollars in Thousands)  September 30, 2020   December 31, 2019   $ Change   % Change 
Noninterest-Bearing Demand  $665,813   $554,875   $110,938    20.0%
Interest-Bearing Demand   351,066    286,561    64,505    22.5%
Money Market   211,465    140,589    70,876    50.4%
Savings   622,806    561,814    60,992    10.9%
Certificates of Deposits   1,762,645    1,960,406    (197,761)   (10.1)%
Total  $3,613,795   $3,504,245   $109,550    3.1%

 

Total deposits increased $109.5 million, or 3.1%, to $3.6 billion as of September 30, 2020 as compared to December 31, 2019. Certificates of deposits decreased $197.8 million, or 10.1%, as of September 30, 2020 as compared to December 31, 2019 due to an intentional runoff of these higher cost deposits. Noninterest-bearing demand deposits increased by $110.9 million, or 20.0%, to $665.8 million as of September 30, 2020 as compared to December 31, 2019. Interest-bearing demand deposits and money market accounts increased by $135.4 million as of September 30, 2020 as compared to December 31, 2019. Money market accounts increased due to recent special rate promotions. Savings accounts increased $61.0 million, or 10.9%, as of September 30, 2020 as compared to December 31, 2019. Noninterest-bearing deposits comprised 18.4% and 15.8% of total deposits at September 30, 2020 and December 31, 2019, respectively.

 

 69 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Federal Home Loan Bank Advances

 

Borrowings are an additional source of liquidity for the Bank. Long-term borrowings are for terms greater than one year and consist of Federal Home Loan Bank (“FHLB”) advances. FHLB borrowings were $35.0 million and $10.0 million at September 30, 2020 and December 31, 2019, respectively. FHLB borrowings are fixed rate advances for various terms and are currently secured by a blanket lien on select residential mortgages at September 30, 2020. Total loans pledged as collateral were $290.8 million and $284.6 million at September 30, 2020 and December 31, 2019, respectively. There were no securities available-for-sale pledged as collateral at September 30, 2020. Total securities available-for-sale pledged as collateral were $28.6 million at December 31, 2019. The Bank is eligible to borrow up to an additional $205.5 million based upon current qualifying collateral and has a maximum borrowing capacity of approximately $1.0 billion, or 25% of the Bank’s assets, as of September 30, 2020.

  

Information pertaining to long-term borrowings is summarized in the table below:

 

(Dollars in Thousands)  September 30, 2020   December 31, 2019 
Balance at Period End  $35,000   $10,000 
Average Balance during Period   29,161    2,329 
Average Interest Rate during the Period   1.19%   1.63%
Maximum Month-end Balance during the Period   35,000    10,000 
Average Interest Rate at Period End   1.13%   1.63%

 

The Bank held FHLB Atlanta stock of $5.1 million and $4.1 million at September 30, 2020 and December 31, 2019, respectively. Dividends recognized on this restricted stock were $39 thousand and $170 thousand for the quarter and nine month period ended September 30, 2020, respectively. Dividends recognized were $58 thousand and $84 thousand for the quarter and nine month period ended September 30, 2019. The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Atlanta. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. The Bank reviewed and evaluated FHLB stock for OTTI at September 30, 2020. The Bank reviews factors such as earnings, capital ratios, and dividend paying capacity in its evaluation of impairment. The Bank believes that there is sufficient evidence to conclude that there is no impairment at September 30, 2020.

 

 70 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Liquidity and Capital Resources

 

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers access to funds to meet their credit needs. In order to manage liquidity risk our Board of Directors has delegated authority to the ALCO for formulation, implementation and oversight of liquidity risk management for the Bank. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and by having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

  

Our primary funding and liquidity source is a stable customer deposit base. The Bank believes we have the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Bank has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Bank include borrowing availability at the FHLB of Atlanta, equal to 25% of the Bank’s assets approximating $1.0 billion, subject to the amount of eligible collateral pledged, federal funds lines with six other correspondent financial institutions in the amount of $115.0 million and the brokered deposit market. In addition to the lines referenced above, the Bank also has its available-for-sale investment securities portfolio as an additional source of liquidity.

 

As a result of the onset of the COVID-19 pandemic, there is an increased emphasis on solidifying, monitoring and managing our liquidity position. We believe our liquidity position is strong. An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. At September 30, 2020, the Bank had $797.2 million in highly liquid assets, which consisted of $113.5 million of interest-bearing deposits with banks and Federal Reserve Bank Excess Reserves, $651.6 million in unpledged securities and $32.1 million in loans held-for-sale. This resulted in highly liquid assets to total assets ratio of 19.3% at September 30, 2020.

 

The following table provides detail of liquidity sources as of the periods presented:

 

(Dollars in Thousands)  September 30, 2020   December 31, 2019 
Cash and Due From Banks  $37,688   $41,386 
Interest Bearing Deposits   6,267    45,156 
Excess Reserves   107,219    39,270 
Unpledged Investment Securities   651,586    592,065 
Excess Pledged Securities   25,589    16,030 
FHLB Borrowing Availability   205,468    242,188 
Unsecured Lines of Credit   115,000    115,000 
Total Liquidity Sources  $1,148,817   $1,091,095 

 

 71 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Regulatory Capital Requirements

 

Shareholders’ equity decreased $38.3 million, or 8.1%, to $434.8 million at September 30, 2020, as compared to $473.1 million at December 31, 2019. The decrease in shareholders’ equity is primarily due to a net loss of $48.8 million, a special dividend of $3.7 million paid in March of 2020, both offset by an increase in other comprehensive income of $13.4 million. Other comprehensive income of $13.4 million was primarily due to an increase in net unrealized gains on securities available-for-sale driven by a change in interest rates during the period. The remaining difference of $0.8 million is related to restricted stock activity during the first nine months of 2020.

 

The Bank continues to maintain its capital position with a leverage ratio of 10.12% as compared to the regulatory guideline of 5.0% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 13.08% compared to the regulatory guideline of 6.5% to be well-capitalized. Our risk-based Tier 1 and Total Capital ratios were 13.08% and 14.33%, respectively, which places the Bank above the federal bank regulatory agencies’ well-capitalized guidelines of 8.0% and 10.0%, respectively. We believe that we have the ability to raise additional capital, if necessary.

  

In July 2013 the federal banking agencies issued a final rule to implement Basel III (which were agreements reached in July 2010 by the international oversight body of the Basel Committee on Banking Supervision to require more and higher quality capital) and the minimum leverage and risk-based capital requirements of the Dodd-Frank Act. The final rule established a comprehensive capital framework and went into effect on January 1, 2015 for smaller banking organizations such as the Bank. The rule also required the Bank to maintain a capital conservation buffer composed of Common Equity Tier 1 capital in an amount greater than 2.50% of total risk-weighted assets beginning in 2019. The capital conservation buffer was scheduled to phase in over several years. The capital conservation buffer was .25% in 2016, .50% in 2017, .75% in 2018, and increased to 1.00% in 2019 and beyond. As a result, starting in 2019, the Bank must maintain a Common Equity Tier I risk-based capital ratio greater than 7.0%, a Tier 1 risk-based capital ratio greater than 8.5%, and a Total risk-based capital ratio greater than 10.5%; otherwise, the Bank will be subject to restrictions on capital distributions and discretionary bonus payments. Now that the new rule is fully phased in, the minimum capital requirements plus the capital conservation buffer exceeds the regulatory capital ratios required for an insured depository institution to be well-capitalized under the FDIC’s prompt corrective action framework.

 

Federal regulators periodically propose amendments to the regulatory capital rules and the related regulatory framework and consider changes to the capital standards that could significantly increase the amount of capital needed to meet applicable standards. The timing of adoption, ultimate form and effect of any such proposed amendments cannot be predicted.

 

The community bank leverage ratio final rule was effective on January 1, 2020 and allows qualifying community banking organizations to calculate a leverage ratio to measure capital adequacy. Qualifying banking organizations have less than $10 billion total assets, have a leverage ratio of greater than 9%, and meet other criteria such as off-balance sheet exposures and trading assets limits. Banks opting into this framework are not required to calculate or report risk-based capital. The Bank did not adopt this framework; thefore, capital ratios are calculated and reported as detailed below.

 

 72 

 

 

CARTER BANK & TRUST

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

The following table summarizes capital amounts and ratios for the Bank for the dates presented:

 

           September 30, 2020   December 31, 2019 
(Dollars in Thousands)  Minimum
Value (1)
   Well-
Capitalized
(2)
   Amount   Ratio   Minimum
Amount
(1)
   Amount   Ratio   Minimum
Amount
(1)
 
Tier 1 Leverage Ratio   4.00%   5.00%  $421,300    10.12%   166,495   $410,793    10.33%   158,993 
Common Equity Tier 1 Capital Ratio   4.50%   6.50%   421,300    13.08%   144,984    410,793    13.58%   136,126 
Tier 1 Capital Ratio   6.00%   8.00%   421,300    13.08%   193,312    410,793    13.58%   181,501 
Total Risk-Based Capital Ratio   8.00%   10.00%   461,701    14.33%   257,749    448,622    14.83%   242,002 

 

(1)Minimum requirements to remain adequately capitalized.
(2)Well-capitalized under prompt corrective action regulations.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk

 

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.

 

The ALCO utilizes an asset liability model (“ALM”) to monitor and manages market risk through net interest income simulation for various rate shock scenarios and economic value of equity, or (“EVE”), simulation for various rate shock scenarios. The rate shock scenarios used in the ALM span over multiple time horizons and yield curve shapes and include parallel and non-parallel shifts to ensure the ALCO can mitigate future earnings and market value fluctuations due to changes in market interest rates.

 

Within the context of the ALM, net interest income rate shock simulations explicitly measure the exposure to earnings from changes in market rates of interest over a defined time horizon. These robust simulations include assumptions of how the balance sheet will react in different rate environments including loan pre-payment speeds, average life of non maturing deposits, and how sensitive each interest-earning asset and interest-bearing liability is to changes in market rates (betas). Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. Reviewing these various measures provides us with a more comprehensive view of our interest rate risk profile.

 

 73 

 

 

CARTER BANK & TRUST

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

 

Net interest income rate shock simulation results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 months and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static and growth balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. Our policy guidelines limit the change in pretax net interest income over a 12 month horizon using rate shocks of +/- 100, 200, 300 and 400 basis points. We have temporarily suspended the -300 and -400 basis point rate shock analyses in 2020 because the Bank does not shock for negative interest rates. Due to the low interest rate environment, we believe the impact to net interest income when evaluating the -300 and -400 basis point rate shock scenarios does not provide meaningful insight into our interest rate risk position.

 

In order to monitor interest rate risk beyond the 24 month time horizon of rate shocks, we also perform EVE analyses. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. EVE rate change results are compared to a base case to determine the impact that market rate changes may have on our EVE. As with rate shock analysis, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and the behavior and value of non-maturity deposit products. Our policy guidelines limit the change in EVE given changes in rates of +/- 100, 200, 300 and 400 basis points. We have also temporarily suspended the EVE -300 and -400 basis point scenarios in 2020 due to the low interest rate environment.

 

The tables below reflect the net interest income rate shock analyses and EVE analyses results for the periods presented utilizing a static balance sheet. All percentage changes presented are within prescribed ranges set by management.

 

    September 30, 2020 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
400    34.2%   21.4%
300    26.5%   18.0%
200    18.1%   13.8%
100    9.1%   8.2%
(100)   -2.1%   -1.1%
(200)   -2.2%   17.0%

 

    December 31, 2019 
Change in Interest Rate   % Change in Pretax   % Change in Economic 
(basis points)   Net Interest Income   Value of Equity 
400    24.1%   1.4%
300    19.1%   2.2%
200    13.4%   2.9%
100    7.1%   2.5%
(100)    -8.6%   -7.0%
(200)   -15.9%   -14.1%

 

 74 

 

 

CARTER BANK & TRUST

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

 

The results from the net interest income rate shock analysis are consistent with having an asset sensitive balance sheet, when adjusted for repricing correlations (betas). The above table indicates that in a rising interest rate environment, the Bank is positioned to have increased pretax net interest income for the same asset base due to the balance sheet composition, related maturity structures, repricing floors, and repricing correlations to market interest rates for assets and liabilities. Conversely, in a declining interest rate environment the Bank is positioned to have decreased pretax net interest income for the same reasons discussed above.

 

In addition to rate shocks and EVE analyses, sensitivity analyses are performed to help us identify which model assumptions are critical and cause the greatest impact on pretax net interest income. Sensitivity analyses include changing prepayment behavior of loans and securities with optionality, repricing correlations, and the impact of interest rate changes on non-maturity deposit products (decay rates).

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Based on the evaluation required by Securities Exchange Act Rules 13a-15(b) and 15d-15(b), the Bank’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), at September 30, 2020.  Based on and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective due to a material weakness in the Bank’s internal controls over financial reporting, as described below. Other than the material weakness which was identified as a result of an error that occurred during the quarter ended December 31, 2019, there have been no other changes in Bank’s internal control over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

 

As of December 31, 2019, management including the CEO and CFO, assessed the effectiveness of the Bank’s internal control over financial reporting based on the criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Based upon this assessment, management determined that, as of December 31, 2019, the control deficiency described in the following paragraph constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Bank’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

As of December 31, 2019, we did not maintain effective controls over the completeness and accuracy of impaired loans, including calculations and supporting information.  A material weakness existed related to ineffective control of the valuation and existence of unique, complex collateral associated with two collateral-dependent impaired loans that are part of the same relationship. The Bank relied on stale appraisal information in order to support the underlying assumptions and methodologies to determine fair value and existence of the complex collateral. The appraisals were incomplete and did not adequately support the valuation and existence of the complex, unique collateral.

 

 75 

 

 

CARTER BANK & TRUST

ITEM 4 - CONTROLS AND PROCEDURES (Continued)

 

As a result of this material weakness, we concluded that the Bank did not maintain effective internal control over financial reporting as of December 31, 2019, based on the criteria established in “Internal Control—Integrated Framework” issued by COSO.

 

Plan for Remediation of Material Weakness that Existed as of December 31, 2019

 

Management is committed to continuing efforts to improve the design and operation of our internal controls, including taking all necessary steps to remediate the material weakness identified above. We are addressing the material weakness by defining expectations for validating assumptions accompanying appraisals and plan to test and remediate in the fourth quarter of 2020.

 

PART II – OTHER INFORMATION

 

ITEM 1- LEGAL PROCEEDINGS

 

As of September 30, 2020, no material legal proceedings were pending or threatened against Carter Bank & Trust.

 

ITEM 1A – RISK FACTORS

  

As of September 30, 2020, there have been no material changes in the risk factors faced by the Bank from those disclosed in the Bank’s 2019 Annual Report on Form 10-K.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5 - OTHER INFORMATION

 

None.

 

 76 

 

 

CARTER BANK & TRUST

PART II – OTHER INFORMATION

ITEM 6 - EXHIBITS

Exhibits:

 

3.1   Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Bank’s Form 8-A filed with the FDIC February 23, 2007)
     
3.2   Amended and restated Bylaws (as adopted by the Board of Directors on December 19, 2018) (incorporated by reference to Exhibit 3.2 to the Bank’s Form 8-K filed with the FDIC December 19, 2018)
     
4.1   Description of Common Stock (incorporated by reference to Exhibit 4.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)
     
10.1*   Qualified Profit Sharing Plan of Carter Bank & Trust (formerly the Qualified Profit Sharing Plan of each of the Merged Banks and MCOV) (incorporated by reference to Exhibit 10.1 to the Bank’s 2006 Form 10K filed with the FDIC July 6, 2007)
     
10.2*   Nonqualified Profit Sharing Plan of Carter Bank & Trust (formerly the Nonqualified Profit Sharing Plan of MCOV) (incorporated by reference to Exhibit 10.2 to the Bank’s 2006 Form 10K filed with the FDIC July 6, 2007)
     
10.3*   Employment Agreement, dated as of June 19, 2017, by and between Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3 to the Bank’s Form 8-K filed with the FDIC June 20, 2017)
     
10.3.1*   First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)
     
10.4*   Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Litz Van Dyke (incorporated by reference to Exhibit 10.4 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)
     
10.5*   First Amended and Restated Employment Agreement, dated as of December 16, 2019, by and between Carter Bank & Trust and Phyllis Q. Karavatakis (incorporated by reference to Exhibit 10.5 to the Bank’s Form 8-K/A filed with the FDIC December 17, 2019)
     
10.6*   Employment Agreement, dated as of September 29, 2017, by and between Carter Bank & Trust and Jane Ann Davis (incorporated by reference to Exhibit 10.6 to the Bank’s Form 8-K filed with the FDIC October 3, 2017)
     
10.7*   Employment Agreement, dated as of May 31, 2017, by and between Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.7 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)
     
10.7.1*   First Amendment to Employment Agreement, dated as of December 17, 2019, by and between Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.7.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)
     
10.8*   Employment Agreement, dated as of June 15, 2017, by and between Carter Bank & Trust and Matthew M. Speare (incorporated by reference to Exhibit 10.8 to the Bank’s Form 10-K filed with the FDIC March 15, 2018)

 

 77 

 

  

CARTER BANK & TRUST

PART II – OTHER INFORMATION

ITEM 6 - EXHIBITS (Continued)

Exhibits:

 

10.9*   Carter Bank & Trust 2018 Omnibus Equity Inventive Plan (incorporated by reference to the Bank’s Proxy Statement filed with the FDIC April 30, 2018)
     
10.9.1*   Form of Time-Based Restricted Stock Agreement (for employee) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.9.1 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)
     
10.9.2*   Form of Time-Based Restricted Stock Agreement (for non-employee director) for use under the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.9.2 to the Bank’s Form 10-K filed with the FDIC June 5, 2020)
     
10.10   Carter Bank & Trust Annual Incentive Plan as adopted November 15, 2018 (incorporated by reference to Exhibit 10.10 to the Bank’s Form 10-Q filed with the FDIC May 9, 2019)
     
31.1   Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith)
     
31.2   Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith)
     
32   Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350 (filed herewith)
     
*   Denotes management contract.

 

 78 

 

 

SIGNATURES

  

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  CARTER BANK & TRUST
  (Registrant)
   
   
Date:    November 3, 2020 /s/ Litz H. Van Dyke
  Litz H. Van Dyke
  Chief Executive Officer
  (Principal Executive Officer)
   
   
Date:    November 3, 2020 /s/ Wendy S. Bell
  Wendy S. Bell
  Senior Executive Vice President
  Chief Financial Officer
  (Principal Financial Officer)

 

 79 

 

Exhibit 31.1

 

CERTIFICATIONS

  

I, Litz H. Van Dyke, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Carter Bank & Trust;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated:  November 3, 2020   /s/ Litz H. Van Dyke
    Litz H. Van Dyke
    Chief Executive Officer
    (Principal Executive Officer)

 

 80 

 

Exhibit 31.2

 

I, Wendy Bell, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Carter Bank & Trust;

  

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated:  November 3, 2020   /s/ Wendy S. Bell
    Wendy S. Bell
    Senior Executive Vice President
    Chief Financial Officer
    (Principal Financial Officer)

 

 81 

 

Exhibit 32

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

 

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

  

The undersigned, as the principal executive officer and principal financial officer of Carter Bank & Trust, respectively, certify that, to the best of their knowledge and belief, the Quarterly Report on Form 10-Q for the period ended September 30, 2020, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Carter Bank & Trust at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaim any obligation to update the foregoing certification except as required by law.

 

 

Date: November 3, 2020 /s/ Litz H. Van Dyke
  Litz H. Van Dyke
  Chief Executive Officer
  (Principal Executive Officer)
   
   
Date: November 3, 2020 /s/ Wendy S. Bell
  Wendy S. Bell
  Senior Executive Vice President
  Chief Financial Officer
  (Principal Financial Officer)

 

 82 

 

 

EX-99.5 10 tm2036036d1_ex99-5.htm EXHIBIT 99.5

Exhibit 99.5

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported) February 11, 2020

 

Carter Bank & Trust

(Exact name of registrant as specified in its charter)

 

Virginia   n/a   20-5539935
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)

 

1300 Kings Mountain Road

Martinsville, Virginia

  24112
(Address of principal executive offices)   (Zip Code)

 

Registrant's telephone number, including area code (276)656-1776

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on
which registered
Common Stock, $1 par value CARE Nasdaq Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 8.01. Other Events

 

On February 11, 2020, The Board of Directors of Carter Bank & Trust announced by press release the declaration of a special one-time cash dividend of $0.14 per share. A copy of the press release is included as exhibit 99.1 to this report.

 

Item 9.01. Financial Statements and Exhibits

 

  Exhibit.  

 

99.1 Press Release dated February 11, 2020 announcing special one-time cash dividend

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

    Carter Bank & Trust
     
     
Date: February 11, 2020   By: /s/ Wendy S. Bell
    Wendy S. Bell
    Senior Executive Vice President & Chief Financial Officer

 

 

 

 

Exhibit 99.1

 

Press Release announcing special one-time cash dividend

 

 

 

 

FOR IMMEDIATE RELEASE February 11, 2020

 

Carter Bank & Trust Announces One-time Special Dividend

 

Martinsville, VA, February 11, 2020 - The Board of Directors of Carter Bank & Trust (the “Bank”) (NASDAQ: CARE) today announced the declaration of a special one-time cash dividend of $0.14 per share.  This dividend will be paid on March 3, 2020 to shareholders of record as of February 18, 2020. The Bank's Chief Executive Officer, Litz H. Van Dyke, noted in the Board making this decision, "We are encouraged by our core earnings over the past several quarters as well as our progress in improving the risk profile of our balance sheet. While we are cognizant that further improvement is needed, the Board of Directors of Carter Bank & Trust recognizes that our recent strategy of capital retention has resulted in capital levels that are well above the well-capitalized levels of federal banking regulatory agencies. In light of these considerations as well as our limited ability to effectively leverage this capital, our Board felt that it was appropriate to return some of our excess capital to our shareholders. We are pleased to be able to reward our loyal shareholders with this dividend.”

 

In making this announcement, The Board emphasized that this is a one-time dividend and there are no immediate plans to reinstate a quarterly dividend. Although the Bank anticipates that its financial performance will continue to improve going forward, the amount and timing of dividends, if any, remain subject to the discretion of the Bank’s board of directors and will depend upon a number of factors, including future earnings, financial condition, liquidity and capital requirements of the Bank, applicable governmental regulations and other factors deemed relevant by the Board of Directors.

 

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 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

 

 

 

EX-99.6 11 tm2036036d1_ex99-6.htm EXHIBIT 99.6

Exhibit 99.6

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION 

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): March 27, 2020

 

CARTER BANK & TRUST 

(Exact name of registrant as specified in its charter)

 

Virginia N/A 20-5539935
(State or other jurisdiction
of incorporation)
(Commission
file number)
(IRS Employer
Identification No.)

 

1300 Kings Mountain Road, Martinsville, Virginia 24112 

(Address of Principal Executive Offices) (Zip Code)

 

(276) 656-1776 

(Registrant's telephone number, including area code)

 

Not Applicable 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $1.00 par value   CARE   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Item 8.01Other Events.

 

Reliance on March 25 Order for relief from Exchange Act report filing deadline

 

On March 4, 2020, the Securities and Exchange Commission (“SEC”) issued an order (the “March 4 Order”) under the Exchange Act of 1934, as amended (the “Exchange Act”), extending the deadlines for filing certain reports made under the Exchange Act, including annual reports on Form 10-K, for registrants subject to the reporting obligations under the Exchange Act that have been impacted by the current novel coronavirus (“COVID-19”) pandemic and which reports have filing deadlines between March 1 and April 30, 2020.

 

On March 25, 2020, the SEC issued a further order (the “March 25 Order”), which supersedes the March 4 order, providing COVID-19 impacted registrants temporary relief from certain filing and regulatory requirements and providing an additional 45 days for registrants to make required Exchange Act filings that would have been due between March 1 and July 1, 2020, if a registrant is unable to meet a deadline because of circumstances related to COVID-19.

 

Carter Bank & Trust (the “Company”) is relying on the March 25 Order for relief from the SEC’s filing deadline for the Company’s 2019 Annual Report on Form 10-K (the “Annual Report”).

 

As indicated in the Company’s recently filed Form 12b-25, dated March 16, 2020, the Company and its auditor are currently evaluating collateral supporting one impaired loan relationship. The Company’s evaluation of the collateral is dependent, in part, on the results of a pending independent appraisal regarding the collateral. The appraisal report and the Company’s evaluation thereof with its auditor could potentially impact the financial statements to be included in the Annual Report. In addition, the evaluation may require the Company to assess whether a potential deficiency exists in internal controls related to the valuation of impaired loans within the Company’s Allowance for Loan Losses, which could affect prior periods.

 

Due to the effects of the COVID-19 pandemic, the process of obtaining the independent appraisal and evaluating the collateral has been slowed, and, consequently, the Company is unable to complete preparation of the Annual Report and file within the deadline prescribed by the SEC’s rules. The Company anticipates it will file the Annual Report no later than May 14, 2020 (which is 45 days from the original Annual Report filing deadline of March 30, 2020).

 

 

 

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, including statements regarding the potential effect of an appraisal report on the Company’s evaluation of collateral, whether a potential deficiency exists in internal controls related to the valuation of impaired loans, and the anticipated date of filing of the Company’s Annual Report. 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: the effects of public health events, like the COVID-19 pandemic, and other events outside of the Company’s control; 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.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CARTER BANK & TRUST
     
     
  By: /s/ Wendy S. Bell
  Name: Wendy S. Bell
  Title: Senior Executive Vice President and Chief Financial Officer

 

Dated: March 27, 2020

 

 

EX-99.7 12 tm2036036d1_ex99-7.htm EXHIBIT 99.7

Exhibit 99.7

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION 

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 14, 2020

 

CARTER BANK & TRUST 

(Exact name of registrant as specified in its charter)

 

Virginia N/A 20-5539935
(State or other jurisdiction
of incorporation)
(Commission
file number)
(IRS Employer
Identification No.)

 

1300 Kings Mountain Road, Martinsville, Virginia 24112 

(Address of Principal Executive Offices) (Zip Code)

 

(276) 656-1776 

(Registrant's telephone number, including area code)

 

Not Applicable 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $1.00 par value   CARE   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

On April 14, 2020, director George W. Lester, II notified the Board of Directors of Carter Bank & Trust (the “Bank”) that he would not stand for re-election to the Board of Directors of the Bank (the “Board”) at its 2020 Annual Meeting of Shareholders to be held on July 22, 2020 (the “Annual Meeting”). Mr. Lester will continue to serve as a director of the Bank through the end of his current term, which ends at the Annual Meeting.

 

The decision to not stand for re-election did not involve any disagreement between Mr. Lester and Bank management or the Board on any matter relating to the Bank’s operations, policies or practices.

 

The Board anticipates decreasing its size from 13 to 12, effective as of the conclusion of the Annual Meeting.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CARTER BANK & TRUST
   
   
  By: /s/ Wendy S. Bell
  Name: Wendy S. Bell
  Title: Senior Executive Vice President and Chief Financial Officer
     
Dated: April 16, 2020    

 

 

EX-99.8 13 tm2036036d1_ex99-8.htm EXHIBIT 99.8

Exhibit 99.8

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): May 8, 2020

 

CARTER BANK & TRUST

(Exact name of registrant as specified in its charter)

 

Virginia N/A 20-5539935
(State or other jurisdiction
of incorporation)
(Commission
file number)
(IRS Employer
Identification No.)

 

1300 Kings Mountain Road, Martinsville, Virginia 24112

(Address of Principal Executive Offices) (Zip Code)

 

(276) 656-1776

(Registrant's telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $1.00 par value   CARE   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Item 8.01Other Events.

 

Reliance on March 25 Order for relief from Exchange Act report filing deadline

 

On March 4, 2020, the Securities and Exchange Commission (“SEC”) issued an order (the “March 4 Order”) under the Exchange Act of 1934, as amended (the “Exchange Act”), extending the deadlines for filing certain reports made under the Exchange Act, including quarterly reports on Form 10-Q, for registrants subject to the reporting obligations under the Exchange Act that have been impacted by the current novel coronavirus (“COVID-19”) pandemic and which reports have filing deadlines between March 1 and April 30, 2020.

 

On March 25, 2020, the SEC issued a further order (the “March 25 Order”), which supersedes the March 4 order, providing COVID-19 impacted registrants temporary relief from certain filing and regulatory requirements and providing an additional 45 days for registrants to make required Exchange Act filings that would have been due between March 1 and July 1, 2020, including quarterly reports on Form 10-Q, if a registrant is unable to meet a deadline because of circumstances related to COVID-19.

 

Carter Bank & Trust (the “Bank”) is relying on the March 25 Order for relief from the SEC’s filing deadline for the Bank’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”).

 

As previously disclosed, the Bank and its auditor have been evaluating and are continuing to evaluate collateral supporting one impaired loan relationship. The Bank’s evaluation of the collateral is dependent, in part, on the results of a pending independent appraisal regarding the collateral. The appraisal report and the Bank’s evaluation thereof with its auditor could potentially impact the financial statements to be included in the Quarterly Report. In addition, the evaluation may require the Bank to assess whether a potential deficiency exists in internal controls related to the valuation of impaired loans within the Bank’s Allowance for Loan Losses, which could affect prior periods.

 

Due to the effects of the COVID-19 pandemic, the process of obtaining the independent appraisal and evaluating the collateral has been slowed, and, consequently, the Bank is unable to complete preparation of the Quarterly Report and file within the deadline prescribed by the SEC’s rules. The Bank anticipates it will file the Quarterly Report no later than June 25, 2020 (which is 45 days from the original Quarterly Report filing deadline of May 11, 2020).

 

Risk Factor

 

The COVID-19 pandemic and resulting adverse economic conditions have already adversely impacted the Bank’s business and results, and could have a more material adverse impact on our business, financial condition and results of operations.

 

The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets. The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, significantly increased unemployment, and overall economic and financial market instability. Almost all states, including Virginia, where the Bank is headquartered, and North Carolina, in which the Bank has significant operations, have issued “stay-at-home orders” and have declared states of emergency.

 

Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to the Bank’s business and could cause material disruptions to our business and operations in the future. Impacts to the Bank’s business have included increases in costs due to additional health and safety precautions implemented at the Bank’s branches and the transition of approximately 20% of the Bank’s workforce to home locations, decreases in customer traffic in the Bank’s branches, increases in customer requests for forbearance and loan modifications. Further, loan payment deferment programs implemented by us or under government stimulus programs, like the Paycheck Protection Program (the “PPP”) of the Small Business Administration, may mask credit deterioration in our loan portfolio by making less applicable standard measures of developing financial weakness in a client or portfolio, such as past due monitoring and non-accrual assessments. To the extent that commercial and social restrictions remain in place or increase, the Bank’s expenses, delinquencies, charge-offs, foreclosures and credit losses could materially increase, and the Bank could experience reductions in fee income. In addition, the Bank could experience declines in credit quality which could affect the adequacy of its allowance for loan losses, which the Bank would expect could lead to increases in the provision for loan losses and related declines in the Bank’s net income.

 

1

 

 

Unfavorable economic conditions and increasing unemployment figures may also make it more difficult for the Bank to maintain deposit levels and loan origination volume and to obtain additional financing. Furthermore, such conditions may cause the value of the collateral associated with the Bank’s existing loans to decline. In addition, in March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent in part as a result of the pandemic. A prolonged period of very low interest rates could reduce the Bank’s net interest income and have a material adverse impact on our cash flows and the market value of our investments or the manner in which we redeploy proceeds from maturing investments.

 

While the Bank has taken and is continuing to take precautions to protect the safety and well-being of its employees and customers, no assurance can be given that the steps being taken will be effective, adequate or appropriate, nor can the Bank predict the level of disruption which will occur to its employees’ ability to provide customer support and service. The continued or renewed spread of COVID-19 could negatively impact the availability of key personnel necessary to conduct the Bank’s business, the business and operations of the Bank’s third-party service providers who perform critical services for the Bank’s business, or the businesses of many of the Bank’s customers and borrowers. If COVID-19 is not successfully contained, the Bank could experience a material adverse effect on its business, financial condition, results of operations and cash flow.

 

Among the factors outside the Bank’s control that are likely to affect the impact the COVID-19 pandemic will ultimately have on the Bank’s business are, without limitation:

 

·the pandemic’s course and severity;

 

·the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, the residential housing market, consumer spending and real estate and investment securities market values;

 

·political, legal and regulatory actions and policies in response to the pandemic, including the effects of restrictions on commerce and banking, such as current temporary or required continuing moratoria and other suspensions of collections, foreclosures, and related obligations;

 

·the timing, magnitude and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity;

 

·effects on the Bank’s liquidity position due to changes in customers’ deposit and loan activity in response to the pandemic and its economic effects;

 

·the timing and availability of direct and indirect governmental support for various financial assets, including mortgage loans;

 

·the long-term effect of the economic downturn on the Bank’s intangible assets such as our deferred tax asset and goodwill;

 

·potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties;

 

·the ability of the Bank’s employees to work effectively during the course of the pandemic;

 

·the ability of the Bank’s third-party vendors to maintain a high-quality and effective level of service;

 

2

 

 

·the possibility of increased fraud, cybercrime and similar incidents, due to vulnerabilities posed by the significant increase in Bank employees and customers handling their banking interactions remotely from home, the quick roll-out of various government-sponsored lending programs, like the PPP, or otherwise;

 

·required changes to the Bank’s internal controls over financial reporting to reflect a rapidly changing work environment;

 

·potential longer-term shifts toward mobile banking, telecommuting and telecommerce; and

 

·geographic variation in the severity and duration of the COVID-19 pandemic, particularly in Virginia and North Carolina, where the Bank operates physically.

 

The ongoing COVID-19 pandemic has resulted in severe volatility in the financial markets and meaningfully lower stock prices for many companies, including the Bank’s common stock. Depending on the extent and duration of the COVID-19 pandemic, the price of the Bank’s common stock may continue to experience volatility and declines.

 

The Bank is continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on the Bank. However, if the COVID-19 pandemic continues to spread or otherwise result in a continuation or worsening of the current economic and commercial environments, the Bank’s business, financial condition, results of operations and cash flows could be materially adversely affected.

 

3

 

 

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 the Bank and its future business and operations, and specifically including information related to the pending appraisal of collateral for one impaired loan relationship and potential impacts on the Bank’s financial results and the statements under the caption “Risk Factor.” 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 Bank’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 Bank's borrowers to satisfy their obligations to the Bank, on the value of collateral securing loans, on the demand for the Bank's loans or its other products and services, on incidents of cyberattack and fraud, on the Bank’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Bank'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 the Bank, 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.

 

4

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CARTER BANK & TRUST
   
By: /s/ Wendy S. Bell
Name: Wendy S. Bell
  Title: Senior Executive Vice President and Chief Financial Officer
   
Dated: May 8, 2020  

 

5

 

EX-99.9 14 tm2036036d1_ex99-9.htm EXHIBIT 99.9

Exhibit 99.9

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): May 15, 2020

 

CARTER BANK & TRUST

(Exact name of registrant as specified in its charter)

 

Virginia N/A 20-5539935
(State or other jurisdiction
of incorporation)
(Commission
file number)
(IRS Employer
Identification No.)

 

1300 Kings Mountain Road, Martinsville, Virginia 24112

(Address of Principal Executive Offices) (Zip Code)

 

(276) 656-1776

(Registrant's telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $1.00 par value   CARE   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Item 3.01Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

 

On May 15, 2020, Carter Bank & Trust (the “Bank”) received a notification (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Bank has not yet filed its Annual Report on Form 10-K for the period ended December 31, 2019 (the “Annual Report”), the Bank is not in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission (“SEC”) or, in the Bank’s case, the Federal Deposit Insurance Corporation (“FDIC”).

 

As indicated in the Bank’s Form 12b-25, filed March 16, 2020, the Bank and its auditor are currently evaluating collateral supporting one impaired loan relationship. The Bank’s evaluation of the collateral is dependent, in part, on the results of a pending independent appraisal regarding the collateral. The appraisal report and the Bank’s evaluation thereof with its auditor could potentially impact the financial statements to be included in the Annual Report. In addition, the evaluation may require the Bank to assess whether a potential deficiency exists in internal controls related to the valuation of impaired loans within the Bank’s Allowance for Loan Losses, which could affect prior periods. Due to the effects of the novel coronavirus (“COVID-19”) pandemic, the process of obtaining the independent appraisal and evaluating the collateral has been slowed, and, consequently, the Bank was unable to complete preparation of the Annual Report and file within the deadline, as extended by SEC rules.

 

In the Notice, Nasdaq indicated that the Bank has 60 calendar days, or until July 14, 2020, to submit a plan to regain compliance with Nasdaq’s continued listing requirements and, if Nasdaq accepts the plan, Nasdaq can grant an exception of up to 180 calendar days from the filing due date (as extended by SEC rules) to regain compliance. The Bank can also regain compliance with Nasdaq’s continued listing requirements at any time prior to such deadline, by filing the Annual Report with the FDIC, as well as any subsequent periodic financial reports that may become due.

 

The Bank expects to file the Annual Report with the FDIC prior to July 14, 2020 and thereby regain compliance with the Nasdaq Listing Rules.

 

Item 7.01Regulation FD Disclosure.

 

On May 18, 2020, the Bank issued a press release regarding the matters described in Item 3.01 above. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference into this Item 7.01.

 

The information furnished in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.

 

1

 

 

Important Note Regarding Forward-Looking Statements

 

Certain matters discussed in this Current Report on Form 8-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to the Bank’s 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 the Bank and its future business and operations, and specifically including information related to the pending appraisal of collateral for one impaired loan relationship and potential impacts on the Bank’s financial results, as well as statements regarding the Bank’s beliefs and expectations relating to the filing of the Annual Report and regaining compliance with Nasdaq Listing Rules. 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,” “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: the time needed for the Bank to complete its evaluation of the collateral supporting the impaired loan relationship and to finalize and file the Annual Report with the FDIC and other risks detailed in the Bank’s Form 12b-25 filed on March 16, 2020, including the potential impact on the Bank’s Allowance for Loan Losses for prior periods. For a discussion of other factors that could affect our business and financial results, see the “Risk Factors” outlined in our periodic report 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.

 

Item 9.01Financial Statements and Exhibits.

 

Exhibit No.Description
  
99.1Press release, dated May 18, 2020.

 

2

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 CARTER BANK & TRUST
   
   
 By:/s/ Wendy S. Bell
 Name:Wendy S. Bell
Title:Senior Executive Vice President and Chief Financial Officer

 

Dated: May 18, 2020

 

3

 

 

Exhibit 99.1

 

Press Release Dated May 18, 2020.

 

4

 

 

Carter Bank & Trust Receives Notice of Non-Compliance from Nasdaq Related to Previously Announced Delayed Filing of Annual Report on Form 10-K

 

MARTINSVILLE, VA / ACCESSWIRE / May 18, 2020 / Carter Bank & Trust (the “Bank”) (NASDAQ:CARE) today announced that it received notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Bank has not yet filed its Annual Report on Form 10-K for the period ended December 31, 2019 (the “Annual Report”), the Bank is not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires timely filing of periodic financial reports with the Securities and Exchange Commission or, in the Bank’s case, the Federal Deposit Insurance Corporation (“FDIC”).

 

As previously disclosed, the Bank and its auditor are currently evaluating collateral supporting one impaired loan relationship. The Bank’s evaluation of the collateral is dependent, in part, on the results of a pending independent appraisal regarding the collateral. The appraisal report and the Bank’s evaluation thereof with its auditor could potentially impact the financial statements to be included in the Annual Report. In addition, the evaluation may require the Bank to assess whether a potential deficiency exists in internal controls related to the valuation of impaired loans within the Bank’s Allowance for Loan Losses, which could affect prior periods. Due to the effects of the novel coronavirus (“COVID-19”) pandemic, the process of obtaining the independent appraisal and evaluating the collateral has been slowed, and, consequently, the Bank was unable to complete preparation of the Annual Report and file within the deadline, as extended by SEC rules.

 

The Bank has until July 14, 2020, to submit a plan to regain compliance with Nasdaq’s continued listing requirements.

 

The Bank expects to file the Annual Report with the FDIC prior to July 14, 2020 and thereby regain compliance with the Nasdaq Listing Rules. The notice has no immediate impact on the listing of the Bank’s common stock, which will continue to trade on Nasdaq, subject to the Bank’s compliance with the other continued listing requirements.

 

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 99 branches in Virginia and North Carolina. For more information visit www.CBTCares.com.

 

Important Note Regarding Forward-Looking Statements

 

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to the Bank’s 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 the Bank and its future business and operations, and specifically including information related to the pending appraisal of collateral for one impaired loan relationship and potential impacts on the Bank’s financial results, as well as statements regarding the Bank’s beliefs and expectations relating to the filing of the Annual Report and regaining compliance with Nasdaq Listing Rules. 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,” “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: the time needed for the Bank to complete its evaluation of the collateral supporting the impaired loan relationship and to finalize and file the Annual Report with the FDIC and other risks detailed in the Bank’s Form 12b-25 filed on March 16, 2020, including the potential impact on the Bank’s Allowance for Loan Losses for prior periods. For a discussion of other factors that could affect our business and financial results, see the “Risk Factors” outlined in our periodic report 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.

 

5

 

 

CONTACT:

 

Carter Bank & Trust

Wendy Bell

276-656-1776

Senior Executive Vice President & Chief Financial Officer

wendy.bell@CBTCares.com

 

6

 

EX-99.10 15 tm2036036d1_ex99-10.htm EXHIBIT 99.10

Exhibit 99.10

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported) July 22, 2020

 

Carter Bank & Trust

(Exact name of registrant as specified in its charter)

 

Virginia
(State or other jurisdiction
of incorporation)
N/A
(Commission
File Number)
20-5539935
(IRS Employer
Identification No.)

 

1300 Kings Mountain Road

Martinsville, Virginia
(Address of principal executive offices)

24112
(Zip Code)

 

Registrant's telephone number, including area code (276)656-1776

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on
which registered
Common Stock, $1 par value CARE Nasdaq Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨  
   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

Item 5.07Submission of Matters to a Vote of Security Holders.

 

The 2020 Annual Meeting of Shareholders of Carter Bank & Trust (“Annual Meeting”) was held on July 22, 2020. A total of 22,601,141 of the Bank’s shares were present or represented by proxy at the Annual Meeting. Set forth below is a brief description of each matter voted upon at the Annual Meeting and the voting results with respect to each matter.

 

The following proposals were voted on and, except for Proposal 4, were approved by the Bank’s stockholders at the 2020 Annual Meeting with the stockholders having voted as set forth below:

 

Proposal #1

 

To elect the 12 Directors below to serve until the 2021 Annual Meeting of Shareholders or until their successors are elected:

 

   For   Withhold
Authority
   Broker Non-Votes 
Michael R. Bird   16,547,176    2,132,321    3,921,644 
Robert W. Conner   16,437,059    2,242,438    3,921,644 
Gregory W. Feldmann   16,496,362    2,183,135    3,921,644 
Chester A. Gallimore   16,451,220    2,228,277    3,921,644 
Charles E. Hall   16,503,810    2,175,687    3,921,644 
James W. Haskins   15,512,868    3,166,629    3,921,644 
Phyllis Q. Karavatakis   16,277,630    2,401,867    3,921,644 
Lanny A. Kyle, O.D.   16,415,227    2,264,270    3,921,644 
E. Warren Matthews   16,430,762    2,248,735    3,921,644 
Catharine L. Midkiff   16,575,055    2,104,442    3,921,644 
Joseph E. Pigg   16,452,107    2,227,390    3,921,644 
Litz H. Van Dyke   16,396,995    2,282,502    3,921,644 

 

Proposal #2

 

To approve, in an advisory and non-binding vote, the compensation of the Bank’s named executive officers as disclosed in the proxy statement.

 

For   Against   Abstain   Non-Votes 
14,949,454   3,386,651   343,392   3,921,644 

 

Proposal #3

 

Ratification of the appointment of the independent registered public accounting firm of Crowe LLP as the independent auditors of the Bank for the fiscal year ending December 31, 2020.

 

For   Against   Abstain   Non-Votes 
21,226,224   1,204,363   170,554   0 

 

Proposal #4

 

To approve an amendment of the Articles of Incorporation of Carter Bank & Trust to authorize the issuance of up to 1,000,000 shares of preferred stock.

 

For   Against   Abstain   Non-Votes 
8,116,848   10,369,887   192,762   3,921,644 

 

Proposal #5

 

To approve an adjournment of the Annual Meeting to allow time for further solicitation of proxies in the event that there are insufficient votes at the Annual Meeting to approve Proposal 4 regarding the amendment of the Articles of Incorporation of the Bank.

 

For   Against   Abstain   Non-Votes 
11,472,780   10,874,695   253,666   0 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Carter Bank & Trust
   
   
Date: July 23, 2020 By: /s/ Wendy S. Bell
  Wendy S. Bell
  Senior Executive Vice President & Chief Financial Officer

 

 

EX-99.11 16 tm2036036d1_ex99-11.htm EXHIBIT 99.11

 

Exhibit 99.11

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 28, 2020

 

CARTER BANK & TRUST

(Exact name of registrant as specified in its charter)

 

Virginia   N/A   20-5539935
(State or other jurisdiction   (Commission   (IRS Employer
of incorporation)   file number)   Identification No.)

 

1300 Kings Mountain Road, Martinsville, Virginia 24112

(Address of Principal Executive Offices) (Zip Code)

 

(276) 656-1776

(Registrant's telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $1.00 par value   CARE   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

On October 28, 2020, the Board of Directors (the “Board”) of Carter Bank & Trust (the “Bank”) unanimously elected Elizabeth Walsh, Kevin Bloomfield and Robert Bolton to serve as directors of the Bank effective on that date.

 

Ms. Walsh serves as a Senior Specialist, Curriculum Development, at Becker Professional Education. She coordinates soft skill and emerging technology course development, as well as a webcast schedule of 1250 courses. Before working for Becker, Ms.Walsh consulted with Becker for three years, through Eliz LLC. Eliz LLC catered to local business clients as well as those in the accounting profession and not for profit. At Eliz LLC, Ms. Walsh served as Principal and CEO and specialized in accounting, technology, and change management consulting projects. Ms. Walsh has written CPE courses for the American Institute of CPAs, Becker CPA Review, and Agate Publishing. She authored the IT Section of the Becker CPA Review for the 2017 exam. She also served as the Beta Alpha Psi Executive Director and Director of Knowledge Management for the AICPA in New York City. Ms. Walsh is a certified public accountant (CPA) and holds the Certified Information Technology Professional (CITP) credential. Ms. Walsh earned her bachelor’s degree in Accounting Information Systems from Virginia Polytechnic Institute and State University.

 

Mr. Bloomfield serves as the managing partner at Bloomfield Partners, LLC which makes equity investments in software, technology and life science innovation companies. Previously he was CEO of NetVentures where he helped to build a fast-growing, disruptive cloud-based Operations & Fund Accounting software platform for progressive non-profit organizations. He led the company’s growth from an early-stage startup with just a handful of customers to the market leader with over 500 customers that processed over two billion dollars of customer transactions. Mr. Bloomfield earned his bachelor’s degree from Radford University and is actively involved in the Roanoke/Blacksburg community serving on several Boards.

 

Mr. Bolton has over 25 years’ experience in banking, asset management and equity trading. Prior to forming Iron Bay Capital, Mr. Bolton worked at Mendon Capital, where he was managing director and head trader. He was responsible for overseeing four different domestic equity financial services portfolios. He was also a senior member of the investment committee and was in charge of strategy implementation and trading. Earlier in his career, Mr. Bolton was both a proprietary trader for Pershing Trading Company in New York, and an award-winning banker with The Bank of New York. He has an extensive background in both fundamental and technical research and has appeared on both Bloomberg Television and Radio. Previously, Mr. Bolton served as a director to Naugatuck Valley Bank and HopFed Bancorp. Mr. Bolton earned his bachelor’s degree in Philosophy from St. Bonaventure University and attended the University of Rochester-Simon School of Business.

 

There are no arrangements or understandings between either of Ms. Walsh, Mr. Bloomfield or Mr. Bolton and any other person pursuant to which Ms. Walsh, Mr. Bloomfield or Mr. Bolton were selected for membership on the Board. Ms. Walsh, Mr. Bloomfield and Mr. Bolton and their related parties from time to time have or may have banking transactions (potentially including loan and deposit transactions) with the Bank. Such transactions are and will be in the ordinary course of business, on substantially the same terms, including interest rates, maturities and collateral requirements, as those prevailing at the time for comparable transactions with non-affiliated persons and do not and will not involve more than the normal risk of collectability or present other unfavorable features.

 

At present, the non-employee directors receive an annual cash retainer in the amount of $36,000 and an annual stock retainer in the form of an annual award of time-based restricted stock. The annual stock retainer for each director is paid in the form of restricted stock in the amount of $24,000 based on the closing price of the Bank’s stock on the grant date. Ms. Walsh, Mr. Bloomfield and Mr. Bolton will be compensated for their services as a director in the same manner as other non-employee directors of the Bank.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CARTER BANK & TRUST
   
Dated: October 28, 2020 By: /s/ Wendy S. Bell  
  Name:  Wendy S. Bell
  Title: Senior Executive Vice President and Chief Financial Officer

 

 

 

Exhibit 99.1

 

Press Release Announcing Appointment of New Directors

 

 

 

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

 

CARTER BANK & TRUST ADDS THREE NEW MEMBERS TO BOARD OF DIRECTORS

The new board members’ appointments began on October 28, 2020.

 

MARTINSVILLE, Va. (October 28, 2020) – Carter Bank & Trust (NASDAQ:CARE) today announced the appointment of three new members to its Board of Directors – Kevin Bloomfield of Bloomfield Partners, LLC, Robert Bolton of Iron Bay Capital and Elizabeth Lester Walsh, CPA CITP, of Becker Professional Education.

 

“We are very pleased to welcome Kevin, Robert and Elizabeth as new members on our Board of Directors,” said Litz Van Dyke, Chief Executive Officer of Carter Bank & Trust. “Each adds significant value to our company given their extensive experience and proven leadership. Their background and expertise complement our board, whose consistent support and guidance have been invaluable. We look forward to working with these new board members in advancing our transformation and strategic growth plans.”

 

Kevin Bloomfield is a Managing Partner at Bloomfield Partners, LLC which makes equity investments in software, technology and life science innovation companies. Previously, Bloomfield served as CEO of NetVentures, where he helped build a fast-growing, disruptive cloud-based Operations & Fund Accounting software platform for progressive, non-profit organizations.

 

Robert Bolton is the founder of Iron Bay Capital. He has nearly three decades of experience in banking, securities trading and asset management. He currently serves as the CIO and managing partner to the Iron Bay Fund, LP. Previously, Bolton served as a director to Naugatuck Valley Bank and HopFed Bancorp.

 

Elizabeth Lester Walsh is a Senior Specialist, Curriculum Development at Becker Professional Education, coordinating soft skill and emerging technology course development, as well as a webcast schedule of 1250 courses. Prior to Becker, Walsh served as Director of Knowledge Management at the American Institute of Certified Public Accountants.

 

The new board members started their appointments on October 28, 2020.

 

About Carter Bank & Trust

Headquartered in Martinsville, Va., Carter Bank & Trust is a $4.1 billion, state-chartered community bank with branches in Virginia and North Carolina. Since 1974, Carter Bank & Trust has built a reputation upon a tradition of care for the communities it serves through convenience, local service, and custom solutions for all customers. Additional information about Carter Bank & Trust is available at www.CBTCares.com.

 

###

 

Media Contact: 

Brooks Taylor
Brooks.Taylor@CBTCares.com
276-806-5445

 

 

EX-99.12 17 tm2036036d1_ex99-12.htm EXHIBIT 99.12

Exhibit 99.12

 

 

 

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

 

FORM 8-K

 

CURRENT REPORT 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): November 9, 2020

 

CARTER BANK & TRUST 

(Exact name of registrant as specified in its charter)

 

Virginia N/A 20-5539935
(State or other jurisdiction
of incorporation)
(Commission
file number)
(IRS Employer
Identification No.)

 

1300 Kings Mountain Road, Martinsville, Virginia 24112 

(Address of Principal Executive Offices) (Zip Code)

 

(276) 656-1776 

(Registrant's telephone number, including area code)

 

Not Applicable 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
     
Common Stock, $1.00 par value CARE NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 

 

 

 

 

 

Item 1.01Entry into a Material Definitive Agreement.

 

On July 23, 2020, Carter Bank &Trust (the “Bank”) issued a press release announcing the Bank’s intent to form a bank holding company pursuant to a corporate reorganization transaction (the “Reorganization”).

 

On November 9, 2020, the Bank entered into an Agreement and Plan of Reorganization (the “Reorganization Agreement”) with Carter Bankshares, Inc. (the “Holding Company”), currently a wholly-owned subsidiary of the Bank, and CBT Merger Sub, Inc. (the “Merger Sub”), a wholly-owned subsidiary of the Holding Company, pursuant to which the Reorganization will be effectuated. Under the terms and conditions of the Reorganization Agreement, pursuant to Section 13.1-719.1 of the Virginia Stock Corporation Act (the “VSCA”), at the effective time of the Reorganization, the Bank will merge with the Merger Sub (the “Merger”), with the Bank surviving such Merger as a direct, wholly-owned subsidiary of the Holding Company.

 

Pursuant to the Reorganization Agreement and in accordance with Section 13.1-719.1 of the VSCA, at the effective time of the Merger:

 

  each share or fractional share of the Bank’s common stock, par value $1.00 per share (“Bank Common Stock”), issued and outstanding immediately prior to the Merger will be converted automatically and exchanged for a share or equivalent fractional share of common stock of the Holding Company, par value $1.00 per share (“Holding Company Common Stock”) having the same designations, rights, powers, preferences, qualifications, limitations and restrictions as the shares of Bank Common Stock so converted;

 

  each share of common stock of the Merger Sub issued and outstanding immediately prior to the Merger will remain outstanding and represent a share of Bank Common Stock; and

 

  each share of Holding Company Common Stock issued and outstanding immediately prior to the Merger will be cancelled and no consideration will be delivered in exchange therefor.

 

The Reorganization has been approved by the Bank’s board of directors and the Bank, the Holding Company and the Merger Sub have received all regulatory approvals required to complete the Reorganization. Pursuant to Section 13.1-719.1 the Reorganization does not require approval of the Bank’s shareholders. The Merger is intended to qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

Following the Reorganization, outstanding shares of Holding Company Common Stock will be listed on the Nasdaq Global Select Market under the same symbol (CARE) under which shares of Bank Common Stock are listed prior to the Reorganization.

 

The foregoing description of the Reorganization Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Reorganization Agreement. A copy of the Reorganization Agreement is attached hereto as Exhibit 2.1 and is incorporated by reference into this Item 1.01.

 

Item 9.01Financial Statements and Exhibits.

 

Exhibit No. Description
   
2.1 Agreement and Plan of Reorganization by and among Carter Bank & Trust, Carter Bankshares, Inc. and CBT Merger Sub, Inc., dated November 9, 2020.

 

1

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CARTER BANK & TRUST
   
   
Dated: November 12, 2020 By: /s/ Wendy S. Bell
  Name: Wendy S. Bell
  Title: Senior Executive Vice President and Chief Financial Officer

 

 

 

Exhibit 2.1

 

Agreement Plan of Reorganization among Carter Bank & Trust Carter Bankshares, Inc. and CBT Merger Sub, Inc.

 

 

 

Exhibit 2.1

 

AGREEMENT AND PLAN OF REORGANIZATION AMONG
CARTER BANK & TRUST
CARTER BANKSHARES, INC.
 

AND 

CBT MERGER SUB, INC.

 

This Agreement and Plan of Reorganization (this “Agreement”), dated as of November 9, 2020, is by and among Carter Bank & Trust, Martinsville, Virginia (“Bank”), Carter Bankshares, Inc. (“Company”), and CBT Merger Sub, Inc. (“Subsidiary”).

 

RECITALS:

 

WHEREAS, Bank is a Virginia chartered banking corporation and the sole direct parent of Company, with an authorized capitalization of one hundred million (100,000,000) shares of common stock, par value $1.00 per share (the “Bank Common Stock”), with 26,386,901 shares of Bank Common Stock issued and outstanding; and

 

WHEREAS, Company is a Virginia corporation, a wholly-owned subsidiary of Bank and the sole direct parent of Subsidiary, with an authorized capitalization of one hundred million (100,000,000) shares of common stock, par value $1.00 per share (the “Company Common Stock”), with 10 shares of Company Common Stock issued and outstanding; and

 

WHEREAS, Subsidiary is a Virginia corporation and wholly-owned subsidiary of Company with an authorized capitalization of 5,000 shares of common stock, no par value per (“Subsidiary Common Stock”), of which 10 shares are issued and outstanding; and

 

WHEREAS, Bank, Company and Subsidiary desire to reorganize, and Bank and Subsidiary desire to merge, on the terms and conditions herein provided, and the Board of Directors of each of Bank, Company and Subsidiary has determined that the transactions set forth herein are in the best interests of Bank, Company and Subsidiary, respectively, and has authorized entry into this Agreement, and the Board of Directors of each of Bank and Subsidiary have authorized and approved the merger of Bank and Subsidiary (the “Merger”), with Bank surviving as a wholly-owned subsidiary of Company.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, Company, Bank and Subsidiary, intending to be legally bound, agree as follows:

 

1

 

 

ARTICLE 1 

TERMS OF THE MERGER

 

Section 1.1      The Merger.

 

At the Effective Time (as defined herein), Bank shall merge with and into Subsidiary pursuant to the laws of the Commonwealth of Virginia and with the effect set forth in Sections 13.1-719.1 and 13.1-721 of the Virginia Stock Corporation Act (the “VSCA”). Bank shall be the surviving corporation of the Merger (the “Surviving Corporation”) as a wholly-owned subsidiary of Company, and shall continue its corporate existence under the laws of the Commonwealth of Virginia, and the separate corporate existence of Subsidiary shall cease. The parties shall file Articles of Merger meeting the requirements of Section 13.1-719.1 and 13.1-720 of the VSCA (the “Articles of Merger”) with the Virginia State Corporation Commission (the “SCC”).

 

Section 1.2      Effects of the Merger.

 

At the Effective Time , the Merger shall have the effects set forth in Sections 13.1-719.1 and 13.1-721 of the VSCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the Surviving Corporation shall be considered the same business and corporate entity as Bank and Subsidiary, and all the property, rights, privileges, powers and franchises of Bank and Subsidiary shall be vested in the Surviving Corporation, and all debts, liabilities and duties of Bank and Subsidiary shall be the debts, liabilities and duties of the Surviving Corporation.

 

Section 1.3      Closing; Effective Time.

 

The closing of the Merger will take place at such time and date as Bank and Subsidiary may mutually determine, but in no case prior to the date on which all of the conditions precedent to the consummation of the Merger specified in this Agreement shall have been satisfied or duly waived by the party entitled to satisfaction thereof. Subject to applicable law, the Merger shall become effective (such date and time, the “Effective Time”) upon the issuance of a certificate of merger by the SCC, or at such later time as may be specified by mutual agreement of the parties in the certificate of merger issued by the SCC.

 

Section 1.4      Articles of Incorporation; Bylaws.

 

At the Effective Time, the articles of incorporation and bylaws of Bank in effect immediately prior to the Effective Time shall, to the extent required by Section 13.1-719.1(B)(2) of the VSCA, become the articles of incorporation and bylaws of the Surviving Corporation, and remain substantially identical to the articles of incorporation and bylaws of the Bank, in each case until altered, amended or repealed in accordance with their terms and applicable law.

 

Section 1.5      Corporate Title; Offices.

 

The name of the Surviving Corporation shall be “Carter Bank & Trust.” The business of the Surviving Corporation shall be that of a Virginia chartered banking corporation. The headquarters and principal executive offices of the Surviving Corporation shall be located in Martinsville, Virginia. The business of the Surviving Corporation shall be conducted at such headquarters and principal executive offices, at all duly authorized and operating branches of Bank as of the Effective Time, and at all other offices and facilities of Bank established as of the Effective Time.

 

Section 1.6      Directors and Executive Officers.

 

The directors of Bank immediately prior to the Effective Time shall constitute all of the directors of the Surviving Corporation and shall continue to serve in such capacity until earlier of their respective death, resignation or removal or the time at which a successor is duly elected or appointed and qualified in accordance with the bylaws of the Bank or the VSCA. The officers of Bank immediately prior to the Effective Time shall constitute the officers of the Surviving Corporation immediately following the Effective Time. All officers of the Surviving Corporation shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board of Directors of the Surviving Corporation or an appropriately authorized committee thereof.

 

2

 

 

ARTICLE 2 

EFFECT OF THE MERGER ON SHARES OF CAPITAL STOCK

 

Section 2.1      Conversion of Shares.

 

At the Effective Time, pursuant to Section 13.1-719.1 of the VSCA, by virtue of the Merger and without any action on the part of Bank, Subsidiary, Company, or any holder of any of the following securities:

 

(a)        each share of Company Common Stock shall automatically be cancelled and shall cease to exist and no consideration shall be delivered in exchange therefor;

 

(b)        each share or fraction of a share of Bank Common Stock issued and outstanding immediately prior to the Effective Time shall be converted automatically and exchanged for a share or equal fraction of a share of validly issued, fully paid and nonassessable Company Common Stock;

 

(c)        each right to acquire shares of Bank Common Stock outstanding immediately prior to the Effective Time shall be converted in the Merger into a right to acquire shares of Company Common Stock having the same preferences, rights, and limitations as the right to acquire shares of Bank Common Stock being converted in the merger; and

 

(d)        each share of Subsidiary Common Stock issued and outstanding prior to the Merger shall remain issued and outstanding and, at and after the Effective Time, shall represent a share of Bank Common Stock. The stock transfer book of Subsidiary shall be closed as of the Effective Time and, thereafter, no transfer of any shares of Subsidiary capital stock shall be recorded therein.

 

Section 2.2      Abandoned Property.

 

Any other provision of this Agreement notwithstanding, neither the Surviving Corporation nor Company shall be liable to a holder of Subsidiary capital stock or Bank Common Stock for any amounts paid or property delivered in good faith to a public official pursuant to any applicable abandoned property law.

 

Section 2.3      Surrender and Exchange of Certificates.

 

Outstanding certificates that represented shares of Bank Common Stock prior to the Effective Time will thereafter represent an equal number of shares of Company Common Stock. Each holder of Company Common Stock, upon the surrender of his, her or its certificates representing shares of Bank capital stock to Company, validly executed and indorsed in accordance with the instructions thereto, will be entitled to receive in exchange therefor a certificate or certificates representing an equivalent number of shares of Company Common Stock. Company may, however, on a date and at a time following the Effective Time, require that all certificates formerly representing Bank Common Stock be surrendered and exchanged for certificates representing, or evidence of issuance in book-entry form of, shares of Company Common Stock.

 

3

 

 

Section 2.4      Lost Certificates.

 

A holder of Bank Common Stock whose certificates have been lost, destroyed, stolen or are otherwise missing shall be entitled to receive shares of Company capital stock, and dividends or distributions to which such shareholder shall be entitled, if any, upon compliance with reasonable conditions imposed by the Surviving Corporation and Company pursuant to applicable law and as required in accordance with the Surviving Corporation’s and Company’s respective standard policies (including the requirement that the shareholder furnish an affidavit of lost certificate, surety bond or other customary indemnity).

 

ARTICLE 3 

CONDITIONS PRECEDENT, COVENANTS AND ADDITIONAL ACTIONS

 

Section 3.1      Conditions Precedent.

 

The Merger and the obligations of the parties under this Agreement, including to consummate the Merger, shall be subject to the fulfillment of each of the following conditions prior to the Effective Time:

 

(a)        This Agreement has been approved by Board of Directors of Bank at a meeting thereof duly called and held or by written consent or consents in lieu thereof;

 

(b)        Articles of merger to be filed with the SCC in connection with the Merger shall include a statement that this Agreement did not require approval by the shareholders of Bank or by the Board of Directors or shareholders of Subsidiary because the Merger was authorized pursuant to Section 13.1-719.1(D) of the VSCA, and that the conditions specified in subsection 13.1-719.1(B) thereof have been satisfied;

 

(c)        Approvals of the Merger shall have been obtained from all governmental agencies having jurisdiction necessary for the lawful consummation of the transactions set forth in this Agreement, including but not limited to, as applicable, the SCC, including the Bureau of Financial Institutions, the Federal Deposit Insurance Corporation (“FDIC”), and the Board of Governors of the Federal Reserve System (including any Federal Reserve Bank acting pursuant to delegated authority) (the “Federal Reserve”), and such approvals shall be in full force and effect, and all related waiting periods shall have expired, and all material consents, approvals, permissions and authorizations of, filings and registrations with, and notifications to, all governmental authorities required for consummation of the Merger shall have been obtained or made and shall be in full force and effect and all waiting periods required by law shall have expired;

 

4

 

 

(d)        Bank has received an opinion of counsel to Bank and Company as to the tax-free nature of the transactions set forth in this Agreement; and

 

(e)        No jurisdiction or governmental authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the Merger.

 

Section 3.2      Covenants.

 

From the date of this Agreement to the Effective Time, Bank, Company and Subsidiary agree to use all reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Bank, Company and Subsidiary shall proceed expeditiously and cooperate fully in the preparation and submission of such applications or other filings for the Merger with the FDIC, the Federal Reserve, and the SCC, including the Bureau of Financial Institutions, as may be required by applicable laws and regulations.

 

Section 3.3      Additional Actions.

 

If, at any time after the Effective Time, the Surviving Corporation or Company shall determine that any further assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its rights, title or interest in, to or under any of the rights, properties or assets of Bank or Subsidiary acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger, or (b) otherwise carry out the purposes of this Agreement, Bank and Subsidiary and their respective proper officers and directors shall be deemed to have granted to the Surviving Corporation and to Company, and the proper officers and directors of the Surviving Corporation and Company, an irrevocable power of attorney to (i) execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation and (ii) otherwise to carry out the purposes of this Agreement. The proper officers and directors of the Surviving Corporation and Company are fully authorized in the name of Bank, Company or Subsidiary to take any and all such action.

 

Section 3.4      Effect on Stock Incentive Plans.

 

At the Effective Time, Company shall adopt and assume all equity compensation plans of Bank, including but not limited to the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan, which shall thereafter be plans of Company only.

 

ARTICLE 4 

GENERAL PROVISIONS

 

Section 4.1      Authorization; Binding Effect.

 

Each of the parties hereto represents and warrants that this Agreement has been duly authorized, executed and delivered by such party and, assuming the due authorization, execution and delivery by all other parties to this Agreement, constitutes the legal, valid and binding obligation of such party, enforceable against it in accordance with the terms hereof.

 

5

 

 

Section 4.2      Amendment.

 

Subject to applicable law, this Agreement may be amended, modified or supplemented by written agreement of Company, Bank and Subsidiary at any time prior to the Effective Time.

 

Section 4.3      Waiver.

 

Any of the terms or conditions of this Agreement may be waived at any time by whichever of the parties hereto is entitled to the benefit thereof by action taken by the Board of Directors of such waiving party

 

Section 4.4      Assignment.

 

This Agreement may not be assigned by Company, Bank or Subsidiary (whether by operation of law or otherwise) without the prior written consent of the other party.

 

Section 4.5      Termination.

 

This Agreement may be terminated by written mutual agreement of Company, Bank and Subsidiary at any time prior to the Effective Time.

 

Section 4.6      Governing Law.

 

This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia applicable to agreements made and to be performed wholly within such state.

 

Section 4.7      Counterparts.

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one agreement.

 

[remainder of page intentionally blank; signature page follows]

 

6

 

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by their duly authorized officers, as of the day and year first above written.

 

  CARTER BANK & TRUST
   
   
  By: /s/ Litz H. Van Dyke
  Name: Litz H. Van Dyke
  Title: Chief Executive Officer

 

  CARTER BANKSHARES, INC.
   
   
  By: /s/ Litz H. Van Dyke
  Name: Litz H. Van Dyke
  Title: Chief Executive Officer

 

  CBT MERGER SUB, INC.
   
   
  By: /s/ Litz H. Van Dyke
  Name: Litz H. Van Dyke
  Title: President and Chief Executive Officer

 

[Signature Page to Agreement]

 

7

 

EX-99.13 18 tm2036036d1_ex99-13.htm EXHIBIT 99.13

 

Exhibit 99.13

 

Carter Bankshares, Inc. and Carter Bank & Trust Announce Completion of Holding Company Reorganization

 

MARTINSVILLE, VA / ACCESSWIRE / November 23, 2020 – Carter Bankshares, Inc. (the “Company”)(NASDAQ:CARE) and Carter Bank & Trust (the “Bank”) announced that, effective as of November 20, 2020, the Company and the Bank consummated the statutory merger pursuant to which the Company has become the parent bank holding company of the Bank (such transaction, the “reorganization”). In the reorganization, each share of the Bank’s common stock converted into a share of the Company’s common stock at a one-for-one exchange rate. Shareholders will receive information in the mail from the Company’s and the Bank’s transfer agent about shares held in book-entry form and how to exchange certificates that previously represented shares of the Bank’s common stock.

 

Following the reorganization, shares of the Company’s common stock will trade on the Nasdaq Global Select Market under the same ticker symbol, CARE, that was used for shares of the Bank’s common stock prior to the reorganization.

 

“The Board of Directors believes this new corporate structure will provide added financial and operational flexibility for the Bank, is an integral part of the continued growth and prosperity of the Bank, and is in the best interests of our shareholders,” said James W. Haskins, Chairman of the Board of the Company and the Bank.

 

Litz H. Van Dyke, Chief Executive Officer of the Company and the Bank, stated: “These are times of tremendous uncertainty in the banking industry due to the impact of COVID-19. The formation of the holding company will provide more efficient access to capital markets if the need arises and will create flexibility in the overall capital structure of our organization. We believe that forming a holding company now will put the Company and the Bank in the best position to respond to evolving market conditions and to take advantage of future opportunities as they arise.”

 

 

About Carter Bankshares, Inc.

 

Carter Bankshares, Inc. is a bank holding company and the parent company of Carter Bank & Trust, and trades on the Nasdaq Global Select Market under the symbol CARE. Headquartered in Martinsville, VA, Carter Bank & Trust is a state-chartered community bank in Virginia with $4.1 billion in assets and 92 branches in Virginia and North Carolina. For more information visit www.CBTCares.com.

 

Important Note Regarding Forward-Looking Statements

 

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to the Company’s 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 the Company and its future business and operations, and specifically including statements regarding the possible future benefits of forming a bank holding company. 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,” “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. For a discussion of factors that could affect our business and financial results, see the “Risk Factors” outlined in our periodic and current report filings with the Securities and Exchange Commission. 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.

 

 

 

 

CONTACT:

 

Carter Bankshares, Inc.

Wendy Bell

276-656-1776

Chief Financial Officer

wendy.bell@CBTCares.com

 

SOURCE: Carter Bankshares, Inc.

 

 

 

GRAPHIC 19 tm2036036d1_ex99-1img001.jpg GRAPHIC begin 644 tm2036036d1_ex99-1img001.jpg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tm2036036d1_ex99-1img002.jpg GRAPHIC begin 644 tm2036036d1_ex99-1img002.jpg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end GRAPHIC 21 tm2036036d1_ex99-1img004.jpg GRAPHIC begin 644 tm2036036d1_ex99-1img004.jpg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end GRAPHIC 22 tm2036036d1_ex99-1img005.jpg GRAPHIC begin 644 tm2036036d1_ex99-1img005.jpg M_]C_X 02D9)1@ ! 0$ 8 !@ #_VP!# $! 0$! 0$! 0$! 0$! 0$! 0$! M 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0'_ MVP!# 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0$! M 0$! 0$! 0$! 0$! 0$! 0$! 0$! 0'_P 1" *$ U(# 2( A$! Q$!_\0 M'P 04! 0$! 0$ $" P0%!@<("0H+_\0 M1 @$# P($ P4% M! 0 %] 0(# 01!1(A,4$&$U%A!R)Q%#*!D:$((T*QP152T? D,V)R@@D* M%A<8&1HE)B7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7& MQ\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W^/GZ_\0 'P$ P$! 0$! M 0$! 0 $" P0%!@<("0H+_\0 M1$ @$"! 0#! <%! 0 0)W $" M Q$$!2$Q!A)!40=A<1,B,H$(%$*1H;'!"2,S4O 58G+1"A8D-.$E\1<8&1HF M)R@I*C4V-S@Y.D-$149'2$E*4U155E=865IC9&5F9VAI:G-T=79W>'EZ@H.$ MA8:'B(F*DI.4E9:7F)F:HJ.DI::GJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4 MU=;7V-G:XN/DY>;GZ.GJ\O/T]?;W^/GZ_]H # ,! (1 Q$ /P#\_P#_ (*( M?\% ?V[O ?[?/[:G@OP3^VE^UGX4\(^$_P!JGXY^&_"OA#PK^T)\7O#WACPS MX=T;XE^)--T;0/#^A:/XOM-+T?2-*T^VM['3].TVTMK*UM888+>WC$;%OC7_ M (>5_P#!1/\ Z/X_;4_\2=^-H_\ =TJ__P %/?\ E([^WM_V>'^T'_ZMGQ97 MPE7\O9KFF:4\US.,,SS&$(YCF$(0CF&.C&$88W$J,8Q6*Y8QBG:*25EIM9+_ M 'LX(X(X-K<%<&5*W"'"-6I5X/X3K5*E3A/AB=2I5J\-9%*K5JUI\/RK5JU6 M7O5*E6I-RE[RM*4Y5/M[_AY7_P %$_\ H_C]M3_Q)WXV_P#S:4?\/*_^"B?_ M $?Q^VI_XD[\;?\ YM*^(:*X/[7S;_H:YG_X<<=_\TGU'^H?!'_1&<'?^(EP MQ_\ 0\?;W_#RO_@HG_T?Q^VI_P")._&W_P";2C_AY7_P43_Z/X_;4_\ $G?C M;_\ -I7Q#11_:^;?]#7,_P#PXX[_ .:0_P!0^"/^B,X._P#$2X8_^AX^WO\ MAY7_ ,%$_P#H_C]M3_Q)WXV__-I1_P /*_\ @HG_ -'\?MJ?^)._&W_YM*^( M:*/[7S;_ *&N9_\ AQQW_P TA_J'P1_T1G!W_B)<,?\ T/'V]_P\K_X*)_\ M1_'[:G_B3OQM_P#FTH_X>5_\%$_^C^/VU/\ Q)WXV_\ S:5\0T4?VOFW_0US M/_PXX[_YI#_4/@C_ *(S@[_Q$N&/_H>/M[_AY7_P43_Z/X_;4_\ $G?C;_\ M-I1_P\K_ ."B?_1_'[:G_B3OQM_^;2OB&BC^U\V_Z&N9_P#AQQW_ ,TA_J'P M1_T1G!W_ (B7#'_T/'V]_P /*_\ @HG_ -'\?MJ?^)._&W_YM*/^'E?_ 43 M_P"C^/VU/_$G?C;_ /-I7Q#11_:^;?\ 0US/_P ..._^:0_U#X(_Z(S@[_Q$ MN&/_ *'C[>_X>5_\%$_^C^/VU/\ Q)WXV_\ S:4?\/*_^"B?_1_'[:G_ (D[ M\;?_ )M*^(:*/[7S;_H:YG_X<<=_\TA_J'P1_P!$9P=_XB7#'_T/'V]_P\K_ M ."B?_1_'[:G_B3OQM_^;2C_ (>5_P#!1/\ Z/X_;4_\2=^-O_S:5\0T4?VO MFW_0US/_ ,..._\ FD/]0^"/^B,X._\ $2X8_P#H>/V9\!_\% _V[K[]A?\ M:A\8WG[:_P"UO=^+?#W[1_['OAW0/$]U^T1\7IO$>B:#XL\ _MAZAXHT?1M; ME\6MJNFZ5XAO?"'A:ZURRL+RVL]3N?#VB3ZC# MB2/E^'N">#*F,XOC4X/X2J1I<85J5%3X4X9E[&G_ &)PO)TJ=^'WRT'.5_\%$_^C^/VU/\ Q)WXV_\ S:4?\/*_^"B?_1_'[:G_ M (D[\;?_ )M*^(:*X_[7S;_H:YG_ .'''?\ S2?4?ZA\$?\ 1&<'?^(EPQ_] M#Q]O?\/*_P#@HG_T?Q^VI_XD[\;?_FTIZ_\ !2G_ (*)G:6_;W_;4V&15_Y. M=^-N6!SN7=_PF@P<=@=Q'W2"!GX>J6+JO_76+_V:D\WS:S_X5EU=VULFI?M!^V=^ MW]^W7X1UW]G"+PM^VK^UOX;B\0?L4?LI^+M=AT#]HCXO:3#K'BSQ+\,-/U/Q M'XEU1-/\6P+J&OZ[J,TE[K&K7WVG5=0NF,M_?7+",I\=1\/7D^6$8W>T8PBK**2^WO^'E?_ 43_P"C^/VU/_$G?C;_ /-I1_P\ MK_X*)_\ 1_'[:G_B3OQM_P#FTKXAHKA_M?-O^AKF?_AQQW_S2?7?ZA\$?]$9 MP=_XB7#'_P!#Q]O?\/*_^"B?_1_'[:G_ (D[\;?_ )M*/^'E?_!1/_H_C]M3 M_P 2=^-O_P VE?$-%']KYM_T-_P"'E?\ P43_ .C^/VU/_$G?C;_\VE'_ \K_P""B?\ T?Q^VI_XD[\; M?_FTKXAHH_M?-O\ H:YG_P"'''?_ #2'^H?!'_1&<'?^(EPQ_P#0\?LY^UK^ MW_\ MX>%;?\ 96;PU^VM^UMH'_"2_L;?!7Q9XC;1/VB/B[IC:[XHU;5O&L6K M>(M:>Q\6P-J>NZE%:VD=_JNHFZU:\2VMHKF]F6"U6#Y!_P"'E?\ P43[_M\? MMJ?A^T[\;/Z>-,?EQ4O[:G^I_8Y_[,6^ W_IY\>U\.5U8W-\U6+K*.9YE&*= M.T8YCCDE>AA[_P#,3U=W\SY3@G@C@ROPSEE6MP?PE5JR>9JI5J\*\,SG-QXB MXIA%N3X?O:,(4X16MHP@KVC%+[>_X>5_\%$_^C^/VU/_ !)WXV__ #:4?\/* M_P#@HG_T?Q^VI_XD[\;?_FTKXAHKE_M?-O\ H:YG_P"'''?_ #2?5_ZA\$?] M$9P=_P"(EPQ_]#Q]O?\ #RO_ (*)_P#1_'[:G_B3OQM_^;2C_AY7_P %$_\ MH_C]M3_Q)WXV_P#S:5\0T4?VOFW_ $-_X>5_\ !1/_ */X_;4_ M\2=^-O\ \VE'_#RO_@HG_P!'\?MJ?^)._&W_ .;2OB&BC^U\V_Z&N9_^'''? M_-(?ZA\$?]$9P=_XB7#'_P!#Q^C/PM_X*/\ _!0K4?BA\--/O?V[/VR=0L;_ M .(7@FSO["__ &EOC1=6-[977B;2X+NTO+6?QF\%S:7,#R0W-O.DD$\#R13Q MR0LZ-Z)^UA_P4-_;[\*_M4?M.>&/#G['/#?[1/QNT#P]H6B?M'?&' M2M&T70M&^)GB73M(TC2-,T_Q?;Z?INE:986]O9:?86%M;V-E:0P6UI!!;1PP MI^=?P:_Y*_\ "K_LH_@C_P!2;3*]5_;7_P"3ROVN?^SFOCY_ZMKQ77=',\U> M73J?VIF5XXY*_P#:&.O:."<[KY7R*T;J7H'_#RO_@HG_T?Q^VI_P") M._&W_P";2C_AY7_P43_Z/X_;4_\ $G?C;_\ -I7Q#17#_:^;?]#7,_\ PXX[ M_P":3ZO_ %#X(_Z(S@[_ ,1+AC_Z'C[>_P"'E?\ P43_ .C^/VU/_$G?C;_\ MVE'_ \K_P""B?\ T?Q^VI_XD[\;?_FTKXAHH_M?-O\ H:YG_P"'''?_ #2' M^H?!'_1&<'?^(EPQ_P#0\?;W_#RO_@HG_P!'\?MJ?^)._&W_ .;2C_AY7_P4 M3_Z/X_;4_P#$G?C;_P#-I7Q#11_:^;?]#7,__#CCO_FD/]0^"/\ HC.#O_$2 MX8_^AX^WO^'E?_!1/_H_C]M3_P 2=^-O_P VE'_#RO\ X*)_]'\?MJ?^)._& MW_YM*^(:*/[7S;_H:YG_ .'''?\ S2'^H?!'_1&<'?\ B)<,?_0\?;W_ \K M_P""B?\ T?Q^VI_XD[\;?_FTH_X>5_\ !1/_ */X_;4_\2=^-O\ \VE?$-%' M]KYM_P!#7,__ XX[_YI#_4/@C_HC.#O_$2X8_\ H>/M[_AY7_P43_Z/X_;4 M_P#$G?C;_P#-I1_P\K_X*)_]'\?MJ?\ B3OQM_\ FTKXAHH_M?-O^AKF?_AQ MQW_S2'^H?!'_ $1G!W_B)<,?_0\?;W_#RO\ X*)_]'\?MJ?^)._&W_YM*/\ MAY7_ ,%$_P#H_C]M3_Q)WXV__-I7Q#11_:^;?]#7,_\ PXX[_P":0_U#X(_Z M(S@[_P 1+AC_ .AX^WO^'E?_ 43_P"C^/VU/_$G?C;_ /-I1_P\K_X*)_\ M1_'[:G_B3OQM_P#FTKXAHH_M?-O^AKF?_AQQW_S2'^H?!'_1&<'?^(EPQ_\ M0\?;W_#RO_@HG_T?Q^VI_P")._&W_P";2C_AY7_P43_Z/X_;4_\ $G?C;_\ M-I7Q#11_:^;?]#7,_P#PXX[_ .:0_P!0^"/^B,X._P#$2X8_^AX^WO\ AY7_ M ,%$_P#H_C]M3_Q)WXV__-I1_P /*_\ @HG_ -'\?MJ?^)._&W_YM*^(:*/[ M7S;_ *&N9_\ AQQW_P TA_J'P1_T1G!W_B)<,?\ T/'V]_P\J_X*)_\ 1^_[ M:G R?^,G?C;TZY_Y'3ICG--7_@I=_P %$')"_M]?MI,1U"_M/_&PD?4#QJ2* M\@_95T/X8^)OVG_V<_#7QOO;73_@OXC^._P8T#XNWM]J4FC6%M\+]9^(GAG3 M_'DU_JT1272[&+PK/J;7FHQR1/I]L);L30>4TT?]+7Q@^ O[97[37_!034?V M3?VOO@IXZ\ _L >$/VB/C$?V"/%-K\+?AE\:_$WP"^"7[/ M7QUM_ASI2W4_QF\ >$H=+U&RTKQ;K!N"+B_U:UL?$^A:*MC[N64\\S3#3JT, MWSB5:6,I8##T:.)S*O'V]3#O%.KC:L,5_L6$C2C.,<0Z=7GJP=-0YN6,OROC M3-/#O@O/<+E>8*\US#'Y1PEE]591E^;_ -CRP?#>72X7JUN) M^(Y57#&55?\ !13_ */W_;5Z%O\ DYWXW?='4_\ (Z=!W/05 M^VT?_!/K]CN.W\#_ !E^*?['?Q:_9[N-3_X)_?\ !1']I+XE_L+^+?C?\0?# MOC;P;K/[(.O>#HOA9XXT[Q5\1=&/Q6\)Z+\;=-N/%MGI\7Q/\(ZMX9B;1+K7 M=#T'7+#38I)N)_:'_8^_8#_X4]\5Y/A1^S9X\^$WQ#N?^"7/P!_X*=>#O'-[ M^T'XO^(NA?#BY^)OC+X>^#-;^ 6A^"==TNUMO$/@I].UV_U>3QQXUUS5O%\^ MLW%\NAOHFBV5C:6_5++.)(0JU)Y[72A0EB(06;9FJU6G[!UZ?+2FXRA4J)PC M*C4Y*U*4^6K3A*+1\M@_$GP@QF-P6"I>%M!RQ.,HX#$XB'!OAQB,%EN*EB:6 M'Q,,3C<-5K87%4L'[557CLJJYAEF.HN-;*\PQU%RG3_'_P#X>5?\%%.#_P - M[_MJ]SS^T[\;L?+R?^9TZ#'/H.M;DW_!0#_@I[;^';7QE#;[7+S MPO8^+IOV@_CE#X7O?$VG6EOJ&I>'+/Q"_B=-(N]>L-.O+34;O1[:\DU*VT^Y M@O)[6*&:)F_=[XY?L=_\$KO@OXY_:@T4?L6?$O7[3]D_]K_]ESX SV9_:X^) M&FV/Q9TK]J?PQ?:M?1Z];G1KG6/!^E?#-+:\G\&V7A+6H_%GBG68] E\9>+K M_1SJNBWOVTGP#\$/#D7PV\8ZO\*[Z\N?A3X@\>Z>#/:W^MS^#+*\\5/>P#4KE M;73-(LK'JIY/GWM_8UN(L2DYJFZE+,,UDJ4I8M8.,JBK2HMQ=:%=1]FVW[*/ MPJK%GD8CQ8\,'E#S;+/"3!*-+"TLT^K9GPCP#0GF6!>5XC-I87 XC 87,J&' MQDL'++JLJF8JEA\,\9/#5J-;&X7$T:/\YO\ P\I_X**\D_M[_MJ\'!/_ TY M\;@ >X/_ !6G!]NU)_P\K_X*)YQ_PWQ^VIG ./\ AIWXVYP1D'_D=.A'(]1S M7[C>&_V7/@'\?_V6OV8_ACJO_!/;Q+^RI-XO_P""E7B3]G[XV?$^+Q1\7M4\ M>_LJ:1XDUW]G1;+0_B+K_P 1O#KO#K?Q+T+QS9?!CX::9\<8O[$T'QG=Z;XH M\-Z'>^)_%FJZ7J'I/B+_ ()/_L1:[^U-^SCX$A^$WQ%^"L&KI^VA>>*?@3.O M[<6FZ%\?+3]G+P5X?\9?#&R\!_$;]H/]E7X>_%_4]=\3OK%XGQ5L/V?? ?QE ML]0\-Z.^L_!XVVLW-O'*:D%4P^=8FK!_4$I5,SS7"-U,'>>26&X;6% MDJ_M,HH3I168K$\T(RF#_@I=_P40*>8/V^_VTC'S\X_:?\ C84X MQGYO^$UV\9&>>,CU%?IA\0_V8O@?^S__ ,%;?^"87AKX2?#WQ7\._#_Q3^*W M[&GCKQ[\(O'GA;]I+2]/\$^-+_\ :;G\%^(]$\$)^UA\*/@I\:_%GPUURW\& M6VIV&I^.?A_&1=ZCK%@NI:CIEO'#:_L!K7A/X/C]KVS_ ."K?]C_ SC\0P? M&*__ ."=,7PN@@B0R_MV6G[4A_92L/B'>>&%TUM%DE?]B:T/Q?@T$VWV>QUR MVL+Q+A9HXK>$PF5YWB)8NE4X@QU*K@,THX+%1AF&-JQAA'A*6*Q6.IOZY"52 M6&^LX:F\-RQE.5:[G'EE9Y[XD>&^5T,AQV#\)^'<=E_$W!.8\2Y15Q'#_"> MKU,[IYWC,CR7AG$0CPIF&&I0SBOE&?5O[>IXNIEN'H9/6J0598C"J7\J7_#R MK_@HH>G[>_[:IR 1_P 9._&[D'H?^1TZ'L>])_P\J_X*)_\ 1^_[:G0G_DYW MXV]!C)_Y'3H,C)]Q7])F@?\ !,K]D3XS^-/VG_B9\5O 7CWX@7_Q<_X*-?M^ M?"SQ7XF^%.G?M4^)-6_9*T?X:_$[Q!IW@9_"?PV_9@_9Y^-'@&]\4ZE<:[I7 MC'6/^&E?$7PY\"MX*FT2R\'B^\O6K]?DCX3_ +'/_!/J;X)^%8/B!^RY\0?& M'Q$L/^"-ES_P5&\;?$7P[^TGXN\&0Z[XB^&_Q1U'P_>_##0_!TWA[Q7I/AG2 M/BO9:/=V/C3QC$_$5L_B*^*F3<34^6;SZ<*-55IT*E7. M678N%2 ME^."?\%(O^"CDD$US'^WA^VY);6QB%S<)^TO\"-0GO/%%QJ MH=>>VTV]N]4U#2/ M#UG>R:?9\ _\$=?V"M-\??M&:)?>$OB9\?/"&F_MT>.?V98[WP-J_P"U/XM\ M7_LS_#C1OAMX'\5P7WA[1_V6?V<_CE:Z]\4=!\8^/K[3[G4_VD;[PA\)9M(\ M&V.D7-^VN2>*-0FVAD/$U5T%0SW$S]I[95)3S3,:<(.E5E#]WS5%*M%T^2J^ M7WX\S3IJ*C4GR5_&'P;P$,\K9IX89;AZ.5U, L+##<)\ X[&8N&,P^#E5AB< M-0H2>78K"XJKCL.Z>)EA\'CE@H1RG,5_\%$_^C^/VU/\ MQ)WXV_\ S:5./^"D/_!1UX9KB/\ ;P_;<-O;O%'<7*_M+_&TP6\DV\PQS3R> M,6MX9)A%)Y22LKRB.3RPVQB/TK\!?LP?L-67A3_@EUX-\4?LW?'#XQ>,_P!K M.?XF^+_BW\3/@UXD\>ZIXYU7X?? OXW_ !H\+74'@#]GNV-_))J/C+P3X4T. M[^(<>@22:]X?\'^#L_#_ ,/M\0M0U34O$'WS??L_?L]_LK?#K]NOX;?$?]EM M-2^!/C_XH?\ !*/Q-H_P%\*?'_XY:%:WMI\7]4^.6D6.O^,/$?Q/^'G@[]H[ MX::FOEW7B;5?@WXX\/:=XW\,^,+32_#UQK^H^&;R(7/-ALLX@K<\YY_B:=&G M#]Y5CF>95(TJLLL_M*E&K[\8QA*,H49U(RFXSDW&E-1N_;S3Q!\+\!7H8/"^ M%.58O,,5C:E# 8:KPYX>)-.LK/4]1\.VOB)/%":5<:_8:;J&GZC>:-#>/J%K87UG?7%O%;7=I+<8 M1_X*4_\ !10'!_;V_;5! W$']ISXW A3T;'_ FG0^O2OZ /AE_P3L^ 7B;X MB^"?V1/$Q^,7B[X*6?\ P5K_ ."C_P %;+P)'\8?'&E6=UX7^#'[(">-/A?/ M8:)::W#X(TWXCZ-K6FV O_B#;>%[?5O%-K;)I?BJ35_#@?18\;P)_P $U?V2 MO$/Q)_9EU+Q=^PW^T7\+?&/QH_93^*/BG7?V,_$?B#]I[XAVOPB^+/@WX[Z; M\)/A=X__ &A/$WPH\":E^TQ\/_AC\9O"YUVZA\20_#]?"OA#Q-96.K:WHEGX M4TW5VEVCDO$M9PC0SK&N3G"C45;,LRIQC7DU&2C4C4J0E!N4?9ZQJU%S.-)J M$W'S9^+'@[A?K+S#P\R6KRX3%9KAIX'@[@6,IY9"A1Q>$IU\/BZ4,33Q<\'+ M%5\3C%1J9+A/JRHXS,,)B\3@<)C?P7/_ 4J_P""B8Z_M[_MJC(R,_M._&[D M>O\ R.G2C_AY7_P43_Z/X_;4_P#$G?C;_P#-I7B'[2W@!/A-^T/\>OA7'H=O MX7C^&WQH^)_@)/"]EXI/CVR\,Q^#?'7B3P[!X=MOB =*T ^.8]"AT\:5'XN? MPYX9N/$JVIUB]\,^'KZYN=&L/$*^3J9GG-*I4I3S3,U.E4J4IK^T7X',/H/_53A:5Z&.PF$QM!\ MT.'W%MT<92YK-I24DFTDW]O?\/*_^"B?_1_'[:G_ (D[\;?_ )M*/^'E?_!1 M/_H_C]M3_P 2=^-O_P VE?$-%9_VOFW_ $-5_\ !1/_ */X_;4_\2=^-O\ \VE? M$-%']KYM_P!#7,__ XX[_YI#_4/@C_HC.#O_$2X8_\ H>/M[_AY7_P43_Z/ MX_;4_P#$G?C;_P#-I1_P\K_X*)_]'\?MJ?\ B3OQM_\ FTKXAHH_M?-O^AKF M?_AQQW_S2'^H?!'_ $1G!W_B)<,?_0\?;W_#RO\ X*)_]'\?MJ?^)._&W_YM M*/\ AY7_ ,%$_P#H_C]M3_Q)WXV__-I7Q#11_:^;?]#7,_\ PXX[_P":0_U# MX(_Z(S@[_P 1+AC_ .AX^WO^'E?_ 43_P"C^/VU/_$G?C;_ /-I1_P\K_X* M)_\ 1_'[:G_B3OQM_P#FTKXAHH_M?-O^AKF?_AQQW_S2'^H?!'_1&<'?^(EP MQ_\ 0\?;W_#RO_@HG_T?Q^VI_P")._&W_P";2C_AY7_P43_Z/X_;4_\ $G?C M;_\ -I7Q#11_:^;?]#7,_P#PXX[_ .:0_P!0^"/^B,X._P#$2X8_^AX^WO\ MAY7_ ,%$_P#H_C]M3_Q)WXV__-I1_P /*_\ @HG_ -'\?MJ?^)._&W_YM*^( M:*/[7S;_ *&N9_\ AQQW_P TA_J'P1_T1G!W_B)<,?\ T/'V]_P\K_X*)_\ M1_'[:G_B3OQM_P#FTH_X>5_\%$_^C^/VU/\ Q)WXV_\ S:5\0T4?VOFW_0US M/_PXX[_YI#_4/@C_ *(S@[_Q$N&/_H>/M[_AY7_P43_Z/X_;4_\ $G?C;_\ M-I7LG[.__!17]O[7_P!H+X#Z'KG[?Z>O2S\?B M'@?@NED&>SAP;P?&<,ES>I"<>$N&%.$XY7F?+*$O]7[Q:;N]'>RV:37^Q311 M17]5G^ 9_DF?\%/?^4CO[>W_ &>'^T)_ZMGQ97PE7W;_ ,%/?^4CO[>W_9X? M[0G_ *MGQ97PE7\H9O\ \C;-/^QGF7_J=B#_ *%>!/\ DA^"?^R*X/\ _69R M$****\X^K"BBB@ HHHH **** "BBB@ HHHH **** "BBB@#[;^''_*//]KC_ M +.G_8=_]5K^W37Q5-U3_=?_ -'2U]J_#C_E'G^UQ_V=/^P[_P"JU_;IKXJF MZI_NO_Z.EKMQG\++O^P"G_ZEYD?)<.?[]QE_V6E?_P!47"I#1117$?6A4L75 M?^NL7\VJ*I8NJ_\ 76+^;4GL_1_DQQ^*/^)?^E4S[E_;R_Y&#]EC_LP?]CC_ M -4_I%?"M?=7[>7_ ",'[+'_ &8/^QQ_ZI_2*^%<'TKT1D=1ZCUI=CX+;'VCDMM;:/JV,#\32NNZ^ M]?YC2;O9-V5W9-V5KW=D[*VMW96UO;4;1113%OJM4]4UJFGU36C1]Q_MJ_ZG M]CG_ +,6^ W_ *>?'M?#E?%%%% !1110 4444 %%%% M'I/P:_Y*_P#"H=S\1_! ]3_ ,)-IG KU;]M<'_ALG]KAL'!_::^/F#@X./B MSXI/7Z,I^C*>C G7_8*^"^TLZW M;:1-8WO]M13/I*ZEI#:A),^F+:6]LNIV327%Q%MG# *W]&_[2G_!OQ\,_%'[ M0_QR\5^*O^"JW[*7PX\0^./BQ\0OB!J?@'QCHOAO2O%7@^7Q_P");GQG!H&N M66I_&NQNHKVPLM;MXUFN;"S?4;=TU**VMXKH15]#@,IS/,,IJSP6'IU:4,GRQ3LI.3OI%I-K\3XR\2^#.!O$7+\/Q+FF)P>)Q M? N)G0H83(^(LYJSI/C##5(U7#(LDSATX.I3G24:^G_"GK\C3_ (F+\*+I?VYG-V[)?ZC>(%V[.5DO]2[M\JM:S:_\%>/V0[K M3/#_ /9G]LZG9Z)X0NM*T?\ MB[:QTP:UJ,?QT^SZ4=3O%-II?VHK_:%VKVU MONE7:6N%,_>BP=%M)NRS/*6[)7;LLR;LEJWLEJVEJ*?TC/">FE*IGF<0BY0@ MI3X&\0()SJSC3IP3GP7!.=2I*-.G%-RG.480C.9RYJ]XK@;Q %7_0YSO_ ,03Q"_^@D_E^HK^H#_B'<^"G_28O]BW M_P !_!'_ ,_2E_XAV_@H>G_!8O\ 8N/_ &[>"/\ Y^E/_57/=/\ 9*&M[?\ M"GE.MM[?\*>MKZVO;K8A?2,\)G)P6>YNYI-N"X'X_"/_GZ4G_$.Y\%/^DQ?[%O_@/X(_\ MGZ4O]5<]_P"@3#_^'3*/_GF$_I&>$]-)U,]SBFF[)SX'X_@F][)SX+@F[:V3 M;MK:Q_+_ $5_4!_Q#N?!3_I,7^Q;_P" _@C_ .?I1_Q#N?!3_I,7^Q;_ . _ M@C_Y^E/_ %5SW7_9*&EF_P#A3RG1.[3?_"GHFDVF[72;5[.TKZ1WA([VS_-7 M9M.W!/'KLXI.2=N#79Q33:=FDTVDFF_Y@0<\$ C&W!X&,C.#V.!P1SGKG&*[ M>^^(_P 0-3T_PYI.H^.?&&HZ-X.^RCPAI.H^*M9O[#P@]E'!#:OX4L;Z[N+; MPZ;6.VMTM9M'@M)H$@MPD@%O%M_I'_XAW/@I_P!)B_V+?_ ?P1_\_2E_XAV_ M@J?^E!.RDH9OED$]5-*7L\WIWUY914K MV=I)7=S"?T@O!S&2I2J9MF.*J8>4JM&H^!..ZU2A*I2G0YJ$+FWF\0ZY-%-X+LKJ&73_ DL37TD;>$=-GMX;JS\ M)E&\/V<\<=Q:6$,L<3Q_TE?\0[?P5_Z3%?L7?^ W@C_Y^E'_ !#N?!7_ *3& M?L7=<_\ 'OX(Z^O_ "73K0^&N(V[QHPB[MR:S?+9.3;NVW/.96;;E*35G*4F MW?8R7COX,4E2OCL;"-&%*EAXOP[XWI4Z,:4%2IPIQCP!%6I4:=##8:-_]GPM M"GAZ-J:LOYN[SXD_$'49-3FU/Q[XOU276-8T?5]=EU'Q1XAO9/$&J>'XY8O# MVN:X]SJ,KZQJ^@1S2C1-3OVGU/2@Q%E=10M)'(MQ\3?B%>2Q37?CKQI>RV_B MB[\>P2WGB'5KB6+QSJ$EM+J'C&.:;4)98_$M[-9V,MUXCB9-;N#96IFO'\B) MH_Z0O^(=SX*?])B_V+?;_1_!'_S]*U;S_@W#^$UCINCZQ<_\%>?V0K72]>_M M(:/J=YHO@^TTS5CH]VMCJ@T>_D^.AM]4_LR\<6FI?968V%TR6]P$E;:*7#'$ M4KOZK":2NW_:^ DKC=DI2LG?E2SAX]^"<)1I4LTQ<92=.$*4/ M#_C"Z<6Y+-%,-[AGZM\2/B#XBU?1]=\0^//&.M:]X?-A_PCNO:UXIU?6-9\.)IMTM MYI\>A:M>7-SJ&BI8W:B[M$TV:W6TN\W%I'"Y 7^D7_B'<^"G_28O]BW_ ,!_ M!'_S]*/^(=SX*=O^"QG[%O\ X#^"/P_YKI2_U9XB:+L[R2NYRE7_$>?!5.+CF.-C:-6E'DX XVIVABJ$,)7IQG2X$ MA67UC"TZ>$<8UKRP].AA5">%PN$PN'_FNU7QSXTU7Q9;^.=2\9>(]6\:VM[8 MZE;^,+O7=O!]G?QFL+7HA;QBUL6MO^$H\M==:( MA)-3(+;OZ3S_ ,&[?P5[_P#!8O\ 8N_&V\$?_/TI/^(=SX*<_P#&XO\ 8MXQ MG_1_!'&<8S_Q?3C.1CZBDN&N(4[NC3<98IMJUI7CG,&VG:TGS.]DWH MDKGX\>#'+3C+&XVG"C2A1I0_XAYQO&G2HTE4E"E3C4\/>6%.G%UI0C3A0]CS M8BI1="=7$UI_S*FL?''C/3G\=M.WCA].\0ZO9-XW^TO=O%)_ *1_V[J\< M/_"!74]U>77@U534,0^$)[N[N;FX\**C:#=7-S/]U=7,TG](W_$.Y\%/ M^DQ?[%O_ (#^"/\ Y^E*/^#=OX*_])B_V+A]+;P1U[?\UT'?\O>F^&>(K+FP MT&ES-/QC]HH*=2GX<\9R ME-T\*L/2=2K'P_GSNEA90I4>:[IX50P\4\,U3E_./9?%SXHZ7=6]_IOQ(\=: M;?64/AN"RN]/\9^*+>>R@\):9J6E>%X;.2'4XV@C\.Z;J^J6/AZ)&$?AZRU+ M4;'1UL+6_NX9*3H_B#5]#/B6RDEFED MLM>?2+^U;6+-Y[F>5[;4C/;2FYNQ<13+=2"OZ8=4_P"#<+X4Z,-+.J?\%>?V M0],&M:-9>(-*_M71?".G#5-%U%YH[/6-+-Q\\EMKF.RU2VW6EVUM.( MI"T3JN3_ ,0[GP4_Z3%_L6_^ _@C_P"?I5?ZL\2)K_9HJ4-5_P *^!O'FA&S M2>,;6;PS<6WBW7K.Z\$?+X/:RUK5 MH&\'(NJ'6A'X.D6Z9?#(.L/)JCMHK69.HR/?LQO"UPUN]^)'C[4FU^:_\<^+ MKZ;Q3?Z7K/B674?$^MWLNO:QH;LVAZOK\DETTNNZII+2N^E7]^;BZTUY99+. M:V:1B/Z1O^(=SX*=/^'QG[%WL/L_@C^7_"]*/^(=OX+?])B_V+N.G^C>">/_ M #.E9_ZL\16_@P=W>_\ ;&66;LHWLLX47:,>352?*N1MQ7*="\>_!N?+.&89 MA)QC)4ZL?#_CJ4X\]:6)=15:7 ,$IU,4WCJDJ4:<*N8I9HJ<,RIT,;AOPT_9 MT_;,^-G[,WQM\-?'OPOK%I\0/%GA/5OB7K]OH'Q8OO&?C#P7JWB/XK?#W7?A MGXO\1^(-)LO%OAS4]1UZ\\/>([F5M:MM>L]3O-1L=';5KO5=-LIM-NO%;3XJ M?$_3]=/BFQ^)'CO2_%4.C6OAL>)[7QMXABU@>'(;6T@M= 35=/OH=4.F+;Z= M9(FG+=C3+9+..+[+&RPA?Z-?^(=SX*C_ )S%_L7#T_T?P0/_ 'NGO^M _P"# M=SX*]O\ @L7^Q=TXQ;^".G_A].E:?ZN\3NG3I.*<*4YU::6<96G"I44%.<;9 MM>\E!)MN[6TE[RGP+QF\"88W$8V$JU/%8S"83+L4UX<<;OZSE^!K8S%87!5* M=3@*=.-&E7QCK)8?"4935*E&M#%4Z&!_LS^8!R-S8*8))Q&GEQYR"/\ Y^GL:7^JN>_] E#I_P S3*.NB_YF?5NR M[O1797_$Q7A0U=9WG+5[77 OB U=V25UP5:[;22O>[2M=J_\OU%?U ?\0[GP M4_Z3%_L6_P#@/X(_^?I0/^#=SX*'I_P6+_8M/TM_!!_][I['\J?^JN??] =# M_P .>4__ #S)7TC?"63BHY]FS+;AOLLQ3*_XAW/@I_TF+_8M_\ ;P1_P#/ MTI_ZIY_I_L5'577_ I95JKM77_"EJKIJZNO,/\ B8WPF_>?\+N;_NI9Y2G]SS M-/\ M?2)\*FDUG6=-/5-<">(+37=-<$M->:;7F?R_45_4#_ ,0[?P5_Z3%? ML7?^ W@C_P"?I2?\0[GP4_Z3%_L6_P#@-X(_^?I1_JKGO_0)0_\ #GE/_P \ MQ/Z17A3%7EG>"/K_P!%T].:7_B';^"AZ?\ !8O]BX_]NW@C_P"?I2_U5SU[83#O M_NJ91_\ /,4?I&>$\OASS.):)^[P-Q_+1J,D_=X+EHXRC)/9QE&2;C*+E_+] M17]0'_$.Y\%/^DQ?[%O_ (#>"/\ Y^E'_$.Y\%/^DQ?[%O\ X#>"/K_T73TY MI_ZJY[_T"4/_ YY3_\ /,%](SPFE?ESW-Y$-0AT M;1QJ>F:,-7UF6#XZ%-*T?^U]9TK2CJEXT=J-3U33-/W&ZU"VC?)'_!NY\%& M*_\ !8O]BT@C((MO!!!!Z'(^.A'Y$CWH_P!5,^2C)X.CRRORR_M/*;2L[/E? M]IVE9M)\KE9M)V;29'Z1GA/-SC#/SYU#@?C^;A[6G[6GSJ/!'\O]%?U _P#$.W\%?^DQ7[%W_@-X(_\ GZ4?\0[?P5_Z M3%?L7?\ @-X(_P#GZ4O]5<]_Z!*'_ATRC_YYE_\ $Q'A5_T.<[_\03Q"_P#H M)/Y?J]W_ &7O^3E?V=.#Q\<_A)GCI_Q<#23SZ<$'GL1ZBOZ"O^(=OX*_])BO MV+O_ &\$?\ S]*]"^$G_! CX/>!OBS\+O&EE_P5O_8]\3WGA3XC>"/$MMX9 MTR+P8FI^(+K0O$FE:G!H>FO#\;;J5-0U::T6PLEM[2=VN9TVH7^=MJ'"V>JM M1;P="RKX>3MF>4MV6(H-I)9FVVU>R2;;6SV/)SWZ0/A9B(,%[2KE6:0HWE+@E0A#V[HQJSG*,:=*'^T)_ZMGQ97PF%8XPK'(+#Y3RJ]6''( ()/3'/2ONW_ M (*><_\ !1[]O4<\_MB?M!CCK_R5GQ9T]_0=S7[T^ /^"<7[$'Q7^-W[']AX M-^$032?AQ\%?!-E^W#\,KGQE\1KBT\:W_P >?^";_B/]ISX%?M'6EXOB6/5/ M#.AW'QGTSQ7\/?%6G>'/$%CI$/B70O &GMI,6E>)&L[G^:)9+B)F2^'' G MAM7SO!YGB,-F? F5U8XG+X8.=+"/)N"N&<7&&,>+Q6%]G_:F(Q>&RG 3I^U@ MLRQ%".+>&PU18E?R5F-QU4C!"].YQ@?7D?F*3:V"=IP!DG!P!G;GZ;N/KQ7[ M1Z9_P2=TG4?V'+']JE?BG\0= \7Z?\.O@%\5M<^'GCWX6_#OPE8>(O ?QT^* M.@_#&.]^',*?';5OC%?:;X=U#Q)!JVE?$7Q?\$/!?PT^*%I;O)\.O$6L6MY! MJ$/TAKW_ 1@_9/\/^,M;\,7W[>GQ)8>$OVY?#/_ 3^UZXM/V28II'^.OQ, MMXK[X=P>'O-^.<%M<^#M(TX:P_Q#\3:R=)EM[SPYJ,7A72-=MM1\/7>L8T^% M,ZJG[6$HJM5C*ZA:4U:].,H-\W-'F[<1X\>'&& M=:,LWQ]2IA\5C\#B:6%X:XCQTL/BLNC4EB%.6#P5>E.D_95Z>%JTJM2&+K83 M&TXO"K#U)4_YR]K$,<'"@%CCH#T)] >QHP<9P<9(SCC(ZC/3([U_0C\-/^"% M&K>+?A]>:_\ $#]H6W\!^+O$?Q#_ &M?AW\*[^/P1H&I_"&"[_9'\5^(_AKJ MFM?''XA^)OB?X&U_X ?B//HUJNG>(-?E\O6;?2[; M^>Y"LT=O<(KHES:K="(G)B$D>_:V,#*]2< $<@# \O&97C\OIX6KC,.\/#% MPJ2I//\ $G>[35OKN%_$'A3C3%9Q@^&?[7'_9T_[#O_ *K7]NFOBJ;JG^Z__HZ6NW&?PLN_ M[ *?_J7F1\EPY_OW&7_9:5__ %1<*D-%*%+' &3UIN1S['!]C7%^F_SV/K;I M6OI=M*^EVE=I7W:6KM>RU=A:EBZK_P!=8OYM452Q=5_ZZQ?S:D]GZ/\ )CC\ M4?\ $O\ TJF?7_(P?LL?]F#_ +''_JG](K"_96_8@^*G[7'AKXQ>-/!/ MC;X(?#?P+\ [;P'=?%'QY\?_ (L^'?@UX'\/Q_$S5];T+P*8AH_G:G MJN@W=AY5Q=6V+VYTVTB>:YU"V@;=_;R_Y&#]EC_LP?\ 8X_]4_I%>[?L"?%O M]F73OV5O^"@?[,'[1WQSU#]GX?M/V'[+7_"#^.[/X2>+OC';6]Q\%?BIXF^( M7B2UO_#?A34-)GB:]MGT?3;22?4[*WTE%[_BG]I9]E/A%D^-X<^LK, MHXC+,/*K@LAK\3XO"9;C>.,RP6<8_#Y#AJ]"IF=3+LKQ&*QWU92FIQH2O!6] MK1\/^)'[!/Q7^!Q_:#T?XX:G9_#CQC\%?A_\*?B+X=\.V.DZ[\2="^.GA3XL M^+]-T#PIXD^'WQ3^&UEXI^& \*WEEJ<.M:9XCUSQ+IMEJMQ'+X0C6#Q;INO: M?HWS))\#/C;_ ,)+I'A _!OXK#Q=XC?7!H'A1OASXR7Q-KDGAJ[N['Q/%I&@ M/HJZMJ)KGPQX=U?793_ &+INE6J36NLWK:!IWTKH7_!7?X' M>)/V_P#_ (*$?$/XB_&WXH3?";X_^"[+X=?LJ?&^_MOCY)%\"?!GASQ9X0\9 MZIX.TKPK\(/B9\$OCKX!\!?%"30$7Q-;?"WQEX7U6YU_0-!O?%.E:W9ZWXB* M^C4R?AV=6G2HYS3HQE6]DJO/3K**G+%SG+%5)*#<**P]/#4:\:=.-3VM&M5C M&$TG\C@O$;Q=PN6XW&XOP\Q68XNA@*N9/"5,%FF6PC"%'AG"0P^58/ K,7+$ MXB6;8GB7,LJQ&88W,%_F;TCX7_$WQ!<^+;+0?AWX\UZ M]^'UEJ.H^/+'1?"'B+5KWP/I^DRW%OJ=]XPM+#3KFX\,V>FW-K_M._!/7_A9X6^)WP.^(OA7Q-\;/!/ACX@_"S07T M5];U+QOX>\7Z9#K&D0:1:>&FU=U\4Q6%S;2:_P" +S[/XZ\)27=K:^*/#VDW M5Q%&W[\^._\ @IS^SM\7[#]K3P[I7[9'QE_8T\9^-?VIOAA^T#:?M _L[? C MXBZ3J'[2_@7P1^RAX.^!&J?"6]\)P?'B\\=>&&OO&7A;5O'NGWGQ>^*NN>%O M$UYXLD\2>,;.W\0WFHZ?HE#1/^"H'[/&O:S\!?%/B[]K[]I/PSXT\0_\$MD_ M8P\3^,5\'^/?&OBC]B_]I73]#^%&D^*/VB_!NLWWC43^.;OXU+X+UO3O%/B_ MX93:%\4FTE--U'6M:.M:@\>CE/(\A?M8/.8U'+V;H5EB,JH0Y?K>(I5(.-;$ M2?M7"C1C"4U"C&>,HXF<_JE/$2IW4\4/%>K7PN)7AF\'AJ,,?]?RG$9=QGC, M;[>/#O#^8Y1BJ&<8?+L-E\L+7QF8YW5K8;+Z&)S2.#X=Q/#];!4>*,PRO#8K M^++CQ+X>O]>U"STK0[ M#6M @TA]5TF\UG5-1T_3-)M;^TMY]1O[ZRLK..:YNH(I/-Y(WBD>*5'CEB=H MY(Y%*21R(Q5T=& 9'1@596 96!! ((K^E#XJ?\%6_AGINA_M&6_P=_:+^-^J M?&BT_P""?'[,/[)WP[_:HOM"\5^!/BQ^T%\4_AM^T)+XU^)GQ0GUS3=9USQ? MX)-]\,O%6L>&=)UCX@^*8O&M[8:!,+W7[C5M3MFK^;"626:62:>62XGE=Y)I MY9&FEGF=BTLTDKLSRO*Y:1Y&9F=F+%F)R?#S3!X#!.C3P>.^O2E[9U9P]E[& MG&%:5*G",H-RE4Y8\TY?PII>TH.5*=.3_4N >)N*^)J.-Q7$?#-/AJC1I97# M"4*L4X&?W<9(D?_=3!W'M@US?U_7WK[SZ]M*Z;LTDVGHTFY)-WM9-PFDW9 M-PFDVX2Y64444#"BBCI0#:2;;LDFVWHDEJVWT22;;Z),**>8W7EE8?,ZO./^"0?_*3[]A?_ +.,^'__ *<&KTG_ (+H_P#*6;]M M7_LHOAC_ -55\/Z^HBW_ *FU+-K_ (R>CLVO^916[-/^O0_",3&,OI+9W_ .^$J>WMXO,PEJ&9 MAMV6MN9[F0$C,4%O"RS7$LA $<$1\V1L+&"Q ,9('6OK3]A7Q%\"?!?[7/P$ M\>_M,:E=Z?\ _X>^/+'XA^.(;#P_=^*[GQ"G@.VN_%OA[P9_8%E!$]1:X\BPL=.UF[U'4+F*SLYMWSV'@JV(H49U8TH5JU*E*I6JRA2IQG M.,93J3;DHPA%RE*7*[*-TG+E1^O9QB(95E.9YG2P%?'ULNR_&8ZC@,MPM&MF M..K87#5Z]'!8*C2P\:E7%8RM3HX2C34H1G+$N-2<*/MYPZ_]J;_@G9^T]^R5 M\1?AS\)?B7\/(M=\:?%;PE_PF7@?1_AE)=?$B745LM4\1Z#XD\) :!:7,C^. M_!&J^&=4M?&_A:PAO;GPX3:274[17*L/EK0_A+\2==F\(1:#\,?'6LR_$%=2 MD\"0Z)X.\07T_CJWT.XGM]=G\')961?Q1!X?GM+H:S+HAO8=(DL[DZE):K:S MM%_3/\)O^"Q/[%GBCQS^R]\=/B7\+?&WP"^(/[,7[;?Q@^+D'AC2?'_CCX_) MXN^&O[:?@7X@Z;^TUXFTG6M>\,Z,OAF71?BGJGA'XCW?@*%DL]3TVUU:T\'V MFJZ[K%U9)SGPJ_;I_89^!O@?X&_LS_#/]KCXQ:+IW@7]B7]LS]F.W_;&\*_ M;Q7X'\3?"[XB_&[]I/P'\>_"OCSP[\/=+\=7_B^+P]KNF:)XB\%-J7A+QBGC M?3(6TF^OY/"%QJ-\VB_5ULCR&=2=3"\04*>$DY.%.6)I.K3BE%1IS^M_5J]2 MI-J?/5=!0A*K#XH4Y3/Y[P'B9XKX/ 8;!Y_X69AB>(\/AZKQV-P^29I_9E2O MA\5CIUL1AED.'SW"4\'0PU3*?JF5X+,L=F&:X>&81R^+QK^JT/R<\5?\$V/B MCX.L?$FE:[XN\+:K\4U\'_L?>,OAG\*_ GAOXI>+-1^*-K^V0DUSX.\,VGB6 MZ\#Z5X6\%>,_"5A]DF\4:1XWO]'TS6-0GGTGP?KVNW-HWF_(/QK^!?Q7_9L^ M(GB;X/\ QK^'VN?#_P")7A'4=0TOQ#X8U66S27S=+OKW3))=(N-+O+G2/$&B M7%]87@TCQ+H6JZKX:UR->/4K^S/VUOZ"_CQ_P5*_9UURQ_:>\1?#[XT_%_ MQ7\0_&?A[_@D=<> _&.K^%O$?@KXE^-_%G[&>M>+M4^-^NZ]XDL-2U2T\(>- MY?[4L;Z*_/C.^T?7=?U6^7PUXBUI;:76(OS3_P""AWQY^"_QQ_X*">+?C]H_ MQB^)W[4?P/\ &GQ&TSQ_>6WC#3/&WP[\3^#_ #K'CC5?%.K_LW>%)?%6OZU MJ>GZ/X%\-ZC+X:\+ZUH,^A^&TNK^[DT;0]+L+-);OCSG+\DH8=O+\5&=:.+I M4U16-A6A]7D\6G4FX\TJDHRI4'*>'G*$8U%:+DX,]OP^XN\3\SS6C3XOR'$X M7+JF3YECZF(JG@\]C#&U\RPF M)I4\WH?5\;EF$A_:>_X)/?'C]D_X2^(_BS\1O'O[/_B63X?>,?A=X!^,/P[^ M&_C3Q1XA^)'P=\7?&+P*OQ#\!Z-XUL]<^'OAOPGJLUWX=EBFOI/A[XT\;V]@ M\ZS--+I4=YJMG^8\D$3*I>&!\/*@9K>.,G8(\@OM7>0&!VD$Q@@-C<,_UX?M M(?\ !2O_ ()E_M _"CQE\/OB1\6M>^(]W/\ #O\ :"\$_L@+\*>%_B3X(E^)MQX9^(_Q/^&=EI6B_#_X-?';X9Z;J'BKPX[7& MNZ]J%WIR3W8_D4F96;(97))+.BB-&RD9P(0 49265Y"2)F&5/R,3CQ%@\LP6 M*H+)\72Q.%J491FZ6,GBI0JTIJ,ISYH4W1]M=2IPC.I"5*,:D.55)4=X#'TX+$XSAF/#F%S/"8[".O&&"PCG66*>3XS"5\'C M<77PM&Y09P"-R"3Y.^9,8.5KX3K[U_9X_Y,F_X*#?\ 7#]E;_U= M0K@RR4OK4_>G_N.:2^.?V,LQE1+XMFZ23\F[:I'V_'&'I+)<'RTZ<7+BS@2G M=4,-=*KQKD%&37^R[J-6371M)/W6T>!?L]?LZ>/OVF/&^L^ ?A?;^'SXBT/X M:_$?XJ:A'K^H-HFG/X2^$W@^Z\8^*V@U%(;I'U9='TZZ_LW3G@1;VY58GN[5 M 7KCQ\$_BQ+$L=0U[QUI=AKO@C0=/N M6TV>WNM6\8Z)JVEZQX3TJVN9K[Q%INJ65]H\%[;7<$LGUY_P3C^/_P ,?V#O"%@;+1[2\N M;>#4]>U.QL;C4IXH].T^.0WFI7-K9PS3Q_IO\1_^"K/@K6O@?\0_A-X=^/?Q M..AZ1_P3?_X)^?"OX(>!CIWC*'PAX5_:S_9M^('PD\7^.-9\/:-=6X\.:+XD MT*]\,:IJ6F_$NXLK1=9DT#3[73?$&H6%OX>M1ZF'R_*\1A*E?$9C+"8J$\RM M252E.5;ZNZSH1]G.4)04E1Y4^;FJ3K047)61\5Q-Q1Q_E7%=7+LCX4PN>Y'7 MAPW.EB,7@\VP^'R]XW"0I9O4CC,KPF.P^+E]=QV$Q$J5?#THX3!Y;F-14UB> M1S_GU_X59X_\J_F_X5MXP$.D^-+3X;ZK,?!^N"+3/B)?R7$5CX!U"0Z>$LO& MU[+:7<=IX4N6BUZY>UN5AL':"4)M)\"/C#+X\G^%D7P7^)/ MX=>*Y/'UOIXMH[TW\_@Y-'/B*&R^QS17?VJ335@^RRQW'F>3(CG^FSQ!_P % M=_V(?"W[3W[+/Q!^&FE^.Y_A/XS^-/QN_;6_;#T5/#^H1O\ #[]K/]H;]GRQ M^!]E?^#].O;[PEJGBFT^">K3>,/&8U'0O$MG>22^+]1U;P5K\?B6/3I4U=,_ MX*G?LT?\-.^#M1U+]KA8?ACX>_95E^"OC3XK:9\ /VU%\;?$OPSJOQXD^)NH M?"_3_C#K_P"V5KO[9/@SQCX7ML:U\._BG)\0FT71M1U#5O#%YX5N_#/V!X^Z M.19$Y33XE@^3%T*%XO#)3I5HNHZT'7Q-!'[S7?^$D\3>$]1L])U?1W\/>'DU/Q+H=U+JE]'8:$WB'1])M_%UU M;ZK#X4GUJ71=933_ #"Z^"/Q>B@O+^[^#OQ*BM=/\&6_Q%U"]N/AUXO@M[+X M=W#216OC^]FN=&C%IX(N7MYH[;Q9<>5X?G:&58=0?RVQ_1E\,/\ @IO^S(I_ M9(OO$7[4W[2_A_PM^S'_ ,%)/CO\9-1^$WQ)TSXA?$:Y^+7[/7Q:^*VA^/OA M]X[\>Z]X9\5:OX6NO&/P>TNSUJYNM"O/#WB+6[[QUXN\7:AX0:UAUC5M8US< M^!__ 6@\/V;_L":=\%F$QJHXS/*LJ7U+BW+JWU#"5,PQ.1X.&'GE^8X#$9IB:TU_,L/ACXZ;P4/B2/AWXK/PZ.J#0QX_'A/63X).MDA1HP M\5_8?[!.JEF51IPO_MA9@HAR0*].\*?LK_M$>,?&W@'X;Z)\$/B6OB[XG>/8 M/A=X#TC5O!?B'PM;:YX^GO8[&7PTFN>)=/TCP[876D2RFY\33ZIJUE9>%-+@ MOM;\2W>D:1IU_>6W[T:]_P %0_V8-9_X)IZ)\#O#?BZ3PC\0=/\ V"?#/[(' MB;]G7Q'\-/CSXKT/Q-\1]%O+&XUGXY>&;K2?VA?#/[)7A?5O$7B>W/Q0A^)N MM_ O7/CQH_B,W]A<7^O6D]M%)ZE\:/\ @L]\)/&/QM^.GQ!L_CG\:O&G@/1O M^"@/_!/_ ./G[-WA:6W\^"'P?\*ZOH'[2>G?#_ $C7+G3M-^'%UXMT M;5-7\.:WX?%SX7?XB1>(K^/6GOK/5]?G4_L+)(>P=7B*$U4IX6I-TGA7"$JM M*I7K0ES8B6(BH*DZ*7L8UX59P56,;N+UCXG>*V)>/IX#P?E@JE#'YY@*+Q\< M[K2J4\-5IX+*ZWL)_V6?C#)K_ .S???"[0?BUXS^//C?Q)X8G\7+\%_A]\%O!?B;Q MGXQ\87GA[3];\/67BO2KU/#MOHWA?4-)\6VGASQ+=>(M!U'1?$5_HVH6E_<> M=?%#]C#X[?"T?" W?@?6/%TWQR^"/PM_:%\"P?#O2M9\^'7AGX)_\ M%'_VJ/A]\?\ Q#\?O$/_ 43_:#TW]FCX+^-_&FD^,O!GQ&\._LUZ*^A?'_X M_P"F6>C>,-:UG78OA[H>KWGP;_9JTQ+AM+T;4-/\,ZS)X:T2WT$V=MIVUXA_ MX*@?"WPI^S+KWA[X%?&SXD_#_P".UO\ \$G?V%?V3_"?B/P9IGC/P?XATGXT M_!W]H3Q#XK^,^@Z/XPTN*TN-&@A^%_B*[MK3Q;#J5CIFLI>7NEZ'JBWX>$14 MRO(X2JX:KC)8>:E7Q='$JO1JRK82K5Q?U&A[DIX:=3ZKE\)SBFHJIF5*2;42EBJ6(J4Z'!698&LE*%3$1_%*V_9)_:+O/@]\0?C[;_ 8\>O\ M"'X6?$"/X7?$7Q>=!NX?^$)\;G3]2U2[TG7?#\K+XGL[/1++2+__ (2;75T> M;P[X/O$L-'\4:SI>J:OI-O>^"K>X^$7Q#BG^)D2W7PWBG\ ^* M(Y_B):RQP7$5YX(BFTF.;Q;!-!=VEPD^A1WR/%=V\N0L\6[^C_\ :<_X*@?L MP?&*Z_;_ --\)?'SXM^'? OQ%_:#_9?_ &D/AG\/8?"/Q L/!'[36C> OV>+ M'X9?'?\ 9Z\::38:UHEO\/\ 3OBIXQM+.[\;Z]XR\/ZSX?\ %,&AZ5K=[H'B MF^L=,^Q?0?Q>_P""P7[''COXZ_LT^/M-^-6NZ[\.;#]O7X<_M3>)]"\6_"'] MH^X\?? SP1H'@CQWX>UKP_=>)_B%^T1\8?!<% MIT:LH)U)1;E4G&.'E3J&5#Q5\6(_5UC?!^MB'C*F9UJ5*C@^(XSRC#T>$,OS MW+\NQ5>OE^,IYABL5F];,<)/'0I8&A&.&IY/*-'B*5/ 5/Y0-/\ @9\7=6U/ M4M$TOX-?$C4]9T;PW8>,M9T?3_AYXJO=5TGP?JMC;:GI?BS5-.MM(DO+#PSJ M>FWEIJ.GZ]=PPZ5>V-U;7=M=RV\\4C'A?X/?%/QMI6F^(O!OPQ\=^+/#^J^+ M-*\":;XA\/> ](/"/P\^)FO>*/@ M1=67B76/#VL>$+?^RM+N;7B?%'_!2SX(:I^Q!XV\&6W[0/Q*T/XH67QO^*/Q M._9Q^"7P-\#?&K]G/_A4]UXT_;+OOV@(H/&OB;PQ\=]>^!'Q"^&UIH=M9^*_ M 6E:]X)U;XP_"KQSJ-CX;\._$&ZT+0?^$CDY_P"Q\EEAUB/[=O?#8NNJ#EAU M6A4H5*=.GAJJYY6JU5[2:]E&<:L72=*3A[2&K5*^;8587*J"KX/#UY8=7Q6-PRRJEA\RCG,Z./6!P6 M-_"[XX_L_P#QB_9D^)WB;X/?'7P)J_PV^(OA&Z:VUKPSKR+=QLJW%S:)J&BZ MUI#ZEX;\4Z#16E_++:W$?'#X2? M'KX@?''X?_$."#Q1H,WQ%\/>*_"VJ_!J#6M;U[4U^"&B:;XI\0^(9;CPY\.V MO7O;"Z\,MI'A>6\\1:G%X?T>..*YO;WSSXZ?\F4_L"YX_>?M3^^/^+H:7_*N M-T\/0Q/$%/!U)5,+3A.GAI^T4G4H4\SH4Z5252ERPFZD8^TNE:TH]W;ZW!9A MF^IZKK'@74M'U'6+#3;F35=/.C/?M*M5G\6>'M%%D^OZAX7\9^!?%7PV\ M4W/AR#4K[2].N_$FC:#XTO\ 7/#UAJ.JZ38:AK.F6EC?:KIMI<37UO\ ?'[/ MGQ>_87_X)^?$7X[?$']F_P#;:^+GQ.\0?$7]C3]KGX7_ P\06_[/?C+X3Z[ M\+?B3XPTSP?)\!K6?Q"/$FNWNH^-KCQ#9W]QK7C71M"\-^%O#,V@VVN6FH6\ MMY;6%FLNP&78G"QE7Q,:>)ECI4JK>.I4*N$PD,,J].M0P=7V<1<05*&3Y37QF3T>&:6-R^G3X9S'-,)Q+GV(S=X#,, MKS+B7!5JE3A##Y!EDL-G%!PP4\7GE7ZY##UG0H.F?C$WP<^)\6E^+M?D^%/C MV'0_A]K+^'O'VN-X&\11Z5X#\00W4=G-HGC#4WTU++PMK=O>2QVSZ9KMSI]] M%=/'#)$DKJ#[I\+OV-/C'\4O@_\ %_XYV-C9^#OAQ\'O"/A+QOJ^N>/[#QII M$?CSPQXA^*?AWX2QS_"JXT[PMKFC^-KKPQXN\3Z5)XDMO[3L(-/L#/\ V=-J M6L?9]'N?W _9Z_X*K? 7PO\ L#Z#\-/%_P 2=>T'XZ^$?AI^V%X2^*O@KQ[X M&_:$^*>D_M5^*OVC[OQUKK^.-8?P-^TA\-_@MXJUCQ GC"UTKQCK_P"TOX!\ M<>(=!O=,DUKPG=7,5OI]OJ#_ (I_\%+/V8_%_P"R!\3_ #8_M*?'-M3^*7[ M'W[$'PF\(?L;ZU\//$1^#7[.7CO]F'QA\&K?QY:^%O%D'B#4?#-Y-XVT;PKX MD\7>&M:T/PII*:KI,>H:;XTUJP\1OX*\)UZ4(GGE+$J>!JXI8256C M1J*JZ>(E2HU'[95HRI3A1C7A"$G.I_"3A*-OD,7XC>*<\34RRAX:5LGJ4N-< M'P_4S>CE^;YIAJF54\9ET,5C\/[/*88*G2S3 SS+&Y?FF)Q7]E83+*U2ABJ_ M]M8.6&Q'XW_'3]@+XU?"GP]\7?BKX7\+:Y\5_P!FOX3?&&7X'7WQ_P!(\*ZO MX?TJ^\;6FB'6[][[P)XOM-'^*7A'0+*%)=*UG7/$'A>#PKI7B5;7PY<^)9-6 MU71+?4_A0V]N W^C6WW3UCC/4=0#W].X/(P0"/Z,_P!LS_@HM\"OVAO@A_P4 M5^%7@?\ :<^,?@>'XD_MP?\ #2GP3T&R\(?$&?P=\>OA3KG@3_A$=?\ A#K- MK!KOAJ/X>+S:_$S7X?'FA76D7FHZ+I%U;:'J6M)#-I'\Z#=#]#_*O)S? M"X'!XFE'+L3+$4*E.=24OK,*RA46+Q])4TZ;4HI4:&&FO:\TY^U]HGR3B?H/ MAGFW%>?9!F%;C7*(Y9FF$Q6'P^%A6RG$8'%8C+Z_#7#694\5C'C,-'"8C&O' MYAG%#$RRC#X3+\-6PD\&L+0KT:E*'WK^W3'$(_V+6-O#G_AA#X&_,8]Y0?\ M"1_$Y<* Z$A%50"&4CEFSAB>+_9T_8=^.7[57PT_:4^*_P &-'T'7?#W[*/@ M_P /^.OBM9:EK<&C^)9_#_B#3/B%X@23P)HT[R-XMU+3?#?PM\;Z]J6CVD\> MH"PT@?8(;V\O;6T;M_VZ]OD_L7;\[?\ AA#X'YQU_P"1D^)^/UQ7I_["G[<- MI^QI\!?VDKKPSK\]A\?-<^.7[#?Q,^#FBC3]9DT7Q%H_P.UOX]?\+;T?Q5K. MFQI8V/A_5_"GQ)L?#>K:'J5_9S>+]$\1:WHMI%RP-?.'#,:M:EA? MJ?-.I3JJ-13AE&72H.'.I1J2577V3<55Y?9WO-7\O$8KBG+_ SP-;@K"83& M<0SSV.'PE#&X.>)P+P^)\1.*\/F+QD<)+"SP>'E@OW=7-8QQ-7*Z5>IF$_A/X8^'MIJ'C?Q!K/P M\\2ZUXPT*POK_1-%M[N_L-<%WX%\03W^D107[V%G%;O/:"VDCTV]:#^EGQ)_P4<_8&G\>Z_X%^ _QE^-G M[+/@7Q;_ ,$[/A3^S;\+_P!IWPEX"\4ZG\4?V7=<\)_M1?$#X]ZW\%WL- U_ MPWX[U[PAJO@KQ+X>^&7B#QS\/?$,+'_@E[\._"_QP_L?Q)X"^+G[1>G_LE)X^T;]H'XS> M.M1\-:EJ4OA/5?'5GK6CQQ:#K'BZ[U[Q?X/@TO1=:AN5?7- L/0J9+D5-U&L M^2A3G525&IAJOMXTL)&M%T%6Q%*M&6)FN:G+$4X4HQQ%.C*?UFC6I0^4P?B3 MXH8BG0A/POKU<7B,+AZ_UG-<9=CZ_X'?"?]G3Q5X[^(_P '_!WBO3O$/PF\,_&3 MQQ#X&T'XF^(?AMX\UC08;J'7H?#_ (AO=)TKP[H5[K?C6?PM?M+::SH7A2"] MU2WOHVL;PZ>RSSP+T\'W? MAO3O$NJ^$#XP-]J&@6#:5H-WK^CWNE+<:U%ITVGZO;W6@ZM#9ZY9W=A;_P!* MWBG_ (*^_ SXA?'J3Q5\1?CQ\0_&W@+P;_P6>^#?[57PA'B;PWX_URT\#?LD M^"OAU\1O"^N7'@[2-2TV6?P?%#>ZOX<0?#O2K+3-:U*26;5ET*[U*76+V;RO MX?\ _!4_X0^&?A5^SO\ !H?&[X@Z9\-?#_[-G_!5?X?_ !M^&\.B^,(?A[XG M^(7[2_C#XO>(?V?#XG\,V]I_9'CF"ZM/$WAHVNHW=EJEEX$GU#4(+Z;1YIM= M!)9/D7.Z7]MO^*U3Q"J812DI3G1A"K?$2H1I1=+VSJ1G&7+6N[+ENJ/B#XJS MGAL5/PSJ0]IA<*L9E2P^<2P%"*C_ &OBL1A)K(Z>9U\VJY?CX93'#UZ?U!9G ME\8U.6FYTW^!WA?]FKXZ>+[_ .'&F^'_ ()_$2ZE^,GB#3/"7PIOY?"&K:1H M7CSQ)J\ZC3M.\.>(-7L+30=;#B*:XN#9ZBT%E9V]SJE]<6VFZ?>W,'M7C']B M'XJ_#K1/BQ8_$O1_$?@[X]?##XZ^!_@=>?L[-\/?&FM>*/&.M^,(_$UO#K'A M3QGX7T#5_AEJEF-2\--:^&4T[Q/J+_$*RN)=8\%3:OI<=A=:O^['B'_@J-^Q M?X)_8^\"^ ?A/\:_CQXB\>>%=?\ ^">WC/PIX.\50_M!:O\ $;X>WO[-FJ^& M4^-6E_\ "T/B)\;O&?P;TK5==T>#Q%8^$[3]GWX>_ KP7#X8\GPW=W'BV6ZT MV;0L#5/^"DG[)EG^T/\ $3QY<_M-?$;XP^&_&?\ P5A_8U_;&T+7_%_PU^)> MF:GX'^ ?P]U?XK:UXR^'NG6FO2^([Z32_@;I_B_0O!OAS3;"YT]/$%E;^?X% M\*:?IMN+6WT62Y%2<(5'5;#<]5*%.JU.I3KI2IMUE3B MH..)2K.$)<"\2O%?%XJO7I>'./RG+L+B+S:64YP_8*52OEM2 MC@J&,R6K]7Q\)X*KBL55K5*G#V/GAZ5>G'^;B;X.?%%=5\(:!+\*?B$-=^(, M$%[\/M$G\$^(3K'CG3KS>+*^\%Z4=*2_\3V5V8I!;7NB6]_:W.QQ#(Y1L9OC M7X:>/?A?JJ:#\1OA[XN^'&OW%C#JEOHOCGP=K7A/6+G2IKB[M$U*'3_$.G6% MZ^G-=6=W;I>10-;RW%K=0)*9;>94_KF_8H_;(T/]M+XH^%]%U;QY\6?CY\6O MA9!_P6&^);Z+-#XAU?XH7/P4^-O@+P%I/PM\%?",7OCCX:^,=7U/6X3K-OX9 M^&'P3^*_PY\<^%Y]*MY;?Q%X#\,:?<:C'^,G_!;"P\?Z=^V7I7_"P_B'_P ) MC>77[.WP-N?#/@O4+?Q-H_C'X ^#D\(/I?ASX#?$SPCXN^+7QUU_PQ\3?"EI MIS>)/'<>K_%KQOJWB;Q!XSNO'&K:L=5\4W\*/]L;X=># M_A5XN\5^,OVLK#XF:;HVA_"/Q+\%/CMX/^(7A.]^ GCGX0^"=$'@"3P_K?D> M _&5MXA\17/B?3-0AU&YU.R_)#_@H?\ $#]GGXL?M9_$CXF_LLP:5I/P2\<6 MW@W6?!O@[1OA)8_!2S^'EI%X(\.Z5)X!G\#Z3?ZEHG]N>&)M-DL/%7B?1+M] M)\;>*DUKQE9!8-=3.6:8'*:.595BL#BZ53'3A36.HQQ5:K6AB\5+A/'U.'*.6X M"EA8PQV2Y8OP<@A7]A' M]M_%O"0?BG^Q>"@1 LG^F?M#X#D8;"XR%W;"22REEC9/'_V8OV;_ (@_M9?' M+P#^SO\ "*U\//\ $7XEZAKECX;A\2:K'X?\.K)X?\,^(/&6JW.KZRRRKI]M M'HWAW5#'*;:;S+E((!EIQM]E^#?_ "8C^V]_V53]B[_TL_:(KL/^"57[07PP M_96_;_\ V&OAQ\-]=\>7?B/6]*T#4?$][IZ>(OA?X^\'Z9=T\B*9DX*$:%?%Y-0Q=24,+5]A#$S]JX6HR MQF)4WSRDHTTD]:C:4%>;DHQ9[..Q.;97DOC#F7#F$CB^(,MQF+G..'C"=2K21XE\=OV0O'/P4UEK" MQ\3?!O\ :"T:ST/PUJ_B#Q_^RK\1=)_:'^&?@V[\8>)-<\+^&/"?C/QYX#74 MM!\+>,];U+0;EM*\,:O=VVI:E;7FFR6,$\E\B#QR]^#'Q2TW2?%>OZC\)?'^ MGZ%X#\1R^#O'.M7_ (#\26>D^"_%UO/;6L_A;Q;J5SI<=GX;\1P75[9VTVAZ MS-9:G%<7EK!):K+<0H_])W[/O_!1O]FG]G']JWQ_^T3\:/VS-2_;WTCQ;\,? MV=?AY=^#;']D"U_9Y\.ZG>^'_P!IG3O&5QXSU;P#:>')/!%_XB_93\)^#Q\5 M?AGKFFVECXN\:^/O&NF^&[+5]&L-&UKQ#-MZK_P5'_9/TG]COQS\'/"WQ[\2 M^(O%V@_"']L[X WNB_$+X3_M*^);3]JR^^./C'XHZWX:^/\ >:=H_P"T=X#^ M"&A^(OBF/&VB^,?B;XB^/'P@\2_$[P!XU7Q+'X:F\46-CHBZW]!5R3(YRJ2H MYY'#J^.<<++$X6NZ4<-3SE[*/-B%&#_.Z'B=XF MX197@ZOAAC.(IU/]6*6+SRGDN<9)AL35S6I.GG4W@JG#ZJY;_8^*]EELJN+R M^A@I5\10Q]:%'*Z&98JG_,W9?!'XLZGIOAC6=-^#WQ%U#1_&UMK5YX+U:Q^' M_BB\TSQ?9^&["\U7Q'=>%K^WTF2T\0VWA_2].U#4]!_A7?_&7Q)>V6A"WMYOA?#X@C M\*MXB\*V^KBRE\93WOB W6F:5H?@Q?$'B3Q!/H_B.;0=(U&'PQXB_L[^@J?_ M (*?MA_M)67P/UKP7I_PU\3?L1+\+/%]]\,?V/+)_V)OB M-^S'=^//!LK_ ! _X03QC?:3XQ\3P:C8V/PY\$Z9XBU/P3XH\:7^HW[:Q8:3 MH_B7E/A[_P %#OV2_A>_A+X'_#O]LWX]^"/AI;?\$L_'/['MU^T)X7^$7Q!\ M):EX<_:"T_\ :3UGXG_#_P")[?"?PWXTA\23VEMX1OO%-EX.U;1?$E[KFA:5 M\0#I>I-X=OM:\9:5HV<.DIT?9\F)]E-OETQGB;XFU,&EEWAM5P69/"1S.->IP[Q?B,+@883'2IYKEV M(@LLP.)QV98"DEAY++*U/"YQ*6+QW#57-LJ6$JXO\%?C#^SG>_##PY\/_%?A M_6=1^)7ACQ-\&/A?\4O&'B'1_A[\1_#.A?"+7/B9-K]OI_PT\5ZWXU\):)IF MIZQ;/X?NDT[Q%X;N=0\(>*&%ROAC5=033KIZ\\?X%_%XWOC.P_X4W\26O_AU MI.FZ]\0[1OA_XG>]\":+J^EC6=+UGQM"ND"3PMI>IZ2#JFGW^NQZ?:W>FC[9 M!+);JTM?T&?##_@H5^Q#XH\3?!WX&_M%>.?&]Y^R/XN_X)B_LA_LW?M$MI?@ M7Q)-J6E_M#_LI?&34OB_X39-(2QO[_6](2*?7/"$WB#1["_TJ2V\?71^U_9[ M347'O/[,?_!:[X!7T?Q4\*?@A\6]4_;@^+G[4[C4_ WQ]^)_A3XK_ M Z\<^&?#/AKX?\ P[N]/^ _[17P1T37-<^%OA?PK8_#:Q\(?'ZR\8_"J3PG M!H.IZ;.-4F\0C1ZIY'DM>K&4L^HX.$G.#C"I&MRSI8/#XB;O.I!\E2==1I5) M2C"=2GBZ*M6IP3FMXE^*F699B$O"G'\08O _5JL)U*&)PKQN%S/B+/<#E]&E M'!9/4C+,<-A,HK4/SC%4?YOOV5OV7_ (@?M??% M?3?@S\-=0\$>'=1D\-^,/&>L>+OB+XBOO#_@#P9X+\!>&]0\6^+?$WB2\TG3 M?$6LIING:/83SBWT#PUKFJW"?!WC3Q3\- M/'MI\3/@Y\.OCW\-/'WPCU76?$/@'QK\*_BC!JDOA37M/G\4^%/!GBC29[IM M%U..?1_$_A71=32.WAU"*VN=*U/2[^[^IO\ @EW^U%\$?V:OVH?'OQ>^)6NW MGP<\0:K\*_B5HG[/GQH\.?#9/BEHO[./Q=\77NGVNG^/-0^#+ZS8V_B[P_9^ M!;_QMX,MM&CEU^YTZ/Q!FWTB]#'5M)^C_P#@K-^U7^P;^U%X*TKQ1^SKKFJ7 M_P"T7>_'O5O&_P"T%XK\1_!;Q%I<'QGO_%_P9\$:!?\ C#X/^._&OC[QWX_^ M''P$\#^)?AU+I/A']G7QS?3R:+J'Q&DU#PFNF^'?"#'5."G@,IED&+Q*QE&& M;4L56E3HU,94IU*N%IU*$(PAA?95(5:U95*E1KFC^[@ZD*KDIT3Z?'<4\>X; MQ&XBE^?_[(D,7_ K;_@HD#;0*?^&$KEC^Y6+?G]L# M]C]E#)@ *1AMI4 %5(P0I'PX]O;EV_T>WZ_W$_P'\A7W+^R#C_A6G_!1# (' M_#"-S@%Q(0/^&P/V0< NN ?P QTQD5\0.K,[;03@UY6(E+ZCEEW)/ES"_O22 M_P!]IZ6YVE;71-KMHD??Y%2IU.*_$#]W!IX_A.2BZ-!VOP?&3T>$4KZZMPC+ MK)*7,E7^S6__ #[V_P#WPE'V:W_Y][?_ +X2I#P">P."1R ?0XI<'G@\=>.F M>F?K7%S/^:7_ ('+_P"3/KO84/\ GW1V;_@8?97N_P#=-E9W>RL[M6=HOLUO M_P ^]O\ ]\)7O/[+<4"?M+_LZ,+:VS_PO7X1D$(N05^(.D,.GN/NG(("]\$> M%$%<9XST_P ^W?T')KW?]E[_ ).5_9T_[+G\)/\ U8.DUMAY2]O0]Z?^\8;[ M-Q'1HKA[/[4J5_["SA_P<,FKY5F5G_NM]>CZ]&?[%-%%%?U MR?\ / ?Y)G_!3P9_X*._MZCU_;$_:#''7)^+/BP#'OZ>]9O@3_@H;^V9\+?B ME??&CX?_ !QU3PS\2=4^#'AS]G?5-%O!WAGP1JOA74 M?!=WX3N[;2/#W@3PW;:9XAGT&7Q6EUI$>J-KSZY>7][=Z/\ P4_!_P"'CG[> MJA@&?]L']H4KB2-6^7XL^+-P!8D(X!R RY.0P5A7Z,_&'PA^R%\9/&7Q%\-: M)\5OV(_!G[.$WP'TV\_83M]";X=_"7XF>#/'6BS?L_7/B33?VH/&GACP-;?& M:X\43_#ZS^-$.M:?^T;XRUZ7QC\69'3X6VFHPZCHK)_,E:ABZN;9O4PF,^JS MIYSBW&*K*@YU7C,?&E5#JVG*,ZZIQC>O=?[BU\WX?PG!7AM@\ M]X7AQ+@66QS?#8/"4N'> Y8O SPU+ YE4Q5;&3GE>95\ME++Z5 M3*LBQF;5<9?)*."Q_P"=UU_P4H_;9N/@5:?LW7?QBL)/A!IG@;X:?#0>'I/A M)\&9/$4WP[^#^MZ;XD^$W@K5_B++\-W^(VMZ#\/M7TFPN/"EIK'C+4%TK3_M MNB0R?V'JVKZ9?\UJ/[?W[7VM:SJFO:C\7?MFK^(/VI_"_P"VMJ\S?#WX2QG4 M/VH_ UE-O! LX_AMJ9=I-1\(7\BLU?H9XU\ ?\ M$I?"/C37=,\/:=X&\>^'-#\/?\%'OB-8:B_Q[^(D<'BR_P#A%\?OC[X:_8E^ M"T;:)JT'&'H MX>OAO!3/\/1SC$U:L8T?#[ X>M5QE6EF682CBTJN!6#Q&*I3GA8SQ$7AX8[, MI5ZT8X.CB%'X+T3_ (*7_MKZ'H_C#1=.^-%G=Z=XY\>?%/XI7P\4?";X&^+[ M[PO\0OC(UQ<_%GQ!\)]6\8?#/Q!J?P7G\7.KZIIOP;O/A_IBZQ-/J>FV M5EJ5Q/=R?!(CD5(PD>%B@*!8BLFV*%O);?Y98IY; 1NK[2C84C[HK]M/V@]& M_8%\-:#\(=,^ ND_ Z\LO!?_ 4'UG_A-_&][\2;[Q=\0;_X ^-O 7[.'CGP M?I6KZ5KFL)IOC_X.>%]:O_C%\,K_ ,6OX:U2'P9)\++%M;O=-\5_$SQU?^-/ MJWQCXI_X)/?M0_M#_$#3]?\ #WP<\(>&?@YXZC\"VWC;4/\ A!?V._!?Q9^" MGBS]I+XJZI\2_BY\/-!_9VT"3P5XZ\;?LW_!"3X>^$/@%8:CJ%SX]^.^FWU_ MXV\8>$O%VIZ;I_@JPYL1EN,Q3IT,1GN'Q-2BZ%/#4L1BJE2DOK5*IBJSIXBK M4Y*<:+DX5M+.JI)&Q&)Q5.M"I"O3_ )G"CA5<@;7) M",&1M[ $[$"L2TF%8B-09"%:K>?"KQ+XZ\(:K^T!I>E^%/ MC\#_C+X5T;0?&'AV6QUG1 M/#5O\3_BEZUX[\ _\$V_%OQ'^-6EV>H?LM:=86'[3/[='BW]GOX9:'\9;+P+ M\'?'?A >#_V3)_V9-/\ 'OQST-+OQI\/O 7BG0=:^.'BNP\'WGC[PKX+\/\ MQ7\+WGPHT)_AN3JUA-*X-5*=2K)<#<:QP=+VT?K-7*JU&C+N+!P_9[URTUWX@Z3X=^*OCGX7^/]0^+^M76N:O=^$_V_P#PW\'/A]\- ME^'FIV>G6-__ ,)+^RIXJ\1_%,ZG/IUEXF\1Z%X*T#QW9Z7X9M4\:VFO_B__ M (#/U[_@#T_K7D8[ U,!5C2J5L+7'XLP%?'T M1PQ5.ABJ%>E6PV)HPJT[S****XCZCGA_/'_P*/\ F%%%% <\/YX_^!1_S"BB MB@.>'\\?_ H_YA1110'/#^>/_@4?\S[;^''_ "CS_:X_[.G_ &'?_5:_MTU\ M62(SE HR0CL>0.!-+D\D5]I_#<9_X)Z?M;@8Y_:H_8=&20J[C\-?VZ, LQ"@ MG(P"1GM7Q:S)^X<,-RR%MP8$A4E9MNT;MK-NRI=,$=,C..W&?P\M5[-X"'HO M]JS1IORNDGUUVZ/Y'AVI%8WC)IQFX\:5VZ<:E)5)1CDG!ZJ%1\\ M5'E24I0]K3F?;_P._P"">GQ__:"_9;^/?[6O@*7X?+\.?V?O[5?7_#NO>)-9 MT_XF>-X?"F@Z!XL^(ES\,?#%GX7U/2/$-E\+O!_BCPYXM^(-UK?B3PS'HNBZ MS8/ =0NYX[-O&M'_ &2OVJO$/PNN?C?X?_9H^/\ K_P5L=(UK7KSXPZ)\'/B M'JOPMMM!\-M?KXCURX^(-CX=G\))H_AYM,U(:]JK:O\ 8-&&GWIU*XMEM9BG M["_LT?\ !5/]ES]F;P[^PO\ !^U_9PM/BQ\./A1X"^*VG?M*_$OQ6OC3P[\3 M9?$W[6&L:KH_[3NC_#OP+X8^+6E_"SXF>&+3X367P_\ !/@K5OB[H=WJ6IIX M/M!;Z=X/FAM]0?\ 1[]HF+X;6G_!+7P?XC\#_$3PMHG@;P_^Q%^SOH\?Q>\9 MZC\#/%$'[47A_P"&GQ?E^(O@[]B?5ET'XP7/Q9\&_$34M5U=-<\;^%- ^ T^ MG^&=3\+:_P" _%WQ8U_PO;75WK/U5#A_*,9EZQ&&Q\IU\#E4J^94J%W.>/G' MZS24J5>=-I/$8:I2@UB*U.$OPC,_%[Q$X8XDHX#/>%:5#*^+N M.*>5\)8_-<*\*L)P]0KU,IQ-&KAN'\5CL?B\RQ.+P<,YRYYE"&->$X@RZA7P M=3+L'C,QP'\G/C_]GKX_?"CPMX/\<_%+X'_%[X:>"?B';6UY\/\ QA\0?AOX MQ\%^%O'=G>:9;ZW:7G@S7_$FCZ9I7BFTNM&N[758+G0KN_@ETZ>*]60VS"2O M)8P0P!ZB:,'!!&06!Y!(/U!(/4$BOZ!/^"GG_!4;X!?M@?!CXD>%?A!9^,;# M6?C?^T'\.OCOXN\(>._A;JNGR^#=1\)_#GQ7X4OUE^*>J_M4_%_2?%6O65QK MNE^'_#UU\/O@E\%-%E\%:9'I^JV;1Z5I-D?Y_LAI%(*_ZR!SLY2]I[MZ:47>"IU+))P]K M[.?OTIN7[3X<\2\4<39!3S/C'A=\&YJ\PQ-!Y55GBE)8:E/!QHU)?7ZBJQJ> MVJXG#RJ1D\/B'@7B,,HTL;0A#[A_;R_Y&#]EC_LP?]CC_P!4_I%?"M?=7[>7 M_(P?LL?]F#_L<'(.01_PJ#20""."#C(()##!!(()^%:G-?\ D8XO_KY#_P!1 M\(=/AY**X*X?3E'_ '7%_:C_ -#OB3M)K\6?7'[,7[&OQ;_:PL/B3K7@?4OA MIX+\ _!?2/#6L?%'XL?&OXF>"_@Y\)?A]%XZUN_\/>!+/Q-X]\::AI]G'JWC MOQ'I^I:)X5TFU2^N=0U"QN(7%G&L ="\4>+[RUE^#&A6&M^*O'6B?$?PWI.I_"[QOX.DM9-1GBF\&>) M]9N8M"TZ#Q9(TNBWUU+IOU5_P2U_: \ ? 7Q-\5;WXC_ +7,7[._A+Q;8^ M M!\9_"OQG^RG<_M;_ 6_::^'EKJOBB_\4^!?B1X$CUBSMM-O_#\\NF3>$M3G MLK>X^R^*_&%OIWBSPV]W?IJ7Z+? +_@I;^PS\(OB7\&/$WP\N/$OP7^''PT_ M;C_X*-?&OPEX&D\&^)];U+X;_"GX[?LH#X6_ J;R=)M?$NDRW5[XZ"6TOA'2 M-9\16W@VTQ;7%KUIU*5:53&T'4IJ6*PT5 M6HX:56G2H4Z-"=52>*:K3JN52G"IA[SH_E_%/&OB-E'%/%%#*>',9GV4Y52R MO&Y/1PO#N-HX7&JEE.=XFOE6:Y_5I8_&9MB<5F2P,H2R'"U\KP>5PR_ ^UR_ M-\-CL!F7\YX^$?Q5;QAI_P /4^&?Q!;Q[JUC;ZGI'@AO!OB)?&&J:9=:5+K= MK>Z=X:;3AK5_:3:+!/JL-Q:64L4NF6\NH1LUG&TPHVWPU^(UYI7BW7;7X?\ MC>XT/P#=MI_CK6HO"FO/I'@K4$N7LWT_Q9J8L/L/AV_2[C>V>QU>>SNUG'E- M"'95/]%GPQ_X*@?![Q-X&^&^A?$_]KCXZ?"S]H3Q5_P3D\3_ +,_C3]MFQ\. M_$GXD_&/X._$ZQ_:XO/C1I&D:GXEM-3T?XE^,?#_ (Z^'%I9>';KQ=X,\4ZI MJWA:XETM+9[*\?5KW2/7/@G_ ,%6OV4OA[^SA/\ #S4/VA?%_B7Q_P##+6/V MV+/Q9JOQ9^#?[1&OVG[>_P#PT%J_BV?PY\4/'G@3X)F"BZ4U<*\J7]FY?A\MI55+-J,\RCFG$.%R[A^.%Q M>)_E"_(^X((/T(R"/0@X/:BD&[ W'+8&[@#YL#/ ^4<]EPH_A 7 "U\D?T1" MHG"+E**DXQ,;-QBVN7GERZM^[S2MMS2LY/[C_ &U?]3^QS_V8M\!O_3SX M]KXPT73)]9U+3-)M3 EWJ^I6&E6DET9%MHI]1NX[.&6Y>&.65+:*1_,N6AAG MG6&.3RH)) NW[1_;61UM_P!CEV7"?\,+_ E=V5.635O'4C# )/".K9Q@YP"2 M"!\>>%M2M=)\3^'-6OFE%EI.N:5J5WY$8EG-O8:B+N58(R\8>5XDV1HTD:L[ M@.Z+O=>O%J,L=54G://04G?I[/!QDM.JC)RMY:Z7/BN#I58\&X*6':>(]CGG ML%>FFZO^L'%_LY+VEX6C5@HMM/5V7O-)_9/Q._X)P?MC?#WXP?%;X->'O@-\ M3OCEK/P5\=:]\//&WC/]GSX7_%KXJ?#*3Q)X5TCPSK_B.VTGQ59_#[2[F1-" MTKQEX9N]:CU;1M'O=,MM:TN[O+*&RU+3[J[B_9A_8"^/O[37A_QMX\T/P?XV M\&?"'P?\*?C5\1H?C;XB^&WCBY^$OB/4/@MX*UOQGKWPVTCQY9Z9'X7;QKJ\ M.A:GIME8'6))K2\M;O[79M]EN(D_9C6O^"S/[/T7QDM/''A/4/V@=$\)7W_! M85OVY/%^F:5IFG:'<^(_V=[CX(_#?X=2>%M7L;#Q]]EUKQ6NO^%]>-QX,U&6 M3PY=Z!=I*=>%U>S:9#Y]X*_X*D_LI6/P>TG2M9\1_M6>&O&GA_\ 8Y_;A_9" ML_A!X0T+PB_[/>OR_M%>*/B?XT^'_P 9=?>7XDV.HIK)--T3Q'I_B"33? %K;^+_JEE/"KQ522S?_9Z<\3-8>IB98;(\REC MJ$W2R6AFF+K90LR_LG"XK,<14S:KAYTZO]D9=&G.>:48QJ1J+\+Y/V:/VCXO M ?@KXIS?L_?&Z#X9?$G7-'\,_#OXB3?"GQW%X'\>^(_$-Y=:=H.@^#/%SBFEMY42YXU_97_ &G_ (:W?@VP^(W[ M.'QY\ 7WQ&\27/@WX>6GC?X0_$#PI<^/O%]EJ4&BWGA3P1#KWA_3W\6^);36 M+JUTJZT+P^-1U2WU&X@LYK5+B5(S_0CJ_P#P5?\ V>/CCX3^%OPX\&Z1XH^' MOQ ^+%U_P3S^#_CCP)JGPRO)/!7AG_AG'XU?!S6)M4T_XP:G^U'J/@^S\"V- MEX/UBZ\%67A_]EWP?XDTI]>NDU[Q%LN=9O+GVOXX_P#!6+]F?]E;]KWQ#X=M MYOVF_P!HR3P%_P %:?C[^TO\6D^($G@]-%^&VFP_!WXT_LH?\(G^SG=+XZU\ M>,+7P_-\1KOXA_#34=9G^&=C8>&O!'P^\'QP:-JT5SXKLW_J_P /-*:XA?L. M;"4WBG#"J$:N)5*;BZ,G[:7)!UW**Y9T%2E/$.48M2TEXO>,$<8LNCX24:N9 M^QS[&PRI8C.X5JV RS%XC 86;S*=6&681SQ/]G\V*Q$:^#S>IC:6#R*C"M-X MFE_,S<_L[^&D_P2^)4?Q M?!>H:_9^ M%;#Q?<>#&\-#Q'#X8O?%&H6'ANTUY]-72[G7[ZST>&Z?4+F&W?2\"_L8?M3^ M._BSK7P8T_\ 9X^.MOX[\#WGAP?%?P\_P9^)-YXA^#NA>(Y+*2U\5?%#PO:> M'&U_P9X?32[V/7!?>(++3(+G20+RVF>"1)3^U7C7_@K=\!+6P\;^%?A[K7Q1 M33M._P"">G[6'[,GPD\7^&/A+J7PD\0:-\3?VA_BI\+/'>DP3:GXK_:Q_:/^ M(@\+Z?;>"=)M- M\8>+OVP/AU/<^'O^":GC./XC?!ZS\.-\2?'7Q)_8I^'NH^&OB%\-_&6IZW\4 M=#N1X0\:Z]?1Z]X+\?7&L:U?:9XFC7Q?XA\+7DVF6^BZOE')^&E42GG522C4 M/\ QCX$^*'Q,^$?PK\?>*O >AS> M$+K5DU/7]>U31]&U:V\*:7)IFCZAJX&OWMJUO86EP]P^+:5QY'+^RY^TU!\. M)?C'/^SG\=X?A!!H.D^*9_BQ+\(?B!%\,8?#.OWTFF:%XBE^($GAY?",>AZW MJ44FG:1JKZPMCJ5^C6=E//<@Q5_2%X#_ ."VG[*/A[Q=\1?$G]C?$SPGJFC_ M +=G[1_[6/PM\1VOP#V\)7Z:?X\\/_P#!4KX3V?PFL_A/JVI?&C_A%X_^ M"+'QK_81?P=I]G8-X#A_:H^)/C;5]+K+25\"S>&V\/Z%JGC=--' MBE+;2+'33X9OK33K0L5\HX9BW.GG-?L:6'Q'A;2Y\)_8"Q.-QBS6E5S6GB,GR+%Y MM7BLLKSPE+,L5CGQ:MIL'PPNG\.+!X^DU'2IHM3L%\* MOJIO=/D6]MO-MLRCSSXC_"SXG?!SQ7J'@/XO?#GQW\*O'.E0V-QJG@OXD^$= M?\#>+=.M]3M8K[3;B]\-^*-/TO6;:WU"RGAO+&XELEAN[66.X@>2*1'/]&^I M?\%<_P!DB3]MJZ_;,_MC]K?Q'8_&GPUJ?ACXB_L]^)]"\-S?#/\ 9J?7_P!F MQO@U?^*/@S=:%\:_#FH_$7Q%HFM.^E>';^RM_@5JT?PJU_QWI$>N:7KFKVLK M_E)_P4D_:M^'_P"U5\2/@_>?#.ZU74?!OP8^ /A'X):%J6K?#.[^%4TMMX>\ M7^._$T=I8>&];^.G[2/BIO#^DV7BNSTG1;CQ-\7-=U*,6U[;Q6NG:287!8BO@LY6+Q-+&4Z%'#)4)NOAI0BWC%*BH\D*EY5(TY?O,,H_5\3%U_ M>?U?!_'?B3G/$6499Q%X=O(E?#YY.M'-\CJT,HA5I4I/^"0?_*3[]A?_ +.,^'__ *<&KTG_ (+H M_P#*6;]M;V^(GADGZ#X5?#^O-O\ @D)@?\%/OV&,_P#1QG@#_P!+V_IS7I?_ M 7/0R?\%9/VUV7E1\0_#!^N[X5> H ^\[?LI6BKR?+*RN MCY'_ &7_ -CGXQ_M6GXBZI\/6\">%? /P>T/0]?^+_QC^+WQ&\&_"3X/_"[3 M_%NHW>B>#$\9^/?'6IZ1H>GWWC37;.;1O#&F6]Q>:GJ=Y!=21V<=A9ZC?Z;Q M'C7]G/XK^$_&WQ-\#:?X=B^)<_PD-E=>,_%WP7N]/^,'PZLM#U32(=>T?Q3: M_$3X;S^(O"EQX7U/19A?1:O)J,$48AN[>]6PO=+U2QM?N#]B[XZ?LVWG[)O[ M4?[#W[37Q,\8_ +0_C?XW^"_QB^'GQU\*?#/5/BOI/AOQE\(W\066M>#_B-X M+T#6-(\3ZKX?\6Z%J]I%X8N]"6YC\/Z^E_K.KQW%O:V5AJ?Z*_L@_MS?L8_L MP^"/@E\-_!?[Z9H7BWPQI'Q&MK'P?<::W@_6?A19>'OC#J=[H$O@/4='\7S7.B:X;GPUH)@ MLKRO%4,![3'4L*Z])RQF)GF%",X5UBI4982&75HTX1C3H>SQ"Q->O&%:'M.2 M7,J=.6'$W'?B%D6<<3_4N%>*+?PGKTWAVTT)M9OO#BZU=:W'8-IMOI#^(M,U+P_'J4UREE M+KVGWVC1SOJ5I<6L=T?!SXNG7M1\)'X4_$I?%>E-H::IX9D\#>*(?$&E2>)K MC2[;PVNIZ-+I2ZEI[>([C6=(M=!%W;0'6;G5M,MM-^TSW]JDO]&?P._X*_?# MSX6^%_V5_#W@SXR_$3X)^%/ OP0_X*=+X\^$G@6P\=6_@#PC\8OCW\2?C+\0 MOV7+!M"T?08O#GC>;PO)XD\&6WA7Q/\ V;JFE_#V87+7,FAIJ'B)A['^S_\ MMF:%\>_@]\:_B/>_M<_&GX7_ !"^%?\ P2+_ &9_@O\ 'W]JK1M#^(?B[XP^ M ?BK9?MM^))KW6I-1?7_ GX[\?JGAOQSX>L_$'C'PUXON=:30=:UV\TC4]5 MU_36TZ;HI9#DU:,(X?.JE7$.C[5PY,NIP;A0J5JB@IXB4UK&*2K14H1C5E42 M4+KS\W\5_$K*8YC7S#PVH8/*Z.)Q&"P^.G5XMK5(3K9U')/[SXA^#_B/\6[76]4LM;F^'FA^#M0OM7\/^%M/\-ZW!XBTBVU M6#QE_;,=GIFG^'+Q+F>]LO#O&7P3\<:!>?$?4-!T#Q1XU^'7PY\H'4M?T+3'\/_ -N-/87.GZ+XE73/$,$.K:=:ZAIE MI>R>5)_1)\0/^"HG[(7C?X[S>.H/'WC4Z1I__!5'_@F5\?KOQ/XD^'_B!/$W MC[X0_LE_!>'X9?%WXXZQI_AZPU6TT_5==\0:8-=M/!:&+Q3J>F7]O/'X>&M3 MZE96&_X"_P""DO[$/A[]DC]J'P%>_';XNS>.?C'\.O\ @I9X&/PJ\3:/^TSX MC\$ZOKO[0WC#XH^(?@3K/@?0+#XHV?[-W@3P9J^B>(=%?QA<>*O@=X@^+\'Q M(UO5[Z?Q9X<\-P75_=:U)]I1J3Q=6E"NJ*C"5=8=1 MQ$Z=.3C2:E%S4HN5U%>91\4/%?#RHYEB/#G.LQIYAC,FI0R6GE.8QH9'A,7C M\DI8VE]=P.!Q&93Q6687&YQ3IXO'RG0K4<'4IYEA:=>DZM7^9#7/AG\2?#&C MGQ#XF^'OCGPYH U*UT9M/Q#8Z2^IZEI]M9)J=[X?F@UV MSL&G6[NM%GM]5@ADL)X;A]";X.?%ZW\2>'/!L_PI^),7B_QAIL6L^$?"S^!O M$X\0^*='F@N+J/5O#>CC2SJ&N:6UK9W=T=1TNWNK-+:VN+AYEAAD=?Z4O&?_ M 6"^ NN7'[0&E^,/B#\1OC3\'K)?^"/.O\ P$^!FN>'_%ESX-O)_P!EGQY\ M+O&?[7WAGP[H/B^SC\,>!-<\3P:%XOTK4->U:VTZR^(9G@BEUG6]+M]+@KH_ M#G_!3+]ESPO^U'^T7XP\5_M]?M$_'?PS^TSX%^,\?PR^*/C+X:?M,^%8_P!A MT^._C%X&^)5A\%O"H\!_&_P;\;8/!7BW1/#0\.^++_\ 9WUOX>:/X8O/!7P_ MMM&TC7_#NL:^OAO'^PLDE74(9]35%UU1E5JSP"=)*MBJ4JLX4ZLYU*=7V-%T M)4'.,(XA5L4X44K]\O%SQ2IX7%5*_A)C(XBCE^*QV%A1P_%^*HX^I['(,1AL M%1G2R55<-B,!ALVQ^*SM8^C1EB99/B,KX6H9GFLJE&C_ "H:EIFHZ+J-_H^L M6%YI6K:7>7.G:II>HV\MGJ.FZA9S/;WEA?V5PL=Q9WMI<1R6]U:W$<<]O/') M#-&DB,H^Z/V>/^3)O^"@W_7#]E;_ -74*9_P4M_: \*?M0_ME_%7XS>!M:T[ MQ7X;\06/PXTBT\8:5X"\4_#B#QE=^#OAAX-\'ZIXHF\,>./&OQ#\;1W6J:EH M5T)-5\8>+-0\3:]';PZWK,.G7NH2Z;:/_9YX_8G_ ."@X/RE;;]E=R&&,+_P MNICGG']Q@.Y(P.2 ?'P].EA\RQ=*G6C6HTL-G-*EB-(QK0669A3IU$KM+VEX M62;3E)*+:<;_ *5F^8X[->!^&>&>.Q^4UG4=3*\3B.,>&,1 MB,#4G6IT:DI824ITY3JTJ-1J#E4HTIJ=./P8_5?^N:_^A/3:>RL2N%)Q&H./ MFP26;!*Y'0@]>^.N12;'_NM_WR?\*\RKK5JM:IU:K36J:=6JTT^J:U36C6J/ MT:FU[.GY4Z:=DWJJ=--:)JZ::>KLTUNAM%.V/_=;_OD_X4;'_NM_WR?\*SL^ MQ=_7[I?_ ")]O?LJ?L'?%O\ :V\&_$7Q_P""O&?P*^'7@OX7>)?A_P"#O$GB MCXZ_&#PC\']$N/%7Q1DU^/P1X?TK5_%LUI8ZCJVMW/AK4K.STU;M+NYN/L\% MI!-_B_P" _&'P?\=V>O? 77]6\,_& Z+X>NO$VA> MM4T,SI>/K?BKPO'K'A.#3)EM9KO3]<76#HNK60^W6.H2VK&9?T:_X)Q?M^_# M']BO]G+X^:3XE\,>#/B+\0/&'[2W[''Q!T+X6?$#X5V/Q&\->+OAY\)]=\?7 MWQ-N8+SQ)HFI>%O"7BW2;'6M+;PAXB-YI_BC2=7GBU/PU)]HL[AT_5[]E/\ MX*1_\$[/@/\ %+XY>)=>_:Q^/_C3PYXW_:R_:/\ BC?VOQ T/]K7Q/H_Q1^& MOQT^&>FZ%X1EMO 'A?XA^"?A&/$_@C4;N?0/B1K7[0?P;^+6J^(XO"&DZC\, M-)\+R_\ ".ZOH7V6#R;A_&8++>?-5@L=5A.>/E6Q5)TJ5UB'2A&C7<*<7/V< M;J%3FIZQJ).M2/YNXF\0?%KAKB/C66#X'Q?$_#V!KX&APEA<'DF8QJYC>MDD M-Q]/#XG%Y7]3G76'K4XU\%@^N;+Q#JUW MI-W)9^"]=ATGQBVERZ7K8T-]'UO2[ZY\TMOAAX\E^(6C?"G5?"^K>&_'VK>+ M- \$6_A?Q9I]YX8U.U\0^*-1L]-T>UUFSU>WM;S24FFU*SG:>[MU"V,T=X%D MMWB>3^B_]GC_ (*B?L]>%E_X)S>-OC!\?OC?KNJ?!C]E?XF?LJ_$OX6:AI/Q ME\0V/P"^(6NZ1\7?#WA7]KOPAXAT;XC>&8_$NJ)X1\:^'OA;)#\--6\,?&/P M]\,/MD7A_P 66-UXJ^(X? 7Q:\2>--2O-5N/CK\4_C)\;/B5JF@^&=8L-/' MC'QMXBM]?UE[(Z5:Z2T.G6%]J7+C7/3M*MB90(E M#S[XB?\ !);]H7X.^*O EC\3O'/P+C\%>(_VB?#W[+'Q$^)'PB^*&C?'ZP^! MGQ'CX4:X2ZTJ[TG5Y=&NM0T)KS MXCTO]GWX@^)?&MOX?\-Z-JNM>$]1^+EA\&-)^+/_ BOC33?AA<>+-7\40^% M=(FU+7KCPL+O1([R>ZM=4N-&OM*B\6V.GSQQ3^'%U+&G-_1CXX_X*P_LH_%? MXT>"O%^O>+X/AWHGP&_X+':5^U#X7D^''P3U_P &^&OV@/V8-?U&WM)/BO\ M%?P[X3\(QZAXI_:'^%%CHQ6#Q;XXMK/QUXB\%>+M3T5=/U[Q-)J-TOD5A_P4 M-_9KF_8WT+X5>-?VDOB1K&N>%OVC-.\;_#'X/?#_ .'?QR^'=GX/\,7_ .W M/C[XTG^-FHV_Q*O?@!^T#X)N?"5A_P )OX,N+[X0V7QN\)>.]0T_PY:7Z:9: MZC=3]^+R;AOVU:.#S&G"A3O6IU*F)C-UX4H14\/[24_:T*;DJB@XT*^)G4DG M2BZ,H2A\KDGB#XS4L%EJSS@S%XS,L;5P&7XV"X?Q6%PN!GCL35JO,I4( MP6)Q6'P];#5*OM,?EV01PE-+'T*>;Y7F>$S'\(/C;^SW\3O@'\0?BM\/O&VC M&]/P?^,GQ!^ _B;QWX:L_$%Y\,M2^(OPTUN[T/Q)I7AGQ=K6@Z NH$/:KJEG M9:C8:/XA.A7VFZGJ6@Z8+Q84\2K]O?\ @KU^V?\ L\?MP_\ "$>,_@QXKU/P MUJ'PS^-O[57A1_@=:^%O&>B?#3Q7X(^(OQJ\7_%CPC^UUX/35=,CLM%^(GQG ML/%%OI_QXTKQ->6'C"_\6>'?#]U8^%])\-:;%&?Q%96+,0K8+,5^5NA)QP59CQ3DV(R#/)X>%+,LLQ6%Q.&Q%#%T:.!A4=2-6 MG'#SE7;J8R<\NYLNA/'+!X2*8RBG;'_NM_WR?\*-C_W6_P"^3_A7G6?8 M^XOZ_=+_ .1&U]V?'7_DRG]@;_KI^U1_ZM#2Z^%=C_W6_P"^3_A7W3\=&!_8 MK_8(7(RDO[50;D$ I\4M-1@"#@[64@E21GH3D5Z.!:5#,[M+_8Z>[2_YCL*? M&\3O_A8X#;T2XHQ3;>BM'A7B"._ WC'X(?#WP9\)-=^'GAGQCXJ^.WQE\*?!?PO_ &]\ M5)/$D'@C0M*UOQ;-;V&HZEKEUX5U6QALEG2XN+E[2ULXYYK@B/XGV/T*L.WW M2%?A M9\2?A9:_$?PIXW\#?!_Q;\2-6^*&+G7]"UCPQX+\3Z=I'B#3#X1\2/*QU>&7X=2YL;S49V?QQ\4?V+/B/\&O"?BZ7XCWBZ)\;?!7[3 MUW^S%XA_9PL_"WC+7O&<&O6WA"'Q)'XKTKQWX?T74_A5X@T34[V\L/#>A:)H M7B[4?$^N2ZEINLZ58WFE7EO/-S6C?L=_&_5/A'\9/BOC^"GQ"^"_PO M\5_#;Q5IWC+1OC)J?C'X\1>*IOA[8^%?!$OA&:/4DEB\(WS:I;ZGK&B:OLU' M1/[%TO6C??N/W;T?_@H[^S#\/?&MU+\-/VL/& OH_P#@KY\4_P!M'PS\7OB; M\ ?B3\6/L?P>^)/['^H?#VTD\>>"[O5? NM^)Y;+QQKM]\']?CT'Q'H?CK2/ M#L;_ !,\!VRWVC^'%G[WP'_P51_80^$7QF_:)\4VOBSXO?%GP_\ %/Q]^Q+9 M6WC?Q>WQG\9?$7PS=>!OA%\<_AO\8OV@OV>_$/QRU3XF>-_#+?!/6/B9H?BK MX+>'?CIXK\;>.+=[._T[1OM'V;PWJ/ACZ)9'P_.NE/-:%&DG/#12KTJBBE2S M"5#%3FJR=2JJM+"\\8*GAI>V@I)+F3_%5XC^+]'!RY> 09E M@Y8J,L?PO0S/)*="OEU+!Y=@,7@\=GDL-4Q>,S+B'"O"8V-#V3K^HZ=KCSZC8WU_-;7M MU=W$4EU-P;*P5B58#!Y((%?%.+C4E%V]V]'W9?%%N M$HL_IS#8B6(R^CB*D94YUL%1K5(RH8G#\DJV#H5I1]CBX0Q%'EE5DW1Q,88G M#J<<-BXPQ>%QD8_>O[=O_'O^Q?\ ]F'_ ./X#Q)\3B?R%>3?LP?LF_%_P#: MQ\3^*="^%EIX8L-+^'G@R]^(GQ.^(WQ$\9^&OAK\+?A;X%LKRWTN;Q1X]\?> M,K_2_#VA:>^H7MI:6T,E[)JEZ);R[L=-N=.T77;[3/6OV[ ##^Q>I./^,#_@ M@.""6(\1_$\X !)(8_+N VG/!P#7I_[ ?[0?P#\)?!3]MS]C_P#:3\7^+?A) M\._VT_!7P0MK'XZ^#_ ]W\2;CX6>._VGB3P+INH:7KFN>"O&;Z MI?:5KQ\.W%UJMO&\)6Q>:4L?6@UA\M MJYUB,'@,5XCY]@LXS3#Y+0Q.$JYSBLHR?%8[-<-D]+&8:KF53">QA5C"%3F^ M1?'W[+_Q8\&_$OQ?\+-!TS1_C5K'@S1-)\4ZGXD_9UUO1_CUX#NO">MZ59:S MIOBC2_&_PLN?$FBW&B2V5ZGVJZN)[:2SNEGLKV"SN+9HY?,-*^%GQ.UW19?$ MFB?#KQSK'AV#2]>UR?Q!I?A/7=0T2#1/"ILE\4:U-JUK8RV$6C>&GU+3H_$. MK27"Z?HDM_91:G%;>[N'@L/H#X ?\%E?@1X%^,_[+OB> MT^)_Q,^#'P1D_;5_X*8?'O\ :2^#GAK0O%RZ+%X _:$L)-1_9ITKQ?X;\*:9 M<^&/B6F@:_K>K%-"TR?7M-\(ZW')XCDTNVGM=#O;;T89+DM1TY5\ZAAO:34' M0HUL'C?8*;HI+ZS6K4.>.'=67MY5(4XU%!RPTIQC5E'XZMXG>)^$CF=++_#3 M%9['+XQJ87'XK*N+>'JV>TJ."S#&2Q,LMH93F%/ XK/:&6R>3X3!5\Q66XC$ MX3 \3O XS%87#5/YA)/A/\5(=4;1)_AG\0K?6ET+3_%+:1<^"_$EMJ@\+ZO< M6MII7B8V$^FQW0\.ZG>7UC9Z?KAB&EWEY>V=K;W)?VLOA_XV^&WC'1?%^JZ]X=\1?$*Y\!?#W4;#6_ M#MKX<\=V-WX;CTZ/2M&UCP]K,%DEKJ>%?^"N/['0^*7QH\/7/QK^(FD:W?? M']AWX8:-^W-XC\'_ +16G>(_CQXJ_9=T_P 90_$GQ%\0M+_9Y^,7PV_:-\-I M\2M2\7:1?:5!=^+=Z4^'LGFJ-6>=JC0KU)QI3J2 MR]SG&G3A*I%0C63C-5)QASSE&@F^5R4TE+AQ7C1XD8;'YSE-#PLEF>8Y'A,* M\PIX+_6A0P^(Q>*K0HXYNIES>(RRKA,-B<7A\MP=+&<48C#T9X^G@ZF71E-_ MRG:-\+_B9XCTF37O#OPZ\=:_H<%KXDOKC6-%\(Z_JNEVUGX-@TRZ\7W5U?V& MGW%K;0>%;;6]$G\1R7$L:Z)'K6C/J1MAJVG_ &F+_A6WQ$/AK2O&@\!>,SX. MU[67\.:'XM7PQK;>&=9\0QM*DF@Z7KRV1TN_UI&@F5M+M;J6^4PRY@ C\(?%OX7Z['\:_&G@7X>>(O^"HO[6/[1?[1WA[P!\//B!X(\-^. M/@=\2OA]X8T/P+XF\3^!]-U'Q=_;-KXI\56_B'Q/JGPTE\5>.=0TOQ'>/X@U MRVGU*TT?4(O*/!G_ 4!_8ZC_99_8I^'/QB_:/\ V@-?USX(_%']F6:S\"_L MZ>%_C;\ 9_@]\.?AW\0O$'C3QQ;?$*$_%;6?@7\7M9\)37UC_P *O^,OPH\# M?#_]H"2WL[4:WJL5Q/=Q6^:R')9)VSZ,9*G5G^\>70@Y1KX6%*-WBI3]^C6K MS=H2?/0225.4IKUUXJ^)<*U)5_"?'JA7QN'IP6%H\3XS%T\-/*\RQ%>-6$[@T+ M3M+BOM<\4:G&=&\*:7KFMR6^E7-/QY^SGK?AC1?@+-X9UJ[^)'C?XX>'O%.L M/\-/#7P\^(UCXP\&:QX<\>^(O!4WA>^M=;\,Z?#XOUN]N- N]1FG\%-K5O8R M+=Z?J#1RV45[J/\ 3-XY_P""L?[([_$O]G/1_!_[6?Q=T;2M._9@_P""@/[. MOQ2_:,\#^$_VN%UWP1JWQ\FTO7OV>_&\UK\9OC#\3OVAOB79_#CQ ]WJ>B37 M/Q@UG7/"7BS2+75O">F?#70)=#TSP[\J?"#_ (*(_LT>$+'X,^";W]HSXK>" MO%D'[ W[3/[+U]^USX4^''C?4?B'\$_C!\1OVN/$/Q=\/_%4:5<7MKXQOSX_ M\ 1QIXBUWX?>)=5\;>&I_&,UA#K1U)=8O].WJ9)D--O#K/**'BQBY+-,7X9XK!TX82 MCBJ.64,EXKEB)TUEW$>'Q=7,L3BLJ6+EA<+F.#RS-Z&595!Y_*C*I@,/A<97 MQV =;^?B'X0_%FYUS6?#%K\+_B)=>)O#NJ:5HGB#PY:>"O$EUKVAZUKMS)9Z M'H^KZ/;Z;+J.G:IK-U%);Z3I]Y;0W>I3(R64,[<5PU_I]_I5]>:9JEE=Z;J6 MG7EUI^H:??VTUI>V%_8W$EI?6-[:W"1SVM[974,MM=VL\<<]M<120S1I(C*/ MZ:/C+_P5N^&EA\+/VL_#GP)_:/\ CK+\>;O]CS_@GU^S7\,_VHCI'CGX*3XU\1Z+H MYT_4-7N;W4&MF_(O_@J1\<_A5^TS^WU^TK\=_@=J-UK/PM^)GC32_$/A;4KG MPYJOA6:^7_A"O"VFZO>S:#K-G8:G8W-WKNGZG)>&^LXKJ\NA)J#F5+N.5O(S M/*\MP>&57"9I''5?;*+IP6&Y52J.O&G[U*LY2J4Y8>HJ\H4_J_O4949.G6I3 ME^A\"<=<<\29U4P?$? -7AC*WE]:MA\?4EG?M:F-PM+)ZTE6HYIEN$IT<+F- M+-U4RV@ZG]K4/J6-P^;4:6,PN,P^&P/@W_R8C^V]_P!E4_8N_P#2S]HBO&OV M=_V;_C'^U3\2;'X2_ WP?_PF'C*[TW7?$>H?:M2T/P]X?\*^#_#%O)J7B;QK MXR\7>*-2T;PSX1\)>'K+;)J>M:[JMG:F>YL=+LVN=:U/2M.OO9O@X"/V$OVW MLC;_ ,74_8O^]\O2\_:([G [\>IX'-=?_P $[OVBO@]\"_&/[0?@KX]S^.=$ M^$7[5_[,/Q+_ &6_&GQ ^&VFP>(/%_PMM_'FM>%O$.D^/K3PI<:AI"^,=$TW M6/"-G8>+_"UIK.F:IJGA?5-3?2Y+S4;2UTN_Y<+2P]?&972Q55TOA<3F=7 8*OF&8T\MH8G"5L?/ +"4L31J5Z;J>4? M'W]C7XK? ?6/AIIEQKWPD^,]E\7KK6=%^&WBG]FSXO> ?C]X:\5^*/#4V@0^ M(?!MA>_#36=W9\1:6^D1ZDDMS]D\ U?X7_$S0#X MN&O?#OQUHC?#^XTFT\>+J_A'7]-/@FZU]F70;?Q<+S3X3X;GUQD9=&BUG[$^ MJLI6P%P1BOZ4-'_;X_X)T?"?QW\$M*\ ^-M&LO'9_9(_;&^ /Q%_;N_9Q_8A MT;]F+6_AG\4?CC>^#K+X#?&[0_AEX43PMX]\3>(?A'X&T7Q9X*UV^T/5M-\1 M0V/C35]:\'^(FUS7M;>TS(?^"D'['OCSXL^'_P!GC]HKX[?&SXZ?LN>(OV%= M#_9<_:*_:N\7^"/&5G\0OB[\3OA_\;M9_:%^%OQ'3P=)<>-?B/?Z7\.]1N9_ MASX-U3QD]]XM9?&?B;6M=@CCC?5M2]N619-.34C+)8XZIE]"=++N'\5BL)G^;9C4PF(678# M*YXFI#^^#="LO%'B^S3P/XG:\\*^&=1TX:OI_B/ MQ):KI9GT/0;[22-4L]8U2.UTZYTXB]AN7MB):72?A#\6=?TW3-8T+X7_ !#U MK2-;?38]$U32?!GB+4=/UJ36=8U7P]H\>CWEIITUOJLNJ^(-!UW0=-CT^2X> M^UO0]9TBU674=*U"VM_ZGOV;/^"UW[/][K7[0/CKXD_$;Q/\ ?B5XG_;O\7? MM-^'M?O?!'[0GC/1OB)\%V\&>%O 'PD^%6LZ/^SC\;_A _B#5?ACX)\#Z7X4 M@\"_&9]>^#5_I]Q%>+]CU&6\%K\>_![_ (*'KOQ?^UKXW^*?PVNI/ N@P76G>/)_"?@ M'7-/NO#]II'_ FC>"UFNM-TF[.L7>KQW,+),B<; M_P 1Z;=V]I=S6M]HL%];7,=K)[O6=*\33:?JVK0^&]1TJ#2WO[+Q#-I7A_7]4AT.YMX]4FT MW0=;OX[1K32-1FMOZ-_A?_P5&_9\\>V?[*^H_M/?M-?M M\7/ASX8_X*4Z1K MGQ9AO/VBTNO#.M?'CQ]\+=>_9ST[X@^)O@MXW^%WQM\5?!./P_X;\3"^^'_P M?^)'AO5M!U+3?!FCS2:%X;LG@@ZOXT?\%>/@?8_$#]I;QY^SU^T+\4/"VM?& M+XO?\$M];/B7PMX6^+7@OQ3XS^'_ .SMX U;PY^T-!KFIZMJ'B'Q):JL]OX? MTS6-'\1^/O$^L^.=*_XDX\3?$'27U>ZF/["R;V3JO/J23K(PO\P6D_#[Q[KVB^(_$> MA^"/%VL>'O!P@/B[7=+\.:Q?Z/X4%S-);6S>)=3M;.6RT!;BYBEM8'U::S2: MZBEMHV:>*2-8M=\">./"^C^&_$7B7P;XJ\.^'_&-I+J'A#7-<\/:OI.C^*[" M!;=Y[WPSJE_:06.OVD"7=H\USI,]W#$EW:N[JES 9/Z,/VAO^"A/[,/Q=^$' MQX\+?"W]K#XU_LZ1:;^U-_P4"^*]Y\'? /PR^(4?@3_@H;X _:=\1#5?AOX? M^)=[H.O^"K#P=80>&K8_#7Q18_%G1=8@T;POK5[K>FZ'J>I6HT:>'_@K!_P4 MO_9N_:N_9T\4^$?@K\1-0\8)\4OC5\)/BEH_P7\;?#?]H*T\1?L[VO@SX;>, M_#>H6^C^)_B)\=O'/P&\&76GMXCB\('0?V:?AQX<\,>*=)O-1O=0>V,7VF]S MQ&2932H8ZK2SVC5J8;#RJX:C?"R>,J>TQ$?94_9U'.'(J=*G+VJC.I4J>UII MT'!OTLL\4/$+&YQP]@J_A=F.$R_-\\> S+%U<-Q-3K\/Y=_9V4XJGBL=.IE+ MRK$5J[QV+Q].M@<1/*:6#P,\GQN)PG$]/$X2'Y&_L?D'X9?\%#\$$?\ #"-U MR#D?\G@?L@]QQ7RS\.OAUXS^+OQ \(?#/X>>'+_QAX^\>>*/#_@SP;X5TIK: M*_UWQ%XFU>QT+1--BN+V:VL;3[;J.H6MNU]?W5KI]@LGVW4;JTT^"YN8_JC] MD,_\6T_X*($L&_XP2NEW;50G;^U_^R#DM&"2@(&$_&GQB_:N/Q,^)ND_LT> [OQ]KFI>'O!/PXU#Q%X@^"FC?$W5OB?XJ MU33)+71O"OAGX4ZU'>R7-G;IJ8N;E8T^U?@)^U;_ ,$V?V7/VUE_:K^#/Q"_ M;3CMO&=]^T2FI:9KOP8^%^G:S\%=$^,/PI\?:)X??PQJ&D?'#4)/B1XQ\.?$ M/Q/H5Q;ZQ=77@?2X?#>E7SSP76K307IRS^W#^RUXP\+?M=?L^?M!_'O]L7X_ M> OVJ;/X _$%/VK-?^$/@JV^-O@CXQ_ 236]'TK0==^%6M_'GQ%I7COX?:GX M*GT?2HM8'Q8T;6],GLS:VVD99-=T_P"E>!X;LU*KA8U/K>.5)QSJI*A*E1PZ MGEL*]1TIU:%'&U&HXFM3H5G0G>$E1<>:/Y-/B3QG6*J?5:7$N(RZ61%^#PF;X;'8S.Z=#BVOA,[#Q%X6\1>#]&U' M0[I#Y+^S!@?M+_LZ@$,/^%Z?"7# Y!'_ L+2L$' R#US@?05^C7B3XU_P#! M/3Q%^Q5=?LC6GQ._:KT"'X:?M,?$;X]_";Q3??L^?#WQ%=?$&/Q7\"_AEX'2 MP\;6=C^T!X=M?AX-0^(WA/Q/=V=OIE'$QG*4(U8P572C[3^)2Y:D;J2;_2T7Q%XW\4ZGXCUC2-"M]0^"^LZA%I5A?ZA-; M:>M_JNJW7V%(/M5_=SM)/)Y%_P 0Q_\ P33P_P#QE/\ M9_/@D_VQ\(RPP=P M1&/P"!5 Q)*95"6=MI+MG]YO&4(E\;^)XQA3)XEU1-V"0"]_*N[:"N2,Y(R" MV,%AU'X7_"__ (*^V_C?P-^VSK/B+X S^&OB'^S1X@N-*^!GPQL/B)'K>H?M M4VOB;]I'XE_L 1\ !C<55GY M&]P)'W/\U _X-C?^":623^U1^UH25VY?5_A"3@$,HR/@"3A2,J#D+R "0>S M^ __ 5A\&^._!W@SXP?'*;X7? SXCV_AO7](^'>E^"/'7@_QGKWA_2=&\%^#=#T]/C?KGQ#\3:;I]IX.N M/#(CU2_Z'Q+_ ,%7_A1\.OVC?$7@+XK^'/B-\,_@1I'[+OPT^.-SX_\ &G[. M?[2/AWXA> O$_BW]HWXD? +Q-!\<_">H^!HY?@Y\,/#MWX/\/7$7C?Q[X?\ M#6DW5YXCANK+Q#JVF7]DL$_ZF\*_]"+ ?^ UO_FHV7TC/'-6_P"-H<4W4N:+ M=;*WRRLUS)/A]KFLW9VNKZ-'E?\ Q#&_\$T021^U/^UGDYW9U?X188'.02/@ M"6;()!R%R&*YVD@H/^#8W_@FEEB?VI_VM"#QAM8^$!7J&RBCX G!##<"XSNR MW+$D_HOK_P"V9^S]X.^+>I_!?Q]KGC?X9^)M/\,_%SQ?8^)OBA\'_BY\.OA+ MXO\ #WP"T6'Q+\;-2^'?QD\8>"](^&OQ$M?ACX:ED\1^)[SP;XDUFP70;6[U M?3+O4K" W#?+_P 0/^"G'PXNO"_PQU?X":9K6OZ_XN_:C_8B^$'BKPE\?#[Q?8V^J> M$]1U/1-0L-0C-S:RV8/]3>%?^A%@/_ :_3_N:_X8K_B8_P =?^CH\4Z;+VV6 M6NTTVU_8&MTW=2O&[YDE))KPE?\ @V,_X)HJ./B*WCJYTGPEHTUAI45QJVDVUI#!@9 M?\>^,?%6AH M+/P_H$FH7]O/!]6:-_P5/_9&T?1)[+XI?%$Z7XT^'_[,WPM_:4^.NL^$O@_\ M>[SX1^!O!_Q)^"7A7XSZ)XBB\8:C\/V32-%\>Z5XDCM?A+X6\57-G\1_%NM- M#X M_#]W\0X+S0@GP7PH_P#F1X+Y?6%^6*_4O_B9'QWNW_Q%+BF[M=^VRU7L MDE?DR2FM$DK\K=DE=I)+YH_XAC_^":__ $=3^UQ_X4'PH_\ G"4?\0Q__!-? M_HZG]KC_ ,*#X4?_ #A*^V/V/?VQ&_:P^(?[8.A6/@[5_"7@_P#9X^+?PT^' M/@T>,_ 'Q)^%7Q/U2V\7_ KP/\3/$8^)/P\^*=AHGB7PUKVA^+/$.M:!9VQ\ M.:%!<:+8:9J$4.I0:C%K%W]T;%]/U/\ C2_U*X4_Z$>#_P# L3_\U#_XF1\= M_P#HZ7%7_@_+_P#YSGX?_P#$,?\ \$U_^CJ?VN/_ H/A1_\X2C_ (AC_P#@ MFO\ ]'4_M*Y]96?3;N:2XTC1C;7=@B7<6H>1_\0QO_ 357)7]JS]KIMQ+$-KW MPE0*3@D )\ P#D]SD^YK]Y+-5_X1'Q"<.Q7)B<$E7QE3#X3"3Q-1?V4XNI+#8'"479*/+AZ;Y>9 M@S\!-N/J1]>.6C_@V,_X)I!S* M/VH/VL%F(P9DUWX3"?&2<%S\!0I&2>0W()7[O!_<'8OI^I_QHV+Z?J?\:2X, MX57_ #(L%M9_[SJNSMBES+RE=>1O_P 3(^.__1TN*OBYK.MEK2DOM1YLCJ(/A2.??/P$.3C )'!&/ M3-(/^#8__@FPAWK^U7^UV6+1D*-=^$;;2KC# O\ 13T)+8)X4!0"<-^X&Q? M3]3_ (T!5!7 _B7N?[P]Z7^I?"NO_"'@E=-.WM[6::T7UAI>5EHUZIO_ (F2 M\>$U*'BGQ73DFW&4,1@(N+?56RA)OK9W5_>:YK-?D]\8_P#@WB_8#^*]]\.K MSQ?^TG^U#I%SX#^"WPI^$NAQZ/K?PQACO_"?PW\+6WA[PYK&H+=?!/4"^LZK MI\"76J2PM;0/<.?*LK1 ($\@_P"(8_\ X)K_ /1U/[7'_A0?"C_YPE?O+XG1 M1<:(,<#PEX8[G_H&1D]^22223R37-;%]/U/^-54X.X7K5)5:F2X248 M\V4RE9U<37GK)N]26I^'_P#Q#'_\$U_^CJ?VN/\ PH/A1_\ .$H_XAC_ /@F MO_T=3^UQ_P"%!\*/_G"5^X&Q?3]3_C1L7T_4_P"-1_J5PI_T(\'_ .!8G_YJ M.G_B9'QW_P"CI<5?^#\O_P#G.?A__P 0Q_\ P37_ .CJ?VN/_"@^%'_SA*/^ M(8__ ()K_P#1U/[7'_A0?"C_ .<)7[@;%]/U/^-&Q?3]3_C1_J5PI_T(\'_X M%B?_ )J#_B9'QW_Z.EQ5_P"#\O\ _G.?A_\ \0Q__!-?_HZG]KC_ ,*#X4?_ M #A*/^(8_P#X)K_]'4_M#]@7XGQ?"M?%/[ M27[4>FK\-OA#X,^%/AHZ3K_POB.I>$O"EWJUQIFK:L+KX*W7F:U>?VI=K=S6 MQMK>9(;:-+2T:,SS>3?\0Q__ 37' _:I_:XP.G_ !4'PH_^<)7[P^(0"/#N M0,CPMHXSCG&_4#@GJ>1W)KGMB^GZG_&M*G!W"]63G/(\&Y/5ROB$VU&,4W;$ MI:1A%;+1=]3FPGTAO&_ T(8;">)O%%##TW4=.C#$8#DA[6OBL34Y4\GNN>OC M,14DKN\IM][_ (?_ /$,?_P37_Z.I_:X_P#"@^%'_P X2C_B&/\ ^":__1U/ M[7'_ (4'PG_^<)7[@;%]/U/^-&Q?3]3_ (UG_J5PI_T(\'_X%B?_ )I.G_B9 M'QW_ .CI<5?^#\O_ /G.?B ?^#8W_@FH0=W[5'[6SC'*GQ!\*G5@3RI#_ 0* M0>X8%3T.:0?\&Q__ 37*QHW[4_[6X6%0D2#7_A,(T48&T;?@*'4@=-F$P,< MYP?W V+Z?J?\:-B^GZG_ !IK@OA2*M_86!?5&[OQ3XK;LDW]8R]#_P# L3_\U!_Q,CX[_P#1TN*O_!^7 M_P#SG/P__P"(8_\ X)K_ /1U/[7'_A0?"C_YPE'_ !#'_P#!-?\ Z.I_:X_\ M*#X4?_.$K]P-B^GZG_&C8OI^I_QH_P!2N%/^A'@__ L3_P#-0?\ $R/CO_T= M+BK_ ,'Y?_\ .<_*[]FG_@@#^P'^S/\ M ?!_P#: \"?M(_M,^(?&7PB\>Z! MXX\-:'XJUOX:S^&]6U?1[I9+2PUN'3?@QHE_)IUP[;+E;/5K"YV',%U#*$=? MFC]O_P#X(&Z1^V#^V1\=?VCX_P!L=OA_;?%+Q-I6JMX+7]G!_&DOAV?2/!WA MWPO=V"^*Q\=_",>LJ;[1;BX,Q\,:2UH&6P\N\: W\W[Y6"K_ &AI_'_+]:>_ M2>,\@Y!&1R"""."""15_Q" /$/B #MKVLCUZ:E=#DGD_4\UK4X1X=J8-9?\ MV92IX-8GZY[&C5Q%*^)]FJ/M7.-=U.94KTU[UE&4K13::Y<'](+QCP7$*XJC MQUF6+SY9-/A]8_,\+E.92CD]3'PS2>!A2Q>5O#PIRS&E2QG.J'MO:TU'VOLI M5*3^WY>0M(HCDV_LF2>7)&"KA)8T_:5HTVFMFFT]&TU+Z6? MC]))/CF#47S13X8X1:C44HSA5BGD.E2G*,94Y:<[224JG#G"M25E>R$O_G"?RJ_\0N^ MA_\ 1_%U_P"(EG_Z)BO?OAW_ ,&Z=CX,^!/[2?PMMOVV)=0@^,EO\&XKGQ!) M^S UH_AD> /B!+XGC,>C_P##0]RFN'6R[:2S#,4EMLEB++_@L[?^)M/'W_ *+F+WUE MPWPI-ZN3UE/(YSE\5KRDW:,5?0_E5_XA=]#_ .C^+K_Q$L__ $3%'_$+OH?_ M $?Q=?\ B)9_^B8K^JJBC_4+A3_H65/_ XYC_\ - ?\3:>/W_1 M/W_1/W_1%/^A94_\ #CF+_!XC4']+3Q^::_UZBKIJZX9X335XRC=- M9$FFN:Z::::3OH?SK_'W_@W6LOBU'\"4NOVV9-!3X9?LY?#SX21,G[+R:L?$ M$/A75O%E]%XF.?VA-,;16U%M9DCDT56U$69MQLU"9)FV_/\ _P 0N^A_]'\7 M7_B)9_\ HF*_K,\0_<\+_P#8FZ+_ .E&IUSM74X%X6J38G%XJO)<_*JE>HXQBG9?RJ_P#$+OH?_1_%U_XB6?\ Z)BE'_!KOH8_ MYOWNC]?V2C^?_)S':OZJ:*C_ %"X4_Z%E3_PXYC_ /-!UKZ6OC\G?_7F&G_5 M,\)?_.$_E9C_ .#7[2HB6A_;[O(7*/$73]DQQNAER9(Y%3]IR+S8I,_O(G)1 MP '5@!31_P &OFF,KI-^W]<2JSJYQ^R,R$LH90Q)_:>E'W6(Q@YR"2""#_51 M11_J%PKHO[-GI>W^WY@VDW>23>(?*I.S?+9MI-W)C]+3Q_BVX<>/W_1@^@_E5RX%X6FJ:EEDFJ4/9T_]OS!.$>>] M]'HD]3DPWTI_'3!U<=6P_&JIU,RQ?U[&M/W_ $7,/_$9X2_^<)_*K_Q"[Z'_ M -'\77_B)9_^B8H_XA=]#_Z/XNO_ !$L_P#T3%?U54 ,QVJ,DY( /.%!+''7 M@#/&>,$X!&3_ %"X4_Z%E3_PXYC_ /- ?\3:>/W_ $7,/_$9X2_^<)_*K_Q" M[Z'_ -'\77_B)9_^B8H_XA=]#_Z/XNO_ !$L_P#T3%?U)>'_ !#H/BS1=-\2 M>%]:TKQ'X=UFV%[HVOZ%?VVJZ+K%BSO'%J&DZI92366IZ=<&-GM-1L9I[*]A MV7-G<3V\D1VPJ(@+NY5 M%!8@5#JXZJ^'N&JCKU,!@GE^%FX5BQRZGXSBT^^U:;P?IT;WP>^\50Z5IFIZG+X=M5F MU>.PTW4KIK,16%XT/09XS_\ 6/'L>A]CT[U'^H7"G_0LJ?\ AQS'_P":#K_X MFT\?O^BYA_XC/"7_ ,X3^5;_ (A=]#_Z/WNO_$2S_P#1,5WOPL_X-J-/\ _% M+X8^.[?]N:76Y_!?Q"\&^*X]&;]E6+25U63P_P"(K#5H]/\ [3_X:+OQI_VQ M[9;DWYT^^M;X6.JZ?)Y5 M_I=Z;6646FI64F$N["X,=W:LRK<0Q,R@[VC?\AK1?^POIO\ Z60TX\!\*PE& M<)Y0 QC\2ZG( >A*7\C 'TSC&>V/X[76;EFT3]G[XW7.F> M// EPHU!=1UW39-5OM)MKZZMQI7[)>+463QUXCC<923Q1J*.,E.)?AOH^D MZKJ'Q#_;'^+7P(U/XH^$M:^#GPYMM4T/X9?#G0+/P)X6\:^$?&:>)O'-UXUU M3X6V4%AX.7XAIXM\3@%W0_\ @BY\-]&^''A;X?+^T%\4$N? _P"S)H/[/7@W MQKHWA/P;I?B+P[XB\$?MRZC^WI\/_C-#8:G)XA\.ZCK'AWXF3:7X9O? ^J:9 M=Z%X@\*Z=<"ZU.PO]0CET[UKXR?\$T]1_:%TS]I&7XQ_M/>*?$WCC]I[]CSP MU^R%XU\8Z1\(_ _A+3]$T3PK\<_'GQKTKQ;X;\'Z#JUM9Q?9_P#A-O\ A"+; MP]J.HZA=#1M'L]5U/Q5JFJW=VL$@_;%^+FO^(O$&G:_X:\*_#3P[%X'_ ."< MGB_0]*\)^.]%U#XLIX@_:@_;G^)O[-7Q"B?6_$O@/QGX"\3?"P:9\-]-OF6T M\#^%_'.G^&_%$&B7&J^ ?B'XSM;[X+VE_;^\?C2/@]J'_"A/#EY?_&+0OB_X M]T#1]/\ BY>^1-X(^$WQ<\&?"8Z'9^)]:^&^A: WQ4\4-XIG\6C0=6O]%\%^ M%]/M])TS4_'$QUB37-+ /+/$/_!&GX2>./VD_BW^T%\0_C#XX\9V_P 8'_;$ MT_Q'X=O/!?@BR^(;^"/VU?A-K'PD\<_#6^^/L23^,]8\!?"#2-5$O[-/A6;2 M+70/A#I,4WAHZ9XH_M"?7+6]\,?^"0'PQ^&W@KP9X1L?'/@JPO/!/QV_9(^- M%MXK^&7[*7P+^"&O>+8OV1O%]WXQ\.:)\3-0^'5I9:OX]\0^/;VZ*>,_&.I: MK;:1:748U;P;\/?#5_?Z]+JWH/AK]K;XB?$7X[R_\(5I7A;4['1/V0?^"A'C MWPK\"_#_ ,2[SQ#XV\4>/_@/^TU\!?A)\-K7XR^!QX1\/7?PY\=:C<:7XLT' M2]-TW4=?.EZEX\\?^"[BX6_\)-K&MYNH?%CQ_J'@C]B^;X;?M1^-/C+XH_: M^)'A"U^)5KX#U;]E#1]4_L;4/V3/VC_BUJ5AX,@UCX5RV7P\T34?'_@32+W[ M#XOFUWQ)8Z7X(7P?9ZTNJ_\ "7-K0!]#?M'?L3?#']J7XL?"KXB_%:ZFU7PW M\.?@M^U;\$-7^&LVAZ;?Z3XX\-_M9^%/ W@[Q5?W>LWEQY_A[5_"FF^"4NM! MGT[3+QY+_56NDO-/DTBU6^Z3]F7]G_XF? "R\&Z-XL_:@^(?QV\->!_@-\(? M@MHOAWQKX4\,Z-;MKGPIFUJTN/B[?:U83:KXEU/QCX\\,W/AK0?%5OK&K:BL MT_AF77I=0U+4-9CAT;Y^T'XW_$R[\>>%IW^+-WJ'CK5/V\/B5^SEKW[+DEA\ M,(K/2O@5X0\1_$+PIIWC*73[+PC#\7;#7A\(/"/A#]L&Y\?7OCA?#6IZ=XQC MT:QL(OAOXQ\"Z5;^=?M#_MN_$2;X7_&O1OASH?A3PIXDGT+]J70O"&N67Q-O MY/B9\-KC]G#X[^%?@%XD\4_$[PE9>!L?#:/XD+XBU#Q3\&M(K>^\/ ',>&/\ @C[X?TO3;3P[XH_:)U_Q-X6\$:!^WMI?P6TW1_@Q M\/?!>N^!]4_X*&^'_B7X8^+NK>//'4.H^(/%GQ8L/"FC_%+6QX&\(I?> ?#8 MU;3M(U?Q#;ZQ+I6A1Z5Z-%_P2H^&%Y\'/VK/@AXE^*?CO6O"G[5?P&_8Q^!V MLW]CH^B:%K'@1OV(O@_I'PM^&WC[PXZW.JVFJ:SK.JZ#H_CW5M%UBU72[*\L MGT"WENK&]N+@^B?M%_$CXR?"?XI^'?@9X0\73Z=??M3_ P\#?"G]FZ[2&V\ M:7OPA^-O@7XI:3X9_:+\?0>)O'NDZKK/Q+U'0/V;OBW9_M)>&](^*]YXM.OV MO[)/Q3OM0L)8/$&N6&H^=VO[?&N^&?"?Q?\ $VJ>#M.U;P=\&_#%[XU\2>+O M&_Q,$GBN2X^('[>7[4_[)_@7PY#X?^&?P%TK3Y/"7A%?@5!KVH:S8:3<>,H? M![6WA2WT7XB_$#3-:\:>,0#Z:_9G_9AUOX">+_VCOB3XS^-GB/XZ_$K]J+X@ M^ _B5\2/%6O>!O"'P]M+3Q!X&^%/AOX56UEX:\.>"6&EV'AP:/X9T]=(T^[^ MW:CIEG$+6_UG7-1^U:]J_P!:U^7WPS_;3^)/C[QOX/TS3_!G@^XUOXOK^SYH M7A30+GXQQW/P?\.:=\4/%7_!03[!\1-/U/3?V?H?BM/KNN>"_P!D_1/$'B3P MCXJEN9 _B#1/!D'AKX2^(?!WCO6O%W/6_P#P41$/A'4OB5<:/8:9J?BOX)_L MQ>.?"GPT\8>/#=^#+#QC\0OA]^UC\0O'WA;PEXA\"_ B\\4/)IFE?L]:_=:I MXQ^(.K3>%]?\/:%8ZUH6@_#K7M/N_!?Q# /UBHK\]=7_ &MM4L-9\2^.[!8K MSPWZ+?]M74_&?QN^%G@3X76_P &M5^'FL?M M8^&O@!XX\;7GC^Z\1QZMH?C#_@GCK7[:>F3^"-1\,V4&@:7XM@\11Z;X+L-. MUJ]UV#Q+;V]G9QQ>&[[QI!J7@T _0JBOQ_\ A1^WE\2_"?P3_9YT7XD>!]"\ M8?$7QU\%_P!B;Q%8?$)?B+XDU?0=4LOVD?!/QVN'\&])\5Z5XD\<_$GP9X1L-5L6EOM7N/;O#_ .V]XFU?PWXX\5^)?AGX M&^&%AX9UO]FOX=:5I7B;XH^(?%6O:I\7/V@O@?\ !#XX2>#;F'X<_"KQ%HEO M8>$=-^+%[X=L/$=CK^K6GC&_T1M8O)?!>@[WD /T2HK\W/A3^WOK7Q3B^#/B M:T^$WA;2_A[\4(OV0[35]1_X6M?ZEXNT/7_VOO _B;Q!X>@\/^'8?AS9Z!XB M\.>"O$&A:9I=[K-[XN\.ZOXE\/Z]>:Y9^']+U3P]'H^K_I$#D ^H_P _B._O M0!TMG_R*'B+_ +#GAK_TB\25S==)9_\ (H>(O^PYX:_](O$E(O$?AW MP?H&N>+/%_B'0/"/A+POI%_X@\4>*_%>MZ7X:\+^&= TJVDO-5U[Q'XBURZL M-%T+1-+M(I;K4M6U6^M-/T^UBDNKVX@MHY)E\#UC]M']C+PYX.\&?$7Q'^V+ M^R3X=^'GQ)?Q/%\-_'VO_M-? _1O _Q%E\$WMIIGC6'P!XMU+QW;>'_&L_@W M4]0T[3/%MOX9U#5+CPUJ6HV.G:U%97US';GR[_@H3X)\:>./@5X1C\&V/Q$U M2V\%_M*_LR?%+Q_IWPC\)^%_'_Q3?X:?#3XP>&O%OB;6OAU\/_&?A+Q_X>\= M>+O MYIVB_$?3?"-QX%\8WNO?\(=)::)X6\2>(!I&BW?Q[XEU_\ :9_X5WX= M^.&O>(_^"BJ_M/>#Q^W!X*_9#\6>#?V7?A?XP^('Q+^$/Q*\5_"[5?A%X9_; M?^&H^ DW@?X2:KXRUWX/?#K4+6^U>S_9.;1_AOIUY_PL+QM\,O%UQXMM-+ / MVF5U=0R,DB,J.DD;I+%(DB+)%)%-$SPS12Q.DL4T,DD,L;HZ2,#P[NO^\O\ MZ$*YOP;/XONO!WA"Z^(5EHNF_$&Z\*>'+GQ]IOAN[N+_ ,-Z;XYN-'M)_&.F M^&[^[EGN[[P]8>)9-4M-#O;J>XN;K2X;6>XGEF=S72=U_P!Y?_0A0!TOBC_C MXT3_ +%+PQ_Z:XJYJNE\4?\ 'QHG_8I>&/\ TUQ5S5 '/^*_%OA+P%X:USQI MX\\6>%O G@OPQIT^L>)O&7C?Q'HWA#PAX:TBU -UJWB+Q1XBO=-T+0M+M@5- MQJ.JW]I9P[E\R92R@^9WO[3'[-6F?"K3?CQJ7[2/[/&G? C6;X:7HWQRU#XY M_"NQ^"^LZHU]J6EC2]'^*]UXLB\ :MJ9U71=9TL:?IWB&ZNVU+1]5L$B>\T^ MZABU/CI\0[CX2?"'Q_\ $^Q^%/Q!^.6J^ ]#'B?0/A#\*?#%WXP^(WC_ ,3: M;J%C)X6T+PAHEC9:C=KJK>(SI5Z->AT^]/@^VL[CQBUK.F@M$WY1_"+2?$?P MI\6_LQ_M4>(?AA^T5X_-E\>/V[/BA^U59>"_V2_VBO#_ (F\'_M&_M;^%OAY MJ>D^.OA9^SEXV^'_ (=^./BWX0>$?#?A[Q'^SUI?Q0TSP+K&IZXGC?5_$WCI M=*3Q'\2O[& /V(G\?> K6\\ Z=<^// UOJ'Q7-^/A38S^,/#L5[\43I7ABY\ M;ZG_ ,*VM'U%;CQZ=/\ !EG=^+KQ?"<>KO;^&K6?6I56Q3S3S6G?'+X(:S\4 M-:^!VC?&OX.:S\;_ WIQU?Q)\%=(^*G@'4OC#X=TE;73KYM3U_X6V?B";QY MHNG)9:QI%T]_J?A^ULX[;5M*N))TM]3T^6Y_(CP%\.Y/V?O"W_!(?3O&O[-7 MQ=;XQ_!SQI?Z[\3/$/PH_9A^)?QMO_@?\!?$_P"S#_P4'\ ^"O@GKWQ@^#GP M^\9Z#::9\+?B/^T+\-?!FH_#?2O%US:Z*+B7QU]B/A/3KGQ9;Z?PE^'?QPL/ MVZ-%U;4?A_\ %BW^'FD?MD?MJ_$BZ^"_B/X.Z_IG[//P)T[XE?#_ ,=^#M&_ M;(^%'[627-IX9^+_ ,2OVAK=0WB#X+-JWC&V\$V/[5WQ"\/^'_AQ\,[[X.:E MXGUP _;0'(S_ (C]" ?P(!'0@'(I::I!48R1ZGJ0.!NQP#C&0/NG*]J=0!T' MB'IX>_[%?1__ $/4*Y^N@\0]/#W_ &*^C_\ H>H5S] !1110 5D:AXA\/Z1J M/AS1]7U_0M)U?QEJMYH/@[2=5UG3=-U3QAKVG>'-<\8:AH/A+3;VZ@OO%&NV M/A'PQXE\5WFBZ#;ZAJEKX7\.>(/$=Q:1:)H>K7]GKU\=_M\^"/%_C#]DOXR: MQ\+=/\17OQY^#GAC4/VB?V99_!FA1^)O&EA^TM\!=/O?B1\&8O#&@/IVKGQ! M<>+O%.CQ_#+7?"PTV^M_&G@SQ[XI\$:C97VF>);JV(!W_BS]KK]DGP#J&F:1 MX\_:N_9?\#:OK>J:_H>AZ1XS_:*^#'A75M#H5 MO=0TZR>7Q+HFEQQ7VI:;8S-'>:A9P3?F3+\)Y_V3_P!J']GK0/AWK_[;O@3X M-> OV-/ /PHA\3?LT_L^R_'W3?B]XPT/]H?Q1XS\6Z!^TEXE7]F;X^7?ANZ\ M;W.M7_Q'\=>*-%U'X0^+=>U3QAXI\01^-K*>=)=#]+_9JM/'W@?]IOQ-\-_A MAX2^/%I^RQ?)^TY\3/'&A_M#_ ZX\ 6WP!^/7Q'^-OAOQY=Z3^S7\!V\.>&=0MOBMX=TC5?#7P\N@#]-:*** M "BBB@"U8?\ (0T__K^M/_1Z5>\1?\C%XA_[#VM?^G.ZJC8?\A#3_P#K^M/_ M $>E7O$7_(Q>(?\ L/:U_P"G.ZH QZ*** !F9412SN2J* 268*6P.PX4DNY M6- "\CH@9AX3X1_:D_9F^()_&EIX&U";P#KOB*'1/$]UX5\%^+=Q\.ZI)%&Q@"OR M/[<'PR^('QJ_8V_:F^$/PJ$,WQ&^)GP%^)O@GPAIMQJD.A0^(]5\0^%[_3F\ M&2:]<7%I;>'U\=6,UYX-/B&ZNK6T\/\ ]N_VU=W5M;6$L\?R?\9K;2?VOM8_ M9*T_P?\ LY?M8?!?PIX"_:9^%D'C[7;WX8^//V4?'7@/X3>'OV>OVJ],M_AG MX>\;>&;_ ,*?%'P[X \":KXDTGP9<^.O@_J-E\*='?XE6=I\'/BO>:UK.KW- MJ ?JF3@$G&!W+!01P,J7V C<2O4$LI&/FB\SF_#/C/PAXUAUVX\&^*O#?BZ# MPOXI\0>!O$DWAC7--UV'0/&OA.Z%CXH\(:U)IESLEKKNBZ@;:_T M>:2-=2AM=P-?@5\;'_;ATCX/_#_P?X-^'W[:6H_%3X;2_%F[^%_Q?$36Q^S-X5^'OC'5?B;^W-JGBSP MQ\7OASXAT[1_!OACXF^-==\<7E?9&F_#?X]_$']I#P7IOQ U_P#:HTSX.Z/^ MTO\ \%+?$^IIH'Q8^-GPX\.ZOX*M?B'\'[G]DK2?$?BGP;XJ\/Z]/\*TM$\4 M:I\(_#5CXGL_"^LZ9IFN>';:UUGP)J?C7PUK(!^J7^>_;CH<$?0@$=P#Q11N MW?-\OS$M\JJB\G/RJ@"JO/RJH P !BB@ KH],_Y%SQ=]/#7_IVEKG*Z/3/^ M1<\7?3PU_P"G:6@#G**** "BBB@ HHHH **** "BBB@ HHHH **** "M_4/^ M1;\(?[GB+_TZ15@5OZA_R+?A#_<\1?\ ITBH P**** "BBB@ IK=!_O)_P"A MK3J:W0?[R?\ H:T =)XA^YX7_P"Q-T7_ -*-3KG:Z+Q#]SPO_P!B;HO_ *4: MG7.T %%%% !1110 4444 %%%% !1110!T.G_ /(M^)/^O_PM_P"C=:KG5Z#Z M#^5=%I__ "+?B3_K_P#"W_HW6JYU>@^@_E0 M%%% "-T].1SC/3GH/O?[N0' M^Z60$NOYU_$[X<_M<_'7]H_Q%\#OB-:>"=+_ .">KV7@_P"*VL^-_"%YNM%_9 M\;3[>V\:^*A:_HK2;1G/.<8SGG'S?*3U*99SLSLW.[;=S,2 ,BCBBBBA@@BM M8(888(+6WBB@MK6"&-8HK:V@A"PP6T"*L<$,2B..)55 H^19*** "BBB@#H] M _X\?%W_ &*S?^I+H%?'O[;6A_%WQ/\ L=?M3>&_@&^O)\:->^ 'Q7TGX:KX M3U&31_&-QXGOO!FK0VUEX'U>)XI=(\>7MNUU:^!-6CFMI-+\82Z'J$=Y8R6R M7MO]A:!_QX^+O^Q6;_U)= KFR,]R,$$$'!!!#*01R&5E5E8$,K*&4@@&@#\3 M/&W@O]DOXF:I^RGX>_80\%Z_^SU90?M>_!K3?'WQ#^"'[+6O? ;6_!WA31?V M=OVN[/2/#FMZA\5O@G9>#&^*7A2QU+6/"GBBV\4:+XG^(OPCG\:6 [+1/%?[1-]\;/AY-\:YM#\5:YINE>'?!_QM MTGX0_MN?$3X+>&K+Q!X5\#?LB_%74OCQ\8]3^#'@'0/$WQ9\&2ZS^SC\*]$^ M$WC&'X[0>-/#%YJ\GBCP]_1&TDK_ 'Y9& 1(\,Q*[(]FQ2I^4A!'$JY!PL," M_=@A$;EGN$!"7$ZYVAMLKC<$!"!^?G5=Q8*V5WA9,>8B,H!^1/AS_A>7BC]H MS0?AOI7Q"^*7PB^&>K?M?_\ !3C6_&TWPV\%> O"MUXT\,_"OQQ\&IO@II/B M#Q#KGPSUV"RTO67U76))_%%M;P>,O'^BQZSI4GB:_AGNYX/V#TA@VMZ.P . MLZ<0 "H -[%C"EF(&.@+,0.-S=3G[Y"I4R2%6"AE+DJP080,"<-M!.TMD@G= MG< 1?T88UG10.VKZ8/\ R)M%\!7VL65SX2\(?$OX1_M!?%.WU[X MEZ?X*\->"_#WPV^ ?Q!\ ?#OXIMX]U;4/$MSHVBVE_XA^(6@W]A CZGHFHZ- MI^KZGXEOM"GM;"TU+[)\8R^3XW\32@*S1>)=3D"L?!\,&C:S>B/7?"6N>+-&FU/3+V^CU>@ M#Z.U#X__ +*NCVOA'5M6^/'[-&DV'BBTO[#X?:MJGQ=^$.G67BC3?#7BW3O! MFJ6O@?4-0\1P0:[IGAOQ_:Z3X0U.WT":ZM- \;6NG:#?1V.N6UO;Q[2_%W]G MG5U^&L:?%CX$:O'\0M6NKSX,(OQ$^&VHIX_U[2-:3PU>W7PEC_MJ<^+=CCX$>!?AUH>@SZKK5 M]=>$K:?6/&GB7QG\0+G4O&&K69/V'_!(^+$OQ7@\;>+C=:[XXU;QAXZ\,7>H MZ\/#7BF/_AJ?QS^U_P""K8:-X<\5>%/#\VM?#_XL?$3Q,-(U[Q]H'Q+L[S2I MM/O6\.6'BW1],\36P!]4^!_$_P -_'T.I>(/AKXH^'WC6T;7;K1M:\1^ =?\ M+>*K/_A(X+;1IK[3M7USPQ=ZC&NMQ6!\.W%]97UTNJ1V']@RW4"VZZ85\D^' MW[0_[.?BX>'!IGC3X;>"/&?Q)\1^(W\._#CQCXE^&O@_XM^,->TSX@^/OA-+ MK>G^!X_$=QKOB"Y\5^*/ ?C33_#6K6*ZA?\ B:UM-1MHF_M&UUS2=.Q/@5\! M?&_P$UC3=!\/?$RUU;X+B7QKKUW\/)M&OM-TKP9JLOA_X(^"_A;\/?@9X5NM M6\1Z+\&_@GX6T;P)\3O'7B/P+X1UFP\+3?%7XF75S\/? _P^\$EO#5AS7AW] MBWP?X6RT-3]H_9[_ &S/B?\ MI^'87\J&,R0 M:WXS^*.J>#-54L'MO#&G65]ITMOKDMS=L ?2'@SQO\*_B!J/B/6OASXS^&WC MS6/#=Y/X'\7:UX!\3>$?%VI:!?V%R9KKP=XGUCPQ>ZC<:/?6%]!YEQX7UFZM M;R&ZB$O]G$HT@Z\:3I*W&I7:Z5IBWFLI9QZQ>+IUDMWK$>G0FWTZ/5KE8!/J M:6%N3!8B^DN/LD)\NW\M.*\2^"7P;\2_!3P9\-/AC9?%G4O$WPS^$7@F#X:^ M"_#&H>"_#6G7TG@GPYHOAOP]\.HO$WB2WN+W4-2\7^$-)T?5+?6O$WAZ'PAX M?\=-JT$MQX \.S:;YMY[YD>H_,4 ,>&*22*62**26WF:XMY9(HWEM[AX)K9[ MBWD92]O.UM<7%L9H627[/// '$4TJ/Q7CGX=>%?B#X:NO"FOVE];Z;=:IX9U MM;OPSK&J^$-=L-;\&>+]/\?>%=8T[7_#%WI6KVM[HGC/2K'Q# J7@M;N\2ZA MU*&[L]2U*WN^XR/4?F*,CU'YB@#A/A_\./"7PST"+P[X3TZX@M3KOBCQ7?ZE MJ^JZIXC\2:UXM\;>)]=\;>+_ !5KOB;7KF_US5_$'B7Q=XJ\3Z]J>H7=WE;K M6KZ&PCM+"=K->JFT;1[F 6ESI&DW%H)+&46D^EV$MJ)-,D:;3)%MWMS"'TV9 MY)=.8(#8RR/):^4[LQT[U'1I$ET;4 M+K2M/N+_ $>6,J8Y-)O9;9[K3'C*J8VL98#'M4(5"J VWT#0;2SM]/M-"T2T MT^TNH+ZTL+72-.M[&UOK6?[5:WUM9PVJ6]M>VUT36<^G7FE:7>:==6EKI]UI]WIMC"2VNQ:?9+46HN(I/LXM;;R=GV>#R[V1ZC\Q1D>H_,4 0 M?8[0];2U_P!9#-_Q[0<36Q8V\H/EY$EOO<6[C#0!W6(HKN&L4F1ZC\Q1D>H_ M,4 =+9_\BAXB_P"PYX:_](O$E(N?^8YX:_P#2+Q+7-9'J/S% M 0"<]^#GN" P!!Z@@.X!&" S8/- 4#GW)Y (^9UD;@C:,R*KL ,,ZJQR1FC( M]1^8HR/4?F* #&>2<\DDY)/&._P#U"XJYK(]1^8H M" 001D'((/OP?TH P<@D'L0<,#EF!##Y@P9W96!W*SN5*EVR9'J/S%&1ZC\Q M0 A4-PV2/EZDG[A)0?1&)95^ZK<@ @$*1N.223@KDGLV=R^FT@X*_=QQMQQ1 MD>H_,49'J/S% "T4F1ZC\Q1D>H_,4 =#XAZ>'O\ L5]'_P#0]0KGZZ#Q"1CP M]R/^17T?_P!#U"N>R/4?F* %HI,CU'YBC(]1^8H 6D*@YZ\AE//564HRD=&5 ME9E96RI5F!&&8$R/4?F*,CU'YB@ VC)/.3C)S@G !)&"<;5QD]0&^]S0!C< M!QN(+8 &X@DC. ,X))'H3D=%P9'J/S%&1ZC\Q0 M%)D>H_,49'J/S% "T4F1 MZC\Q1D>H_,4 6[#_ )"&G_\ 7]:?^CTJ]XB_Y&+Q#_V'M:_].=U5"P(_M#3^ M1_Q_6O?_ *;I5[Q$1_PD7B'D?\A[6NX_Z"=U0!D44F1ZC\Q1D>H_,4 ! /\ MGZ'^8!_"C:,8/(&, A>,9P1QQC)Q]31D>H_,49'J/S% !C R< AASC!"[00 M1R,+A>#R%7.2H( , $@#''&,@ XQP0 ",%0!MQBC(]1^8HR/4?F* %HI, MCU'YBC(]1^8H 6NCTS_D7/%WT\-?^G:6N;R/4?F*Z32R/^$;\7\CIX:_].TM M '.44F1ZC\Q1D>H_,4 +129'J/S%&1ZC\Q0 M%)D>H_,49'J/S% "T4F1ZC\ MQ1D>H_,4 +129'J/S%&1ZC\Q0 M%)D>H_,49'J/S% "T4F1ZC\Q1D>H_,4 + M6_J'_(M^$/\ <\1?^G2*N?R/4?F*Z#4"!X;\(9('R>(O_3I%0!@44F1ZC\Q1 MD>H_,4 +129'J/S%&1ZC\Q0 M-;H/]Y/_0UI% '2^( M?N>%_P#L3=%_]*-3KG:Z'Q$0$\+Y('_%&Z+U/_3QJ=<[D>H_,4 +129'J/S% M&1ZC\Q0 M%)D>H_,49'J/S% "T4F1ZC\Q1D>H_,4 +129'J/S%&1ZC\Q0 M% M)D>H_,49'J/S% '1:?\ \BWXD_Z__"W_ *-UJN=7H/H/Y5T.GD?\(WXDY'_' M_P"%N_\ TUUJN=!&!R.@[B@!U%)D>H_,49'J/S% "T4F1ZC\Q1D>H_,4 +12 M9'J/S%&1ZC\Q0 M%)D>H_,49'J/S% '2:!_QX^+O^Q6;_P!270*YRNCT C[# MXNY'_(K-_P"I+H%H_,4 +129'J/S%&1ZC\Q0 M:.C?\ (:T7_L+Z;_Z6 M0UFY'J/S%:.C$'6M&P0?^)OIO?\ Z?(: /T0HHHH \9U?3-(?5-0>30]"FFD MO;EYII]%TN>:61F4L\LTUJTLLC,2SR.Y:0G)"D$M3DT'3H4227POH<4O MX@?V8?C1\:_@+\5/!/[2,6C^(Y;G5KS_ (+X>-O +>'OCA\V.G M>&F\":YJ'B'1)@#^UF/1M)E++%X;T"5E0R,L7AS2I61%X9I EFQC4$@AFP'5 M9RFXP.M,_LK1>G_"/^'<^G_"/Z/_ /(M?QX_M!_M_?%KX[_ >'1?$?[4/[,O MQI\$>'/$G_!$[]L!_P!I[P'\.M-T_P"&'[*WQM^,_P"V9IB^-/V;_BUH/A#X ML:A9>)] ^&.A^"-(^+.FZ%XA\5_#WXP6'@*74M"\?>*-5DN]"\46'IGB_P#X M+$_MIP>&_"7A+PKXU^$&JZ/J7[1__!1/X2^"?VW-*\,?LO>'OAY^T7H'[)I^ M%%G\$]5\,I^T[^UC^S5^S1I^F^.?$'Q*\5P?$W4? ?Q,\3>(?%?ASX-^(;KX M+Z%9S3^,_$GA$ _K"_LK1?\ H7_#G_A/Z-WZ?\NO>G)HVDN&*>&_#[A%+N4\ M.Z0P1!@%VQ:':H)&6. ,CGFOYB_BE^U[_P %&?VB/AC_ ,%,[?PS\;_AA^SM M9_LO?\$I/@+^TAJ?@WX!>!;'XI?$C4_C=^U%^PY\6/BWKNA_!C]I_P (_&&_ ML/#'AWP3\0_AIJ%SX#^)7@.S^(>M:_INM:=K?A#QG ^G:+XBNOH+]H?QQXQ/ M_!&_]DS]LK3/VA];_: \5_LG>,/V+_VTO&/QC\#^(;*UE^*G@OX>_$?PSIG[ M0GASQ;/\/M:U#1/&6GZ)\'?&'Q)\.^/+#4;S74\0^(O!5_K/B*+_ (2^*:6( M _?4:'IA,:CPSH1:5#)$H\-Z23+&,Y>,?9,N@VMEERORGG@U$-)T9B OA[PZ MQ) 'A_1R22< "UR23P .IXK^*?X+?'[X_>//BU9_LY?$+XI>/CH'_!:[]J M;]FO_@I'\)(;W5_%GANY^$W[$_AOX_?M4?&O]H?P?H/C*/40_AO1XOV5OV2? MV;M-B\/:;<65RFC?%N.SU:UFL;C58;7]S_\ @IE^U#:^.OV!O@G^T#^SU\8= M7T_]E_XX?M0?LBV?Q]_:+^%VN>*O >J^#/V(/B#\6K32?C7\0M(\;:(O"/Q"MOC7\2_AUX$U)_&.M:'/!K_@/1O!GB3Q MSXS\:>(.0\(?\%/OV[/%_P 18?&>N7'PE^&G@;P9\9?^"(_@3XF?LR:_\%=7 MF\:&3_@IY\(O@Q??&OPAJ/Q'U?QQH_BOP1JOP?\ &7Q#UO6_ :7O@^]UV#4M M/GT#QNVN: D.BZ< ?TM?V5HO_0O^'/\ PG]&_P#D6E_LK1?^A?\ #O\ X3^C M_P#R+7\O.@_\%8_VZ_!7PHTOXY^()_A+\>4^+/[,W_!8[XB?#OX.Z-\';SP7 M<^"/'?\ P3/^.T/@'X.?"VM76H?$_P]96/@:>#1/# M5LO@JXLO$ U+4_$-3PQ_P4V_X*#^-O G@?0?!GQ8_9M&H_%W]N[]AK]F#X8? MM%ZSIW['/QFU1- _:H^&WQON_BXOC+X"?L8?MJ?M >!-#B^&WB[P'X<\7_ ^ MXUKXM>"O$GQ \+ZO%X5\4OKDGAOQ)XJU4 _J1_LK1O\ H7O#O_A/Z/\ _(M' M]E:-_P!"]X=_\)_1_P#Y%J#P_:ZQ8Z!H5CXAUBT\1>(;+1-(L_$'B&PT7_A& MK'Q!KMKIUM!K.NV7AO\ M'5_^$=L]8U..ZU*VT'^U]5&C0W*::-2OQ;"ZEUZ M ,_^RM&_Z%[P[_X3^C__ "+1_96C?]"]X=_\)_1__D6M"B@#/_LK1O\ H7O# MO_A/Z/\ _(M']E:-_P!"]X=_\)_1_P#Y%K0HH 2+2](.F7L8T/05C:\TXM"- M$TQ89'"7H1Y8DMPCO&K.(W969!+(%(#L#0_LK1C_ ,R]X=_\)_1__D6MV'_D M'WG_ %^Z=_Z!>517H/H/Y4 4/[*T;_H7O#O_ (3^C_\ R+1_96C?]"]X=_\ M"?T?_P"1:T** ,_^RM&_Z%[P[_X3^C__ "+0-)T7(SX>\.XW+_S -(7^(=Q: M$C\![<=:T*.Z_P"\O_H0H ;?Z9I+&Q+Z)H,V-+TY4,NAZ7(4C6W"I$GFP.4B MC4;8XE8HBC"X& */]E:-_P!"]X=_\)_1_P#Y%K\._P#A/Z/_ /(M:%% &?\ V5HW M_0O>'?\ PG]'_P#D6C^RM&_Z%[P[_P"$_H__ ,BUH44 9_\ 96C?]"]X=_\ M"?T?_P"1:/[*T;_H7O#O_A/Z/_\ (M:%% &?_96C?]"]X=_\)_1__D6C^RM& M_P"A>\._^$_H_P#\BUH44 9_]E:-_P!"]X=_\)_1_P#Y%H_LK1O^A>\._P#A M/Z/_ /(M:%% %.+2M'$T)70/#ZL)8RK+H.DHRL'7:RLEL&5E.""I!! ((.") M+O2](>\O&?0?#\CM>7;/(^A:5))(YN92[R226Q=W=LL[N2S,26)))JW'_K8O M^NL7_HQ:?<_\?5Y_U^7?_I3+0!D_V5HW_0O>'?\ PG]'_P#D6C^RM&_Z%[P[ M_P"$_H__ ,BUH44 9_\ 96C?]"]X=_\ "?T?_P"1:/[*T;_H7O#O_A/Z/_\ M(M:%% &?_96C?]"]X=_\)_1__D6C^RM&_P"A>\._^$_H_P#\BUH44 9_]E:- M_P!"]X=_\)_1_P#Y%H_LK1O^A>\._P#A/Z/_ /(M:%% &?\ V5HW_0O>'?\ MPG]'_P#D6KD.FZ0MCJ:C0]"1'%D9(TT32TCF$<\C()HTMPDFQSOB,BN(G!94 M).1)5A/^/+4/]VU_]&O0!C_V3HW_ $+WAW_PG]'_ /D6C^RM&_Z%[P[_ .$_ MH_\ \BUH44 9_P#96C?]"]X=_P#"?T?_ .1:/[*T;_H7O#O_ (3^C_\ R+6A M10!G_P!E:-_T+WAW_P )_1__ )%H_LK1O^A>\._^$_H__P BUH44 9_]E:-_ MT+WAW_PG]'_^1:/[*T;_ *%[P[_X3^C_ /R+6A10!G_V5HW_ $+WAW_PG]'_ M /D6C^RM&_Z%[P[_ .$_H_\ \BUH44 9_P#96C?]"]X=_P#"?T?_ .1:/[*T M;_H7O#O_ (3^C_\ R+6A10!G_P!E:-_T+WAW_P )_1__ )%H_LK1O^A>\._^ M$_H__P BUH44 9_]DZ-_T+WAW_PG]'_^1:NS:7I!L=-']AZ"T82[,4+Z)I;Q MP!KCYA#&]L4B\P@-+Y:KYC ,^6&:?5J3_CQTS_KG=?\ I10!B_V5HW_0O>'? M_"?T?_Y%H_LK1O\ H7O#O_A/Z/\ _(M:%% &?_96C?\ 0O>'?_"?T?\ ^1:/ M[*T;_H7O#O\ X3^C_P#R+6AD>M% &?\ V5HW_0O>'?\ PG]'_P#D6E&E:+GG MP[X'?_"?T?\ ^1:/[*T;_H7O#O\ X3^C_P#R+6A10!G_ -E: M-_T+WAW_ ,)_1_\ Y%H_LK1O^A>\._\ A/Z/_P#(M:%% &?_ &5HW_0O>'?_ M G]'_\ D6C^RM&_Z%[P[_X3^C__ "+6A10!G_V5HW_0O>'?_"?T?_Y%H_LK M1O\ H7O#O_A/Z/\ _(M:%% &?_96C?\ 0O>'?_"?T?\ ^1:/[*T;_H7O#O\ MX3^C_P#R+6A10 R'2])%AJ"#0] 5'FTXO&NAZ6L;M&UWL:2-;;RW9-[>4[J3 M$68J#N(JE_96C?\ 0O>'?_"?T?\ ^1:VXO\ CRO?^NMC_P"A7-5* ,_^RM&_ MZ%[P[_X3^C__ "+1_96C?]"]X=_\)_1__D6M"B@#/_LK1O\ H7O#O_A/Z/\ M_(M']E:-_P!"]X=_\)_1_P#Y%K0HH S_ .RM&_Z%[P[_ .$_H_\ \BT?V5HW M_0O>'?\ PG]'_P#D6M"B@#/_ +*T;_H7O#O_ (3^C_\ R+1_96C?]"]X=_\ M"?T?_P"1:T** &6>FZ2J:DJZ'H,:MIKB58]#TM%EC^UVK^5,L=N@EB\R-)#& MY*;TCDQOC0BE_9.BC@>'O#N!P/\ B0:.>/J;0$_7 SZ5LVOW=2_[!C_^E,%5 MJ ,_^RM&_P"A>\._^$_H_P#\BT?V5HW_ $+WAW_PG]'_ /D6M"B@#/\ [*T; M_H7O#O\ X3^C_P#R+4]KI>D+=6K)H/A^-Q=6VR1-"TI)$;[1'M:-H[965P>5 MD#90@$*Q/%FI;?\ X^;7_K[M/_2B*@#V.BBB@#RC4U=]6O$C4M(]],B*OWF= MGC50,=RQ 'O7@'PO^+7P$^+6IWNB?"KQ'X)\3ZKX,GD\7G3M)T9[&[TUM4\0 M>+O"LGCWPU:WVC:?)J>E:MXJ\/>._#/_ L7PFM_HFJ>(M)\4Z,_B"34+;5K M>/Z#O9%AUN>9P2D6HO(P4 L526)F !(&2 1R0/4@ _P!K/QK\:O$GPO\ !>N>//@U\7=+ M\.?!3XY_#KQ[9V'Q;\$S?#C5/!$GBWX4>'?!-U\+O%WP\^(OC?6-# /UPUN] M^''@33[I-9M_!_AO3D\3^$M5U*Q.DZ5;K'XP^('BVT\*^"]?OM(L+225M<\4 M^-HX='TCQ'<6GVBZUW3;K;J6=%O[FQZ.Z\%^'+S0[;PQ?>#?#UWX8TY;>:R\ M,WGAG2KGPYIRV+3"UFLM"GL'TFS6S>:<6TMO:1?9VFF\ID,DF[\KO"O[!7Q4 M\$^-K_Q?X:\0>#)];\0_"/\ X)W?#W6?B1XK^)&NZ[\;[&7]DC]N/XA_M"?% M3P7-X[\+?L\?#VT\>^ /'_P*^(.E?"_PCJ$VB> ;S4+7X:>!_!?CKP3+X/O_ M /A,_#N1?_\ !/GXWR:+\!=-LOC'-93>$H/C!?\ Q#OCUX0^(/Q"_9H_:'UO7_B!\/O 7AB;X7^#+:^\._#+4O /@^]G\ M > /&NC?#[5-5\.3@'ZF7/BSP5I7Q,TCP#/"/A5KO@#PAXHUVZUZ+3AIUS!X4UWXQ^ M'@L-8UB+477Q>9M$LKK3[/7Y MM/\ *O"OQY_9KU^W\'>"_!7BWP5JFB>/];;P'X!T?P[X9U,^"?&LVK>"OB+\ M2$7P?-:^&X_!WB+P)XC\&_#/XC:]I/CC2I[CX;>+$\/ZK8Z5XDU'6+BTTZ^^ M,_ _[#?Q5_X6IXX\3?$S6_ 5GI7C+]G/]O+X#>+/BMX ^)'Q0\0_%OXB:A^U MG\>OA9\0? _Q-UCP3XO\ :)X,^'WB'X??#;P/?>%[BPT'Q_XZN-*^P?#_P"' M'A_5K_X:_#?PC:^%NN\:_LY?M6?%#X0_ +X:WOB#X(_ 7QA\!+;Q;IWAWXL_ M"#Q_\1?&$^G:AJW[$7[37[+'AOXE>"_ .N_!CX=IX*UWP?X[^*_PX^(NB^!S MXZ\1:;8Z-I7B/2(_B'+J'AO1+OQ: ?H;J6G^'_#MHWB+4-&TO3;?P3H&HRQ: MH-"@%QX7\-6FFF;4H-+:TL)+_3=+&E6 673=)C2.ZM;6*V2TF6.*(4? ^I^% M/%W@?P;X@\!)87W@#QCX.T+Q#X(.F:--I6CZIX(\4Z);ZEH4UAX?NK#3YK#3 MM1T+4(&.D7>EV4UM!.]C?6%M,EQ:I^8_PK_8)^)7AK5O!M[XR\2Z=?>%?#W@ M_P#:=>'X<:M\;]9^(?@SPS\4_BAX'_9&\'?"C6O"&D^$/V6OV7?!C^&/"VH_ M!#XO>/O%(O'OCW79/!O>$?".C_&2?P1'\/[C_ (1'P/X7U?Q'XLT'PSXT MU/68_#1^&W@G4-=\2>%/'T/A>#5M;T3Q1K_QW+HF@2>,?#7C/0K[5]#M/^$O M\/-X7\#^&_^";^O:CX$_:N\(_% M#QGX1AU_]J7_ ()]V/[&-S\4?#$&N^//'OPR37/$O[:U[KVEZ?KWC'2O#.N^ M/_ 7PL\ _M#_ .^''P_\1>(?$.C^*OB=8? JQU+QEX4\ )9:,%];_:.^#/[ M8_[2OPUAT2;5/A!\"_&T7PU_:-\+7#_##]H?XV>(/#U]XI^,O[,WCKX6>$-: ML_$5I^SW\,/$F@VG@/XJ>(/#_B73;FUTW4]:T;2M/E\3^'[_ /X3#1])TH@' MZ!VOAO3-.ELKJQ\.Z9I\VDOJ2:9BV5G+I4FL3+?ZRNG36]K$^GOJ]Q$E] MJZVC0MJ4\:7=\)Y460<4)/A=X;UC2_ "V/@CP[JLL,_Q'T?PS'H>CZ- OV;6 M]"\+2>-+&)+"UTN'5_\ A(/$^@:)!J,$BZY=7VK6=M:O*9E!^$?'_P"R!\3T M\0_&*\^$]M\+-.L=2\2? 3QA\!_%>J_%?XH^$?$GPV\'_!/4O@+XKUS]E?4- M T/X6^,]-MO@Y\8?B!\(/B'XJ\:_$/3O&NN:IUSQ!\$_B'XC\)VTW MB3RCXB?L'_M%_%[P7XATCXE^(/@OXF;7?$/QT\=W?PQUWXD?$WQE\-KSQ'XN M_P""BGPG_; ^$GA6^U?7O@Y%-_PCVA?!WX>ZS\)=3\8O\.KK4?!5_KDMGX3\ M">(?"]Q+2K_ M %N+PS9>(==M-(LM1;PGX4N_$LR^';;Q=XK.B^&9]>_XDT6K/J0EM8O3#%,J MHSP31B2/S5$D;*3&!EG&1@JO\3*2H_O8YKY8TWX;?%7P)^TKXO\ C1X!\/\ MPI\2^$OC!\-?@!X$\<^'/%?Q(\6^!=9^&DWP-UWXHM!)\/7T'X+_ !"T?XC> M&-=\/?%_6#!X>UNX^$D>@>*/"$MPE_?Z5\2IYO ?Q;\/_P!C#]K+P'I/@6_M M?'WPOG\9_#FR_9:'BZ]_X7%\8XM._;&^)/P9^,4GB_XL?M&?'W4[KX1R7/PF M^)GQ1\"3:P)-,\+Z!\=?[7U7Q1!\.?&OCO5_ /PQ\ ZW9 'ZYW '2_\)2:)X1\,:+KOT-\=_P!FCXU_$GXH:3XO\%:O M\,/"N@1_#;]G;PIX)#^//'VAZG^R#XU^%?QP\4?$#XK?$;]GO1O#?PPN="^) MM]\8OAYXC\'_ KU;0]?O_@C97_AGX%^&_!GBX>)/AU\3O$WAWPV ?:7@+XD M^#/B?8Z]JO@75KG7=*\-^-?&/P\U/57\/^)M$TV7Q;\/_$.H>$O&5AH5_P"( MM&TBU\6Z?H'BC2=6\.W?B;PG+K?A.;7-)U;2]/UV^O-*U*.U[JOFG]DOX#1? MLV_!J+X7KI'@?19O^%G?'GQ[-:?#VTFM?#OV7XI?'7XD?$/PQ&OVK1= NY=1 MTKP/XC\+>&M5$^GM%9ZAX?N=+TZ_U32M.L]3O?I:@"[#_P @^\_Z_=._] O* MHKT'T'\JO0_\@^\_Z_=._P#0+RJ*]!]!_*@#YR_:M_:$C_9@^#6H_%J3PE#X MO$'C+X9^!X[?5_%MO\// WARY^)_Q \.?#ZT\=?%KXF76A>*;?X8?"#P5<^( MXO$7Q'^(,GA;Q,?#7AO3[VZ@T'5+HP6C_(.B_P#!13XD?$3PO\.[/X)?LH1? M%#XV>+?!W[3/Q0UKX=R?M Z9X5^&LOPE_9=^+6F_!?5_'WP<^.4WPFUH?&?3 M?C[XMU_P_J/[*=S-\,OAUX8^*7@R[U#Q=XQ\7?"S2;+3)=?^JOVN_P!G/4?V MG_A1IOP[TKQSHW@B]T3XF?#SXFQ0^-OA]/\ %[X1^/&^'VL_VQ%\._CE\'[7 MQW\+KKXJ?"C7+@P:GJ?@ZW^(_@QG\4Z%X1U^;5+NVT"?0]7^-?!?_!-;XI?! M[2/"NM? 7]J7P+\*_C#8^'OVG_ ?B36X_P!E-M<^ ^C?#C]J'XF^$/B[J/A' M]GG]GBV_:*\.77P'M_@YXX\$:=J_P7M]9^+_ ,8?"6DS>)OB$?&O@OQQ'XDT MN'PR ?I-\'OBGX1^.GPB^%/QO^'T]]=> ?C1\,OA_P#%WP+7_P!" M%><_!WX5^#_@3\(/A+\#?A[!J-MX ^"?PM^'GP?\"P:QJ!U;6(O!OPP\(:/X M(\+IJVJ>1:C4=370]#L5O[Y;6V%W="6X\F,R%1Z-W7_>7_T(4 7+SI8_]@O3 M_P#T35.KEYTL?^P7I_\ Z)JG0!\M?'_]I/5?@9X__9K\&V_P:\5^.]!^/_QN M\+?!C7/B99^*?!_AKP9\);WQA%J2>'I]7LM4O;OQKXV\3:Y>Z?,^D>%/"7A2 M71H=#TS7]8\8>//!EPGA'2?&WCNF?MX3ZC\>;/X?M\&+BV^"&H?M;>)_V%+3 MXX'XC6L_B^/]I?PK\,]4^)-U;ZG\"T\%))I7P=U.;0=:\!:%\1[KXI_\)5J/ MBZ/1M6/PJM_AMXCTOQ\_;_M=_L\?';X_W?P-E^$/QU^$'P>;^+O^">_A7XD?M@Z)^U3XZ3]G'3[GP3XCE\<>"]9^$/[ M(^A?#3]JS5O&D'PJU7X3>&K_ .-/[8.M_%7XDZW\4?#W@/2/$.JZ[X/\,^'_ M (5?"_RO$6A_#1_$6K>(]#\"W6A^*0#YVT'_ (*_Q:Q\&OCK\9+G]G[0-)TK MX3?!/P+\;+.UF_:/TB;2_!R^/OBI-\*+7X-?MD^)V^$MI9?L=?M"^$M2CEU_ MXA?"^XLOC3_PA^AZ#XZ74=?_ +2\'7-E?^W?&3_@H#XM^"?[(GA']J'5?@7X M>^,UQXO^(VA^#=-\/?L;_&2]_:L\"77AW6_$)T>R\9Z)\6;;X3_"/3-;BNI[ M:;08M/FT+0[2/QWJ'A[PG8Z_JVMZK:VE<9^S3_P3@^*7[,%Y?^*/ ?[0_P # M[#XB:3^SSH/[//@[Q5X;_8QU/PEIOQ(@TCX@>&/'5Y\8_P!N30X?VKM8UK]K M_P"/&H_\([KNGVGQ(T7QI^SU?Z#J?QH_:$\6:?;R:Q\4$3PW]B?LL?LZ:G^S MUI/QEU#Q3XZT'XA?$S]H?XZ^(OVA?BUXA\$_#*V^"WPV_P"$XUSP)\-_AC'I MWPX^%$7C#XC:AX0\.Q>#OA-X/O-;D\4?$OXC>+_&/Q!N?%_C[Q'XNN[[Q*FG M:4 >\^!O$;^,O!'@SQC)HNI^&Y/%WA+PUXID\.:W;WMGK7AZ3Q#HMCK#Z%K- MIJ.GZ3J%KJVCM>'3M2MK[2M,N[>]MIX;C3[*5&MHNII2222222Y M-)0!:NO^77_KQMO_ &I56K5U_P NO_7C;?\ M2JM !1110 5\[?M&_M#:7^S M5I/PM\:>,/#_ -H^%GBWXW?#_P"$'Q1^(LFOVVCZ=\#=*^*[ZGX/^'WQ/\26 M5UIURFM>#K[XX:A\+/A3XIF74M"C\$:;\3#\3-7OY?#/@O7K63Z)KP7]JCX& M6_[3O[,7[1W[-MUXAB\(0?M!? GXM?!1O&$WAZ/Q%?#GPU^"GQ+^*OP=O?$H^.F@^)?C+I?Q&^$GQ M*N_AU>:+\:/V<[/P7INK_ ^T^)5GIFK?$_X,W]U\0/&]QXO^%$&D^*]?TSP9 M)XK\-Z=J-OXE?L\_&R\_:4\/_M#_ (^-/P7^&20? S0/@#XK\"?%7]F3QG\ M:K'4O"7A[XCZW\0K._\ !6L^!/VK/V;QX&U)CKCZ+]FU+0_'&FVT6G:=>6UO M&$EL9,+P9^R/XXC_ &PK/]L#XM?%?X8>,O%O@[X3?%7X%?#V+X5?LXW/P/\ M&6N?"SXG^-OA_P"+K31?VE?B->_'+XM#X^7GPS3X::';_#)?#W@WX*^%?#6N M^(OB%XKB\(O>>)M/L?#P!]ST444 %%%% #X_];%_UUB_]&+3[G_CZO/^OR[_ M /2F6F1_ZV+_ *ZQ?^C%I]S_ ,?5Y_U^7?\ Z4RT 0T444 %%%% !1110 44 M44 %6$_X\M0_W;7_ -&O5>K"?\>6H?[MK_Z->@"O1110 4444 %%%% !1110 M 4444 %%%% !1110 5:D_P"/'3/^N=U_Z455JU)_QXZ9_P!<[K_THH J'(!P M,GL,XR>PS@GKZ GT!/%?&VO_ +3GQ(U?X[_$#X,? 3]G>3XV:?\ >\^&&G? MM$^--0^+_A_X5/X9UWXKZ#IOCG1? 'P@T#6_"?B/3?BY\3?#_P ,-<\,_$GQ MAH/B_P 8_!'P?IV@^-_ ^FZ3\0M=\0:W?Z7H?V2PR" 2"1P1P1[@]B.H.#@\ MX-?%6K?LR?%[PU\>OBQ\8?V>OVA_#?P@T#]H_4OAAKW[0/@OQA\!1\9=Y\/3>!/V8OC;XE^$_CCQ)X"^(.K?#W2/"'Q4U3PSI]MX$UOXE^"/AGK' MBWQC\-M3\?Z'H?B/1+:74-(EU/T[2_VS?A%XMU+X5P^"-:62S\=_&[QW\"O% MFD?%+P=\>?@A\5O GC3P%^S3X_\ VF[[P]/\%OB'\#K#QY9>,Y_ASX9T/QO; MZ'\4K/X0Z-JOPC\4VWQ#\'^+?%M[J/@CP3\0/ =3_P""=7B3_A7/@;P9X,_: M?\3_ U\4?#SP%_P45\(^%_B=X'\ W6C>+M&UK]O3XD_\+&TGQCX=O;3XH0: MOX7U3X'S*FDQW&C>((O$?CLF37?#_BWX/ZXFGWFGS>,/^";FI_\ !.Z#P#82_&3] MJO\ :+^)42:597EM\8+CQ;XH^*GC.?4+VVN?AYIV@>'-%GTW7M$ /OKX#?M" M_"/]ISX?6/Q7^!_B35O&7PXU>2W&@>+[_P"'WQ,\ Z3XJL[S1='\06.N^#&^ M)?@[P;<>-/"=_INNV!L/&?A2WUGPC?7L>JZ3::W/K.@:]INF^TUX[^SO\)C\ M _V>_@'\!V\1?\)@?@;\$?A)\&O^$N_L;_A'?^$J_P"%6?#[P[X$/B8>'3J_ MB#_A'_[?.@'5_P"P_P"WM<_L@WG]G_VSJGV?[?<>Q4 7K[I8?]@VV_\ 0YJH MU>ONEA_V#;;_ -#FJC0 4444 %9^K:MIF@Z9J.MZWJ6G:+HFC6%[JVLZUK-_ M:Z7H^C:3IMK+>ZCJNKZG?3066FZ7I]G!-=ZAJ%W-%:V-I%+=W4D5M#++'H5' M+##<1R07-O;7EK/%+;W5G>P1W5G>VEQ&T-U9WEM*&BN+2[MWEMKJ"56CFMYI M8G4JY% 'RH?VG_#WQ ^,'ASX(_L]7GACXK:U%X/\%?%_XN?$G1M;MM?^%'P= M^#/Q BEOOAK?W?B#P]=RVGC3XF_'G3+6_P!3^"G@3P_JD5I-X%T_5/C)XTU[ M1?!\7@+2?BG]7#H, CV)W$>Q8\L?]H\MU)._ G]B#X3/\ !7]G MKPWJ'ASP-/XKUOQG>#6M9N?$6OZGK.KQV6E6*:MKMVD=SJ&G>#?!&@^#/A=X M L)4$?A/X9> O!_A*T::#2FN;CZ?H **** "BBB@"W%_QY7O_76Q_P#0KFJE M6XO^/*]_ZZV/_H5S52@ HHHH **** "BBB@ HHHH LVOW=2_[!C_ /I3!5:K M-K]W4O\ L&/_ .E,%5J "BBB@ J6W_X^;7_K[M/_ $HBJ*I;?_CYM?\ K[M/ M_2B*@#V.BBB@#RZ[19->EC==R2:H4=>1N5YXE9&=(^!'C+XOZOI5KX+\1?L]_MCZ[-KNO:KHM[H_P 5O'WAS]MG]D?]GGX) MZWK6F>!_!']N^#5\.0_&6?PC:VL$^E>%]4;QI%BW?C[PO^WNK MWVFKJFH))J^A12I>3K+#-X@T2":-MRADF@GOEEAD#*P:&5 R8VOGD5D-U*M!?L=?"R/P'X7\>Z!?^"QXQO_ /@I9^V]^R/\ M0?&EA>:IX3\8V6K^$_B;8?!O0;W4[318-.\2ZSX+L-)T#1/B3I-_:)XK9O[. M_P"W]XB\&?#;]AWP1\2O$7@GQ_\ $[]H;P'\(?''Q8\2>)_B-X[BU?0-5_:4 MT/XO^*O"OCNV;QVDVD0>!+74OAAJW]J>"/ %[<^&_!7ARV\01:3IOPYT'PYX M4T_QC^U*W>C)C9JOA=,*BJ$U[PTJQK$2T*Q*+[Y5@9Y5@1S)'%%( J>>BW%- M,^A.4:74?"LK);RVJ%]=\,/Y=M.4,UM"'O'\NUD\J'-K\T V+\F(+(6@!^3_ M (>_;T\6_'K]D_PW\;=-M++]FO3-6_:<^"'P7^,/B.;7;+7O%'P"^%_BO2_A MSK/BOXF>(8_&O@ZPT'PGI7Q-NO&&D3? CQMXD\/7MA-^S+\,?@9<67P2L_ WA>W\->/G_ &<9?#MSK'Q%GE6;49M+LE\-:[.M1_1=K[2)%G675_#DHNHC#=+)XC\..ES$T M7CG5[YC,C6S2VNV9I M%^R.MH0;9#$T"2Z#']B\K4/">.R*WX-J)X%$ M4YA*B5,HR^6?+ !^67A/_@I=??$#3_#NG>"O 'PROOB%JGA+]B^?Q1X5NOB[ M!/'4>B>#]5US2-3^$L_@W4O$LVC:GI6D:[XBUV MSO\ P#J.C_ ."EWCS1?$^K>+/'GACX2>&_@;\/OAAX?\4?&.TB MUWQ3<^./#">#/VUOCQ^R1^U!\8O!.L?V>8?&7PB^"]A\+-$^,.O:5<^#M*UW MP]\.+N\NM>U./5[_ $ZRN/V!2YT6,2[-5\,Q/<7)NYY8/$'ABWEFN7*>;=R2 M1W6YKZ7RTD-XVZ5+A1)%LA+VS\;\1/!'PW^+/@7Q3\-?B"OAK7O!?C70=7\* M^*=&A\:6F@G5O#7B)$@\1:$VJ>'=?TK7+33=>M$:PU>"QU2V_M+3Y[K3[]KF MRN[N"< ^2?B7\=_B?J_[&]]\>/"4<'P^^,_PL\(_"/\ :?\ BQ\"=!U/2?&O MCK3/A1H&L^'OC=\1?@!XFT>YTIM7T7Q_\5_V;-)\=>!?#EQ+H>CW6G?$[6H- M0T#4I--T2._U#YJM/VU_BKI6L:/\0]*GLOB7HG[2+P^-/V-/#WA#X/ MV7P.^+?[=W[+W[''[.?C2VN/#/PE\0?$/4K?QC\+?B/IW[4-KKMSXBO#*_Q3 M\0?#I_# LY/">L^"_P!8=&T+P+X=UGQEXAT)?!^F:Y\0O$5GXN\;:G;^(M#6 M\\3>)-.\+^'O!5AJFJW U5;B5[#PGX1\+^'=/MHI8;33M(T*QMK""VD62=]T MW>C?+C5O#(")%&BGQ#X;956'RS%M4WVU#')%'-&L0CBBECB,<2B)% !^2=U_ MP4+\1^+_ (L^+_A?I>F^%-'T[X5?M-? WX)^-KGPAX_ET7XF6_BC6?\ @H'\ M&?V4K[3=1\/>/_AKKFCZ_P##7XAZ+XC\6>,K^[\ )J>I:)X7ET/X>ZE\0/A] M\0/$^A^+;?2\)?M\>-_B#I?P+O/%'@S1_A^OQ;T[_@GG\:?#TGPS^)::RUQ\ M/OVM_B[\0? &I>"O&;^,/A'=-=?V9!\/[35]1C\*:;H]_P");/Q/J'AK0?%? MA34O"4'B_P 5_=O@O]G_ .!?P^\?ZE\3_#$21^,M03XF16UYKGQJ\4>,-)\, M0?&CX@Z5\5_BU;^!/"WC'Q[KWA?P!;_$/XD:%H7B_P 2VW@S1]#MKK4M"T** M&"WT_1["SA]O^VZ1O$@U?PTC*R%3'XA\.1E?+8-'M9+\,I@ M>43 !\4_L6?MF:=^U[_PMJ32]/\ "ATSX?3_ FU;P_XH\&:[?:MHGB[P?\ M&;X?KX^\*WTFGZSI^E^(?#FKV=G',EWIOB+2]$UNYT^ZT;5-5\*>#=1O;SPS MIOW)@>@_*LZ.YT2 %;?5/#%NI>20I!X@\-0H7FFDN)7V0WL:^9+/+)+*^,R. MQ=LL6)E_M#3/^@WX>_\ "E\/_P#RPH NX'H**I?VAIG_ $&_#W_A2^'_ /Y8 M4?VAIG_0;\/?^%+X?_\ EA0!=P!T %%4O[0TS_H-^'O_ I?#_\ \L*/[0TS M_H-^'O\ PI?#_P#\L* -J'_D'WG_ %^Z=_Z!>517H/H/Y4^+4-.&FWK_ -KZ M$4%YI^Z4>(=#:%&V7I5))5O3%&[@,4621&D".8U?8^VA_:&F#_F-^'O_ I? M#_\ \L* +M%4O[0TS_H-^'O_ I?#_\ \L*/[0TS_H-^'O\ PI?#_P#\L* + MM'=?]Y?_ $(52_M#3/\ H-^'O_"E\/\ _P L*4:CI>1G6_#V RD_\5+X?[$? M]1$?S_/I0!L7G2Q_[!>G_P#HFJ=+?W^G*;(-J^A1?\2O3RHD\0Z)&74P K(G MFWL9DB_\ "E\/_P#RPH NT52_M#3/^@WX>_\ "E\/_P#RPH_M M#3/^@WX>_P#"E\/_ /RPH NT52_M#3/^@WX>_P#"E\/_ /RPH_M#3/\ H-^' MO_"E\/\ _P L* +M%4O[0TS_ *#?A[_PI?#_ /\ +"C^T-,_Z#?A[_PI?#__ M ,L* -"/_6Q?]=8O_1BT^Y_X^KS_ *_+O_TIEJA%J&FF6(#6M 9C+'M5?$>@ MNS-O7:JHE\SLS' 541V)("HQPIDN[_3EN[Q6UG0$87EV&1_$>@HZ-]HEW(Z2 M7ZR(Z-E71U5T8%716!4 $M%4O[0TS_H-^'O_ I?#_\ \L*/[0TS_H-^'O\ MPI?#_P#\L* +M%4O[0TS_H-^'O\ PI?#_P#\L*/[0TS_ *#?A[_PI?#_ /\ M+"@"[15+^T-,_P"@WX>_\*7P_P#_ "PH_M#3/^@WX>_\*7P__P#+"@"[15+^ MT-,_Z#?A[_PI?#__ ,L*/[0TS_H-^'O_ I?#_\ \L* +M6$_P"/+4/]VU_] M&O65_:&F?]!OP]_X4OA__P"6%7(;[3FL=2(U?0G55L_,D7Q#H;1PAYG53-(E MZT<6]AMB$SPK*^420N A %HJE_:&F?\ 0;\/?^%+X?\ _EA1_:&F?]!OP]_X M4OA__P"6% %VBJ7]H:9_T&_#W_A2^'__ )84?VAIG_0;\/?^%+X?_P#EA0!= MHJE_:&F?]!OP]_X4OA__ .6%']H:9_T&_#W_ (4OA_\ ^6% %VBJ7]H:9_T& M_#W_ (4OA_\ ^6%']H:9_P!!OP]_X4OA_P#^6% %VBJ7]H:9_P!!OP]_X4OA M_P#^6%']H:9_T&_#W_A2^'__ )84 7:*I?VAIG_0;\/?^%+X?_\ EA1_:&F? M]!OP]_X4OA__ .6% %VBJ7]H:9_T&_#W_A2^'_\ Y84?VAIG_0;\/?\ A2^' M_P#Y84 7:M2?\>.F?]<[K_THK(_M#3/^@WX>_P#"E\/_ /RPJY-?Z:++3?\ MB<:"$*7>R5O$.AK'*!.,^5(U\(I=A($GE/)Y;$*^PD @"T52_M#3/^@WX>_\ M*7P__P#+"C^T-,_Z#?A[_P *7P__ /+"@"[15+^T-,_Z#?A[_P *7P__ /+" MC^T-,_Z#?A[_ ,*7P_\ _+"@"[15+^T-,_Z#?A[_ ,*7P_\ _+"E&H:9GG7/ M#H]SXD\/D>W34,]?K]#T(!M7W2P_[!MM_P"AS51IU_?Z M9XAT-/,1C,1)&9;Y/,B;D)-&IBD(;8QVFJ']H:9_T&_#W_A2^'__ )84 7:* MI?VAIG_0;\/?^%+X?_\ EA1_:&F?]!OP]_X4OA__ .6% %VBJ7]H:9_T&_#W M_A2^'_\ Y84?VAIG_0;\/?\ A2^'_P#Y84 7:*I?VAIG_0;\/?\ A2^'_P#Y M84?VAIG_ $&_#W_A2^'_ /Y84 7:*I?VAIG_ $&_#W_A2^'_ /Y84?VAIG_0 M;\/?^%+X?_\ EA0!=HJE_:&F?]!OP]_X4OA__P"6%']H:9_T&_#W_A2^'_\ MY84 ;$7_ !Y7O_76Q_\ 0KFJE$-_IYL+]AK&@LBS:>K./$.AF-&=KO8LDJWO MDQLY7]TDDB/,5<1@[&-4O[0TS_H-^'O_ I?#_\ \L* +M%4O[0TS_H-^'O_ M I?#_\ \L*/[0TS_H-^'O\ PI?#_P#\L* +M%4O[0TS_H-^'O\ PI?#_P#\ ML*/[0TS_ *#?A[_PI?#_ /\ +"@"[15+^T-,_P"@WX>_\*7P_P#_ "PH_M#3 M/^@WX>_\*7P__P#+"@"[15+^T-,_Z#?A[_PI?#__ ,L*/[0TS_H-^'O_ I? M#_\ \L* -:U^[J7_ &#'_P#2F"JU%G?:<4U%EU?074:;)YC)XBT-EC3[5;+Y MLK1WKB*+>ZQF60)'O=(RX>1 :7]HZ8>FN>'B.Q_X27P_R/\ P8G^9^IH NT5 M2_M#3/\ H-^'O_"E\/\ _P L*/[0TS_H-^'O_"E\/_\ RPH NU+;_P#'S:_] M?=I_Z415F_VAIG_0;\/?^%+X?_\ EA4]K?Z!X/C1\0[C1?B9/\ !GQ)\1OAY^S=\>_'7P*\ M+?%2SO;?2]5\#^(/CKX9^'5_\+K#4O#6KWEMHWC+4#XEET#P7J[S:?XIU;2+ MC3]673_N;Q=-]F\=>([C;O\ (\4:C-LW%=_E:C(^W<.5W;<;OX^-/[)&CZ98Z)XT^.NO-XUMO#5YJ_B#3/&/@^ZM=$5K7XC^ M'[#7;[380#]R&\2>&$L+[5G\2>&TTK2XX)M4U1]>TA=,TR*YD$5M+J.H&\^Q MV,=S*1%;O=3Q)/(=D1=N*-7\1^&?#RV3^(/$?AS0$U-96TQ]=UW2='34UACB MFF?3FU*[MEOUBAN+>61K0S*D4\$C$)-&S?S?6/\ P2 ^*GA/]D/]E?PSX:^& MOPJMOC+X"_:G^-?QN_:X\#^%&_9XO+_]H_1->\4_M-:)^S_K4_B;]H[X#_'_ M . 'Q!\5_ CP'\6_"U[X*\*_&OX>W7AS0=$U;QII7A;6_ _Q!TOP[X@A^,/B M_P#LO:U\#_VE_P!G?X1^-/V=/&_QT^&WP0^#7[ NB:3\,?$L"?&;X^_$^Y\( M_M:?&GXQ7/PV_9A^-^F_L-ZM\(M:\+?"C3/%W@S1?VC/#VA-^QMX5?X-^'F^ M%-SXD\36EC8?$% #^QF35]%BO=5TV75]'CU+0;&'4]>TZ34[!-0T+3+FW%W; M:EK5DUP+K2=/N+0BZ@O=0BM[6:V(N(Y6B(>JZ>(_#,OV[RO$?AR7^R[.34=4 M\K7-)E_LS3H6F2;4-2\N[;[!80O;7"S7EWY-M$UO.LDJF&0+_/%?_P#!+G]I M2Z\1^++;_A /@?I?C7PQ'_P5NU7Q)^UOHWQ!L)?B1^W;#^WI\.OBYX9^!'P\ M^*&D1^"=$\2:#:_#F]^(G@YOB"GQ,\3>+/!OA%OA-X=@^%D^O/J+WVD>8_M, M?\$UM6^&7@K_ ()L_ O]G+P-X6^$?C/]I;X3:#_P3T_X* 0?"GP[/)+XG^". MNZ/\)_C5^TS\7-5\=:= VG:GXC\/ZM\(?B#H8\?^.)KW4?%+?&B:UTM[W4+I M98@#^A/Q3^T7\'_!/Q-M?A'XK\5#0O%U_P# KX@_M(6$M[I.JCPQ=_"7X6:S MH&B>/M=M?%L=F_AV[U#PU-XIT'5=1\.6VI2>((_#5VWB%-/?3/*G?R_X5?MW M?LO_ !LTC]E37/ACX^O?$]A^VG:_%O4/V>S;^#_%,$_BC3O@58:K>_%;4->@ MGTI'\#67@^?1[C2+RY\7'2HKO7;G3-%L6EU/4K6V?Y*_X*M_L3_&W]I[P;\ MW_9,D\'^%?'O@)_CW^SUXBCU_58_#OA[0?V2?VQ/V??$7P*^.,FDQI#+)J6M M>"[6S^&OB'P7X=MUCE;4- :2W=KJV?3SX3\$_P!A3]K7]DW]HG]IWXF?!OX? M_!CX@?"KX7R_%33O^";/P>\2?$5_A]H&B^%?VSOV@/AC\8?VE-*\4:AI.BZY M/X"B^%>G^#K[0? EHFF&/Q#:S3VT$ M;@LX!^I_QX_:U^%'[//C+X8?#GQAI M'Q?\7?$/XQZ5\1]=^'O@3X*? _XG_'+Q9K>B?"6+PC<>/M7DT/X8>'/$5]IF MG>'[?QQX=DN+G48K:.7[8Q@>00R >X>(O&OASPOHGBG6M4NUW>#? ^K_ !&U M[P_;O:'Q=:^$M&TN[U:>_?PW=W-I?V[S6]G+:VW]H+8VKZH5T^6[@DWO'\*_ MM6_LE?$;X_?MA?L9_%?PK\1OB#\*?AW\$?AK^V'X:\=>//A'XZ\/>#/BC9ZM M\9+;X$0_#_3=$C\3>$/&%M>:-JTO@/7U\2RKHJ36,%K!._\ 9\TJ!O@;1?\ M@F#\=++]K;X_?%_Q4NH>+)_&/QO_ &O_ (W_ T^,>A?$K]G#PG9'PE^T!\& M?'7PW\!?!;Q_97?[)&H?M>>+(O!NF>)-'^&E[\+]1_:5TW]G6+P[H/A_XA^' MKC1-1\,V'@J] /U8U#]M;X(Z9^S7\&?VJ+@>+W^'/QYTS]G+6? .A0Z5X>_X M62VD?M1>-?AS\/OAQJNL^$Y_%5O;6NG:3XD^*7A6/QW=:;K>KQ:%;G4(]-?7 MM1CL;*_^GYO$?ABW6_>;Q-X9CBTJUN+[4IF\0:.(=/T^TU>?P_"?\ @C$NC?%WQ3\3M)B\>?LK+^P'9> _#O[1_P *_A59W?@O57UVT^)- MQIOB?QEIDWAGQ7X3\'^+--UWQ9+XCOK[QI:^"_#VN>P1?\$A[K7_ (B?#CQC MX[_9Y_9^\1*_Q-_X+.^+?C3J'B"W\#>(=4\9V/[7/B'7M3_8W?Q +O3+B;QV MGAVWNM*U&TL]8,P^#>L1-K%A9:-XE\^Z4 _H6EU'2X-5L]"GU'3(-=U*"ZNM M-T.:_LXM:U&UL1,;ZZT_29)EU"]MK(6]P;NXM;>6&V$$YG=!%(5I1^(O#4T5 M[<0^(O#LT&FV5MJ6I3Q:YI,L.FZ;>BW30VMP+:X M,,K^1+L_G#\,?\$Y?V[D^*O_ 3KUCQ9X0^!8T/]DZY_X):ZOKWQ&\+:M\$[ M#XHQVG[-?A31/"O[4NA_$7XC:S\#O$O[1GQ,\2MJ,%_%\*=*^''QZ\%?!"_^ M$\%W8>)_#?C#QCJ%GH=SQUM_P1\^/?AS]EC1/ '@GX6?!CPO\;/$_P"P=_P4 MP_9Z^.7B+P[XA\':-=?$CXA?M!?M-^$/BC^S)8>-_&=O!;7WQ TC0?!&D:D+ M+5=>GU2Q^&DUM::%!-I[_P!G*X!_3[:7EA?I-+87MC?Q6U[>:;@_(5^?'[&W[*.K_L MQ_'?]N75M%\&> _AS\"/C5XN_9E\4_!3P7\.CI&D:!87_@;]G#P]\./C'JTW M@70+6RTGPEJVO>/-#CN+Z]CM8[OQFEO;>(;YII661?T(H 3 ]!^0HP/0?D*6 MB@#I+,#_ (1#Q%P/^0YX:_\ 2'Q)7-8'H/R%=+9_\BAXB_[#GAK_ -(O$E@_(4HR2% ))( !)+-G:H R26P< #G!QT.&[AVY/ID9'#'D9R M,A&/L%8G 4X %P/0?D*,#*\#[R]A_>%+GKU!!P01@@^A'KS1W7_>7_T(4 =) MXH ^T:)P/^12\,=A_P! N*N:P/0?D*Z;Q1_Q\:)_V*7AC_TUQ5S5 "8'H/R% M&!Z#\A2]P.I8A5 Y+,Q"JJCNS,0J@@)QG.,<8"$]_P"$21LWHLB-T=25PW/RMQC)VGON MQGTSL<#..4?^Z< "8'H/R%&!Z#\A2YSTHH Z#Q"!CP]P/^17T?\ ]#U"N>P/ M0?D*Z'Q#T\/?]BOH_P#Z'J%<_0 F!Z#\A1@>@_(4M% "8'H/R%&!Z#\A2TF? MZDGTQU_(')]!R<#% !@>@_(48'H/R%. 8YPK-CT4GG"MCZ[71O=70C(=@_(48'H/R%+10! M9L /[0T_@?\ ']:]O^FZ5>\1 ?\ "1>(>!_R'M:[#_H)W54K#_D(:?\ ]?UI M_P"CTJ]XB_Y&+Q#_ -A[6O\ TYW5 &-@>@_(48'H/R%+10 F!Z#\A1@>@_(4 MM% "8'H/R%&!Z#\A2T4 )@>@_(48'H/R%+10 F!Z#\A71Z6!_P (YXNX'3PU MV_ZBTM<[71Z9_P BYXN^GAK_ -.TM '-X'H/R%&!Z#\A2T4 )@>@_(48'H/R M%+10 F!Z#\A1@>@_(4M'ZDD =22< =R20 .I) % "8'H/R%&!Z#\A3E5G^ MXCN,9RBEN,%L\ \;59O=02,@&D!S0 F!Z#\A1@>@_(49Z9! ;.TD8#%<$A<] M2 RDXS@,I.,BEH 3 ]!^0HP/0?D*6B@!,#T'Y"C ]!^0I:* $P/0?D*Z#4 # MX;\(9 /R>(O_ $Z15@5OZA_R+?A#_<\1?^G2*@#G\#T'Y"C ]!^0I:* $P/0 M?D*,#T'Y"EHH 3 ]!^0IK 8' ^\G8?WA3Z:W0?[R?^AK0!T?B(#9X7X'_(FZ M+V_Z>-3KG<#T'Y"NC\0_<\+_ /8FZ+_Z4:G7.T )@>@_(48'H/R%+10 F!Z# M\A1@>@_(4$@ D\ DGT !))/0 $DG@ $D@ TX*YSA'.-V<(QP4^^#@'!3!W M@X*X); &: &X'H/R%&!Z#\A2Y&,]L9S[4>F01N7(/V"O@GX$\=?#?XVP6/A/X@^*/CYXP\.:#K/PU^'?[)NN: M)C6OVC? >^XU?0_%WQ%UGXHV/B#]G;X.?"SQ;9M):?$S3-0^+'CSPYXB^&'@ M?Q)X1U< _1(J!P5P< X*X.&&5." <$'(/0CD48'H/R%8GAKP_IOA30=+\-Z1 M)J\VG:-:1V5M=>(->U;Q3X@O=I:2?4-?\3:]>:AK7B'7-2NI)]0UC6M5OKN_ MU/4;JYO;J=YIWQN4 )@>@_(48'H/R%+10!T>@ ?8?%W _P"16;_U)= KF\#T M'Y"NDT#_ (\?%W_8K-_ZDN@5SE "8'H/R%&!Z#\A2T4 )@>@_(5HZ, -:T; M _XF^F]O^GR&L^M'1O\ D-:+_P!A?3?_ $LAH _0^BBB@#X*\81^=XX\2P[M MOF^)M2BW8SM\S4)$+8R.!G)Y'%?EQ\&?^"@^A^/YY4\8^#[:U@UKQ!X=\'>" M)/@OJ7B?XWWMQ\3/%'C/]H'P[9?!/QMI^A>#-.'A'XI:=X7^ 5[\2=?MI;N? M2/#_ (3\7:+<>)Y_"]H=-U77_P!1O&3.GC;Q.\>?,7Q+JC1X4.?,6_D*80A@ MYW 84JP8X7:(/A''/X' MEDM(K3Q%IP^(_A?5_#,5]YMC:7TDGA[5='FU?0_&W@C4_$G+?'#]NC2/A'\* M?VE]?TW3I_$OQ"^#GAG]I3Q%X=\$^&_"_P 7_%.G-9? #PIX2OKG5OBY%%X& M\,7?@72%\6^/_!V@>*CIUSJ^DZ=8ZK-/H/C+5H]&\8S^&/4I/V0/@2_@;X@? M#BTT7QEH_P /OB4->C\6^$M!^)?Q%T/P_)I'BN_\3:MXE\,V.G:?XC@MM)\( MZU<^,=?>7PM B:+86<^F6FAV>E6'AGPK#HF;XM_8=_9N\5Z1XF\.ZKX*\4:3 MI/C;0/B-X5\7V?ACXI_%;P3+XF\$_%[2?!6C^/?!>MWOAOQII&I7?@W7K'X> M>#C'H$)/&VKWNN^"="O&7B>?6M=\*_&_X>?LU^-M)\(VOAW1=4U#Q/J/@3X\?%3P%\+O%=KI MUD6L_$NOS?V<=9TSP_X@U'3MSP+^U)X$^(WQ3\*_"3PAX?\ B5?:KXJ\%_%O MQ;-K5WX0N=$\/^&-2^!WQ?L_@C\0_ OC&'6+NSUS1/&6D_$"Z?2Q;-HUYHES M'%;7UEK%U9ZCH%[JU35O@5^SCX8UFZ?76M/"LOQI^,6F>*=(\+ZO\3-:\-:# MXM^.5I\2K+]J:23X?^%+SQ+I^GW_ (X\0?$/X:7WQE\1Z!X9M+N?74L/'>O7 MFE-H.N>,GU#M_#/P$^&'@SQUIOQ+\+Z1K&B^+])O_C)?+J5MXM\4FUOYOC[\ M0K;XK?$VVUS2;O6)M(UJRU7XB:79^*M%L-2LI[?PG?6"0>%(](TTW5E, ?-_ MQ,_;H\%VG@31=5^#-OK?BWQ7XZ\7_LVZ1\.9=<^&7CJX\,^*_AQ^T'^T/X)^ M T7QW\'6/VSP9=?%'X>Z'-XJ&K:7:^&O%.AW/B'4M:^&MA>ZQX<\.?$WP?XO MU3*^-W[;MS\&]=_:$T/Q#HWP]\#M\%M+\$^)?#=Q\5?%'BCPI/\ %3X:ZOJ_ MP4L/''QS\(277A?3_ 6L?"7X=W/Q.\4^%?'5SH'Q-U;Q)\,_$_@>QU+XB:7H MWAWQKX::^],5 MU( ROBQ^W)\*O!WPF^*GC7PA/KM[XV\+?#[Q-XI^'O@?QS\/OB#X2OO&6HGX M!?'']H/X<:K/(M%\"?![X=? ;X M@_$WQEXXN+?X?V>G^&(/!MA\??"E[J7]E:CXMT'4-#NK%_#/B;7O$Z:_X4T# M-/[#?P+U+Q?H^OIIZ7?PXLOV3OBG^RCI'@>/5_%>I&;X9_&CQ1#[NX/Q2\,?%OP=XX(\6>+X/[7\._'3P=\(_ /Q/L8?L^N1 M?V3)XA\)_ OX7Z7!>Z1]AOM"/AZYO- N=,OO$'B.YU8 H6G[77[/^H>-/B#X M#LO'37>O_#'0?BWXD\3K:Z'J]U8W.G? 2?P]I_QIA\-ZC';)9Z_J?PTUGQ3H M.B^)+&SEP=:OIM+TFXU>71O$+:-EZ%^T-K^C_!;3_CY\:O!&G>!O!'B+P;X/ M\>:/HW@/5_%'Q1\8>&-)\5Z%<>*+C2?B)#!X'\.^']/U30=%DTJ*\U+0=:U7 M2=2\33W_ (7T$:G=+X;NO%GIG@CX%?#+X<>*O%WB_P &:%>:-?>.=0U_5_$> MD+X@\07GA"[UGQ9J5KK7BS6(?!M_J=SX;M=2\3ZY:MKFMW,.G+]KUC4M?U!4 MBF\2>(#J?F5[^Q?\!M2\'>%_A]J&G_$:]\%> KJVF^'7ANZ^-7Q>N--^'-C: M>!?&GPPM_#_@5)?&CR^'O#L'PY^(/BCP3:Z7;2LNG>'9]&L-+EL5\)^$VT0 MQO$_[;GP.TC2O%UUI&O:E?2Z#H>JS:/XFUCP/\3M*^$^L^+4_9EG_:Z\.^$V M^(NG^"=G^#]2TM-_:^\ MS:-\<=:UOPM\2=$T_P#9[\<>#_A_X[UB'P;J>LZ!K&L>+?@5\*/V@8]5\$WM MF(]0O_#%IX+^+.B6Z:AXHTCP?JFH:P=.TW3M$O-1\3>&+35N9T']A3X,V=_\ M1(O$:^(_%/@[Q7JEH?"'P_E\:?$;3?"7@#P[;?L@^"?V,7LX-#7QM=Z5K7C5 MOA7H?C73H?BD+#2O%EOI_C^>U#R:OH.F>++CNO$_['GP#\7S:U-K7ASQ+G7_ M !YX8^)]_'IGQ&^(&BP1_$#PI\ X?V7++Q7ID&D^)+2/1]5U']GZTTWX9:\^ MEK:0ZKINCZ1KTD,?C/3K;Q*@!T/[/GQK@^.VB_$/Q1I8TB?POH'Q9U_P;X'U MO1?[0%MXJ\$6WA+P)XL\-^*KA=28?"7X-_#KX&^%G\%_##0I?#OAJ2_M]3;3IM9UO76^VVGAKPYX0MY%O/$&H MZG?(D?A_PGH5D(5N!"7LWNS&;N[O)[CT^@ HHHH Z2S_ .10\1?]ASPU_P"D M7B2N;KI+/_D4/$7_ &'/#7_I%XDKFZ /A;_@H9XZ\=>!_@/X6M_ 6NP^$[KX MD_M'?LT_!CQ1XMN?B1KGP:M= \!_%3XN^'/#'BI+OXQ>%_#?BWQ3\);3Q=%- M8?#F?XC>%=$?Q7X5;QK#JOA+4]$\56NB:O9?GC\;_B9=>)/V!/BQJWP\F\7> M!/BQ^S?=?MM^$-%U;P=_P5<_:%TK3?#>L_!>_O[37_VG? _Q7^)'CKP9X\_; M'\'_ S\0V^GMX9^$GQZO-.\ Z5XNM-9^!VJ3:!IMO'K(?#OA_Q=H6K M^%O%F@Z)XJ\+^(+"?2O$'AGQ-H^F^(?#FOZ5=(8[K2]. MXL=0L[BVF1V66-QMV\)JWP)^!FOZ+X(\-:]\$/@QKGAOX8SVUS\,?#FL_";X M?:KX?^&MQ9;/L4WP\T2_\.W&E^")+,1QBUD\,6NE2VWEIY,B%0: .S\)>(M/ M\8>$_"OB_2'U&72?%OA?P[XITJ;6-%F\-:O/IGB'1K+5]/GU;PW<1Q3>'=5F ML[R"34] DBB;1;\W.EF&$VGE)T/=?]Y?_0A2LS.S.[,[NQ9G=F9F8DDLS,69 MF.?F=B7D;,DK23/)*Z=U_P!Y?_0A0!TOBC_CXT3_ +%+PQ_Z:XJYJNE\4?\ M'QHG_8I>&/\ TUQ5S5 'DWQXU?X:>'_@W\1_$'QF\>ZC\+_A+H'AB[UWXC>/ MM)\>^+?AAJ7AKP?HTUOJ6M7-GX]\ :IH?C[PY->VMJ^E?:/ FLZ7XUOEOVTG MPG?6^OZAI\@_)3X=6WBBYN/V0/A#\?/B]\=?AO\ L\_M ?&+]NWXF:+X<\5? MM5_%OP5\=/!_@;PWI'A;Q7^RA^S+\8OVH/#_ ,6-.^.4/B;2?AYKGQ/^-7B# MP+K/QHO_ !5I-WX2TOX:^-M>\4:1\);_ $J\_:/Q7X1\(^//#VI^$/'GA/PM MXZ\(ZW'!#K?A/QKX=T?Q9X6UJ&UO+?4+6'5_#OB"RU#1]3BM=0L[/4+5+VSF M%M?VEI?6_E7=K;S1^=6_[.'[.=IX$O?A9:?L\? *U^%VIZY%XHU/X8VWP6^& M=O\ #C4_%$$5K#;^)]1\"0^%X_"E[XCMHK&QCM]=N-)?584LK-$NPMM"$ /S M%^"OQ%^(OB/P+_P1G^+/CS]HCXF7VH_$GX@^*?AYXH\.:GXSTCPWX-^-7PV? M]BS_ (*%>+O!7QD^)N@66CZ)K'C_ ,4_$=/AM\"_&UIJ?B?6;[PCHWB.PT[7 M?!7AC0_%NO:OKNK>\V/PXT+5_P#@HO9V_P ./&'QZT[3/@5\./%'QL_:0M;W M]JC]J+QG\,_%/Q/_ &D)M>\)? OX0?\ "E_&OQHU_P""'AK0M#\.:+\6_C7J MWA/PO\/="B\)3V/P!E\.6VA^'-6CL9_L[QM\ O@+\3-;T?Q+\2O@5\$_B1XC M\.:?9Z1X<\0_$+X2?#WQQKWAW2M/O9=2L-+\/ZSXH\.ZKJ>BZ;8ZA<7%]8V& MFW5M:6%W<7%Q80VLLTCMZ-9Z+H^FWVNZIIND:3IVI>*-1@UCQ/J.GZ9966H> M)=7M=+T[0[75O$-];P1W>N:I:Z)H^DZ+;:CJL]Y>6^CZ9I^E0SII]C:6\ !I M+TZ8]LYP, X&0!@ X&<9QS2T44 =!XAZ>'O^Q7T?\ ]#U"N?KH/$/3P]_V M*^C_ /H>H5S] !1110 5\;?MX>*/&WPH_9V\3_M,_#W5]4@\0?L?S7/[4VK> M#(/$NH^'?#7QG^&'PI\,^(KKXX?!3QQ]C@U"UO=-\??!?4O'<7@B[U/1]4A\ M'_&33/AI\0K6W:^\'VZ/]DUF:WHFB^)=&UCPWXDT;2/$?ASQ%I6HZ%XA\.^( M-+L-;T#7]#U>SFT_5M%UO1=4M[K3=6TC5+"XGLM2TS4+:XL-0M)9+6]MY[=W MB8 _%=/A-\<+#]I_X ?!SXG_ !2U?XJZWH?[*'A[XO\ QVU#Q#^WW^V)^RMH M9^+/Q#_:F\:ZW\2?$/PF\'_ "672/BGIF@2:GJ?P^^$GPD^(TWA#P1X8^%?A M7P!X+@U'2M,DO$M_:OV;/$U]X(_;'\:_#OXB?$+6OC5XM^/6G_M/_%_X0?&3 MP/\ M8^/OBK\*-8^$7A#XV>")G^&?CC]E#5/%=Q\*_V8?'GP%TSXC^"_A+X, M\7_![PO?>%/B?I.B^,Y==\6:9X^U'4O#^(_PK\!>/-<\-Q+=IJ"Q>'M7\6>']8U#0XTU&*+4$32KFS47\ M:7C!KA?,.QX:^&/PS\%:_P"+?%G@OX;?#OP;XK^(%W'?>/\ Q5X1\"^%/#'B MCQY>PSW%U#=>-O$>B:18ZUXMN8KJ[NKF.Y\0WVI7"W%S/-YOF32,P!W%%%% M!1110!:L/^0AI_\ U_6G_H]*O>(O^1B\0_\ 8>UK_P!.=U5&P_Y"&G_]?UI_ MZ/2KWB+_ )&+Q#_V'M:_].=U0!CT444 %%%% !1110 4444 %='IG_(N>+OI MX:_].TM&O_ $[2T <701?:=Y9=N1H4>AZ$$ M$'T(Y!'H5.&4]0P!'2@#^?"]UO0-=_X)T_"/X[^%_P!JKQI\0_VMOCYX&_8V M\8^.K#QW^T_\0_%OA'Q%\6=>_:J_97N/BT6_9M'CV?PI\%=%^#?Q3UN_^%_B M/P=\!?!7PEF\%Z+>:A\+O&?]JZO>1B7Z!^*_[;GQ\^%O@_XS^!=:^(_P4G_: M)^#OQB^./A#2]7\._LO^.];\)_&+P5\)/V?#6A?$OQ-XP_:$\60W%CIMK?>"-#O=;\1MHVA_J3!\'_A#::MXOU^T M^$GPKM-?^(5_I&J_$'7K3X<^#;77/'VK>']5M]=\/ZMXXU>WT6/4?%FJZ#KE MI::SHNI:]+_$$6H?!ZV^%G@3QC^T1\8/\ @GGX+74OB5!\8/BW MX5\":#^T1^P7K/Q]\1WUMX$B^,'@K1[K6? VKZ='9:)IG@-/A)I/CN*U8_$$ MW'B/46\:Z5^R6GI?1Z?81:G=VU_J<5C9QZE?66GR:39WNHI;1+?7EII,VHZQ M-I5K=70FGM]+EUC6)-.BD2R?5]4: W]QSUIX \ V#V$K[3WM]-C:QO?"GA*67PGX8O+0P77A_PO++X?TF: MTTJ62U;K ,?SY_S_ /J'% "T444 %%%% !6_J'_(M^$/]SQ%_P"G2*L"M_4/ M^1;\(?[GB+_TZ14 8%%%% !1110 4UN@_P!Y/_0UIU-;H/\ >3_T-: .D\0_ M<\+_ /8FZ+_Z4:G7.UT7B'[GA?\ [$W1?_2C4ZYV@ HHHH ^?_VL?&WQ$^&? M[+7[2GQ(^$.E2ZW\5_A]\ OC!XV^&FE0:0?$,]YX\\+?#[Q!K?A-8/#P24^( M)H=;L;*YCT$0W#:V\(TD6\_VSRG_ #-^)>C>!_#_ ,/_ -DZX_92_:ZU_P"* M7Q-^*_[0_P"Q7KZ^)OC!^TU\4?VH_"?B33-?U7Q)$OQXO_AAJ7Q=^U>'="\3 MS7VIS7G@/X/:S\%/A%XMNK6S\(_V'X?AT6SU'PW^V:LR,KHS(Z$,C*S*RL#D M,K*596'3(.<$XP3D>#;']G[QM<^$_BWX0_8O_ &HO M%'[.@\>67B#6/VG?"^E_LT^$O'LGA[2H=5LK_P 1?M&_$+2?&GC&&'P7X,\; M:#X2U,ZW[;_PO/X\2?'WQ!\%_@UJOPK\&W'Q"_;]_:1^&>N^,?B=X<^+_P 9 MSI/@[X1_L=?!GXRV>H>'O!-U\>O"5G:>)]7U:\?PP_ASPQXC^'WPNTO3+I_$ MVG>#X/%(\03>-_T2\0_!7X+^+X["'Q?\&_A%XOATK5?$^O:7#XK^&'@;Q)%I MFN^.+RZU'QOKFFQZSH-ZNGZUXUU&]O-1\8ZM9B#4?%6HW,U_KUSJ%W)),W50 M^#_"%MJ:ZU;^$O"L&M+K&I^(EUJ'PWHL6L)XBUO1K7PYK?B%-4CL5OEU[6_# MUC8Z!K.LK.-2U71+&QTB^N9]-L[>UC .C8J68J,*2=HW%\+DX&\I$7XQ\QCC M+=3&A.T)2 8 'IW/4^Y]SWI: "BBB@#H=/\ ^1;\2?\ 7_X6_P#1NM5SJ]!] M!_*NBT__ )%OQ)_U_P#A;_T;K5/B[_ +%9O_4ET"N-O$\L;^7)'XEU21' SL=+^5E?&"3M(!P M 3QP"<5^2'A3]E'XJZ1XX_9\9=+US2OV>/V;?VH?A_\ %+X4_ ?4OCQJ7B#7 M?A5X8D^ _P"T[\)OBAIWPW\:Z#;>$I]5^#6G^*OB[\)==^%_PJ^)WB#Q1XA\ M._#[PG\6/ ^GS>$? WBKPG\%=-_=CQ!\/O"][KFKWMR^OK<7FI7ES.+?4M/C M@\V:9I'$4OB7_P:Z5_\HZ /PUMOV>? MVS/#WPX_9$\*>'?'-[>^,_ NF?!GQ'\?OB/XE_:7_:'\5>)]8^)/A_XH?"#Q M)\:-/GN];^)MOX;\4_#GQ?\ #OPMX\T#PWX?U?X?_$/2;_6M:;P_)X:^%_A7 M6=4\3:GCZ!^R#^TGX0TSX<^!?!'C[Q3X%\$:!\0OVJ[_ ,0-X8^-_P 17U$: M[\7_ -IRP^+WPF^-=I>:C\2M'MM8T7P]\-)M:\*>+_ 7C[2OB#I5GXMO-:U" M3X,?$:U\:^(_$B_O%_PK7PA_SU\2_P#@UTK_ .4='_"M?"/_ #U\3?AJVE@C MW!&A@@CL000>00: /YR?@#H/[87Q)\:>+KRT^+'Q'\*^*;SQ*WB_5]4U#QI^ MT=#\-_ 'AK5=-_X*"^'=&\"^-?A5\7Y8?#,GQL\.?$'XH_L^>)/B%\(OA]X< ML?A(OP[^$7PAOH_#WA>XT+P=8^*?;O!?[/O[8/AW1?A#>W'Q"\=7WBCPY\4O M!&L>,/#'B_\ :$^*'B+X8MX7M-&^$OAGXG7VO7"?$W7_ (Q>-K._T_PUX^\; M_#:VE^)6L:+%\2+Q'\;_ +.;^'?B!KNC>&?W*;X<>$GP&F\3$*H5 =6TO;&B MGY4C7^P\1QC_ )YH G .W(!"#X:^$00?-\2Y!R/^)KI74<@_\@/L>: /S#5/ MBIXP^*G[*'[1L?P9U?2+/2/@S^T'X3\>?"[6?%WAK2O'W@.Y^./BW]F/Q+X2 M&LQ:Z=$TF\ETG1?@]XB;QIHB2IK?AS7]3M-*MK+67_M*_L?%?@/\&?C[\(=( M_8\UW4/AE8ZQXF_9H_9(\0?LD>*_#-M\4/"D!UFY\2:?^SQJ-Q\6OAGK_P#A6OA#_GKXE_\ M!KI7_P HZ/\ A6OA#_GKXE_\&NE?_*.@#P2BO>_^%:^$/^>OB7_P:Z5_\HZ/ M^%:^$/\ GKXE_P#!KI7_ ,HZ /!**][_ .%:^$/^>OB7_P &NE?_ "CH_P"% M:^$/^>OB7_P:Z5_\HZ /*+/_ )%#Q%_V'/#7_I%XDKFZ^CX?A_X931=1LHVU M]K>YU'29YRVI::9O,MX=4CA"2#2%1(RMS-YH:&1F/E[&CVMNR_\ A6OA#_GK MXE_\&NE?_*.@#P2BO>_^%:^$/^>OB7_P:Z5_\HZ/^%:^$/\ GKXE_P#!KI7_ M ,HZ /!*.Z_[R_\ H0KWO_A6OA#_ )Z^)?\ P:Z5_P#*.@?#7PCVD\2D]L:K MI).>V =#QG.,9XSUR.* /*?%'_'QHG_8I>&/_37%7-5]'ZK\/_#%V^G/_[%?1 M_P#T/4*Y^OH[4OA]X7N1IHF?Q OV;2+&TA,>I::A,,)N"ADWZ/('ES*P>1/+ M1AM"Q(0Q?,_X5KX0_P">OB7_ ,&NE?\ RCH \$HKWO\ X5KX0_YZ^)?_ :Z M5_\ *.C_ (5KX0_YZ^)?_!KI7_RCH \$HKWO_A6OA#_GKXE_\&NE?_*.C_A6 MOA#_ )Z^)?\ P:Z5_P#*.@#P2BO>_P#A6OA#_GKXE_\ !KI7_P HZ/\ A6OA M#_GKXE_\&NE?_*.@#P2BO>_^%:^$/^>OB7_P:Z5_\HZ/^%:^$/\ GKXE_P#! MKI7_ ,HZ /!**][_ .%:^$/^>OB7_P &NE?_ "CH_P"%:^$/^>OB7_P:Z5_\ MHZ /#K#_ )"&G_\ 7]:?^CTJ]XB_Y&+Q#_V'M:_].=U7M-O\./"45Q;R))XD M+QSQ.F[5-*90ZR*5+ :*A*@@;L,#C.,GBI]2^'GA6YU+4;F:3Q")KG4+ZXF$ M6IZ:D0FGNI991$CZ+(ZQB1F"*TCLJ@ NQ!8@'SO17O?_ K7PA_SU\2_^#72 MO_E'1_PK7PA_SU\2_P#@UTK_ .4= '@E%>]_\*U\(?\ /7Q+_P"#72O_ )1T M?\*U\(?\]?$O_@UTK_Y1T >"45[W_P *U\(?\]?$O_@UTK_Y1T?\*U\(?\]? M$O\ X-=*_P#E'0!X)17O?_"M?"'_ #U\2_\ @UTK_P"4='_"M?"'_/7Q+_X- M=*_^4= '@E='IG_(N>+OIX:_].TM>L?\*U\(?\]?$O\ X-=*_P#E'6G:^ /" M\&EZU;(_B P7JZ:;AGU+3FE'V2ZDF@$#KHZHA,C9E\R.3<@ 1HCDN ?.-%>] M_P#"M?"/_/7Q+_X-=*_^4='_ K7PA_SU\2_^#72O_E'0!X)17O?_"M?"'_/ M7Q+_ .#72O\ Y1T?\*U\(?\ /7Q+_P"#72O_ )1T >"45[W_ ,*U\(?\]?$O M_@UTK_Y1T?\ "M?"'_/7Q+_X-=*_^4= '@E%>]_\*U\(?\]?$O\ X-=*_P#E M'1_PK7PA_P ]?$O_ (-=*_\ E'0!X)17O?\ PK7PA_SU\2_^#72O_E'1_P * MU\(?\]?$O_@UTK_Y1T >"45[W_PK7PA_SU\2_P#@UTK_ .4='_"M?"'_ #U\ M2_\ @UTK_P"4= '@E%>]_P#"M?"'_/7Q+_X-=*_^4='_ K7PA_SU\2_^#72 MO_E'0!X)6_J'_(M^$/\ <\1?^G2*O7/^%:^$?^>OB7_P:Z5_\HZTKKX?>%Y= M,T:V=O$"V]FFH_9F34M-61AR.+$17<&]_\ M*U\(?\]?$O\ X-=*_P#E'1_PK7PA_P ]?$O_ (-=*_\ E'0!X)17O?\ PK7P MA_SU\2_^#72O_E'1_P *U\(?\]?$O_@UTK_Y1T >"4UN@_WD_P#0UKWW_A6O MA#_GKXE_\&NE?_*.C_A6GA _\M?$O4'_ )"NE'H<\_\ $CSCCDC) R0"< @' MDWB'[GA?_L3=%_\ 2C4ZYVOH[4_A[X9N!I(G?Q$!;:)864'EZGI:8MH'NS'Y MV[16WS%Y'8R1[596 \N/;MK,_P"%:^$/^>OB7_P:Z5_\HZ /!**][_X5KX0_ MYZ^)?_!KI7_RCH_X5KX0_P">OB7_ ,&NE?\ RCH \$HKWO\ X5KX0_YZ^)?_ M :Z5_\ *.C_ (5KX0_YZ^)?_!KI7_RCH \$HKWO_A6OA#_GKXE_\&NE?_*. MC_A6OA#_ )Z^)?\ P:Z5_P#*.@#P2BO>_P#A6OA#_GKXE_\ !KI7_P HZ/\ MA6OA#_GKXE_\&NE?_*.@#P2BO>_^%:^$/^>OB7_P:Z5_\HZ/^%:^$/\ GKXE M_P#!KI7_ ,HZ /)=/_Y%OQ)_U_\ A;_T;K5_\ A6OA#_GKXE_\&NE?_*.C_A6OA#_GKXE_\&NE?_*. M@#P2BO>_^%:^$/\ GKXE_P#!KI7_ ,HZ/^%:^$/^>OB7_P &NE?_ "CH \$H MKWO_ (5KX0_YZ^)?_!KI7_RCH_X5KX0_YZ^)?_!KI7_RCH \$HKWO_A6OA#_ M )Z^)?\ P:Z5_P#*.C_A6OA#_GKXE_\ !KI7_P HZ /)] _X\?%W_8K-_P"I M+H%WF MJ(O-7RF9E(R_^%:^$>?WOB4(S+#>VDL7F:GICQ^;'MW6K?&)?'GPWL/'/BZWU MKP5K7PAO?#T]W\//^%5V&I3+XVL?Z)-59EU2]9"0RWLY4CJ&#QE<.M_P#!+_\ 9&U)/C'I3^%_C#X?\"_M!V'Q='Q-^#7AC]I;]HGPI\ - MN75UJNC^$+:.V\3ZC)XNT6 MRTWQ@MIJMH ?&&O?\%M/ GP@\(^-]%_:!^"OB+X6_'3P!\4/V2/@U;^%/B!\ M7O@SX:^'WB?4OVPO@OXF^-'PL^(?CSXZ6^I+\,_@_P"'K'PA\+_BSJ/Q?M3; M^*+/P-JOA7^S/ U[\2DU_P ,6]WTWPN_X+4_"KXO>,/V._"7A7X-:YID7[6D MGCG3+#QG\0OC)\)O 7PPL_&/PY^/E[^SQXF^&?P<^*=U>:KX"_:7^),_B?3Y M/B#X5\)^!-.O"WQ@^+?@GQSX2\7?LG>$?$_@/X$>-/A;XO\'^ M,M%\0_"[Q;X1\(>,_%?AZYUWP/J.CW_BS1?$&K:;XREUJ#5+TMNZ[^P#\ ?% M][\&G\9WO[1'C^W^"VN>#?%'A/0/'W[6W[47C;PIXM\7> _B-+?BY MX3\4_%W5= ^-/BCP=\1;A?$'AC5OB-;Z^^GPZ?H7AH!O"GACPSX?T, _,GP% M_P %I?&GA#]F;PA\7OVM/@C\(/AQ\0OB]^V7^T'^RO\ !/2=-_:/\&?#3X/: MK;_ SQ_\:=)\7^*OBY\6?BT3HWPDT#X;Z!\*HO#&J^)5E\7ZK\6O'VK>'9_ M7P[\/Z=XQ32_"_T-^SK_ ,%<- _:Q^+W[-/PQ^ O[+?Q@\6:)\>OV<-)_:B\ M8_$;5O''PJ\):)\ OALOQH^+'[/?C'_A,=,UG71>>/-0\.?%;X90:5X?;X4S M^*X_B+X>\2'QCX:BAT#1BVI_0\__ 35_9/?1M;T33M%^,?A2*__ &@O%_[4 M/AF_\%?M+?M#^"_$7P:^-GQ$;QL?B5XA^ /B+P[\1]-UOX):)\1?^%D_$&#Q MYX&^'MUH'@CQ9;^+M7CU;PS=12V?V/VOP#^RO\'?AK\5=/\ C?X=LO'.J?%B MP^ >C_LS-X[\?_%CXI_$WQ!JOPBT/X@ZW\5+#3/$NI_$/QAXHU'Q-XB_X3OQ M%K&KWOC?7;S5/%UU;7@T7^UFT6VL]/LP#\FOBQ_P55\1_#__ (*W^"?V9V^) M?P1T_P#9;LOC#\$OV&_'/PZO+WPU=_M ^)OVKOVC/@M\2/C3X6^*?ANUAU1O M%EC\)?A]KK?L]_ ;7U_LF+P_+XW^)GB-[G4[C5?#-SI5I^M7[7WQ[3]D[]E; M]H[]IF]\)WGC(? 'X)?$;XN1>#8+F73)?%-UX*\*ZGKVF:'-J0M+Q])T[5KV MS@MM2UN.QO\ ^R-*:_U6.TO&L?L\GE6O?\$YOV1/&'PU^*?PDU+X437&D?&; MXY7O[3'C[7['Q5XOL_BEJ7QNO/BOX=^,H\>Z1\5=/U:+XA>';_2O''A;P[B1^$M.TY?#,EQ:)[9\/_V,?C%X_^(7A+QKJ6N?$/1O%&J_M ^(]:\0?%BUU"V\;7VM+<^$O%>J>(M9MI M/":B+PTUC?7&F66FP0W4\- 'YD_##]L/XL_"KQWJ'A[]JC]J/1/B%\6H_P!D M7QE^T_K_ .SWI/[&NJ?LO? "ZL?#OA+X;^.M7O?V;_VYOC3XT\/?!O7OA[\+ M8/B%I'@_X@^(?B9\6?'L3WFHKJ/B'5?A?JVC:IH*?/FH?\%=_%_[0A_9_P!4 M_9YU30/AI;VW[4'[:7[.GQR@\$^-?@Y^TU\-?']U\'O^":_Q._:N^&7B7X8? M&>P\+7^E:_X3A\32?#S7WO=%TOP;K:^(?#WB+P+XOTB]T".ZM];^];#_ ((\ M_L(1:#XC\*ZM\,/BGXZ\':U\!/%/[,FE>"_B=^TU^TQ\3/"/PS^ OC:^\+ZE MKGPU^#6B^.?BMX@L?A-H;W_@[P3+I$WA)+'4_#:^%_#$6A:C9VUC':5W'AO_ M ()D?LC>%KJ.[C\*_$_Q+X@A^*GQ!^,UYXK^(WQ\^-OQ)\;:S\3_ (F?LXO^ MR7X[\4>(_%WCSQOXB\4:U>ZS\#C+X66QU34;S3/#T_EZKH5AIE[I]K* #\LO MV:_^"M_Q-T7P5\,]3^+6F_%S]ISXF_%'X0?\$1?"]OX&T:#]G3X8>%U^.7_! M1GX"?$/Q%JOC#P7J&C> O!>HVMMXG\>>"AJOQ#TGQ]XGO?"7A(OCO^RQ\8O@9X)?P#^WGKTOB9O''PO\ B;+= M?$#_ ()LS3Q_M1?#_1M$\*ZU9W-[H%N]IJ>E_"GX@ZM>>';KQ_XET;4=.U'P M/X4T.72/%&M?7N@_\$MOV,/!]SX*O-'^%/B.SN/AIJ'[$.L^%C-\2OB6?[+N M?^"=V@:[X:_9)>Y@G\2/;W=MX"T?Q9K5GK$-]%<0>/[B=)/'*ZW?6MGF?$2ZU34;*#3M1>ZA\%17$Z>$DTJ2WWQ@'QKXI_X+#ZO\/-*U[0 M_B'^PW\8M%^/UKXK_8GT?P=\ M"^+_P7\5WOQ'T#]OK7?%W@_P"!&L>'?B1; MZKI7@O3?$=GX\\#ZYX$^(WA#Q2V@Z7X?UK[+J7A_Q[XG\*3Q>(3-;?\ !:WX M.VO[6'@S]D?Q?\+KSP=X^U/XR_ []F#XAZ9-\&=%\4^! M] U[Q/IGU'X-_P""7_[&W@>PLK6P\#_$3Q'J&F?%?]G3XT6GC#XC?'KXW_%3 MXA#Q9^R+JTFM_LW:/+XW^(/CSQ+XG?X=?"&]GU&X\,?#--3_ .$+W:MK$E[H M]UM7L2_L/_#W@O]H3X^>!/@U\ M1?'GA[PGH7@_1?&WQ(^ ?A;XB:1\(?'/B:/PEX=\):)J6H:YX.NE\0V'A?PX M/%<>NW&FP. #ZB7.!G@]P>H]CD*>.G*J?50> M(.!S]3TX[]@!Q_LJ!Z*!@! MVU_+>4(QBC=4>3!V(S?=W/C:!P03N(#J\/\ Q\1311@"44?IZ@]0>X/H1T/O M10!=A_Y!]Y_U^Z=_Z!>517H/H/Y5>A_Y!]Y_U^Z=_P"@7E45Z#Z#^5 #D5Y) M%BC1Y)&^ZB*S,>"< *"+8KVP;PW^REXLL/#5_X+^++^>Y\3-XD\/^"( M[349O$D>EWWXJ_%OQG\"[[_@D>VFZ_XV_8_T/XJ:-XA_X* V/[/_ (F^)O[4 M7B;PA\.+#5+3XE^)=:_X3W_@D)=:5HVJP?&FU^'%SJOA+PW^Q186T.D^)_!D M6G:%\/M/\2::C^+;&^ /ZW <@>X!_!@&'IU!!P0".XI>Z_[R_P#H0KG?"&NO MXH\)>%/$\FD^*?#\OB7PMX:\03>'_'5A;Z5XYT&;6=#L-1FT3QMIEH3;:;XQ MTF6X?3_%.GVY:&PUVWO[.-V6 &NB[K_O+_Z$* +EYTL?^P7I_P#Z)JG5R\Z6 M/_8+T_\ ]$U3H 54D=9&2-W6)&ED**S;(USND8*&*QJ1@N0%#$#.2*=Y4_E" MX^SS>06V";RW\HMN"X$F-AP3R=VWAB&*J[+^07_!3_XH?LW?"3XE?\$^O&OQ ML_:,\$?!SQ-X9_;*^%>O:#X;^(G[1EC\)_"5W\-XAXDLOB;\1]7^'.L^-_#7 MACQG;^$TFTC1)/'OBO1=?@^'5OXCNK'P_?>&KKQEK,NL_*VHZ?J=G_P5'\+^ M&_"?C;]G'XQ?&S7OVY-?\=^/_&'PX_:2UOQ?^U5\.?V'/$?[,'BRTUW]G+]H MW]FW3?A[>:%\+_V=O!-U'X7A\(3^)/BEIG@7Q3\1M7^#WQ!\.>$KWXT^/;ZZ ME /Z*WL[V(H)+.ZC\UQ''YD$D8>1AN6-=ZKND89*HFYCM8 $HX6O.&M"XNU- MKY;(KFY'V=4:65((E9YMB RS21QPG=MF9U\IGW+G^9WXG_!/X!>$_A9_P5*_ M:>^ 'P[\-_L\?"W0M!\$?\$]/@QK'P;BTOX7^!];U7PC\>/!VF?M-_'CXR>( MM&O?#L5A^SD/VD/%VG_ W]I/QS=ZNFI_#_\ 9J_91^-_B_P;T>RTA=8UB?GS]5U,6?V[49\DS7D\TI.7-=/0!:NO^77_KQMO_ M &I56K5U_P NO_7C;?\ M2JM !1110 4H#$.RHS+&JO(P4E8T9M@=VQA8PQ M>1B(XMRF5T#IN2OS^_X*9IK7@_\ 9,\=?M1>"-331_BK^P8FJ_MO?#2XN)[V M/2O$-Q\"O WC.^^*/PH\2P6+A[KPO\>?@%JOQ;^">J/+%9B ZJZ-@1YV2(P9'. PR1P#B-H;A(A.]O M.D+,$69XI$B=B< 1NRA7Y!.5., D$A21_,M\1?@;\"?@-^V9^RE\(_VG/C[^ MPO>7VB_LC>'?'WC?QE^WQI]AJ%]\=?CW\3?VO_'?C_X[>+OV>$\5?';X46G@ M7XF>/O'6L>)=4TM6T_XE0>#M%N_!'A.W\,_V'X>M]+U/Z<_8L\4?!WP=_P % M#OC?\,? ?C;X"_M6>,_BU;?M7?%WQ3^TM\(OB9KNN?M$_!"QL_C_ /#_ %K_ M (9;_;U^' \2>+/#VC77A.]\>6?PY_99\:7U]X'UC3/ _P (/%/PLTCX,>"X M].\7:QXG /W)HHHH **** 'Q_P"MB_ZZQ?\ HQ:?<_\ 'U>?]?EW_P"E,M,C M_P!;%_UUB_\ 1BT^Y_X^KS_K\N__ $IEH AHHHH ***Y;QN/&[>#?%J?#,^$ MQ\2&\+^(A\/AX^&KGP(WC@:/>-X23QH?#\]IKR^%)-?6PC\0OHMW;:HFDO=M M831W?DL #=O=0LM-ACN-2O+/3[>6\TS3HKB^NH+.";4M:O;;3-%TR*:Y>*.7 M4M9U.\L],TC3T9KO4]3NK;3K&&>^N(+>2Y_G\NM?FM^QCIO[1?[2(/CQ\7_ !2_ MC+2O GB.]@-[\*_V91X8\(^&8?#?BCXI?M 2>,OTH P .G'3T_S[<>E "T44 M4 %6$_X\M0_W;7_T:]5ZL)_QY:A_NVO_ *->@"O1110 4444 %%%% !1110 M4444 %%%% !1110 5:D_X\=,_P"N=U_Z455JU)_QXZ9_USNO_2B@"K1110 4 M444 %%%% %Z^Z6'_ &#;;_T.:J-7K[I8?]@VV_\ 0YJHT %%%% !1110 444 M4 %%%% !1110!;B_X\KW_KK8_P#H5S52K<7_ !Y7O_76Q_\ 0KFJE !1110 M4444 %%%% !1110!9M?NZE_V#'_]*8*K59M?NZE_V#'_ /2F"JU !1110 5+ M;_\ 'S:_]?=I_P"E$515+;_\?-K_ -?=I_Z414 >QT444 >6W91==E:0H$74 MRSF0A8P@GB+;V;Y53 .YFX5!7X>_LX_!O]KKX:Z)\+/$NCW6M?">X^//Q MET7X8?%OP_HW@;7O'7B7PMX T#Q1^V3\0_$W[3GQ$T/XA^'K+PKX(^,?CF#6 MOA!\+M/\4ZYX)\5Z5X?\.Z!\/X?&?B?XPZ+J/@+P1X*_8_7?'/A*SUO5K6ZU M#4$N;74;JWN$32)9HXIX)#%*B3+&OA1\,?%-IHP^(L'@KPKXZ MT7Q5\743QGX7\0Z1HFL^.?"FE)X7^*:6/A+6O"GQ-_;#_A8?@K)/]HZB">3C M0YAD[M^2!(OB7\:OV@A/\ M3_&K6O"_C2? MPO^!&F_#[XK^!=!]$^#6N?M0WW[3'PRMOB]XB^.5I\,+'PI^VM\.]2A M_P"%4>'M/^'7C[6_A=^U+I/ASX ?$[XH:GH/PG1/!'B_X@_LZ^=XMT+Q'HOB M7X=_"WXBZOIL]Y\,_#-EI>NZEX%U'[I_X6%X*QC^T-0(!!P="E;D,&#'-RA&!_I7 . !@ !1T5< 'XP?$"']L M7]J+X6^$_AK\4O#OQ>M-,\3>-OV!?%W[0GA(?LZ:+X5T3X9?$NW_ &[O@ROQ MN^!7P[O?B%\,_$NB?M%?LT^"/A=IGB[Q]XM^)"Q?%/P]'I7PLTWQ3XE^,7BK MX3?&:^\$6^U^U-H?[4O@G]I'Q_XC^&'@S]H'Q;\+/@]XN^&__!3K2;7X;6OC M#6]-^)FN^%?"WP__ &8_BW^PSX-L[:*\L_$GB7QC\)/"OQ<^,?ACX/:>+UM7 M^(OCKPCXAMM+-_)%>3?L+_PL+P5S_P 3#4>65R#HD'1/!?Q%^)/P^T>'3[*WM&\)Q?$?P5X"M,@ZG]EK4OVH_ M#_P1'[/_ (U\!_$^V\/^&/\ @F9\+;'X=Q6/PI\;^#$^''Q+\'_LJ_ WPKJ_ MPH\4^(O%GPN\*7WB7X^>(/B7XJ\=WOAR7X4?%#XO:%%HWA&_\%>,/ _P2^)' MPT>[^-GZNGXA^"R&4ZEJ1#;MP.B3'=N&&W9NOF#8&X'(8\G)H/Q#\%L23J.H MDEBQ)T2;)8ER6)^T\L3(YW=>-?VO\ MPG8_!W]H[3-1^)EMI^H>-->\+^-=1M?!7C/XWZ7KS\UX[^/'[1/P-\1_M':E MX#\1?'6QM?BUXU\3_%*R_:!^*?[)\_@7QK:?#GX"?L4_LSZ+/\7?B/\ !WQ= M\(;/61\!?AO\3O%]QX9^+OBGP+^SMIGBY-"T+0_ _A^*W^( M=;^+'[U_P#" MPO!7/_$PU#DY/_$CEZ\\_P#'S][D_-URS'.6;/#>.+']GOXGIHL?Q.\">"_B M7'X:U5]=\-Q_$3X5>&_',?AW6Y(A ^L:#'XILM631M5>!5A?4--6VNVA58C, M8U"@ ^+/A[XK_:L^,MM^UKX0^-M[XV^$?PVU7X>_M'^$O"?BCX/^%/BU9_&[ MX=6]SXR\6>"?@=\3?V:O&NE_LU^'_ WCGQ/K'P(FL?BC=7G@KXN_M%>*/^%U M_P#".:CX#T#X<^&;R_\ AIH7A^C_ !F_;%^$'PMU;PKX(_9VO],LM-^&_P"T M1HOP]&\$^/_BWX5^(/P,F^'?Q F^ ?C2V\5?$G]E7PSXZTCQW\ M8K>;X8?%+6)_#'B/Q'\/?&'Q)\,^/O%^C>(?#FI:G^OQ^(G@PL6.IZF69@[, M=%GW%P4?.Y#RA4\TT_$+P41M.H:CMQMQ_8 M$R0FT<4 ?C]XV_;$_:RT?2OC5XT\)7NNZIX9\&?$/]JOP#?:KJ_[*?B*7X OV=/V>K;X=^(+;_A'V_:.\;?$#X9:A\5(O'OA?PO\ $+7[C5-< M\+^'!I.G_!;Q#I5\WQ!H_$#XI?M0?#WQ)/\ M::WX5\?:WX(_9B^!G[;>M7' MQ"^(/PH>*'\<7_ (BO-',?]FW6OWWC:23QG>ZW/:R:I=>+7;Q+ M<74FM'[;5S7O$OPM\5:-JOAOQ3:6_B?PYKUA@0_\@^\_Z_=._P#0+RJ*]!]!_*L" M'QUX2;1]0NX[_4/L\&H:3!,_]D2*ZR7$6IR0;8C<@RJ5MIM[ _NR%!!WG&9_ MPL+P5_T$=1_\$*G^UW M8;=]IGSE#GS7ZQC$;8SC>F3LDQO4DLK!B37"?\+"\%?]!'4?_!'-_P#)-'_" MPO!7_01U'_P1S?\ R30!V?\ ];/3G "@G'4X RQ^9CEF)8DD[K_O+_Z$*XS_ M (6%X*_Z".H_^".;_P"2:4?$/P4"I&H:E]Y>FAS$]1T'VH4 =]>=+'_L%Z?_ M .B:IUS^I^.O"5JVGI<7]^IDT;2KB+;I,DVZWN+59869ENB%/=L=TW JVUB-RDJ2A]8V*JSQG]V[*K.K M,JD*9961HVED9& #*S$AL&1AG/7#2RLO]UI96&&ED+<3_P +"\%?]!'4?_!' M-_\ )-'_ L+P5_T$=1_\$W7_ "Z_]>-M_P"U*JUSVH^.O"-N M-.^T7^H(9]*LKB!1I$DFZWD,WERMB=2CN58%"6P%4$D@XS?^%A>"O^@CJ/\ MX(YO_DF@#LZ*XS_A87@K_H(ZC_X(YO\ Y)H_X6%X*_Z".H_^".;_ .2: .SH M]>G*E"" RLC%&965@5*L8TW @A@NULJ2#QG_ L+P5_T$=1_\$1DMDDC^\26(^4DK\M.>> M>1!')-*\:LK"-Y&9 RHT:L$)V@A'9> ,ACG)YKA_^%A>"O\ H(ZC_P"".;_Y M)H_X6%X*_P"@CJ/_ ((YO_DF@#LZ*XS_ (6%X*_Z".H_^".;_P"2:/\ A87@ MK_H(ZC_X(YO_ ))H [.BN,_X6%X*_P"@CJ/_ ((YO_DFC_A87@K_ *".H_\ M@CF_^2: .VC_ -;%_P!=8O\ T8M/N?\ CZO/^OR[_P#2F6N,M_B!X,>X@1+_ M %!G>>%54Z+*H9C(H"EFN"JAC\I9AA02QQC(GU+QYX/MM1U"VFU&_P#.M[^] M@F":+*Z"6&YECE"O]H7>HD5@'VKO'SX&: .FHKC/^%A>"O\ H(ZC_P"".;_Y M)H_X6%X*_P"@CJ/_ ((YO_DF@#LZ0C/!Z'@C@@CT.<]\'U! (P0#7&_\+"\% M?]!'4?\ P1S?_)-'_"PO!7_01U'_ ,$"O^@CJ/\ X(YO_DFC_A87@K_H(ZC_ .".;_Y)H [.K"?\>6H?[MK_ .C7 MKA/^%A>"O^@CJ/\ X(YO_DFM&V\=>$9--U>>._OS#;#3S<,VD.C1_:+IH;"O\ H(ZC_P"".;_Y)H [.BN,_P"%A>"O^@CJ/_@CF_\ DFC_ M (6%X*_Z".H_^".;_P"2: .SHKC/^%A>"O\ H(ZC_P"".;_Y)H/Q"\%?]!'4 MAZD:)-D#N>+GL,D^U 'H-]TL/^P;;?\ H!F?\ "PO!7_01U'_P1S?_ "30!V=% M<9_PL+P5_P!!'4?_ 1S?_)-'_"PO!7_ $$=1_\ !'-_\DT =G17&?\ "PO! M7_01U'_P1S?_ "31_P +"\%?]!'4?_!'-_\ )- '9T5QG_"PO!7_ $$=1_\ M!'-_\DT?\+"\%?\ 01U'_P $5[_UUL?\ T*YJI7/6_CKPC)I>J7*7]_\ 9[>?2DGD M.D2JR/,;\P*D1G;S/-:-D<@K@* ,DXK-_P"%A>"O^@CJ/_@CF_\ DF@#LZ*X MS_A87@K_ *".H_\ @CF_^2:/^%A>"O\ H(ZC_P"".;_Y)H [.BN,_P"%A>"O M^@CJ/_@CF_\ DFC_ (6%X*_Z".H_^".;_P"2: .SHKC/^%A>"O\ H(ZC_P"" M.;_Y)H_X6%X*_P"@CJ/_ ((YO_DF@#LZ*XS_ (6%X*_Z".H_^".;_P"2:/\ MA87@K_H(ZC_X(YO_ ))H [RU^[J7_8,?_P!*8*K5S^G^./"5Q!K#PZA?;+72 M'N;EWTB6/R[8ZCI]J70-<$2LL]Q$#$""RLS DJ5.:?B%X*R"O^@CJ/\ X(YO_DFK-EX]\'S7ME'#J.H& M22\M8XD.B3*)9Y)T2%"XN#M!D(SQVSVP0#Z2HHHH ^"/&,#7'CCQ-%&H::;Q M+J<48)QN=[^5$4G(&-S 9/ SZ5^-^I?\%'/B9XG_ &5_VE?VT/@U^SCX'UC] MF;X->$?VI=7^&_Q+\=?'[4[#X@_%6\_9ITCQQ;#Q@?@'H'P8NM'T_P"#WCGX MG>!-2\$Z)JS?M&V?Q';1Y+?Q1>?#RPT^Y$47[(^,97@\;>)IXCMDA\2ZG+&W M!P\=_*ZG!X." <'KZCK7X]1?\$T_&/A[]G_X^_L=_#S]K"Z\*_LB_&7PQ^TU MH/ACX5ZQ^S]X5\7>.OA.?VF=.\=3:MH&D_&!/B)X;E\3?"[P)XX^(&L^.?"7 MA"[\":+\0))(++PSJOQDNO#AN[*Y /HCX>_M\?LW?$CP;KWB3PMK/Q/\4:UX M&U/X;^&?B!\._!7[,G[4_C#XM:'XD^*/P\7XF>";O3O@OX?^#.J_&'Q+X \; M>";?4?&/@CXJ>'?!.K_#/Q7X4T^]UW1/%EY8VT]P?-O&G_!4?]CVP\.Z3%\. M?BO:?$'XE?$O]ESQ'^U1\!O!VF_#KXS7VG_$/X>V?AWXE7WA_P 1:SKVE^ ) MM)\">''\2_##7_"_C.;QOJ?A;4? 6JK9Z5XNMM!U;6] MM2\X^,W_!+:/XK^ M,/C#XRL/VB];\+3?&+Q/^Q9KWB'P?J7PTD\6?#?7M*_8W^#_ ,4/A#9>"/B? MX4T[XK^!;WXK>"?B#'\3?^%@/X$-,^.FO^)+&X_X)Q:A_P3J6>X^'NF:-,GA^^^*GQA^*"?%: M6&S\875O/JUO-\6YM'/@U4M[&5?#]OJ \0Q?;VL;$ ];^#O_ 42^ ?C7P;^ MSJGQ!\3'PE\7?C+\&/V3/B-XT\+>&? /Q@\9_#CX0>+?VO\ POHNH?"'P/\ M$OXRZ)X&UCX8_"*_^(_BC4KKPU\+=-^,WC?P5KWC66WL6TVTN_[6TN;4/HWX M!_M)_!;]IP:Y>?!3Q'XC\7>'?#^N7F@R^-KOX4_%SP;\/?$UQIGBSQ+X&UF^ M^&'Q"^(/@?PCX&^,VA:+XM\'^)?#^K>(_A-XD\8>'M.U;3$L[W6+234]):\_ M-'PE_P $7_A3X/\ BC\.?B-#XX\%>-8=#^&G[&7@+XF:3\5_V=]!^(>L^+-5 M_8I^%W@KX1^"/&_PD\3W7Q*TRQ^!]_XY\*?#WPDGC71_$'@_XYVMCJ.BV>K^ M"[_PWJB/=R?7G[)'[%*?LL_%[X_?&!/B1I'B2]^/6I^&-3U7P+\.OA'IOP"^ M%UIK/AS5O$^J7GQ*USX>>'/''C#PKKOQW\=KXDBT_P"(WQ.\+:9\.-$\266A MZ4;7X+<74X!S?[#'[+="\1P?&#Q=J% MMI^H^"M.?0=0BUS4-8\/^K_M-_M9^$/V7/%O[+VA^.K3PY9>%OVD/C=JOP:U M+XB>+_B+HOPX\+?"9=.^$WQ ^)\/B_6KS7]*N=*U^UO+CP)!X972;SQ'X*2. MZUN"Z76K@QMIE]\P? W_ ()[?'3]G7X._$WX,?"3]L;P-X&L_%)^)VI_#GXJ M^&/V*/!\7QY^'/BGXG?M!2?'2\U3Q/X[\5?'7QEX4^,.@Z19:UXS^'=IX3UK MX:^%TETO7="U^SUO1[_P=#8ZY];?M"_LP^'?VB?'7[+/C#Q+JUG:Z9^S+\<- M9^-'_"':KX1T[QEH_P 1CJGPD^(GPMB\*:LVJZG8VNAV]G)X]7Q(-7_L?Q!Y MD^CK8+I$1NH=0T\ ^:OAA_P5#^!OC+X>_M%?%KQCHOBSP[\,_@-^U/\ M)?L M]6_C;X/^$/C!^USX?\8> _V;-+\,ZYX@_:-U:^_9U^"_B@?#;X;:IH'B6WUN MZU'7(M0\$:!I\"7$7Q*\2C4D&G<#KG_!2W5XOVGF^"OA+P/X!\6_#N^_;#_8 M._9T\+_$C3_$>LS2^)?A]^V9^R?\1/VEKCXDV4=NK:;<7>BOX+TC2O"D4$JZ M;JFA:S-?WRQ7BJ9?-/BQ_P $5O#GQ'\)?$CP-HW[2>N^#O!?Q/\ VH?VSOVC MM?\ A]-\(--\0_"R.']L;P=X2\&MX?A^&^G?$WP7H5]X^_9Z@\*R:Q^SY\6/ M$#ZYH_@O6O$GB>]N_A%JSZJ/LOJ?@[_@E+H/A'QW\/?'*?'?7-0E^'WQC_8 M^+UOIA^&^GV:ZK/^P5^R%XD_9)T?P_/?_P#"F.IS@#+8 Z#+,2 "S%B32T -V+Z?J?\:-B^GZG_&G44 -V+Z?J?\ M&C8OI^I_QIU% #=B^GZG_&C8OI^I_P :=10!T=D /"/B+ '_ "'/#7U_X\O$ MO?KW->+/BM\.KKX=V6O>&?"'@K3 M=0\0^)[F[NOBE\._BAX2@\.PZ/8W=[X@GF\*2WL-C:@VVH6 >1I/Q-\;_&?] MN'0/V=_V<9-$^)'[4GC_ .*?Q?\ @A^V%^TW=> /A9X+_9\U']JCP/X*N)O! MOB+]DC6_BY9Z[\ -2^'-_P#"#X*>$/%>E>"?VA_#/@/X>V?QX^(/QD\9:!:_ M"'P7\5H-%UCP9IH!_0-M7T_4_P"- 505X_B7U_O"N%^%GBBV\<_"[X9>.+/Q M9X8\?6GC;X;^ /&5MX\\$VE[8>"_'%OXJ\(Z-KT'C+P?I^IR3:E8>%/%,.H1 MZ]X/=,TO1+KPWX@^5_$OQ ME_:D\$_M<^"-$\9ZG\?M$T/XD_MQ:A^S_P"&?AX_P>\&2?LJ:]^RGKWP \7^ M*_!'Q'\"_&6'P!+XIOOVA-'\5^#+GQIXKTV^^*M_/IPTGQ]X9UCX06?P^L=& M\1@ _7/:GM^?X>OKQ2[4]OS/^-?BGX\\:_M$?#F']O[7_A=^U[\;?B'X4_9X M\ _"#]G[P;+\9=!^!'C#4O$/[:7Q.\6^"?$OB?PS\*(_A+^S-X5OKWXA6?@# MXB_!/X&_""TUSPU\1O"-Y^T5\<;K3_&GA#6+#P!-I=SJZ)K?[>/QN_9V^-'@ M[X'_ !4\8^ /VA/A=^V0OA2?PU^U'IWPVL/C]\,?@O;^%?AEXLTSP-\:V^$/ M@7PQ\)?'_B#Q+/XAG^+OA7Q1\$_&>@^#M2^!GBWPIX6D^)_Q8\0:%XP^'WBX M _9?:OI^I_QHV+Z?J?\ &N<\%VWB6R\&^$;/QIJ%OJWC*T\+^'K7Q?JUI&-!B9-*M>E MH Z#Q",KX=!Y \+:. ,G@;]0.!Z<\_6N=V+Z?J?\:Z+Q#T\/?]BOH_\ Z'J% M<_0 W8OI^I_QHV+Z?J?\:=10 W8OI^I_QHVKZ?J?\:=7R?\ MG?$SQW\!_@K M??M(^#I;_4?#W[->MVGQL^.?P]TZRT"ZO/BK^S1X6TK6K3X_>&M'N=?>SBTO MQCX*^'>K:K\H?MS:I\?O@-\)/'_CS]HJYU_6/V9M'^/?QTT']FG7/V-/!_ MA?X5>-/B=^TIXKCN_#/BBY^/G@/6?$'CGX9_!/P'/I7P?T%?A/)?>._%FG>! M;[QEJBZSXE\2Q:E-]"? KQQ\;O#?[5?Q"^%?[4'C/XT6'C3X@S?'[QK\ _"% MUX>^!<_[)7Q ^!GA#XG^&+CP9KOP.\3^!_ UE\=?"WQ4^%'PM\;_ Y\-?&; MP'\?_&D]SX@\0^*M9\8^$(/%_AZ/0]=\/ 'Z'[%]/U/^-&Q?3]3_ (TZB@!N MQ?3]3_C1L7T_4_XTZB@"SIX U"PQP?MMJ,@GH9DS5[Q&H/B+Q"3R3KVL\Y/_ M $$KKWJE8?\ (0T__K^M/_1Z5>\1?\C%XA_[#VM?^G.ZH Q=B^GZG_&C8OI^ MI_QIU% #=B^GZG_&C8OI^I_QIU% #=B^GZG_ !HV+Z?J?\:=10 W8OI^I_QH MV+Z?J?\ &G44 -V+Z?J?\:Z32P!X;\7@< CPUW/_ $%I:YVNCTS_ )%SQ=]/ M#7_IVEH YK8OI^I_QHV+Z?J?\:=10 W8OI^I_P :-B^GZG_&G44 -V+Z?J?\ M:-B^GZG_ !IU% #=B^GZG_&C8OI^I_QIU% #=B^GZG_&C8OI^I_QIU% #=B^ MGZG_ !HV+Z?J?\:=10 W8OI^I_QHV+Z?J?\ &G44 -VKZ?SKH=1^;PWX1W$G MY/$/4GJ-3A4>_P!T ?0 =JP*W]0_Y%OPA_N>(O\ TZ14 <]L7T_4_P"-&Q?3 M]3_C3J#Q_DG] "3] "3T )XH ;M7T_4_XT;%]/U/^-? 7[07[9GB/P5\<]'_ M &-/A)\*?%.I?M0?%GPOX7\3_!/Q;XU\.R7_ .ST/!.H:AXJL?B[\:?%WB+P MQKT=_P#\(I^S'8>&K:_\:?#S6;[P-XN^*7BWQU\(_ASX O+5?B3#XYT'[0\! M^$7\#>%=*\-3^*_%WCN_LHY9M8\;>.]2BU/Q9XMUR^GDO-8\0ZP;*"QT/2I- M3OYI[BV\->$](\/^"?"MDUOX<\%^&O#GA?3-)T6R .MV+Z?J?\:0@+@C@[EY MR>["GTUN@_WD_P#0UH Z3Q$,IX8SSGP=HI/N?/U(9/J< #\!Z"N;V+Z?J?\ M&ND\0_<\+_\ 8FZ+_P"E&IUSM #=B^GZG_&C8OI^I_QIU% #=B^GZG_&C8OI M^I_QIU% #=B^GZG_ !HV+Z?J?\:=10 W8OI^I_QHV+Z?J?\ &G44 -V+Z?J? M\:-B^GZG_&G44 =!IP \-^)0. ;_ ,+@^X,NLY!]1T..F0#7.!5(''8=S_C7 M2:?_ ,BWXD_Z_P#PM_Z-UJN=7H/H/Y4 )L7T_4_XT;%]/U/^-.HH ;L7T_4_ MXT;%]/U/^-.HH ;L7T_4_P"-&Q?3]3_C3J* &[%]/U/^-&Q?3]3_ (TZB@#H M_#_%CXNQP?\ A%FP1U'_ !4N@#K]*YK:O?],AZUGUHZ-_R& MM%_["^F_^ED- 'Z'T444 ?!GBU%E\=^(HW7;Q7\1_%.N7/QLU?PUX?\ B=??#WP' MX8\6:'\&;?XT^,]=/P=F_9&_9[^-GCS3?#FC^"/A];_VYJ'[0W@_P[!I&G0P M^)-4\6V$\,T/B#]P?%/@'Q5?^*/$-]:6EBUM=ZUJ5U;N^M:5;R&*6]F*,T,M MVDT3C&=KJI!Q@Y!QP6H? F;5M-LM&U;P1X(U;1M-U.SUO3='U1?!VHZ3IVM: M?<3WFGZSI^FWAGLK+5["[NKJ[LM3M8(KZTN;JYN+>>.:XF=P#\XY/VS_ !UJ MNO-IO@OX%^"-2L-=_:3M/V;? U]XN_:#UGP?>:YJ47[&.I?ME:OXL\7:9H7[ M//Q'L_!>GV7A^QB\"Z1INAZOX]U?6M2;5?$TEYX#/C/\ LU?$']H_PP/%WB+X M<_LQ>-O&7ASQ];V7PT\0>%KOPGX?^%/CGP7+*(O%-M\4+G1['5SIWZX)\'-9 MC9&C\->&(VCOFU.-H[SPPC1ZF^FG1GU)&28%-0?1R=(:^4BZ;2B=-:4V1,%9 M6I_L_P >M:/-X>UKX?\ @#6?#UQ#I%O<:!J]MX)U/0[BW\/.LGA^WGTB^6?3 MI8-!D1'T2&2V:/2'16T];9E! !\M? 'XZ>(?CE?_ !9DN_AO9> /#?PV\:>& M/ FFRZA\1(_$_CO7=;U?X*_"/XS:XOBCP;I'@FS\)^"QX:@^+NE^%HI=#^)_ MQ"EUO5M#UC49(-(TN?3I[WZ0KM(OA7XH@:Z>#2-&@>^NOMU\\&L:#"U[>F"V MM3>WC1W:FZO/LUG9VWVJX,D_V>SM(/,\JVA1)_\ A6GC'_GQT[_P?:+_ /)M M '"45W?_ K3QC_SXZ=_X/M%_P#DVC_A6GC'_GQT[_P?:+_\FT <)17=_P#" MM/&/_/CIW_@^T7_Y-H_X5IXQ_P"?'3O_ ?:+_\ )M '"45W?_"M/&/_ #XZ M=_X/M%_^3:/^%:>,?^?'3O\ P?:+_P#)M '"45W?_"M/&/\ SXZ=_P"#[1?_ M )-H_P"%:>,?^?'3O_!]HO\ \FT <)17=_\ "M/&/_/CIW_@^T7_ .3:/^%: M>,?^?'3O_!]HO_R;0!PE%=W_ ,*T\8_\^.G?^#[1?_DVC_A6GC'_ )\=._\ M!]HO_P FT 9%G_R*'B+_ +#GAK_TB\25S=>KVWP_\51^&M:LWM+ 7%UJVA7$ M*C6M*9&BM+774GS*MV8D=3_&'X+AI&E2>*O M FKZAJ/@WQ//H^D2:_H5_)IUE+:?5'_"M/&/_/CIW_@^T7_Y-H_X5IXQ_P"? M'3O_ ?:+_\ )M 'FFD:5IFA:5I>A:)IFFZ'H6AZ9I^B:%H6BV-KI>BZ'HFD M6<.G:1HFBZ780V]CI>CZ1IUM;:;I.F6-O!9:?I]K;6=G!;VL,-O#H=U_WE_] M"%=W_P *T\8_\^.G?^#[1?\ Y-H_X5KXP'+66G!5(8G^WM%. OS$_P#'\.P] M10!D^*/^/C1/^Q2\,?\ IKBKFJ]8U[X?>*[N727ALK B#PYH-G*&UK28RMS: M6$<,Z*)+I"ZK("%D4%''*$CFL+_A6GC'_GQT[_P?:+_\FT ?(GQL_9;^!'[1 MEWX1O?C1X)U#QC<^ [\ZKX.EM/B+\5?!(\.ZPLGG0:[I]M\//'?A&RF\0V(-1M;O6="!N(](O;>&^N8CLZ7^SU\%M)^+5]\=[3X=Z2WQ=OX;V+_ (33 M4M4\3>(9]'_M72;/0=!KGQ#HEA9Z1XEU/P-I'AC4_%&G6_ MV3Q)<:K'<2LOU%_PK3QC_P ^.G?^#[1?_DVC_A6GC'_GQT[_ ,'VB_\ R;0! M\P7O[/GP3U/X9>+_ (-:I\,?"^K_ O\?^)O%7C7QKX,UBWN-4TSQ-XU\;?$ M&?XK>)_&FK7-W<2:K-XNO_B7=2_$"Q\1P7]KJ_AOQA;Z5K?AF[TJ]T/0)]'U M_A=\&_AG\%M$U+P[\,/"%EX5T[7?$%YXN\2W!U'7/$/B#Q=XMU&QTW2[WQ7X MS\7^+-3U_P 7^,?$LVD:)H6A+K?BC7]7U.W\/Z%H/A^"\31-!T?3[/Z(_P"% M:>,?^?'3O_!]HO\ \FT?\*T\8_\ /CIW_@^T7_Y-H X3_/U]2?4GN:*[O_A6 MGC'_ )\=._\ !]HO_P FT?\ "M/&/_/CIW_@^T7_ .3: ,3Q#T\/?]BOH_\ MZ'J%<_7JVM?#SQ5PN+._@M=:T'4K_3;F>QO+2]B@N9/LMS#* MXEB]G_X5IXQ_Y\=._P#!]HO_ ,FT?\*T\8_\^.G?^#[1?_DV@#Y)^)?[,7P. M^+_C?P]\2?B#X*U'4O'GA708?"^A>*O#_P 1_BI\/M5MO#EOXA?Q5!H=Y_PK MCQOX1M-;TN/Q!))JJ67B"WU>UAO9KJ:&%5O)XV7X?_LO_L__ K\?:]\4OAY M\*O#OACQ_P"([/6M,O?$=O<:WJ$NEZ/XGURU\4>*M!\%Z;K>KZKH_P ./#OB MGQ/8Z?XA\3>'OAU8>%-$\1ZQI>CZAKVG:E>:/83Q_6O_ K3QC_SXZ=_X/M% M_P#DVC_A6GC'_GQT[_P?:+_\FT <)17=_P#"M/&/_/CIW_@^T7_Y-H_X5IXQ M_P"?'3O_ ?:+_\ )M '"45W?_"M/&/_ #XZ=_X/M%_^3:/^%:>,?^?'3O\ MP?:+_P#)M ''6'_(0T__ *_K3_T>E7O$7_(Q>(?^P]K7_ISNJZRS^&_BZ.]L MY)+/3E2*[MY';^W=';:B3(SG:EXSMA03M16=L;55F(%6M;^'?BVYUK6;F&RL M#%^N)4WQO>AD;:XW(P#*,?^?'3O\ P?:+ M_P#)M'_"M/&/_/CIW_@^T7_Y-H X2BN[_P"%:>,?^?'3O_!]HO\ \FT?\*T\ M8_\ /CIW_@^T7_Y-H X2BN[_ .%:>,?^?'3O_!]HO_R;1_PK3QC_ ,^.G?\ M@^T7_P"3: .$KH],_P"1<\7?3PU_Z=I:V/\ A6GC'_GQT[_P?:+_ /)M;EA\ M/O%46A^);5[2P$]XNA&V1=:TEU<6FIM+<;Y$NV2'9&ZE#,425CL5]^%(!Y11 M7=_\*T\8_P#/CIW_ (/M%_\ DVC_ (5IXQ_Y\=._\'VB_P#R;0!PE%=W_P * MT\8_\^.G?^#[1?\ Y-H_X5IXQ_Y\=._\'VB__)M '"45W?\ PK3QC_SXZ=_X M/M%_^3:/^%:>,?\ GQT[_P 'VB__ ";0!PE%=W_PK3QC_P ^.G?^#[1?_DVC M_A6GC'_GQT[_ ,'VB_\ R;0!PE%=W_PK3QC_ ,^.G?\ @^T7_P"3:/\ A6GC M'_GQT[_P?:+_ /)M '"45W?_ K3QC_SXZ=_X/M%_P#DVC_A6GC'_GQT[_P? M:+_\FT <)17=_P#"M/&/_/CIW_@^T7_Y-H_X5IXQ_P"?'3O_ ?:+_\ )M ' M"5OZA_R+?A#_ '/$7_ITBK<_X5IXQ_Y\=._\'VB__)M;5]\//%4FA^&[:.TL M&FLEUH7"MK.E(J_:K^*> K(UV(Y0\7+>4S^6X9'((!8 \JHKN_\ A6GC'_GQ MT[_P?:+_ /)M'_"M/&/_ #XZ=_X/M%_^3: . ,,)G6Y,,1NHX9K:.Z,2&ZCM MKB2"6XMTN2OG);W$MM;2W$"N(IY;:WDE1W@B9)*[O_A6GC'_ )\=._\ !]HO M_P FT?\ "M/&/_/CIW_@^T7_ .3: .$IK=!_O)_Z&M=[_P *T\8_\^.G?^#[ M1?\ Y-I&^&GC$C_CQT\X(; U[122%(8X!O@"<#CD4 8_B'[GA?\ [$W1?_2C M4ZYVO5]<^'OBNX&@I!9V3_8_#.F6$S-K.DQ#[3;2WSRB/S+Q3)&JRK^\4;"0 M=I(YK#_X5IXQ_P"?'3O_ ?:+_\ )M '"45W?_"M/&/_ #XZ=_X/M%_^3:/^ M%:>,?^?'3O\ P?:+_P#)M '"45W?_"M/&/\ SXZ=_P"#[1?_ )-H_P"%:>,? M^?'3O_!]HO\ \FT <)17=_\ "M/&/_/CIW_@^T7_ .3:/^%:>,?^?'3O_!]H MO_R;0!PE%=W_ ,*T\8_\^.G?^#[1?_DVC_A6GC'_ )\=._\ !]HO_P FT <) M17=_\*T\8_\ /CIW_@^T7_Y-H_X5IXQ_Y\=._P#!]HO_ ,FT 8NG_P#(M^)/ M^O\ \+?^C=:KG5Z#Z#^5>KV7P\\5QZ%KUM):6"S7-YX>D@4:SI3HZVLNJ>?N ME6[,<17[1"$5V#2E\(/E8C$'PT\8@ ?8=.X&/^0]HO\ \FT <)17=_\ "M/& M/_/CIW_@^T7_ .3:/^%:>,?^?'3O_!]HO_R;0!PE%=W_ ,*T\8_\^.G?^#[1 M?_DVC_A6GC'_ )\=._\ !]HO_P FT <)17=_\*T\8_\ /CIW_@^T7_Y-H_X5 MIXQ_Y\=._P#!]HO_ ,FT <)17=_\*T\8_P#/CIW_ (/M%_\ DVC_ (5IXQ_Y M\=._\'VB_P#R;0!CZ!_QX^+O^Q6;_P!270*YRO5]&^'WBJWM?$D4MIIX>]T MV5N%UK29 ;AMT4 M9'KC[<BBB@#R75 ML?VE?].+NXZ^S)SS_4_B.M?*_@7]K_\ 9Y\?6_QLU"T^(>B^$M(_9^_:.\5? MLH_$;7?B;>:7\-=#@^-O@W2/#.M:SX:T#5_&.I:5IWB""6S\6Z5_8U[9W*_V MW+%J26,#"QUW]JS]K_\ ;U_:!^+7@34O M$/PU^('B+X:>%?VG_@M\,OA;\+O#'@WX\_&O]C3XXZ7:Z+IVJ?#W6-:^/EM\ M-/A+X"^(GB[P]JOA#2? OQ&\/:EX5UB<@']+][X^\ Z9XAA\'ZGX[\"Z;XQN M+\:5#X0O_%WAZR\42ZJ= ?Q4=,C\/W>H0:PU\/#$#]'^(=]\2_AM9_#SQ#/IUKX?^(%UX]\)6W@C7KO5[F:RTJS MT3Q9/K$?A[5[O4KVWN+/3K:PU.>:_NK>X@LDN)(64_S7:7_P1$^*WB"R\0WG MQB\ ?LQ_$3Q1J>J?\$*K.TUSQ1>VWCG41X+_ &"O 'PW\(?MF>')=4\4> KV M^ATOQU#X;\0Z3H6F>=*-,^ ^@>,?@EX7T?3_@=^W=X[\(ZM\/]5\*2?M"_L4_ MM=_!_P ):]X>\#^'_$?@CQKX,TWX4:'KFBZ3XYNX/AW\2+2$^*M*\5@'].,O MBOPI;^+8/A_<>*/"MMX^N=#G\3VW@2Y\0Z/!XVNO#%O>+ITWB2U\)37D?B"X MT"#4&&GWFL)IXTRROBMM/=B3>(_A?XZ?\%0OV/?V;_!W[6/CCXO^,?$_AC2/ MV*_B3\)/A9\=K/\ X0K4;WQ#8>)/CCHO@SQ'\-;SPEH%K>&_@MX M;^ 7P7^&?Q_\8>.OC3X>_:*^)?QAU;X(?L66?[-WPQUSP1;^)/V/?AE\2/@_ M\6_#NL?\4GXZ^(G@7XL^!OA=\:/@SX7?Q)K_ ,%='\=_$3Q#X:TBA^V?_P $ ME_&W[6G_ 4 M_B#JEY\-A^PY\H7NK6E[8:K\)]$N+4) MNF40WNN:GH7P]UCQ#0>//V\/V=/AO#[KPA<+-';>,+^[\ M-^$M;^VZ=9S6L^FW\5I;7907UM(_P;_P2[_9(_;Z_8_\*^"[3]H&']FSX@?$ M#XW_ !%@?]LCXF:)XR\9W7BC1/A;^SG^Q[\)_P!FK]DFP^%K?\(WI&F^./$> MJZS\(K3Q)\4)_%%EI9TF+Q]XFFLHY]2F+Z;YM^U[_P $F/B9^TI\0O\ @L1\ M11X@U+2]1_;"_9P_9Z^&7[*5CX5_:E_:*^#WA6[\;_#?X$>/O 'C!OVD?AO\ M*/%7A#X=>/O"R^+-7\-+X9L/BEH7Q=T9M%D\01#0-.L=5UG3=; /W'T'XG_# MGQ-JWA_PWHWC?PC<>+_%'@G3/B1HW@23Q#H\/Q"N? NLV]E<:?XH/@)KT^+4 MT:4:C:6SZB^DK:07\HL)YH[DK&WC7C3]K_X(^#OB!^SG\.;;7AX^U3]IOXQ? M$+X%^"M=^&6I^"_&?A#PI\0/A?\ "GQ?\7_%]A\2M=L_&$!\-C3_ WX+U/3 M6L]+LO$>N6WB*ZTVSU31]-TV>?6+7\>/%/\ P39_;0\5?MK?#'XO^(M%_9NU M7X/?"_X@G7K,^&/%'P\^%&L>+?A_J_\ P3T\1?LJZWX/\?ZSX0_8\;]J?Q!\ M1]2^(&J2:;XP^*FH_M<:[X$@^$3^#X?"?P)/B'P=I3^$_EGQ%_P0X_;"^*7[ M-/@#]FBZ\??#[]GGP!X$^,OQ6O/AF_A7QSX4\8?&/X7_ 4\0?\ !/7Q-^S% MX;\)_%'XQ_"O]FW]G&']HVUU?XKZE;>'=;CUWP0GQ-C_ &9[_4/"/B#XK^)- M@^)_$?A^'X4>)-*^).KZ]K=QH^G>$M4&OGQ-X4\(6L\SV\_@^Z\7Z/ M%JVKZ5Z8?B5\-A:>!K\?$3X>_8?BC-;VWPNO3XV\,"S^)MS=V:ZA:P?#NZ&J M-#XXFNK)X[RT@\*/K%U=64L=W!;O$Z;_ .>KQ%_P2J_:1^+WQ0TGQ]\2OA1^ MR=X0\(:_\9/^"(WC7Q]\$/!6N&]^$^@^!_\ @G[H?QR\/_M$^ O!OA"?P VB M3> A9?$#0--^#_@:\B.GZMX0DN]!UJ?0DTL_;60_\$HOVD_!'CKX$>)?A%X( M^ 'A3Q!\)/VJ_P!I[Q-X:\8:S\0O"WB'X3_#_P#9"^-7_!0R;]JB#X/W/[)W MC+]F#XA^&M3G@^'=EI^H?#+Q%\$/B7\!?'GPO^+]]Y4GC:W\.>';2>8 _I. M!SP."1Q@@X.#@C((R" RDJP^925(-+@>@_(4YB&>0J&"F1]H=BSA Q"AF(4L MP4 ,Q4$D$\_>+<#_ (_=.[?[%Y5$ 8' Z#L*OP_\@^\_Z_=._P#0+RJ*]!]! M_*@ P/0?D*,#T'Y"EHH 3 ]!^0HP,KP/O+V']X4M'=?]Y?\ T(4 6[P#_0>! M_P @O3^P_P">-4\#T'Y"KMYTL?\ L%Z?_P"B:IT )@>@_(48'H/R%+10 F!Z M#\A1@>@_(4M% "8'H/R%&!Z#\A2T4 6;H#_1.!_QXVW_ +4_S^?K57 ]!^0J MW=?\NO\ UXVW_M2JM "8'H/R%&!Z#\A2T4 )@>@_(48'H/R%+10 F!Z#\A1@ M>@_(4M% "8'H/R%&!Z#\A2T4 )@>@_(48'H/R%+10 Z,#S8N!_K8^P_OK3[D M#[7><#_C\N^W_3S+38_];%_UUB_]&+3[G_CZO/\ K\N__2F6@"# ]!^0HP/0 M?D*6B@!,#T'Y"C ]!^0I:* $P/0?D*,#T'Y"EHH 3 ]!^0HP/0?D*6B@!,#T M'Y"K" ?8M0X'W;7M_P!-GJ"K"?\ 'EJ'^[:_^C7H K8'H/R%&!Z#\A2T4 )@ M>@_(48'H/R%+10 F!Z#\A1@>@_(4M% "8'H/R%&!Z#\A2T4 )@>@_(48'H/R M%+10 F!Z#\A1@>@_(4M% "8'H/R%&!Z#\A2T4 )@>@_(5:E ^PZ9P/\ 5W?; M_IXJM5J3_CQTS_KG=?\ I10!4P/0?D*,#T'Y"EHH 3 ]!^0HP/0?D*6B@!,# MT'Y"C ]!^0I:* +M\!BPX'_(-MNW^W-5' ]!^0J_?=+#_L&VW_H!_K;'IQ_%<^G^<\]:J8'H/R%7(O\ CRO? M^NMC_P"A7-5* $P/0?D*,#T'Y"EHH 3 ]!^0HP/0?D*6B@!,#T'Y"C ]!^0I M:* $P/0?D*,#T'Y"EHH L6H&W4N!_P @Q^W_ $\P?X"JV!Z#\A5JU^[J7_8, M?_TI@JM0 F!Z#\A1@>@_(4M% "8'H/R%2VX'VFUX'_'W:=A_S\15'4MO_P ? M-K_U]VG_ *414 >QT444 >5W\+7&M7,"%0T^H20J6SM#2R1H"V 3M!89P"<9 MP#TK\UU_:]^*E_\ L]_#S]JO2/ '@^?X8_&3XC?LY:-\-O NGVOC/Q%\7X/A M_P#'3]ICX;?![1-0UL6UWHOAN_\ '/C;X<^,[[QA;Z18KX?\._!CQB-'T'Q5 MK_Q8\%V?B+QM8?I+J7F?VO=B+=YIOIA&$SO,ADCV!,<[RV N,G=C@U^>7A2W M_P""?=W!XC3P?\3?"%WH/A?Q[X.^)VI>$;+]I'XHW/PW\&>,]/\ VA=&\1>" MO%/A+X5W_P 47^&G@O3W_:9\+Z?96A\#>$-,\$ZGXU@U7P-?V=U%>Z_X=O@# MOU_;>^ R7GP4L]0U+7M#D^._C[7OA)X337]/T71KW2/B]X6^)NL?!3Q/\+M> MT"]\1Q^*]9\5>%_C)X>UOX;^+KGX6^'_ (E^$?!.LV^G>(/&WBGPW\/_ !)X M3\9^(N"\!?\ !0+X6^)OA_X;\4WVB>.];U&Z\)?LJW_B"^^'WP]\17O@UO&W M[8TO@73_ ($^"?"=UXLF\/>(-6U#QUJGCW2B1<:5#:_#K1(I]=^+VJ>!=,FT MFYUCU>W_ &(_V:[#QE'XZM/AIJ^G^*T\76'C^YN-.^*/QITS3=:\4>'_ -H7 MXK?M6>'M3\6^%+#XA6_A/QS9^$/VB/C7\5?BAX3T;QGH.O:!X/UKQAJVE^&M M-T?PQ;Z5H&E:_AK]DO\ 9W\#>&]&\'^&_APFB^'-/U;]GK4M%TR7QI\1+QEU MC]E&W\-2?L_26]YK'BZ\U"[F^'=K\/\ 0+A+.2XN8/%D&B7,OCNU\417.L-= M@'G'AC]O'X'^+?"OBSQ9INF_$G2[3PCX4\.>,[BT\;>%]$^&SZGH.O\ Q%\8 M?""\O++6OB)XL\+>#=%A\(_%GX>>-_ 'BN\\>>*O!>D1W^AV?BWP_JVO_#7Q MI\-/&WCFYX*_;J^ /Q%U3X:6O@VY\>:SH?Q6L/@K?>&?'?\ P@&M6'@6UE_: M-\%:YXZ^"&D:[KNJ?8+BQUSQWI?AO5]--A8:9J\7A'Q&FBZ+\0;OP;)XR\$W M'B'J;K]BS]FNZL]&LA\,]0L/^$?DT2Z\-:CH/Q+^,GAKQ%XA7UKX\^(OC?5I]3TS6[;4-3L/$E_X5U.[NO"$=GH%IJ>% MOV1OV>? ^F>%=%\,?#,Z3IW@V\^#.J>&H&\9?$C49[&]_9XTZ\TCX.WCWNM> M,+Z]U2;P38W]U AU6YO8/$$DBS^,H_$%U%#<1 'S?\<_^"A'A;P=\//$U_\ M!_PGXH\:_$/58[^'X'_VSX9T\>!?BQ:^&OVF/A1^R;\4?B#X5-U\0_ =WX@\ M$_!7XK_&CP'#KVG>)_$?PBF^*NEZWH>O?";Q+K?PWUZ3XE:-TWQ@_;(UWX8^ M*?'WPYLOA1XPU?Q5\)K[]@>7Q1XODT?0=2\'>,M+_;)_:-L_@CJ.B?#WP=X8 M^)NM_$"#QOH5CH_CFY\.1:W'?^%]-\06-LVN^(=7\/V:W/B/(KJ#QCX^TJUU&;]G[XHS?&[X*RZSX2 MT#Q3IOA2?7/ ?Q'O;OQ'I.LWGAXZ_>6.HWOA;5+_ %#P/J%YX:N0#Y[F_P"" MC7[*MCXQ^'?@#6?&.I>&_&GQ!\1:)X.?PMXEL]%T7Q#X)\8^)?VBO%/[(?AO MPGXET2\\2-JVOZOJ_P"TYX'\8_!F.;X36OQ2TC1]1\,:M\0?%FL:!\'4M?B1 M?>6WW_!1"T\$_M&_&'X;?%;0])\)?!_X6^)?C9X=U#XACPM\3[6?2K;X*?L[ M?!_]H6]U.'Q/>Z/=>!?B]XL\4:-\0/%NF67P*^$8O?C)IFG>")_&-GX?\5^& M['QI=>#_ +!T']E_X,>%O%D'CSPGX9\3>$_%2:SXGUW4=6\(_%7XR^$XO%=Y MXO\ BYX\^/6LVGQ#TOPU\0-)T3XG^&HOBU\5?BAXQ\->#/B-IWBGP;X(;XD> M.O#_ (*T+0/"?BS7M!U'F/$?[%/[-7C#Q-\0/%7B_P"&=_XKO_B3JWBWQ#XW MT?Q/\2/C%KO@.[\3>/?A1;_ CQ9XLTSX6:EX_F^%_@WQAKOPA@F^'TWB_P & M^#?#OBB#0M8\2+INKV5[XK\1W6J ''>//V\_@7\*O!7C;QS\5;;QU\-K/X4^ M-5\"_/&6E^$=)\0?"S4V^'V@?%M+O6"?'$_AKQR+[X7>*?#OC;0?#'P7\ M2_$_XD>*;&^U32?"O@77/%'@?XB^'_"">)OVW/AW8Z%XON?"G@SXN>*]>T+Q M;^T+\/M"T[2_AO?7B^)_%G[+L_C/2OCEK.@:>=7TO7?$'P]^%NO^#O[*UWQ9 M86=E%XMUOQ#X5\$_"D^-?B7K(\'6&CXD_8$_95\8:7K6F>)_AWXOUR3Q5IOQ M,\/^+O$6H_'K]I"7QYX]T#XQ>&/AYX)^)OACXB?$U/BY%\1_B+X6\7^$/A)\ M*?"^I>$/&?BS7/"T.A?#KP;I>FZ+86VA:8EKV_B3]D7X!^*=#M?#NK^!-+O%'QUE'C/P)XZ\->+_ .P/B9K_ M (\\1:IXG\"R:X? C3S:*+#PS80>$_"4>B 'FFB_MK> M*^&7PC\6_$NUUB# M7/$W[-_P._:-^,EWX!\,W>K^!_@?X)^,]O:Z5I7CGQI/>ZPVKZ3\.[_QQ:^+ M])T4Z2?&OBFQ\/\ @CQAXO\ $.G0>#_!OB?Q=:=K^R=\9_B!\>? _P 0_'/C M_P &6_@#^R/VD?VG_A'X-\,QVU@FH1>"/@#\>/'GP+TK5/$>I:7\1_B#IVO^ M)=>([X+A)(_-CDAE7*21R1?O4=&8-'\X.T$C%L_$F@7_B;7O!=EK6F7?B_ MPMI?AO6_$WABWO(I->T'1_&-SXDLO">J:QI*G[9I=EXDN_!WBJ#1I+I-M]+H M&K0P.[Z;.M8M_#/@;X>^&M>\9>-?$E_!>RV M/A[POX6TV[UCQ%J]['86M[?/%I6F6-U=SPV=G=7;1P2B&UGE00MT^".#P>_& M/T/(^AY'2@"[#_R#[S_K]T[_ - O*HKT'T'\JO0_\@^\_P"OW3O_ $"\JBO0 M?0?RH 6BO//B=K?Q0T#PL]_\'_AIX?\ BUXV;5=,L[;P;XF^)R?"'2Y]/NGE M&HZBWC)_ WQ#5;JQC1'M=)'APMJ+,R?;K7:"WYL>%_\ @IUXT\;> ?"^M^#? MV1-:\8?$;7O W[7'QK?X?>'/CMX2DT#5?V?/V/\ XL:+\'/$OQ.^&_Q*U[P- MX=M_B%JGQB\5Z_IUQ\ _"3^$?"NB^+O#DD7BKQ?\0?A]X>U;PSJ&O 'ZU4=U M_P!Y?_0A7(?#WQWX7^*?P_\ 7Q0\#Z@^K^"?B9X(\(_$7P;JLEM-92:EX2\ M<^']/\4^&;^6RN +BSFO="U73[J:SG'G6LLSP.6,>X]?W7_>7_T(4 7+SI8_ M]@O3_P#T35.KEYTL?^P7I_\ Z)JG0 45\O?'S]I6?X%>/OV;_!)^$/COQQIG M[07QE\._!Z_^(ND:EX3T/P%\)KWQ3'>+X?OO%=SKFK1^)?$FL:_>V5U#HOA7 MP+X8U]X=/TS6M<\7ZWX-L;?P^OBSR33OV\+'4/CO9_#G_A3WB2V^#VI?M5>* M/V(-/^/'==^'NC?$F[\0 MMK.I?$6SL4B^' ^&^OZ!\3-3 /ORBOS(_9M_X*,ZG^T_%XJB^'G[-GB&_P!: MA^"W@_XY^ ]!TSXR_"_59YM"\;>.M<\ :?\ #C]H'4I6TK2?V8_CYH-_X?UC M6_&GPAURZ^(.IZ/HGAKQYI^B:KXI\=^!]7\%-S?C[_@J&WPY_9I\6_'/6OV6 M?BWK7CGX;?M4:]^R+\2?@Q\.]=\/?$6YT;XB^$M9TVT\0>(?"GC;2+2RC\=> M KK3=2LX_#NK6_A/1-=_X3+4],\&>,?#7@ZY@\2:CX> /U;HKE_ WBA/&_@G MP;XUBTK4]"B\9>$O#?BR+0];2VCUK18_$FBV.LII&L1V5S>6<>K:8MZ++4H[ M2[NK:.\@F2&YGC597ZB@"U=?\NO_ %XVW_M2JM6KK_EU_P"O&V_]J55H *** M* "BBOF/]L3]H^Y_9,_9\\6_'6R^%/B[XX:GX?\ %?P5\%:%\)? .I:/I/C3 MQYXE^-_QU^&OP(\,Z)X9O=?(TAM7/B#XEZ9>V=A>/;Q:J]F=*-_ILM]!>Q@' MTY17YRZS_P %+O@X7U:7X<^%_%/QFT[7/AI^POX\_9^G\ :AH<%]^T5K'_!0 M'Q?\;O"/P;\'>'+/Q9)X?T[P*-$7X+7_ (K\?^*/&^N6FF>%_!M]K.L:A:07 M'A"\TW4O;O@/^TEXA^)?Q+^+'P(^+'P?O/@9\=O@_P"%OAG\2-8\)0_$'P]\ M5_!/C#X3?_B!H/@/XD?#OXA:'I?AB]U737\5_"GXC>"_%6A^*O W@KQ%X M9\3>&0%T_5M UOPYK^L@'U91110 4444 /C_ -;%_P!=8O\ T8M/N?\ CZO/ M^OR[_P#2F6F1_P"MB_ZZQ?\ HQ:?<_\ 'U>?]?EW_P"E,M $-%%% !1110 4 M444 %%%% !5A/^/+4/\ =M?_ $:]5ZL)_P >6H?[MK_Z->@"O1110 4444 % M%%% !1110 4444 %%%% !1110 5:D_X\=,_ZYW7_ *455JU)_P >.F?]<[K_ M -** *M%%% !1110 4444 7K[I8?]@VV_P#0YJHU>ONEA_V#;;_T.:J- !11 M10 4444 %%%% !1110 4444 6XO^/*]_ZZV/_H5S52K<7_'E>_\ 76Q_]"N: MJ4 %(<]ADG@#.,D]!G#').%&%8Y(VJQPI6C)!!'8YZ$].V%(8@G .TA@#E2" M 0 ?#>L_MV>%(-4^+K^#O@5^T;\3/AM\%-0^,/@_QK\?_!?A?X>3_!.V^*_P M/\-Z_K7C[X8V\NI?$VP^--])H&O>'[OX::Y\4]%^!VM? ?0?B@M[X)U?XIV> MMZ#XDM-&[?X?_MP?LE?$3X*:E\?M._:4_9[TWX:^$-/\,-\6_$>H_'?X2?\ M"/\ P)\4>)K#3+B+X?\ QF\4P>+I/#OP^\;66IZK;Z!"?B=XR\3_ !>T M_P"-_@Q?VK]7^)OQ(U?X2ZQ\+=%^']]X#U2S\,_%[XH:_'H7QY3XR6%Y8?#" M73=.U+]G_7_%.CG5=9Y;7?V*/VFO!UI97W[.OC[X/^ M7T7]C_\ X)P?LR6F MD6=W-X*AOK;]C?XC?M)>(/BKH7A/Q;<_ /XPV?P>\/\ B_P7\;-)T'X2_$GP M_P#"+QIXS\)BQ\36^D>%OAYK.I>'?&NG 'W3_P -0?!1]3\.2VWQ&^&UW\-O M%/P7O/COH_QT@^,WP*/PDO/ T'C'PIX+L+ZQOV^*">,=8TC7+_QAI=QI?Q%T M3P9J'P>1C!X?U+XC6/C77/#7A?5_4/A[\1OAW\7/!NA_$;X3_$#P-\4_AWXG MBO)_#/Q ^&OB_P />/? WB2'3M2O=%U&;P_XO\*:CJWA_6H-/UK3-3T>\ET[ M4)UM=4TZ^T^Z%O?6EU;0_B#9?\$I?CE>? '5/A5XN\;?!'6]=\2?L\_M;_"; MQ*VIZOXY\4>'M8\3?M)?\%$K7]L6UNM;O=3^%VE77BKP[_P@@O\ POXWU/4? M#.G7^N>-[N9H_#%QX9U"XUJW_?:XF^T3SSC?MEFD>,.062%F)ACP,!4BBV11 MIA?+C18RB%2B@$5%%% %FU^[J7_8,?\ ]*8*K59M?NZE_P!@Q_\ TI@JM0 4 M444 %2V__'S:_P#7W:?^E$515+;_ /'S:_\ 7W:?^E$5 'L=%%% 'EE[(L.M MW$SY*1:C)(P49;:DL;-@97)P#@9'/<=:_''1OV,OVH'\(_!K1W\1?#WX=^(_ MV>-#^)OA+PIXA\%_%7QU<:A\1-'^,?[9OP!^.'C&35=6L?AQX5O_ 'H.E_" M/X(W&@-X2MSXIM_'GBKQK#H&IW/AWPUX1-_XR_8V_B:?6;F!"H>;4)(D+9VA MI)8T4MCG + G'.*_&KXO?M\?$_QM\*_ P^!G@BV^'/B;X^:O^R]XM^"7CK6? MB#XK:1X'L]*^-'B"UNI/''[:O MBCXH#P_\>/'&A>)6\0?&SX^:'XR_9C^+7A#QOXL^'/Q)6+Q)^S3\$M!U'X7> M&_!$WA2S\.> 9?&2V7@:WU?1O#5E::SUC?L??%/5_'/P9\9>/M"\#>/_ !'\ M'?VZ_$W[1VK>-]8^.'Q/N[OXI?#?Q/H?[6O@_P ,QV?@?5?!EQX<^&'BGX0^ M&?CO\.+?1?".F7E_H&MZ/\/KWP!;Z]H7A73_ W>W/9_''X^_'#X/?M,Z?X# MGDTV[^ -[\&O'/[7>M>,[;POI.J^//"OP;_9)\/0:-^U!\)]%\/0W-K_ &WX MO\?^.?B?^ROJ7PQUP:3->QZ!\2?VD[!-9T6Y^'7PDL;SH_!O[;JZO\2/ 7PD M\;?"D^"O&OCV_P# MU;3:1\3-!\=^#M&\&_$_P#9T_:,_:)\#ZUJ7BRUT#P[ M!/XJCTK]F+Q_X:\:>#+&QN-.\/3:CX6\4^'/&_CCPAJRZP #YT\+_L4_M1S: M9X&\/^.OBA$MEI0_9ATOX\ZMH7[0?QRN[S]JOQ#\+/C9+XW^.'QRUZT3P_X; M;X4:I\5? T6I:!&O&UC\1]1^%/CO7;3X9?![X?WWB#W#X5?"CX MU_#+XU:E#XP\(R_$+X9>-OVBM>^(_@KQ1;_'?QWK/BSX-Z5<>$?VBM3\6>)/ MB/+%X4\ ^"_'O@20>+OA9\)/@7\$;_PMK.O>&+;7;ZY\4>/O&MA\#?AEJ>F< M7X0_X*:^'?$WA/P;\3;WX*^(M ^%'B*T^'HUCQ=)\1?"-_K?A_7?B5^P3:_M M_:+I5KX1ELM+M-7TO2? 1NOAWXC\3ZGXO\*V]IXPO/#&M:5IFL^%K_Q==^ _ MIS]E/]HV^_:;^'>M_$A_!&D>"M!B\23:1X(U/1O'6I^/-%^(6AVW@/P3XMOO M%WAW4]6^&_PTNS9>'_$'B_4?ASK]O#HM\FE>/? 7B_2H]2GBMK:](!^7NN_$EKCQ#/\6O#O[*-EJ.M? G2KRU^%/PU+W;5?V/OBA:?$OXP_$'P;X;^'VEZ!\7_B_P#LQ?%+QI\/+?XP_$+P\_Q! M\!_"C]GW0_@WXM_9\\4^+-+\&7EU8:'H?BWPWX8^*N@>);&TN]*^*EGX:M_A M;X^T/PQH&LZ]?KY[\!/^"@/Q;\1^$?A/XC^*?@4Z-J/C7]A+]CKXL:3HGB=_ M#&CVWQB^//Q^\2^(M&UC5_A\?@*W[1?Q$_X1[7H=(EU#0O MA\+=0\?6UM9W MLC>"+73O^$AN]%=\3_\ @IG+J_[/Z?$3P'X-\"/A;X%M?AMXF\&_$KQ#X'\'^,[WPOXC\.V/BM? MC?!X@U'3-3T?X'V/AC6/"GQ%N@#J/#_[%7[1CZ'X@7QI\8+[5?$M_P"$OV// M"?A2XL/C_P#'B$_#_P +?#G]LSQ_\:OVB/!NB>(UMM'UFXU&Z_9\UGX$/"GASXS^+-!USX<^%-<_:XN?C;X)FMKSQ+\-O'(\:O>_!.?2O@QKG@_ M4GTR+P'X1\,7?PJ\$>)-6\ _$'6YO#W<^&_VZM7\5_$'P3HOA/X?#Q3"?#[_M Z+^W7XVT3Q+K_P 7O#7AWQ3+>F3P3^RM;/\ M$6U\,VOQ"TOPU=7O]F_#(?$&_L[J?Q3Z5\!_VV= ^.'B;X9:-+\/]9^&>E_% MK]G_ ,*_''P/JOCS5YX9_$]WJNB6/B'QIX)\)7>F^%[OX;>*)OA+:7RV'CV6 M#XJ6'Q&MKM;?Q-:_!H_"?5-)^)]X >"?!+X.?M4O\$/VDM&U+Q'<:]XU3XGV M/[,_[/\ #\9?$?Q=T"RU;]D7]FSXPW?ABP\:>)VN=NM2_&3XK>#]=^+FH1?$ MR[T?6O"/QIDL_@KJWC1_B#\(;A[#5LKX=?L9_M5Z)I.D7OCCXKV^I^-?!&J_ M .;X:O9_'?XQ:CH?A?P[X!_X*&_';XZ>._#EY;KX5\,:%KZ:A^Q;X[^&G[/E MK>ZIX2E_M_\ X1_7/AKJEMHOPXCCU[4G_%_]MSXM_!C]K+X^?"W4T\'Z[X&\ M2>&OA5\%?V1M!UG2!HRG]N3X@>"?!^O_ \^&/C+Q79W0U'5O#WQY/Q(UO7W MDEMH'^'?@_\ 9T^)&MVES(FIW,*1?!G_ (*-3VGPM_8ZLOBE9VWQ2^('Q>^ M_@C7?BCX_P#!4.J: --^+FJ?LU?$S]H<#7_!VA^ =4^%_@'3/B#X:^$>O:CH M^CZA\7M'\;VTWB;1+[P[\*]>\"0W/BJW .+F_8'_ &D];\#?M0:!XFUOX=77 MCGXR?L!_&7]E:'XD:A\;/BQXWN_B;\:/B!XS\6:W9?&;Q7X;\7?#J[T;X1Z% MKEGK6GW>LZ)X/D\:3Z%+#%X,MM'U_P %> _ UU=^X_%+]A_QW<:I\5M6^$OQ M3\6OKOC;]FO]KS2],\:>./BOXO\ "WB+5?VS?CU:_#WP[\.?CMXLT;X6>&_# MW@"RE^'G@7P='X$\+^+?#G@RWU?X6^%[/3=*\ >';F34M?O'W_#'[=7B[QA= M^#O"&B_LZ^7\6?B%XI^'.C^%/!>L?&K1+'PO;^'OBU^RE\4OVK?!GB/QA\0M M.\!:W)I%_;Z%\'_%_P /_&'AOPQX+\=1Z-XR32[[P[X@\8^$+^3Q#9=]\0OV MK1>_L=_"_P#:>^$(TO1K7XYV_P"Q_=^$M4^)U@E]IWPK\*?M?_$3X.^$;+X@ M?$OP]H/BC2XKJ/X6^$?BVWC/7] @\;:'I6IW&@-I\WC'3M#N;C7(P#P?XE_L M@_M.:YJ'Q*\4?#CXQCPWXP^(.O\ [2-I=W]U\;/C+;V%U\,/B!\/_ MG\+? M6GPP:9J]C\.Y=-\8^#K]3XF\":1:ZU\(F\4ZW\0?A\VN>*M=UVRUOE_BI\!_ MVB+7XJ?"#4M!\%W5Q\(/$WQ#^!GAB_\ V>/#'[3?[04O@CPSIO@#X>_\%./% M_P 3K[QW\0M)\$12>&OASXSN?BC^SQ#!;7VBS>#O%OC30?"'P,\5:?IWA/1O M!&JZE[)H/[7.I^#/B)=_ W6-&^+OQ(\5^'_B/\4]$^(?B/XRGX%>!?%7PY\% M_"?X)?!7X\^(O$%U;_L[Z-K/@[XH1ZQ\/_C'HFL?#;2?"_A+PGXFN];UW3O! M'CZV\*K!KOCG2_'-2_X*M?9?A5X3\>6W[+OQ%T[Q9\4-,/B7X,> /'VL>,/A MO#\7/#]U\(KKXM:'X?\ OB7Q)\$TU3Q9\7-:N1HWPLC\)>"_ _BOX8#XH>) M_"VF:7\=M?T;Q)X?UG4P#RCXJ?L)?MX?$'XZ)X=^.GC_P"&6NV'C*5O M#USXA\'^ ;7XD>*O">I_&!%LYOW/<[F9O4Y_SP/Y#Z"OS8\:?\%$;7P387^M MW/P0UG6]$U76_CWX5^%RZ%\1=$_X2/QKXJ_9E_:@\!?LD_%G3_%.BZWX;T33 MOAMI=[\4/'27OPQU\^(?&%MXE\):8]W\18/@]XJU31_!M_[7\$/VJX_C'\4_ M'7P2N/A]<>$_B?\ !33O%G_#0VBP^+8_$>F?"?Q"OQ+N/!WP2TBWU*[\->$= M6\8:7^T9X!T+QC\=/A_KJ>&O#=UI?PVT316\3:#9:GXOTZ.U /L>'_D'WG_7 M[IW_ *!>517H/H/Y5>A_Y!]Y_P!?NG?^@7E45Z#Z#^5 'E'QV\%^.OB3\%?B MS\.?AE\1O^%/_$#X@?#_ ,3^"/"OQ730)/%-Y\-M0\4Z5<:+)XVTC0(]<\,M M?^(?#EG>W.I^&2VNV,-MXCMM+NKQ+^RAN-/N/C']IS_@GMX;^,_P?^"'[/\ M\,=*_9B\"?#'X+_#?4_A#X5U3XT?LP2_M%_$WX7^ [OPCX7\#:5<_L^>(M0^ M+OP_\+>!/%>D^&?#XDU0?$7P9\6_"'BWQ1IW@C6?%7@W6+7PM?:!XA_2:C ] M/\_Y)_.@#D? '@CPU\,? 7@;X9^"[&;3/!GPV\%^$_AYX/TRYO;C4I].\*^" M/#^G^&/#MC-J5V6NM0EM=&TNRAEOKD_:+N1'GGS-)(S==W7_ 'E_]"%%'=?] MY?\ T(4 7+SI8_\ 8+T__P!$U3JY>=+'_L%Z?_Z)JG0!\3_MA? #]H/X\WGP M(D^"_P 8O@E\*K'X-_&?PA\=[NW^*WP(^('QDO?$_C3X>/J">$[&TO?!G[0W MP2M_#WAPV^M:K'K=AN?&?]H[Q#\5_ M'6E>.[+P;8>(=0\0Z-#X9^$7@;5M5U'PQ\+-&\5ZSJ7AOP->Z-XL_2? ]/;\ M/2C ]/?\?6@#\9?@E_P3,^/W[/WA_P"(=[\(?VI_@U\,OC7KW[,O_#.OAWXR M^ OV3]8TJ[\;^-;CQCX=\03?MC_M<^&?$O[1OC'3_P!I;]KC1++2/$MQX*^( M=]=>%K*R\7?%+XFZ_P"-[#QWX>\4Q>!_#_WW^R9\#_%7[/GP1T?X,>,-1^$& MO67AC5]:ET&3X3_#_P")'@O2;W3=;U5?%FJZWX^_X6_\;?V@/''Q#^+'BOX@ MZCXK\?>/_BKK_CVYUGQQXE\22>(-;MF\53:]K6J?3^!Z>WX>E% !EB268NS' M+,W+,Q^\Q/\ >8Y9CW8D\9Q1110!:NO^77_KQMO_ &I56K5U_P NO_7C;?\ MM2JM !1110 5X5^T7\&IOCU\.-*\!0>)5\)2Z1\,M/$'A.^\(?97P!_9^^)7@KXH?%C]H#X^_%7P3\6/CA\5?!GPK^%'VCX M6?"C5_@S\*_ ?P@^#.M?%#Q7X.\)^%/"/BKXH?&GQO?:_K/C3XS_ !"\6^/O M&'B7XDW[:[/>>&=!TOP_X>TCPC FH_7&!Z#_ #_^L_G1@#H* "BBB@ HHHH M?'_K8O\ KK%_Z,6GW/\ Q]7G_7Y=_P#I3+3(_P#6Q?\ 76+_ -&+3[G_ (^K MS_K\N_\ TIEH AHHHH **** "BBB@ HHHH *L)_QY:A_NVO_ *->J]6$_P"/ M+4/]VU_]&O0!7HHHH **** "BBB@ HHHH **** "BBB@ HHHH *M2?\ 'CIG M_7.Z_P#2BJM6I/\ CQTS_KG=?^E% %6BBB@ HHHH **** +U]TL/^P;;?^AS M51J]?=+#_L&VW_H_]=;' M_P!"N:J5;B_X\KW_ *ZV/_H5S52@ HHHH ,#THP/2BB@ HHHH **** +-K]W M4O\ L&/_ .E,%5JLVOW=2_[!C_\ I3!5:@ HHHH *EM_^/FU_P"ONT_]*(JB MJ6W_ ./FU_Z^[3_THBH ]CHHHH \FU8XU.^.2"+R<@CJ#O3!'OG&*\RTWX'? M"S1;OQ%?Z+\%OAOHVH>-O$FA>.?%UYH_PN\):9?^,?&7A3Q,WC7PQXS\43V6 M@PW/B7Q9X7\9SR>+O#OB363?ZWH/BJXD\0Z7>VFN3B^;T_4)$75[J1E:2-+^ M1G1&*LRB2-F0. 2C,H(#8X)S7X^?#S_@FUXHMOB1J7C#XT^*/@A\0O#7B+XF M_!#Q[XW\!:1\&/!GA[P/XYO_ (267[7=KKWB2]\$>%/ASX'\.VVJ?$$?M&^! M$33?&=O\8/&?A_3_ (4)I?BWXX_%?S]%N-$ /TL^(OB3P+\-9_"?CWQOIL-O MJ-]XS\'? GPSXGA\,G5M?TS6/CM\1_ /@W3?"EMJUM:2ZIHWASQ9X\B^'TGB MM%O+?0YVT#0M7UN&X;P[ITUK\WZ1JO[ \C^ ?V?-*\'?L[68^+/QN^+_ (/\ M _!M/@?X=TK0/%/[0'[,^EZVWQ:F@\)7'@+3_#EMXS^'?A[P;?RIXWUJQTF# M6= L]+N/!6OZYI&I^'I[_P"3_"/_ 3/\7>&]0_9\;4O%?P:\7R?!6?]AN33 M/B!XJ\#:_??%/X<^&_V-O&][JNH?"3X*ZJD[Q:#\-OB?X[1[W6HW\(:Z MWCG2KKP[X_L/B'HM]\)]G]H7_@F[X]^*_P 1_P!HOXG?#;XYZ1\+/%/CV3P1 MXO\ V==9F\(ZIK6I? +XM:_IOP\\ _M3^-0UMJMO%JMK\;/A'\'? GAO2K&Q MAMKG2?$6K>/-9UI=4M-;CM)P#ZP\3)^RCXD_8Y\2_&>W\.:#;_LOZY^SYK7Q MFB\9?#GP)=^#-6MOA-'^S_?Z)9>/_A]'I7A[P_XS\)^+M&^ .?#'PWU+2;'1 M?&_AKP;'H_A7P\-+T^$Y3]EGX!_LV^%/&/Q*^)/PVG\3^,OB5X3\8>+_A M#XV\<>-])\*^%Y-+UBY\&? *;Q?H?ACP-\,/ GPL^$GAW2=5\(_#?X%VVKZK MX#^'&B2^(5\&:<=8O-3U*TOWF^>!_B!\+?AO\-S\& M?B9\$_ASI.F?"OPCIGBW0OAKXY_8>\8_LL:/\+_&7C#P_P"!;7XG^.?#'A+X MF^(=/^-8O=?^-^H>"M:T;2?!_@>P^!'AWQ5\(_"_Q4\1_8_P=^&GQ1^$_P 2 MOB1HPM/"^O?"OXK>-OBQ\;O$'C1[F:QUS0O&.OZ+\#? OP[^'.BZ!_:$]QJD M3Z1X/^)7BGQSXBU'3K/1[*(>!-(T2[O[[4_$,&F@&%\.?'_[#O[1OPKU/6/" M^A_"/Q%\(_"'PR^&>HZQI_Q1^!LOPR\/>&_@9'X>'Q0^#FLWWA+XY?#KP1]@ M^!NGZ58WGC3X;ZNNAI\-M.NO#OB*^\/ZAI^K^#M8@TKLOA=X9_9;^(UO+XQ^ M'GP0\&621^&?#?A.#6?$W[*>L_!_4M1\!VCZ#XA\'Z#H7_"S_A+X"U7Q!X T MNX\/^&M8T2VT&/5/"FEZCX?T&ZLOLM[I-B^G_.7A#_@GKH'A7]B^Y_8\@UNW ME3XO_LO6?[+?[4/Q:U;7OB=XV\:Z_P"'K/\ 9>U_X$Z7KOPA/Q!\6^(%\*:3 MX8\4:G#X@\)_#":XTOX:^&M#UKQ_/H?AVP\2^*]1O]2^R?!TO[0EQ/H,OQ.7 MX'Q[#=6WC)_A_-\1[U]9DM]#D-MXH\++XFM-&A\+)KOB^XDN9?A[K,/C9_!7 MAM&MK?XI^/\ 5+P7FD '2:;\,/AEHVIQZUHWPU^'FC:S%J\OB"'6=(\#>%M, MU>'7Y]1\>:Q-KT.J66E07T.MRZO\5/BGJ\FKQ3IJ)U3XG?$:_%R+GQQXGDU3 MSWQ-^RU^SEXMTV]TK5O@C\+;>WU/1/#'A/5;CP_X%\,>%M5U7P+X2\3>&_%N ME?#C4=;\.:7IFKW7PTGU;PCX?BUGX?27O_"(ZWI%@NB:EI$^ERRVK^]9'O\ MD?\ "C(]_P C_A0!S-YX)\%ZAK:^)K[P;X1O/$B>(--\6Q^(KOPOH5UKT7BO M1M#OO#&B>*(M9N-/EU)/$FA^&-4U7PSHNO+=?VOI/AS5-2T*PO8-*O;BT?D( M_@1\#(=5T+7HO@E\'(]<\+>&K?P9X7UI/A7X#75_#/@^TL-3TJU\)^'=370! M>Z%X7M]*UK6-*@\.Z5/::+;Z9J^JV-O80VVIW\=QZKD>_P"1_P *,CW_ "/^ M% ')6GP_\!6%_I^JV'@7P58ZMI1TEM+U>R\)>'K/5M-?0/#>L>#=!DT_4[;3 MHKZRDT/P=XA\0>$=&>VGB;2?"NO:WX;TXVNB:MJ%A<\IX-^!7PA^']K\1-.\ M(?#[PQHVC_%:XT-_'7AZ#2;*3POK&F^&?A?X-^"_ASPK!X6FA?P[I'@70OAA MX!\+^$=*\!Z-IEAX0LK*UU"YAT9=1U_7[W4_6,CW_(_X49'O^1_PH \_\(?" M7X4?#R/28?A[\+?AIX @T"YUF\T*'P-X \)>#XM$O/$<&GVOB.[T=/#FCZ8N ME77B*TTC2+37[G3A;3ZU::1I5KJ4ES!I]K'%\\?%?]@_]G7XJ>'[?PM;>%[? MX2: ;7XD:=KFC_!CPG\)/"NB^+-.^+GAW1_"OC\>(?#GB#X8^,?#"^)M7T/0 M-*T_3OBCX>T3P_\ &/PE8C6=)\&?$7P]HGB[QGI?B'['R/?\C_A1D>_Y'_"@ M#R^T^!_P5L=0\0ZO9_![X5PZUXP@T.W\9:\WP^\*7/B/QK'X8GTZ[\./XV\2 M7NE7.O>,[K0K[1M&U/2K_P 4:EJU]9:MH^F:K!+?CWXR\+>-OB%JE_):3RW%_P""OA=X(^$7AC2=,>WL;2XM_#VD M>%_ EE>VNG7]QJEQ'XBU_P 6:HE\L.LI8V7I.1[_ )'_ HR/?\ (_X4 7H? M^0?>?]?NG?\ H%Y5%>@^@_E5V)@NGWA8X'VS3SD@C@)>9Z]<>G6J(. 0<@ M'@_X4 .HI,CW_(_X49'O^1_PH 6CNO\ O+_Z$*3(]_R/^%&1D=1\R]00/O#N M1B@"[>=+'_L%Z?\ ^B:IU;O",6/7_D%Z?V/_ #P'M[U3R/?\C_A0 M%)D>_Y M'_"C(]_R/^% "T4F1[_D?\*,CW_(_P"% "T4F1[_ )'_ HR/?\ (_X4 6[K M_EU_Z\;;_P!J55JS=$?Z+S_RXVW Y/\ RT[#D55R/?\ (_X4 +129'O^1_PH MR/?\C_A0 M%)D>_Y'_"C(]_R/^% "T4F1[_D?\*,CW_(_P"% "T4F1[_ )'_ M HR/?\ (_X4 +129'O^1_PHR/?\C_A0!)'_ *V+_KK%_P"C%I]S_P ?5Y_U M^7?_ *4RU'&?WL77_6Q]B/XU]0!3[DC[5>=?^/R[Z G_ )>9>X% $5%)D>_Y M'_"C(]_R/^% "T4F1[_D?\*,CW_(_P"% "T4F1[_ )'_ HR/?\ (_X4 +12 M9'O^1_PHR/?\C_A0 M6$_P"/+4/]VU_]&O5;(]_R/^%68SFRU''9;3(Z'F9P M.#SR>/K0!7HI,CW_ "/^%&1[_D?\* %HI,CW_(_X49'O^1_PH 6BDR/?\C_A M1D>_Y'_"@!:*3(]_R/\ A1D>_P"1_P * %HI,CW_ "/^%&1[_D?\* %HI,CW M_(_X49'O^1_PH 6BDR/?\C_A1D>_Y'_"@!:M2?\ 'CIG_7.Z_P#2BJF?K_WR M?\*M2$?8=-QSB.Z!P"1G[1GJ,B@"M129'O\ D?\ "C(]_P C_A0 M%)D>_Y' M_"C(]_R/^% "T4F1[_D?\*,CW_(C]3@?K0!?ONEA_P!@VV_]#FJC5V^/_'B. MN--M_P"1_P *,CW_ "/^% "T4F1[ M_D?\*,CW_(_X4 +129'O^1_PHR/?\C_A0 M%)D>_Y'_"C(]_R/\ A0 M%)D> M_P"1_P *,CW_ "/^% %R+_CRO?\ KK8_^A7-5*M1$?8KWM^]L!R".K7..OKC M\^.I%5,CW_(_X4 +129'O^1_PHR/?\C_ (4 +129'O\ D?\ "C(]_P C_A0 MM%)D>_Y'_"C(]_R/^% "T4F1[_D?\*,CW_(_X4 6K7[NI?\ 8,?_ -*8*K59 MM3\FI'G!TV0#@]?M%O[>XJKD>Y^@)'YXYH 6BDR/?\C_ (49'O\ D?\ "@!: MEM_^/FU_Z^[3_P!*(JAR/?\ (_X5+;D?:;4] +JU))XX%Q%GKC/X4 >R4444 M ?)/BCXE:O8>(]>T^/3-"EBL-8U&TCEN+;5'N)$AN7B1YGBU>"-G*HH)2)%+ M!BJ@'G!'Q5U@C<-*\-E<$[OLNK8 ).3_;N!\JEN3]T;OND&L'Q:BR>._$<; MC*/XHU%'&< JVHR*P)&" 02"01@&/V,6_8FU?PH-'^, M^@?$?P/?>%[Z#XEZUI4]AX2TG3=%#7-V?$*^'5E /[&#\5-9&0=(\.@CK_H> ML<$JKX/_ !/>#M=&P>=K*>A&1?BIK+8(TGPX03@'[)JX!/L3KH!R,,,9RI## MY2"?Y]H/^"H'Q3^#VM:YX8_:2^%_PL\,^#O@)\9_V#? '[2'Q@\)?$SQCXN\ M-> ?@9^WA\(?$>M?#GXOZGKGC+PCX(O[S6OAG\7/#VE^#OC1XEUO0]*\.^)= M-\:67B7P_I&@7S7,5I\(_$;]N7]J;XMWES\7I_$GQ(_9WLOBE^R=_P $MOC- MX,^$O@KXG>.M/TKPIX4^./\ P6 \0^ =)\37-M;ZKIUFGC;XS?LPOX+T[XJ7 M>GVEK!XB\-Z]/X)NS?>%+6"S(!_7O_PM36>/^)1X=Y&1_H>L'(.<$?\ $]Y! MQE2.&&&!(()/^%J:R3C^R/#F0,D?9-7R!E1D_P#$]X&649.!DXZYK^>GPE^W MM\5/A9_PC4FI^ -5'P$\2_MN?MD_"WXH?M0_'/QY\?\ XO\ @KX<:OX1_;DN M/@#\.?A%>>*_!W@'XB:M\%9/B#9:M)-\(->^*\.@? 'PW?:7HGPJAU+2K:?4 M-=T/Z@^.GBWXJ?%'_@H?\$/V&M'^*_Q.^!/PPU_]DSXJ_M,>(/%WP5NO"'A_ MXI_%7QWX3^+OA#X7:/\ #32?&7C'P+XX_P"$;\/^"M UG4OB%XBL?!5A%K^O MSZGIEKKUW_PBFG36>H@'Z[_\+4UK(']D>'>>G^AZQ@X)!(/]NXQD'G..#SP: M3_A:NLY _LGPX2?N@6FKEFY (11KI+D$J"$#$%E! ++G\GO^";G[1?B[XV?L M\63_ !B^(OA[QU\0M)^-W[5?PA\"?$*2Y\'^'M;_ &D?AO\ LY?&CQ#\.M.^ M,^A^$O#EKH.E:D3HMOHVG>-=1\$:!'H(UR"37+B#39->CM4_.SXZ?M>_M&0? M\%3/BW^Q&?"NF^'/%-OHRR>++SPU8V@!_ M3H/BKK)Y&D^'"/46>L'Z]-=['@^AX/-'_"U-9_Z!'AW_ , ]8_\ EY7\^WQ" M_P""LOC#P9XT_::TO1_A[\+/'_@WX)_^"G/QR^&OQ(^ /P_^)?PO_9PN/$7Q ^)?[*G@OXT?#KX, M>,/VL_BUXA^"&@_ML^.]5\/?!76/&7QB_P"&4O"G[./@;Q-H?AV?PWJTO@CQ MW\1=.UKXVWFE_$&;X;+H.CVOA*ZUL _?W_A:FL_] CP[_P" >L?_ "\H_P"% MJ:S_ - CP[_X!ZQ_\O*_G;\"?\%@?%7BG2?$^G>)?AW\%?AKX^_9]^#/Q?\ M$'[9C^,_&GQ7U'X>_ SX[^%_VPX_V/?@]\(+%OA9\._B?\5/$FM_-(\8? M$3PMX*TGX;ZUXR\9::G@SP9H-SHEWXED\767/>#?^"AW[9'Q]^,7[#/A3X9Z M-\+?AC9^,/VZ_P!L_P#9!_:'\+>+O 'Q8TUOB4W[-'P0OOB?9Z]HWA?XL_#_ M ,)?'+X,6]QX>N(M<3P1XCT?P?\ $30_B;I6E^'_ !Q?R?#^\UW2W /Z1?\ MA:FLXS_9'AWC_ISUC^7]N9^OIWH'Q4UDD@:1X=X!))L]8 PNW(#'70I/S+A0 M2QW* "2,_P H7[9G_!5GXH>._@%^WC\/_A/JNA>%CHW[(/B[]H/]GK]J+]FS M7/VIO!\VG)\-_P!KSX:_L]^*]$\-?$GXK_ [X(V?Q M!](U6P\6^"+A]:9+/5;WZ2B_X*#?%GXQ^-OV3?C%\/O@IXIU74?B5J7_ 5N M_P"%-_LN>'?CIXS^&WC#7D_9*^%>FZ=X!^$_[6/PX^R7/P];]HCQGXWT/59[ M/P/K^E>*],_9NN/%WAR_\/:AXF\8W.L32@']%?\ PM36?^@1X=_\ ]8_^7G7 MU'4'@T?\+4UG_H$>'?\ P#UC_P"7E?GK^Q'^TEJ_[47P5G\=^*X?!VC?$3PS MX[\2_#CXG^!O"VB?&3PAJ?PQ\>^'++0M3U?X=?$/P#\?/ ?P]^)O@/XD>%X? M$-G8^*-"U+2]F?\ "U-9_P"@1X=_\ ]8 M_P#EY1_PM36?^@1X=_\ /6/_EY7F=% 'L]M\2=7D\.ZQ??V9H0DM=5T.W6) M;;5!!(EU;ZU+(TJ-JSNTB&S18MLT*@2N6#D@IB?\+4UG_H$>'?\ P#UC_P"7 ME(O^PYX:_\ 2+Q)7-T >F?\+4UG_H$>'?\ P#UC_P"7E'_"U-9_ MZ!'AW_P#UC_Y>5YG10!Z9_PM36?^@1X=_P# /6/_ )>4H^*FM9&-'\.DY&!] MCU894=U_WE_P#0A0![/KGQ)U:R?2$33-"E-QXF?\ "U-9_P"@1X=_\ ]8_P#EY1_PM36?^@1X=_\ M /6/_EY7F=% 'IG_ M36?\ H$>'?_ /6/\ Y>4?\+4UG_H$>'?_ #UC_Y> M5YG10!Z9_P +4UG_ *!'AW_P#UC_ .7E'_"U-9_Z!'AW_P ]8_^7E>9T4 > MR:Q\2]8MO['VZ7H+BYT#3KQO,MM58)),]VICB5-6B*Q*D2[1(TL@)?=(P("X M_P#PM36?^@1X=_\ /6/_EY7)^(>GA[_ +%?1_\ T/4*Y^@#TS_A:FL_] CP M[_X!ZQ_\O*/^%J:S_P! CP[_ . >L?\ R\KS.B@#TS_A:FL_] CP[_X!ZQ_\ MO*/^%J:S_P! CP[_ . >L?\ R\KS.B@#TS_A:FL_] CP[_X!ZQ_\O*/^%J:S M_P! CP[_ . >L?\ R\KS.B@#TS_A:FL_] CP[_X!ZQ_\O*/^%J:S_P! CP[_ M . >L?\ R\KS.B@#TS_A:FL_] CP[_X!ZQ_\O*/^%J:S_P! CP[_ . >L?\ MR\KS.B@#U2T^*6LR7=I$=)\/!9;JWB8K;:O&P265(W97;69%5U1F92T;C ML?\ R\H_X6IK/_0(\._^ >L?_+RO,Z* /3/^%J:S_P! CP[_ . >L?\ R\H_ MX6IK/_0(\._^ >L?_+RO,Z* /3/^%J:S_P! CP[_ . >L?\ R\H_X6IK/_0( M\._^ >L?_+RO,Z* /3/^%J:S_P! CP[_ . >L?\ R\H_X6IK/_0(\._^ >L? M_+RO,Z* /3/^%J:S_P! CP[_ . >L?\ R\K:L/B3JTVC>(;IM-T)#8KHYCC2 MVU18I#>7SVS^>'U:60A(\F'RI(@'W&42#:!XS71Z9_R+GB[Z>&O_ $[2T =3 M_P +4UG_ *!'AW_P#UC_ .7E'_"U-9_Z!'AW_P ]8_^7E>9T4 >F?\ "U-9 M_P"@1X=_\ ]8_P#EY1_PM36?^@1X=_\ /6/_EY7F=% 'IG_ M36?\ H$>' M?_ /6/\ Y>4?\+4UG_H$>'?_ #UC_Y>5YG10!Z9_P +4UG_ *!'AW_P#UC_ M .7E'_"U-9_Z!'AW_P ]8_^7E>9T4 >F?\ "U-9_P"@1X=_\ ]8_P#EY1_P MM36?^@1X=_\ /6/_EY7F=% 'IG_ M36?\ H$>'?_ /6/\ Y>4?\+4UG_H$ M>'?_ #UC_Y>5YG10!Z9_P +4UG_ *!'AW_P#UC_ .7E'_"U-9_Z!'AW_P M]8_^7E>9T4 >F?\ "U-9_P"@1X=_\ ]8'Z_VYQ]:U[OXEZQ'HWA^\.E:#YE\ MNK>9$;?5'AB^R7L<"?9UCU:)E$@)DE\R28[R%78J_/XY6_J'_(M^$/\ <\1? M^G2*@#K?^%J:S_T"/#O_ (!ZQ_\ +RC_ (6IK/\ T"/#O_@'K'_R\KS.B@#T MS_A:FL_] CP[_P" >L?_ "\H_P"%J:S_ - CP[_X!ZQ_\O*\SHH ],_X6IK/ M_0(\._\ @'K'_P O*/\ A:NM*01I'AS@CK::P.IQGG7,$C.0O<\<=1YG36Z# M_>3_ -#6@#VC6?B5JUJNALFE: YOO#FFWT@DM]581/--=J(H0NK1DP@1?*'+ M2*00TCC!.+_PM36?^@1X=_\ /6/_EY7*^(?N>%_^Q-T7_THU.N=H ],_P"% MJ:S_ - CP[_X!ZQ_\O*/^%J:S_T"/#O_ (!ZQ_\ +RO,Z* /3/\ A:FL_P#0 M(\._^ >L?_+RC_A:FL_] CP[_P" >L?_ "\KS.B@#TS_ (6IK/\ T"/#O_@' MK'_R\H_X6IK/_0(\._\ @'K'_P O*\SHH ],_P"%J:S_ - CP[_X!ZQ_\O*/ M^%J:S_T"/#O_ (!ZQ_\ +RO,Z* /3/\ A:FL_P#0(\._^ >L?_+RC_A:FL_] M CP[_P" >L?_ "\KS.B@#V2T^)>L2:+K5W_9>@AK:[T*)8UM]52.07L?_+RC_A:FL_] CP[_P" >L?_ M "\KS.B@#TS_ (6IK/\ T"/#O_@'K'_R\H_X6IK/_0(\._\ @'K'_P O*\SH MH ],_P"%J:S_ - CP[_X!ZQ_\O*/^%J:S_T"/#O_ (!ZQ_\ +RO,Z* /9=(^ M)6L7-MXBE;2=!0V.@/>1;(-519)/[8TFS\N;=J\K&$I=.61 DA=$Q(J[U;&_ MX6KK1Y.C^'03S@6FKG&?==<"_D /0#I7+:!_QX^+O^Q6;_U)= KG* /3/^%J M:S_T"/#O_@'K'_R\H_X6IK/_ $"/#O\ X!ZQ_P#+RO,Z* /3/^%J:S_T"/#O M_@'K'_R\JWIWQ/UFXU+3+8Z3X?5+G4;*WD:.UU5)$2:YB0NADUIU#)NW*6CD M7<%5HV5CCRBM'1O^0UHO_87TW_TLAH _0^BBB@#X&\;.8O&7BN0-L\OQ#J[[ M\[=FR]F;?N[!<;B>P&:^:8/@]^SYIWPIUSX*6W@?X;V7P;^*-MXX&M_#J,:9 M!X/\>VGQDUNXU'Q_C3_M:PZ[;_$#Q!XXDN-9>PEFBU/4_$UDD3&:^TU&^F/& M;^7XU\4/L20)XDU1C'(BRQR!;^4LDD3_ "2QN 5>-LJZDHP()K\=/ ?[*_QP M\)WNGZ7_ ,(IH]QX5_9S^*O[._P4_99%[K?PZ\1_:OV0K/\ ;8\!?'WXO^.6 MM]?U*1?#]YX9^ FB?"?X+PZ+J":'\49=6_9@N_$_PZTVXU'Q?X&O[P ^F/VD MOV&O@C^T=\&/VC/@Y/ID7PM/[5/A'X6> ?C'\1_A]X?\*2>/O$?A#X/75A%X M!T>:Y\6Z)XAT28^%_#=K>>$_"NH7VES7O@[3=7N-1\-RV.M6>G7UIZ/XQ_9_ M_9>U74M(?QQ\+OA-+J7B#0OA=\)_#,?B6TTN'4-=\.?!3QK;_$WX._#W0X]1 MN()]9M_AUXX6R\7^%="T^.XFL-:$6HI%()HVD^%[CP5_P41U+P#\#K.SUOXU M>!O&\?P_\7K^T5XAO[[]G;XJ3']JZZT'X*CPW\4_AKX=B_:I^#NBR?LO:1JL M'QUN+7X1:WX@TG1[F;6?AS9>(OV6K>TFU#4O#_U[J7@O7]%_:V\8?%#7/@[J M/QD^'_COX9_ [P;X4UK1KGX/7I^"T_PZ^(7Q0USQ[8:OH/Q?^('@36+3P_XN M?QMX$\;V>K?#73/'&K:WJ'@/4K;Q5ING:OX5^'$/B@ ?#^R3^QAXWOO!7Q.M M_@+\"?&EYH?BC7OBKX#\-](UJ,ZCIVN7.J?$F M[O/B!;7\DNIVNG>,[F]\0:,MCJ\UQ<-W/QE_9^_9X_:2@TK0OCI\)_AA\8W\ M#7\^K:#!XWT+2?$&M^"-0U^R%M>76C:D1_PD/A3_ (2/3K-+74X].OM.B\1: M=8Q6M[%?6]G#'#\(?#+X1?MC?!KX1>"OA]I>A?$;Q1I=S\!_V9_#WB70;?XO M?#&TU7X9_$K1OB;\2+3XR+\.I+3XF_"R=]+\/?"*Z^%VG7GAKPY\7?AMHWBN MR\.Z9JOA?XF7'Q(N/B(?B1T7P9^&?[;=[XK^!M[\99/$7AF#4IOV7W_::U[P MEXF^"FA^(O%:> ?V5_CWIGQ+T[Q3JG@'5-6\1ZGIDW[1MY\(([J+P+J=[>7L M=S+)X&U>;X:3>,;Y #Z"^!/[#'[-?[..K6>J?##P3>0IX4\4_$GQ+\&]+\5: MW>>+M*_9NT_XQZ;X>L?BG\-OV<(M92>^^$WP@\9W_AV+Q1>_#?2M0N?#VG>* M=9\27&@6^CZ+K#:1:>C^,OV7_P!G/XB?\+:/COX(_#;Q\,6 M%_+\2_\ A33F7X2R^+)94\S4+KX;S,T_@R]#17F@7#-<6%Q#.QD/QO\ ##X; M_MTZ8? &O>-?'7Q5U'6K'P_^P=K'BS0-8^(WP8U;PW=^/=<_:=^(VB?M\Z5J M=CHK"QN_#_@W]C[_ (5M=>&=.TMF\,2^)XY->^%<7C+X_2>)-%?#^I?L\_M'I\8?!V M@_$/PQ\4?B7XEUCPK9?'+_AG&UL-=\&:9\'[RXU.>\UWX;?!GX4>!3XMTG2 M#Z;C_87_ &,[?Q#\2/%EI^R_\%+'Q/\ &#P]\2O"?Q1U[3? ^E:7J?CKPO\ M&)4;XJ^'_$%U8):M<:/X_EC>]\3V,9@MM1U.YU#5I534M4U.\NVZU^S#^Q7\ M7OBNGQ"UKX+_ +/GQ#^-?P8N_ASILOB.=&_;[U/X,?"--/C\ M9_\ "[8_V--4M=5NO WC;X%>']'\&?M_C1OA^GA3X@_M P:IXJTGP]\0?@3H M_B!/%-UXA\&?"B#XG^$-5T*M?^!M[^V$GC?53H'BG4/BKX:T'3+36?@S- M>ZQ=?#_6_&?ANXN[N*VM]:TP>*C:V+@'T>?V7OV1?&MG\?9Q\#_@?XNT[]I[ M6H[;]I*:+PQX9\0:?\9O$OPZUK4].BC^([PK>6NN>(? 'BZ#5UC-R8]5\(^. MK.]OT.G>+;&2Z@PI/V4/V(_A_P"#_"'@RX^!WP!\#>"/#7QEL_C)X#T:]T;P MSX7TK2?CTVG6FDP>/_#,]Y/8RI\1M6TS3+:SOK^QNGU7Q)%;2#54U.5KDO\ M+%_\&OVW? 'AOQ58?!G5O%.GS>.?%'[7GB[Q-HNH^*OAAKEGH-OXI_X*.?#; MXC_#^U^$.AZAXR\'6N@?$#XE_L8^,?VGCX7N(/&7@N"U^(^J^"5^+7Q#^'/B M_2?!>OZ!)\<_@#^T'\3?@]^SEX>\4VGQ5^(FOZ!XG_:NL_B9JOA31OV3=+^) M?ACX?_%OX._M#_#OX6Z1+X:^/7QV^*'PH\6-X6\/^-_!'PZU#Q0WQ>^(GC[Q M/!H<7Q \;ZC9^*]4\=7NC 'TU;_\$^?V&K";XB/9_LC? '3I?BOH/B#PC\34 ML?AOH&GIXR\*^)_&.B?$+Q!X3URWM+:"&3PSJ'CSPYHOC"3P[!%!HUOXDL3J MUG96]W=7LMUV>M_L@_LL>(]<\4^)/$'[/?PFUK6_&^M_%GQ-XPO=3\':7>+X ME\1_'GP3HOPX^-NO:O9SQOI]WJ_Q;\"^'-"\,?$349+3[5XMTW3+?^VI;NX, MUQ+\E^'/#O[?7A:/0)F\(:Q?^+?"FDVJS^'_ [\9_AK8?LWZQ\--!_8B72= M.^"?A.[^(&K>-_BAI7QR^.GQ%^$GB7[+X3MM5U;Q3\4->^'@E^& M>K,^''@C]OB?7+R/Q/KGC7PIX=\.6O[5.K?#2W\8>+_A[+9ZCXGNOAA^QQ-^ MS%IGQ;@\._&+]HCX@^)?!NG_ !K/[7]])I4OQ4\8WDOAW2M/TKQS):^#]=\! M?"^4 ^YO@[\,_@=\$M OOA)\"O!_PZ^'&A>'K^3Q-KG@+P!;Z/ILNG:SXWDN M+M_$_BK3+&1]6DUOQ>=)N)E\0^)/.U+7H-)*QWUU!I8CMN_U/Q3X8T35_#?A M_6O$WAS1O$'C*;5+;P=H.K:]I6F:WXNN=#LDU+7+;PMI-]=V^H>(KK1-,DBU M/6;;1K>]GTG3I8=0U&.VLIHKA_S1\ ?#']JSP_X>_:@\4Z1X9^-?AKQ_\1?# M_P"Q58: _P 5/BC^SKXP^,/B2T^'YN[/]J73/ WB?P?X^\8_#;P[XPU#PIK7 MCFP^#>J^/_$NB>&M%^(VO:7&/( /T-!SS_, M$'\0>0?4'D=Z* ".#PP)##KA@<,,]\'//?KDT4 =)9_\BAXB_P"PYX:_](O$ ME&O_2+Q)7-T %%'S$A55G8D *HRQ+' P!R1G"\ _,R) M]^2-6E^SW/VA;4VTZW3,RI;M$XF_[%?1__ $/4*Y^@ HHHH ***?'%+,VR&&6=\$B.&-Y9#M5G;;'&K.<(CL<# MHK$9".5 &44J*\BH\2-*DC.D;1 R"5HP&81%01(=IWA5);8 Y4*\1D66.6!S M'<0RP2 *3%,C12@,0 QB<+)M.1\^TH,@[MKQEP!M%%% !1110!:L/^0AI_\ MU_6G_H]*O>(O^1B\0_\ 8>UK_P!.=U5&P_Y"&G_]?UI_Z/2KWB+_ )&+Q#_V M'M:_].=U0!CT444 %%%% !1110 4444 %='IG_(N>+OIX:_].TM&O_ $[2T (O_ $Z14 8%%%% !11^7XD*/Q9B%4>K M,0H')( )J"&YMKAKE+>YM[A[*ZEL;Q()XIGL[V%8Y)+.[2-V>TNTBF@F:TN5 MAN4@N+>5X52>(L 3TUN@_P!Y/_0UIU-;H/\ >3_T-: .D\0_<\+_ /8FZ+_Z M4:G7.UT7B'[GA?\ [$W1?_2C4ZYV@ HHHH **** "BBB@ HHHH **** .AT_ M_D6_$G_7_P"%O_1NM5SJ]!]!_*NBT_\ Y%OQ)_U_^%O_ $;K5L?!&E?L+XRWGQMX MG$6[S3XDU01[#AO,-_*$VG(PV[&WD*->\,>*K/2_$OAG1KCQ1X#'QE\%>-=7\+>,O M"T&J> -1^*'@_P 62>'=8O?&7AO7(K$ \YUC]OWPAI$.A7+?!?XU:G=^*=0_ M:$_%'BSQ'X%_9&^+?A_X)_%OQKI.A>&=?U.>^N;_X@>)=!L?A MGX"B2U\;^/\ 2-1DU%=&\*32'27[)OVJO$.K>(/@5;^!O@;XCUWP3\'K:>'P#X7_:4U#QA\0-'\.VU_KFNW-GI^O?LWZS;V>@^( M+7PQ=:GX7\0VNLQ3V>N6S>%Q] :A\"OA/KMAX)_$GA: MQF\'Z6T&CZWXSU>\\4>-=1T>**R!AD\9:]J=]K_BV*T#6WBG4[A]3UF#49VM M9W\OU_PY^RQX1\,_%WXRZYX#\!Z5X?\ A)XG\3_&/XM^,;7XF:KJ^OWOBSQ%#8G7=3 M\1ZM;WH!Y%:_M[^$[_1OAOJVC_!SXIWZ?';P]\"_&_P"LDO?AO8R_%#P!^T! M\0M/^''@;QG^(_"7B/Q;H'C.2P\4:)X.\663Z-:>(O$>B^ M+/"&@^Y?#?X^)\3/%7C'P=I/PS\:Z3JWP[^(MUX+\=:7XAO_ 9H?B#P=X9' M_"?VF@_%C6/!.K^(=-\5CX:^/=9^'_V3X::SHNCZPGCW2/%WASQ7X<-YI&C_ M ! ;P=V.B_L__!GPS=WMWX>^#/P[T6ZU7Q#H/BFYO-)\$:%:"[\0>"/$&K>+ M?">M6UQ!IZQAO"/BC7M>\4>&38,MIX/=$\6:I\3[6WT*"RT#4M<\52^'O%WP^'B_P 26-C'#J/B M./PUI_QB\;Z7H*7TLNC>'_$/Q+U>_33UU[7-/NT /D^']M;Q-\+O$'B3P!^T M+X2URT^-^L_%>T\&_#?X,>'? IT72M2\%^)[;]I?QU\/?B3X;^,=YX]\3^&/ MB1\._$7P<_9G\>:YJ^LS:5X*\>>#OB1X.UKPAXO^&F@IXX\':'9]/J7[=7AZ M?3-2O+/X7?&#PA875J=!TGQ9XW\,^$[:\T#XC:O^Q3_PW-H7ACQ7\*[KXC:' MX_M]3TCX<-$M?\ &+?VUK#?";4O#5MXA\3?"[Q'XLTO3=>T/4?$?A;0;O6M M"\+^(-6\=Q^"/&OA*>Y\%2'7_&$O@K7+FV\0:ZU]O?$+PU^SU\/O#T%[\0? MG@73-&UCQ5ID>DZ1_P *[7Q%JWBCQU?_ KNO@YI-EX4\$>&_#^M^)O&/C.? MX&VFI?#^UTCPOH.K^(H_A#IFN:<;*+P-HFLO8@'SKK'[?_@GP?X O/B%XA\# M?$35?!GAZP\;:%>>/-#T_P &Z;;>(OB[\*OV,_$_[;/CCP7HW@F[\>:CXAT* MRF^$W@'QO:Z-KFK7\^A_\+%T/_A%I='_'VI=MX\^,?Q;C^+?[,OPZ M\/>&]6\"V_Q@^'_QO\<^-M'N/ 5A\8?&/AB;X=>*?V?M"\-Z=?7GA'XA:9X2 MT+1VTWXLZS>^,/$&G:CXNM-,O4TK3=)N)XUO;V^]D;]GW]G_ %\W_B1O@O\ M"O64\9>"KCP9J>KMX&\.W]KXE\!^(? ME\.K[0KJ4Z?+::GH^M?#&UTWX>WD M96675? ,6G>#-]WX<^RZ6>N\9?"+X?>/]4T#4_'/P[T#Q/K7@B#5!X9U36=% M6XU;PO;:\VB7FMVNC:@(TO[&UUI_#GAVZU2QLIOLVJ/H6B7$\%R;+2GH ^/+ MS_@H-\,(=<\<>$[/P%\1;GQ?X'_:$A_9;U70'?PFL$OQOF\+?%WXHS^&TUVT M\07UJV@V'P)^$5]\9;KQG!93Z,-'\6>&/!*3_P#"S=/\>_#KP'V&@?MF:!XE MT67Q=IWPA^,ECX+M/'?[,OPGUS5O%-CX3\*>(O"?Q7_:AL_V:M8\)> O$WP] MUOQ5!XTTS4_!6@_M3?#6X^(%T]A<06&M:7XJ\+Z=;ZG>Z1:2ZCV6K>!/V48? MA)KOQ@U3X:?#6'X3VWP_/Q/U[Q=%\,I(V3P+X7O?'/QXC\32V>G^&E\8276D M:SXY^)7Q)M(+?3F\51^(O'/C6^L[)M<\8:O%JO/>)]/_ &*[;QG9^"?%O@[X M30^*?BAX1^&>BM:ZI\-Y%T?6_"OBB_M/ OP2TKQ-XC_X1G_A#] U'Q5JOPVT MGP'\'-*\7:OHOC#Q'K/@K0? W@.SOM7T/2-%MP#R'XA_MSWVF6OQH;PK\.M5 MTGPS\*_V>OVP_BOJ/Q+U<:%XJO=#\4?LG_&KQ)\"-8TY/@\GC'P8_C31M<\0 M>&9M&H(?"R77A[QRGQZ^('P+^'EAXAO(]=EBL=.^*^D?!SXR_&KP%XA M1;YKWX*?#AM1FMK;Q-X@\!^$->^@Q^S3\!TT>W\.+\"/AE%H.G>'/B-X:AT. M/X?Z!#I,'A/XS:C-K/Q8T&?3X].2SDT'XG:S+<:WXZTV]C>Q\5:U-/K>KQ7M M\\U]3X_AI\$?B/:?$/Q"/AMX'\30?$KQ=IL_Q0UF[\$6D=_XV\;?!34T^'WA MW5?%ES?Z3::UJVN_#>\\#VNB^"_$%Z'GTFRT'3+CPAJ!L?[/N)@#Y5^+'[8_ MBSP'X=\"?$#2O -U9>&/C?\ L[>/[WX,^"/B!X>U+PQ\2/\ AL/1[WPU'\)_ M@5XOA35I;5X?BU;^*M0M-,L]-L0+.[^'.OZU9^)-5TS6[<:=TWA+]K;[)=?$ M'PWXITK7/'6K?!FZ^/'B3XT^-?"GAC0?A[X4^&OPQ^"?Q4U[X77OBMO#^M_% M/QGX@\7?VGJ?@KQ_KND)X4N[CQ!KGAKP-J][<^$?"OB;4_"?@OQ7]2ZK\-?A MEJ<'PZ\*Z]X$\$7\7@'6M&^(OPE\-ZYX?T6[D\)^(OA_$NGZ)X[^'VE7]K++ MI>N>"H_%<=M9^)]#BBOM!/B=$2^MY-7<34Y_@3\([WQ!I&O7'PD\!7'B;PWK M_B;Q7HVJMX.TA]8TOQ%XU\1Z;XN\7ZY#/'8&[74/%'C#2])\5:X\X:XU3Q1I M>FZ]<0RZS8V=U& <5^SW\?\ 3/V@_#>J>(M.^'_Q!^'JZ1/X=3[%X[TFUM8M M5L_%7@_0_&>F7OA_6=)N[[0=:73K;69/#WB>WTF\N8M \5Z/JFEK<:A8KIFK MZE[_ %XS\+H?@IX-U;QC\'_A#X;Q?X<\)>!=?T+PGH-WXA M\,Z7J'A70T\2P^'[7P%/KD7@=_#^IVW@O1O$%UK'ACP9?>'+RYT31]#U31VN M?9@<_P"?\_X^H% '26?_ "*'B+_L.>&O_2+Q)7-UTEG_ ,BAXB_[#GAK_P!( MO$ED^ /"7B3]H;]F[P1\8?'OB7Q-XG\%^ M#?"'P6\8?%KP[HWCW4?B'XO\%ZUX:\4^&?ACJT4NF^$/B7K.C^*/"3V_@7Q- MK]K?>,?!^E7VH>(;+\C/VK?BM\0/'?\ P31^-'@[X7_!37-/_9O\ ?#[]OW5 M];^.?[$FMZ/#\!?'^L? >;Q%#\!/$G@?4?&GQETWXC^$_@%KOQ&O]5^/'CR] M\":O\2+7^VO@C8_#7PCJGQ%^'_CS79;_ /IO>..5)8I426*:*2&:&5%DAFAF M1HY89HG#1RQ2QNT4(/L M8M"AMQ:>0!";;R_(,0$90J * &6>JRZ[:6>NSZ!KOA.XUNRL]8N/"OBF'2K? MQ/X8GU.VCO9/#OB6WT+5]?T.W\0:'YPTS6H-&U[6]*AU&UN8]/U?4K18KV>S MW7_>7_T(4I))RQ+'U8DG&2<9/89.!_B:3NO^\O\ Z$* .E\4?\?&B?\ 8I>& M/_37%7-5TOBC_CXT3_L4O#'_ *:XJYJ@#PO]IOQC\#OA[\ /BOXZ_:6\21>$ MO@+X2\*S:]\4=&['PEH5] M]L\>WNKP>!6L=6M_$D^DWWXI?#R_^ B^$/V2-'_:'^,/PGTO]ACXF_'S]N;Q MYXF\!ZA^U1X>\0_ K]G_ ,2:SHO@OQK^R?\ L??%?XW^$/BE=^![:X\!_#;5 M?BG\0[?X97'Q"'@?P[\8Y[#1/AVFMQ^"/A?KEQ_0W<6]O=PR6UU;P75M,NR: MVNH8KBWF3(;9-!,DD4J[@&VNC ,%8 ,H(JPZ1I%O9S:=!I&E0:=<2I<7&GPZ M;8Q6%Q<1F$QSSV4<"VLT\9M[Z_\ _$'[%G_!0S3/AK\6/B)\-? M&OBG0&\2^+_B)-9_ /PYJ?Q6^(^AZSKTWC^31?".BZGX=\3>,O%&F>-/JK2/ M@5\&?%/_ 4LN/$WPV^'>B>%+W]EOP9X@^)GQY\;^'7OK#4O'7[37[5=AJVE M>"/A_P"*&BU(PWC>!?@R?B-\7_&?AB[MTBBUWXQ? GQ-/:I/:6L<'Z9WNE:5 MJ4YNM2TK3-2N2GE_:=1TZRO[@1B0S"-9[N":58_.+3>6KA#*S.5+,Q-Q8HT: M5T15>>02SNJA7GE6.*%99V #32K#!! LDI>18((8%80Q1HH YEHHH Z#Q#T\/?]BOH_P#Z'J%<_70>(>GA[_L5]'_]#U"N M?H **** "O@W_@I9X8M/'7[(^K^ -0USQ1X;TSXB?M'?L#?#K7->\$^(M5\) M>+](\-_$#_@H%^RWX*\27OAOQ+H<]KJVB:W_ &'K]_;Z9?V=S%)')-,0LL2W M$4GWE3)(HY5V2QI*GF0R[)%5T\VWD$MO+L8%?-MY566"3&^"51+$4D&Z@#^; M;5?CI\7-=\?_ +3O@[]H;Q?XK\%ZC\$]>_X))?LZ_P#!07QMX2UOQ%\-M)/P MIL_C9^W#/\0OCYX;UOPQ=V=W\.?A#^TQ\/-5^!'Q"^*'BKP7JND#P#\+_B=X MT\,:QKVFV_PVU;5M*_1/]BRZ^$$7[27[4/A[]D3QCH'C#]CO1OA7^S/=VR_# MCX@7GQ.^!_A7]J?5/$?[0:_%CP[\)?%,'B3Q9X/T^]F^#UI^SWK_ ,6_!O@7 M5WT32?%&L:!KVIV&G^,?&/B>:?\ 398HU>:58XUDN(1;W$@CC#W%NJS*L%P^ MW=/"BW%PJ13%T59YPJCSY=\=O:VMG;Q6EG;6]G:0;O(M+."&UM8=\C32>5;P M)'#'OF=Y6V(,RN\A^=V8@$]%%% !1110!:L/^0AI_P#U_6G_ */2KWB+_D8O M$/\ V'M:_P#3G=51L/\ D(:?_P!?UI_Z/2KWB+_D8O$/_8>UK_TYW5 &/111 M0 4444 %%%% !1110 5T>F?\BYXN^GAK_P!.TM(O\ TZ14 8%(>AXS[9(S[9!!&>F001U!!YI:* /S^^/W MC3]LGQ!\?=&_9@^%/@";P1\'?BWX,\/^)=0_;8\)7KOKWP'\+^&=5UZV^/?A MLVFMZ7?^';3X]^,K.;X<^&_V8KBWL-7TS0Y?&OC+XI^(].UV/X43^'G^V/!/ M@GPE\./">@^!? F@67A?PCX8L1INB:'8&ZEBM8//FN;BYN;W4+F^U;6=8U:] MN+G6/$7B+7M0U3Q)XF\17^J^(?$NL:WK^J:CK%_U)Y!&3@\D9."<$9(Z$@$@ M$C(!.",FB@ IK=!_O)_Z&M.IK=!_O)_Z&M '2>(?N>%_^Q-T7_THU.N=KHO$ M/W/"_P#V)NB_^E&IUSM !1110 4444 %%%% !1110 4444 =#I__ "+?B3_K M_P#"W_HW6JYU>@^@_E71:?\ \BWXD_Z__"W_ *-UJN=7H/H/Y4 +1110 444 M4 %%%% !1110!T>@?\>/B[_L5F_]270*YRNCT#_CQ\7?]BLW_J2Z!7.4 %%% M% !6CHW_ "&M%_["^F_^ED-9U:.C?\AK1?\ L+Z;_P"ED- 'Z'T444 ?!?B^ M01>.?$DK E8O$^HR,%QN*QZC(Y"Y(&X@$#D$?B_IOB'XLPZ_K^O3^#/$'P.\/7_[2_B;0/@GX0\/:9X=\/V.H>%3 MXV^.NG^(_%.@^-M+D@\>?9M;TGX@^(?&7AO2O!WAZS_5/Q;$DWCKQ'#(_EQR M^*-1CDD. $1]1D5V);Y0%4DG=QZ\5^9?PL_:&\4G]G_P+^T9\0OB-9:KXO\ MC%J3^%]&_9\OH+'2O"/A+XFZC\68?A\WPA\()\'?@!\6?VD_$GC_ .%6K._P MY\?6-YIGQ0U.]\;6VLSZCH?@F)XK?PJ >,7/[!/QM3P=\7[*7XDVOC?X@>-O M$M]XATWQ!XR^+6CVO@'Q_K5O\5?B#\2O!WC/XS_# _L4>+K/Q%J'AI/$/AWP MK=>"OB#KO[06GR>#HY_!_P /O&OPIMOA_P#"?6?#TWQW_86^.WQ<\%_&SPQ? M^*O@_P"/'^*_@W]JGPUX>L?'OC/XO^'?#/PI\7?';PO\'=(\$?&/PC:Z?X7^ M(>LR>*/!1\ ^-/#4_AZYU2+4-.\$^.M4LM'^)VHVOBCXB^'?%FI#_P %#?'W MQ ^#=[\6/@M\%OAU-86OPG_8A^)S7_Q+^-'B>WTUKO\ ; ^,K?#L^%K/2?"_ MP9N-3O=,\'Z/HWB.^M/B%J&I>%Y]3EOO"MY>?#$M-XA\+Z?W'B[]O?7/#NJ_ M%^STO]G?7=>T_P"%WQ \0?"2WUB\\7^.?">D:O\ $WPQ\;/@Q\"]3T/6O$/B M#X"6G@71]'UGQ%\73XG\%ZIX+\9?$_Q#J7@KPS9:WX]\#_#N\\9:1IVF@&)J M/[$?Q5U;QU\9O$NL?%6]UB+XE?%N7Q4-4D^)$F@?\)3\+M4_;4^"?[15E\/O M'?A?P;\ ?#7C\:Q\#O@=\-M:_9H^!.OZU^TQ\5M+T'P9J>NZ+X8\/?"3PG\6 M_%6C>#O0_@_^R'>?##X_^!/BU>Z+\'M>T7P=H'[7GP]T39:7$'BWX<_##XT? MM)6'QI^#'A;X=&\\!7D":!X)\$)K/PMU?P':^(?!/ACP-H>MW&C^ +O7O"8D MT*?S[]I;X_\ QX^&?QPAT_1[_5]$\$> ?AQ^Q/X[^*6C^%K'X2>+OACH%I\9 M/VR?&GP:^.=YXQUCQ[X6\/\ [0_C"WG^%_ARYTOX+6'P5T72/%-YX[TNSEU[ MPMH2ZI/I5_TFB?M[#QAX^N_ASX!^&WA7Q=J^I>*_@?HO@'Q%'\3_ (B^&/ 7 MB[PQ\=?%?[0GA;1_&\OB?QE^S/H&I3:;HMY^SYXBN)=2^%WAOXQ_#GQ/8ZO$ MOA#XHZLNC743 'F?A#]@/Q_X$\*_#OP;X7O?@YI%GX:\%?#'P_H_B'P[?^)_ M!FI?LX>.O!_[2?Q#^+_Q'^-7P \/Z#\.Y=,\6^/?CE\//&'@CX=>-UUS5O@_ M)<6OP1\(>%_%NO\ Q&^&?BK7_"FF>U+^R7>6'[.$7POE\,^"O&/Q+E^*_CCX MMS^-K?XU?%_X)>)](\[^$A7PCK/FGP!_;=UOXN?M4^'/AI/X;FT?1?C3^SM\ M&_B9X>T3Q%XQTVV\+_#SQ)I,_P"U!9?%SP=X$\10^$WU7XR?%WQ!J/@SPOJW MASP%<:;X$?6O@/\ "SXO_'2RO?#3_#36_ VN\%^R)^U[XP\<_M4>*/ _Q,\4 M>,KC2/C9+\:?$_[,'A6]TK0KS0?B%\%OAK\7?BI$?C9$=-EM;?X*Z7\,M&\/ MZ#^R]XB^$']M>*OBQXG\#PZ 5K3]D7]J?QWKOQJAU/ MXIQ?#OXC0Z]X@\/6W[96FZCXZT'XM>-KCQ1_P2N\)_LWFX^'WPQT?1-$\%>' M_@YI_P"U5XUE_:B5/"GQ/TC1K7XS_!.UBTSX<6WC_3K?XG^&/9?AK^Q_X]\" M>*_AYKU_8^ /%/A'0-;\?:U+\'?%7Q8>[\#?!OQ/XIF_9U7P[\3_ -GY?AG^ MR%\#_!MCXA\)VGP=\=7-GX0/P@^'5S'XJ^,/Q)\5VGQ9@N/B=\1+#5['_"ZO MBU\,?&7[3$E[XP\4?'M?"7[7/[,'[+WPJ^'?CK5/@S\*/#.C?\-*_#?]DG5T M\2:[X[^%W[.!\;/-X0\9?'#Q%J'G2V7BBZO_ ;!#HL6@:KXHAT_6Y.AO?VV MKYKB/P]X7^#!\8_$>[?]LRWTKX=:'\4-.CU[4KW]D/\ :F^&?[,#( M-7O8?B-<_$NP\?Z;9Z1H&J>*+.UTZT\#^$/!_P 3_&7B7PW87H!\WZW^P9^T M[XA\*^!/"VI_$WX1/<>%/V6M=_9ZU?Q7!K/B0:YXUMO$W[!GQ)_9ZUK0O'-[ MJ/P8U;XA>+O"_L\7_QMTB3XA>(_LG4 M_P!EM/%?QVL_B=XTUZ6^\$Z+\%OV:?!^F> -*U6YLK#7OB?^SM\6?C%\6?#? MB;QQ;_V'%=ZOX6\+>)_&W@CQ3X+TVR\3V=O?^+?#FI7/C+POJ&GQZ;;SQ?LW M_M)^(OV@?'WQ(AT_2/AK+\'=#^&/[.WQ!^'WC3P=XI^(6I>(?$%Q\;/#7BK7 M-2M=?@O\-M7^(MYXN^(T'BGX-?M ># M/&-EXG^+?[6OP;F7P9K&J?$_XJ_%VU73=(UO5?'FO?"WQ'J&D_##P5X8\0>( M]<\%^,/%OA'3\OX;_LN_&OX@^-/!OQMUOQKX[\&>'5^)/Q>\4^$/".OZZW@# MXB_"+31_P46_:U_:!\/>*-"\-_$#]G_XF>-)-/\ VA_@/\3_ (,_#WXI_#2R M\?\ [,.OO\+OAMHWPC^(>I^(M%N8_#/PY_6,@$8(!'H1D4N.*=&7 MXDZIX_M_BAX_\6Z7?:%XK[R#]EWXO?\ "G?@7X%\4V'P&^)R_"KQ5\;[CQ-\ M%]?U;4O 7P.\>>%/&J_$#2_@U=>(+WX>_ :W\/ZKXZ^$NAZYX:O]132?V;O M?PVUGQ_>>*?'7@CP)\,]9\,_"Z?PW^AM% 'Q_P#LH?LR:K^SS/\ %/5/%?B+ MP_\ $/QS\2_^%$#Q+\7$TF6U^(WQ,U#X4_LQ_!GX,^*?%_Q2U:_@N-7U/Q)X MU^(OP^\8?$1TOO$_C!]WBU]3U#7)O$.I:PJ_8%%% '26?_(H>(O^PYX:_P#2 M+Q)7-UTEG_R*'B+_ +#GAK_TB\25S= !1110 4=U_P!Y?_0A11W7_>7_ -"% M '2^*/\ CXT3_L4O#'_IKBKFJZ7Q1_Q\:)_V*7AC_P!-<5_[%?1__ $/4*Y^N@\0]/#W_ &*^C_\ H>H5S] !1110 444 M4 %%%% !1110 4444 6K#_D(:?\ ]?UI_P"CTJ]XB_Y&+Q#_ -A[6O\ TYW5 M4;#_ )"&G_\ 7]:?^CTJ]XB_Y&+Q#_V'M:_].=U0!CT444 %%%% !1110 44 M44 %='IG_(N>+OIX:_\ 3M+7.5T>F?\ (N>+OIX:_P#3M+0!SE%%% !1110 M4444 %%%% !1110 4444 %%%% !6_J'_ "+?A#_<\1?^G2*L"M_4/^1;\(?[ MGB+_ -.D5 &!1110 4444 %-;H/]Y/\ T-:=36Z#_>3_ -#6@#I/$/W/"_\ MV)NB_P#I1J=<[71>(?N>%_\ L3=%_P#2C4ZYV@ HHHH **** "BBB@ HHHH M**** .AT_P#Y%OQ)_P!?_A;_ -&ZU7.KT'T'\JZ+3_\ D6_$G_7_ .%O_1NM M5SJ]!]!_*@!:*** "BBB@ HHHH **** .CT#_CQ\7?\ 8K-_ZDN@5SE='H'_ M !X^+O\ L5F_]270*YR@ HHHH *T=&_Y#6B_]A?3?_2R&LZM'1O^0UHO_87T MW_TLAH _0^BBB@#XU\5^ ?%6H>)_$5[:Z?:26MWK6I7,#R:UHT#-%->3E"T, MU\DT;?*/9[Z">7QG9Z,;6U.DVWB5]3@TPVUN;)(#!$4^R]2C,FK7D:* M&>2]F1 >,N[HJ@D],L<9/K7SW\'?VC/A%\=/AEXB^,7@7Q&8?ASX3\<_%WX> M^(?$GBVR/@^STK7_ (&>._$?PX^(\M\^NS6L-EHVE>*?"FMPVNLW\UII][I\ M-OJ/GP)C^(=*_L'Q!I%TG@FXTG7M"\N_B_L M/6]-F=[+5]&$6K:K$-*U""YL!'JFI1BW"7]V)J,?[.UE%JM_KL7PP^',6NZK MI7A_0M5UR+3_ (?QZSJFA^$I;.?PGHFI:JBK?W^C^%9].T^?PSI=W<36/A^; M3[&72(+.2SMFB]]N/B#\/K/3=-UB]\?> [/2-8TRUUO1]7N?&/AN#2-8T2^U M#1M'LM;T;5+G4X+/5=&O=9\1^'-)M-6LY9-.GU#Q#H5DET;S5]-MKK0E\5^$ MX-:7PU/XJ\*0>)GN=1LT\-3>(='B\0/>Z1HEIXEU:S719;Q-3^UZ9X6US* ?.VJ?L^6^N^)?#_ (TUWX:_#W7/&?A$L?"7 MC'6K/P%JWBWPJ6>21CX9\3:A]IUOP^6DFFL7^C6G@/2K[5_%4\L]Q/XHU6[L/L]QJ7B2>>YN9YM M>O9)]5EFN;B62[:2>5G^AK'Q9X4U0>'SI?B?POJ8\6Z5>:]X3_LWQ#HVH-XJ MT#3DLI=1UWPPEE>W!\0Z/I\>IZ8;_4]&-[86IU+3O,N@FH6+W/SA-^VW^S9! M^V/9?L$S>.BG[3E_\+9?B[;>#3HNIC19/#4,$NI-HR>,&MUT&3QX?#=M=^-% M\#I<-KQ\$6LGBDVXTMHY7 -.+X&7$'V8P^!/!<)LI].NK(PCP5$;*ZT@ZL=( MN;,I(IM;C23K^O'3)X#'+IYUW6C:/#_:VH?:*MI^S]#I^I:KK6G_ W^']AK M6N^([;QCKNLV-IX"L]7UOQA9:9J.BV7BW6-3MO*OM4\4V>BZQJ^CVOB*^GN- M8M])U;4]-AO4LM0NX)O7_C'\5O!7P&^$/Q4^.7Q'N[S3_AW\&?ASXU^*OCW4 M-,TV?6-1L/!GP_\ #FH^*_$][8:3:?Z5JEY:Z+I5[/;:?;?Z1>2HEO#^\D6O M+/A5^U]\ _C7\3O%OPD^&WBRXUWQ;X'\/_#G6/$DEQHU[I.@VNM_%#P O#3ZSJ7@;PGJ^C:GXJFTI]4M+:0 LO\ M!S6)9+F67PIX:EEO-4TW7+R62\\)R2W>MZ-%I\.CZU=2/.K)--\!?V@_%GC<77A2?X4Q^!O'?Q ^+7PUBM M+7Q?9>*;N\7Q%X3\2?!?QJ/'5MJ6@:;HWAVSBLS_ &[>WXU73]*]XTC6=%\0 MZ1IWB#P[JVD>(- UBS34-(UW0M2T_6=%U:PDW".]TS5]+N;S3=0M'*.JW5E= MW%LS1R!)75&8 'SM:? VYT_4K/6=/\"^#-/UG3O#5IX+T[6+#_A"[/5M/\%V M%R+RP\'6.I6TD5[9^$K"\47=EX:MIXM$M+H"YM[&.8!ZW?\ A6_C/_H&V/\ MX/\ 0?\ Y85X'\7O^"F'[)7P2\6_$SPMXTU_XFWNG? K4O#NC?M#?$_P1\"? MB]X_^"?[.VK^*[/2M2T32OC7\6/"/A#5O"O@_4_[+UW1M5\0Z=!<:Q>> M,U M73]2^(4/A33[C[4GM/[3G[5GPC_9)\#^"O'WQ5'C35-,^)/Q:^'GP.^'VC_" M[P3JOQ,\5^,_B;\59-2A\!>'/#OA[PZ9+K49/$)8=3^'/C&Z^'?Q0\ ?$/P)XP^%GQ4^%OCVTTS3=;?PI\0?A MSX^T70O$WA_4+G1-9TG6](O39W6A>(=%U&TU?P[K&K:=*+D?0&!Z#\A0!X!_ MPK?QG_T#;'_P?Z#_ /+"C_A6_C/_ *!MC_X/]!_^6%>_X'H/R%&!Z#\A0!X! M_P *W\9_] VQ_P#!_H/_ ,L*/^%;^,_^@;8_^#_0?_EA7O\ @>@_(48'H/R% M 'CMKX \6)X:UNS>PLQ<7.K:%<0H-;T4J\5K::\DY,HOO)1D-S"5221&D#,8 MPPC=1 X .+;J727AT^R;R?#>@6-4\#T'Y"@#P#_ (5OXS_Z!MC_ .#_ $'_ .6%'_"M_&?_ M $#;'_P?Z#_\L*]_POH/R%&%]!^0[=?RH \ _P"%;^,_^@;8_P#@_P!!_P#E MA1_PK?QG_P! VQ_\'^@__+"O?L+Z+^E+A?1?TH \ _X5OXS_ .@;8_\ @_T' M_P"6%'_"M_&?_0-L?_!_H/\ \L:]_P #T'Y"C ]!^0H \++A=$\FPL MV:V\/:7:SJVMZ+&4GB:],BCS+]2Z+Y@ E0&-R&V,0N:P_P#A6_C/_H&V/_@_ MT'_Y85]$W0'^B<#_ (\;;_VI_G\_6JN!Z#\A0!X!_P *W\9_] VQ_P#!_H/_ M ,L*/^%;^,_^@;8_^#_0?_EA7O\ @>@_(48'H/R% '@'_"M_&?\ T#;'_P ' M^@__ "PH_P"%;^,_^@;8_P#@_P!!_P#EA7O^!Z#\A1A?0?D* / /^%;^,_\ MH&V/_@_T'_Y84?\ "M_&?_0-L?\ P?Z#_P#+"O?L+Z+^E+A?0?D* / /^%;^ M,_\ H&V/_@_T'_Y84?\ "M_&?_0-L?\ P?Z#_P#+"O?\#T'Y"C ]!^0H \ _ MX5OXS_Z!MC_X/]!_^6%'_"M_&?\ T#;'_P '^@__ "PKW_ ]!^0HP/0?D* / M";+X<>,$O;.233[%8X[NVD=O[=T-MJ),C,VU+]G;:H+;8U>1L;41F(4VM;^' MOBZYUO6;F'3K-H;G5]4N(F?7-#C8QSWUQ*A:-]0#HVUAN1PKJA^);:2PLEGO%T(VR#6]&<2"TU-I;C,B7 MS1P[$=2IG:))"=B2&3"'V+ ]!^0JP@'V+4.!]VU[?]-GH ^>/^%;^,_^@;8_ M^#_0?_EA1_PK?QG_ - VQ_\ !_H/_P L*]_P/0?D*,#T'Y"@#P#_ (5OXS_Z M!MC_ .#_ $'_ .6%'_"M_&?_ $#;'_P?Z#_\L*]_P/0?D*,#T'Y"@#P#_A6_ MC/\ Z!MC_P"#_0?_ )84?\*W\9_] VQ_\'^@_P#RPKW_ /0?D*,#T'Y"@#P M#_A6_C/_ *!MC_X/]!_^6%'_ K?QG_T#;'_ ,'^@_\ RPKW_ ]!^0HP/0?D M* / /^%;^,_^@;8_^#_0?_EA1_PK?QG_ - VQ_\ !_H/_P L*]_P/0?D*,#T M'Y"@#P#_ (5OXS_Z!MC_ .#_ $'_ .6%'_"M_&?_ $#;'_P?Z#_\L*]_P/0? MD*,#T'Y"@#P#_A6_C/\ Z!MC_P"#_0?_ )84?\*W\9_] VQ_\'^@_P#RPKW_ M /0?D*,#T'Y"@#P#_A6_C/_ *!MC_X/]!_^6%;=]\/?%CZ%X:MH[&R::S76 MQ<(=;T50GVJ_BG@*R-?".4/%R?*9_+8,CD$#=[)@>@_(5:E ^PZ9P/\ 5W78 M?\_% 'SM_P *W\9_] VQ_P#!_H/_ ,L*/^%;^,_^@;8_^#_0?_EA7O\ @>@_ M(48'H/R% '@'_"M_&?\ T#;'_P '^@__ "PH_P"%;^,_^@;8_P#@_P!!_P#E MA7O^!Z#\A1@>@_(4 > ?\*W\9_\ 0-L?_!_H/_RPI#\-O&9'_(-LN"&.-?T$ MG"D,< ZDH)P.!D9/%?0&!Z#\A1@>@_(4 >.ZY\/O%DXT%(+"T?['X9TNPG+: MUHL0%S;RWSRJ@DOU:1%65?WB@H3D*2 2,+_A6_C/_H&V/_@_T'_Y85]&WP&+ M#@?\@VV[?[@_(4 > ?\*W\9_] VQ_\'^@_P#R MPH_X5OXS_P"@;8_^#_0?_EA7O^!Z#\A1@>@_(4 >.67P^\6IH6O6[V%DLUS> M>'9(%_MO165UM9=4\_=*M_Y413SX=BR,&E+X0':36&/AMXS _LVQX&/^0_H M/_RQKZ*B ^Q7O _UMCTX_BN?3_.>>M5,#T'Y"@#P#_A6_C/_ *!MC_X/]!_^ M6%'_ K?QG_T#;'_ ,'^@_\ RPKW_ ]!^0HP/0?D* / /^%;^,_^@;8_^#_0 M?_EA1_PK?QG_ - VQ_\ !_H/_P L*]_P/0?D*,#T'Y"@#P#_ (5OXS_Z!MC_ M .#_ $'_ .6%'_"M_&?_ $#;'_P?Z#_\L*]_P/0?D*,#T'Y"@#P#_A6_C/\ MZ!MC_P"#_0?_ )84?\*W\9_] VQ_\'^@_P#RPKW_ /0?D*,#T'Y"@#QW1? M'BN"U\212V-DLEYH!LX%&MZ-)NN#KFC781S%?2>4IAMIL22!(]ZHA8-(HK"_ MX5OXR[:;8D=B=>T$9'8X_M$XR.V3]37T1:@;=2X'_(,?L/\ GY@/\^:K8'H/ MR% '@'_"M_&?_0-L?_!_H/\ \L*/^%;^,_\ H&V/_@_T'_Y85[_@>@_(48'H M/R% '@'_ K?QG_T#;'_ ,'^@_\ RPJ_I7PZ\80ZII<\FG68B@U/3YI677=# M' M_$UAX[\0?�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

-&925!$8\#^"@ !X/\+ 8 'A_20 !T 'V3@"BB@ _ MX0?P7_T*'A?_ ,$&D_\ R)1_P@_@O_H4/"__ ((-)_\ D2BB@ _X0?P7_P!" MAX7_ /!!I/\ \B4Y/!7@V-XY8_"?AJ.6)UDBDCT+2XY(I%Y62-TM5='4\JZD 0,IP5((!HHH Z:BBB@#__V0$! end GRAPHIC 23 tm2036036d1_ex99-1img006.jpg GRAPHIC begin 644 tm2036036d1_ex99-1img006.jpg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end GRAPHIC 24 tm2036036d1_ex99-11img001.jpg GRAPHIC begin 644 tm2036036d1_ex99-11img001.jpg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end