Carter Bankshares(US:CARE)2022-08-02 16:00PART I - FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, for the quarter ended June 30, 2022 Consolidated Balance Sheet Highlights (Unaudited, in Thousands) | (Dollars in Thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $4,123,280 | $4,133,746 | | Portfolio Loans, net | $2,899,915 | $2,716,190 | | Securities Available-for-Sale | $907,034 | $922,400 | | Total Deposits | $3,753,393 | $3,698,476 | | Total Liabilities | $3,789,138 | $3,726,150 | | Total Shareholders' Equity | $334,142 | $407,596 | Consolidated Income Statement Highlights (Unaudited, in Thousands, Except EPS) | (Dollars in Thousands, Except EPS) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $32,459 | $27,203 | $60,681 | $53,732 | | Provision for Credit Losses | $1,814 | $967 | $2,444 | $2,824 | | Net Income | $10,778 | $5,432 | $20,101 | $14,807 | | Diluted Earnings per Share | $0.44 | $0.21 | $0.80 | $0.56 | - The company experienced a significant other comprehensive loss of $61.7 million for the six months ended June 30, 2022, primarily due to net unrealized losses on available-for-sale securities, contrasting with a $5.6 million loss in the same period of 20211517 Notes to Unaudited Consolidated Financial Statements These notes detail accounting policies, new standard adoptions, loan portfolio composition, allowance for credit losses, and stock repurchase programs - The company early adopted ASU No. 2022-02 on April 1, 2022, eliminating the Troubled Debt Restructuring (TDR) accounting model, which had no material effect on consolidated financial statements25 Loan Portfolio Composition (in thousands) | Loan Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Commercial Real Estate | $1,389,117 | $1,323,252 | | Commercial and Industrial | $336,477 | $345,376 | | Residential Mortgages | $559,313 | $457,988 | | Other Consumer | $48,033 | $44,666 | | Construction | $322,731 | $282,947 | | Other | $342,225 | $357,900 | | Total Portfolio Loans | $2,997,896 | $2,812,129 | - The Allowance for Credit Losses (ACL) stood at $98.0 million, or 3.27% of total portfolio loans, as of June 30, 2022, compared to $95.9 million, or 3.41% of loans, at December 31, 2021102250 - The company's stock repurchase program for up to 2,000,000 shares was completed on April 28, 2022, and a new program to purchase an additional 750,000 shares was authorized on June 28, 2022153154 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes the company's financial performance and condition, focusing on earnings, balance sheet changes, credit quality, liquidity, and capital resources Earnings Summary The company reported strong earnings growth in Q2 2022, driven by increased net interest income and reduced noninterest expenses Quarterly Performance Highlights (Q2 2022 vs Q2 2021, in Millions) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Interest Income | $32.5 million | $27.2 million | | Provision for Credit Losses | $1.8 million | $1.0 million | | Noninterest Income | $5.6 million | $7.2 million | | Noninterest Expense | $23.4 million | $27.8 million | | Net Income | $10.8 million | $5.4 million | Net Interest Income Net interest income and margin significantly improved in Q2 2022 due to higher asset yields and lower funding costs in a rising rate environment Net Interest Margin (FTE, Non-GAAP) | Period | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin (FTE) | 3.27% | 2.79% | 3.09% | 2.78% | - The average rate earned on loans increased by 33 basis points in Q2 2022 compared to Q2 2021, while the average rate paid on interest-bearing deposits decreased by 20 basis points from 0.79% to 0.59%185189 Financial Condition Total assets remained stable, with strategic loan growth funded by cash redeployment, deposit shifts, and a decrease in shareholders' equity due to unrealized losses and repurchases - Total portfolio loans increased by $185.8 million since year-end 2021, driven by growth in residential mortgages (+$101.3 million), commercial real estate (+$65.9 million), and construction (+$39.8 million)213 - The securities portfolio had gross unrealized losses of $76.5 million at June 30, 2022, a significant increase from $7.8 million at year-end 2021, primarily attributed to the sharp rise in market interest rates223224 - Total shareholders' equity decreased by $73.5 million to $334.1 million, impacted by a $61.7 million net-of-tax decline in accumulated other comprehensive income (AOCI) and $32.4 million in common stock repurchases217273 Credit Quality Nonperforming assets increased due to a rise in nonperforming loans, partially offset by a decrease in OREO, while the ACL ratio slightly declined Nonperforming Assets (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Nonperforming Loans | $12,029 | $7,397 | | Other Real Estate Owned | $8,432 | $10,916 | | Total Nonperforming Assets | $20,461 | $18,313 | - The increase in nonperforming loans was primarily due to the deterioration of a purchased syndicated C&I loan totaling $4.9 million244 Liquidity and Capital Resources The company maintains strong liquidity and capital, with regulatory ratios exceeding minimums, despite a decrease due to stock repurchases Regulatory Capital Ratios | Ratio (Carter Bankshares, Inc.) | June 30, 2022 | December 31, 2021 | Minimum Required | | :--- | :--- | :--- | :--- | | Leverage Ratio | 9.96% | 10.62% | 4.00% | | Common Equity Tier 1 | 12.70% | 14.21% | 7.00% | | Total Capital | 13.96% | 15.46% | 10.50% | Quantitative and Qualitative Disclosures About Market Risk This section details the company's interest rate risk management, showing an asset-sensitive balance sheet with NII expected to increase in rising rate scenarios Interest Rate Sensitivity Analysis (as of June 30, 2022) | Change in Interest Rate (bps) | % Change in Pretax NII | % Change in EVE | | :--- | :--- | :--- | | +400 | 21.6% | 3.9% | | +300 | 16.3% | 4.3% | | +200 | 11.0% | 3.8% | | +100 | 5.6% | 2.5% | | -100 | (7.1)% | (6.3)% | - The company's balance sheet is asset-sensitive, but less so than at the end of 2021, due to deploying floating-rate cash into fixed and floating-rate loans and securities, and shifts in the yield curve292 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022296 - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2022297 PART II – OTHER INFORMATION This part provides additional information including legal proceedings, risk factors, equity security sales, and other required disclosures Legal Proceedings As of June 30, 2022, no material legal proceedings were pending or threatened against the company - As of June 30, 2022, no material legal proceedings were pending or threatened against the Company299 Risk Factors No material changes in risk factors were reported compared to the 2021 Annual Report on Form 10-K - There have been no material changes in the risk factors from those disclosed in the 2021 Annual Report on Form 10-K300 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, including the completion of one program and the authorization of a new one Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1 - April 30, 2022 | 446,436 | $17.44 | | May 1 - May 31, 2022 | — | — | | June 1 - June 30, 2022 | — | — | | Total | 446,436 | — | - A new stock repurchase program for up to 750,000 shares was authorized by the Board on June 28, 2022, effective August 1, 2022302 Defaults Upon Senior Securities The company reported no defaults upon senior securities - None302 Mine Safety Disclosures The company reported no mine safety disclosures - None303 Other Information The company reported no other information - None305 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and a new deferred compensation plan - The filing includes required CEO and CFO certifications and details of a new Non-Qualified Deferred Compensation Plan adopted on May 19, 2022305