Carter Bankshares(CARE) - 2024 Q1 - Quarterly Results

Executive Summary & Financial Highlights Carter Bankshares, Inc. reported Q1 2024 net income of $5.8 million, an improvement from Q4 2023 but lower than Q1 2023, impacted by a nonaccrual loan Q1 2024 Performance Overview Q1 2024 net income improved QoQ to $5.8 million but decreased YoY, with results significantly impacted by a large nonaccrual loan Net Income & EPS | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :-------------------- | :------ | :------ | :------ | | Net Income (Millions) | $5.8 | $(1.9) | $15.9 | | Diluted EPS | $0.25 | $(0.08) | $0.67 | | Pre-tax Pre-provision Income (Millions) | $7.2 | $1.6 | $21.9 | Net Interest Income & Margin (FTE) | Metric | Q1 2024 | Q4 2023 | Q1 2023 | Change QoQ | Change YoY | | :-------------------- | :------ | :------ | :------ | :--------- | :--------- | | Net Interest Income (Millions) | $28.4 | $27.4 | $40.785 | +3.6% | -30.3% | | Net Interest Margin (FTE) | 2.60% | 2.49% | 3.98% | +11 bps | -138 bps | Efficiency Ratio | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 78.5% | | December 31, 2023 | 94.8% | | March 31, 2023 | 51.8% | Key Financial Metrics Q1 2024 key metrics show slight loan growth and significant deposit growth, but nonperforming loans remain elevated due to a large relationship Nonperforming Loans (NPL) to Total Portfolio Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 8.76% | | December 31, 2023 | 8.83% | | March 31, 2023 | 0.26% | - Total portfolio loans increased $3.2 million to $3.5 billion at March 31, 2024, compared to December 31, 2023, but growth was muted by $80.0 million in loan payoffs of two large commercial real estate loans[11] - Total deposits increased $108.6 million, or 11.7% on an annualized basis, compared to December 31, 2023, and increased $293.5 million, or 8.3%, compared to March 31, 2023[63] Operating Highlights Operating highlights show mixed trends in net interest income, credit loss provision, and noninterest items, influenced by funding costs and a large nonaccrual loan Net Interest Income Net interest income increased QoQ but significantly decreased YoY, driven by higher funding costs and the impact of a large nonaccrual loan Net Interest Income | Period | Amount (Millions) | QoQ Change | YoY Change | | :-------------------- | :---------------- | :--------- | :--------- | | Q1 2024 | $28.4 | +3.6% | -30.3% | - Yield on earning assets increased 24 basis points compared to Q4 2023, but decreased 12 basis points compared to Q1 2023[2][66][58] - Funding costs increased 15 basis points compared to Q4 2023 and increased 155 basis points compared to Q1 2023[2][5] - Interest income was negatively impacted by $9.3 million during Q1 2024 due to the large nonaccrual loan relationship[21][58] - The increase in interest expense is due to the rising interest rate environment and customers migrating from lower-cost non-maturing deposits to higher-yielding money market and certificate of deposit ("CD") products. During Q1 2024, $473.8 million of CDs matured and repriced from an average rate of 4.28% to 4.42%[5] Provision for Credit Losses Provision for credit losses decreased QoQ and YoY in Q1 2024, driven by lower loan growth and a recovery in unfunded commitments - The provision for credit losses decreased $2.9 million compared to Q4 2023 and $1.4 million compared to Q1 2023[4] - The (recovery) provision for unfunded commitments in Q1 2024 was a recovery of $43.3 thousand, compared to a provision of $0.6 million in Q4 2023 and $0.1 million in Q1 2023, due to decreased commitments in construction loans[4] Noninterest Income Total noninterest income increased substantially QoQ due to fewer security sale losses and higher commissions, with a modest YoY increase Total Noninterest Income | Period | Amount (Millions) | QoQ Change | YoY Change | | :-------------------- | :---------------- | :--------- | :--------- | | Q1 2024 | $5.0 | +55.5% | +6.5% | - The QoQ increase was primarily related to net losses on sales of securities of $1.5 million in Q4 2023 (not present in Q1 2024), an increase of $0.2 million in insurance commissions, and an increase of $0.2 million in debit card interchange fees[6] - The YoY variance was primarily due to a $0.4 million increase in insurance commissions, offset by a $0.1 million decrease in commercial loan swap fee income[68] Noninterest Expense Total noninterest expense decreased QoQ due to lower various costs but increased YoY, mainly from higher FDIC insurance and legal fees related to a large NPL Total Noninterest Expense | Period | Amount (Millions) | QoQ Change | YoY Change | | :-------------------- | :---------------- | :--------- | :--------- | | Q1 2024 | $26.3 | -9.7% | +11.4% | - QoQ decreases included $1.0 million in other noninterest expense, $0.7 million in professional and legal fees, $0.5 million in FDIC insurance expense, and $0.4 million in salaries and employee benefits[60] - YoY increases were primarily $1.0 million higher FDIC insurance expenses and a $0.7 million increase in professional and legal fees, both attributed to the large nonperforming loan relationship[17] Credit Quality Credit quality shows a slight QoQ decrease in NPLs but a significant YoY increase, driven by a large commercial loan relationship Nonperforming Loans NPLs slightly decreased QoQ but remain significantly higher YoY, with a large commercial loan relationship accounting for 98.2% of total NPLs - Total nonperforming loans decreased $2.2 million to $307.3 million at March 31, 2024, since December 31, 2023[13] Nonperforming Loans to Total Portfolio Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 8.76% | | December 31, 2023 | 8.83% | | March 31, 2023 | 0.26% | - A $301.9 million commercial loan relationship was placed on nonaccrual status during Q2 2023, representing 98.2% of total nonperforming loans and 8.6% of total portfolio loans at March 31, 2024[65] - The Company is pursuing all remedies to resolve the large NPL and has specific reserves of $54.3 million at March 31, 2024, with respect to these loans[27] Allowance for Credit Losses Allowance for credit losses to total portfolio loans slightly decreased QoQ and YoY, remaining low against NPLs due to a significant relationship Allowance for Credit Losses to Total Portfolio Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 2.75% | | December 31, 2023 | 2.77% | | March 31, 2023 | 2.91% | Allowance for Credit Losses to Nonperforming Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 31.41% | | December 31, 2023 | 31.35% | | March 31, 2023 | 1,131.62% | - The provision for credit losses decreased $2.9 million in Q1 2024 compared to Q4 2023 and $1.4 million compared to Q1 2023[4] Financial Condition Financial condition in Q1 2024 shows increased assets and deposits, decreased FHLB borrowings, and maintained strong capitalization and liquidity Assets Total assets slightly increased in Q1 2024, driven by higher cash and modest loan growth, partially offset by a smaller securities portfolio - Total assets were $4.6 billion at March 31, 2024, increasing $42.4 million during Q1 2024 compared to December 31, 2023[8] - Cash and due from banks increased $53.6 million to $108.1 million at March 31, 2024[8] - Total portfolio loans increased $3.2 million to $3.5 billion at March 31, 2024, compared to December 31, 2023. Loan growth was muted by $80.0 million in loan payoffs of two large commercial real estate loans[8][11] - The securities portfolio decreased $10.2 million and is currently 16.9% of total assets at March 31, 2024 (compared to 17.3% at December 31, 2023), due to maturities deployed into higher yielding loan assets[8] Liabilities & Deposits Total deposits significantly increased in Q1 2024, driven by CDs and interest-bearing demand accounts, leading to decreased FHLB borrowings - Total deposits increased $108.6 million, or 11.7% on an annualized basis, to $3.8 billion at March 31, 2024, compared to December 31, 2023[61] - Deposit composition changes include an increase of $108.0 million in CDs (including $45.6 million in brokered CDs) and $34.1 million in interest-bearing demand accounts, offset by decreases of $27.4 million in savings accounts and $13.2 million in noninterest-bearing demand accounts[61][70] Deposit Mix | Deposit Type | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Noninterest-Bearing Deposits | 17.5% | 18.4% | 19.5% | | Certificates of Deposit | 44.2% | 42.6% | 37.0% | - FHLB borrowings decreased $82.9 million to $310.5 million at March 31, 2024, compared to December 31, 2023, primarily due to deposit growth[72] Capitalization and Liquidity The company remained well capitalized in Q1 2024, with total capital increasing from net income and OCI, maintaining significant liquidity through FHLB and unpledged securities - Total capital of $359.1 million at March 31, 2024, reflects an increase of $7.8 million compared to December 31, 2023, primarily due to net income of $5.8 million and a $1.6 million increase in other comprehensive income[71] Company Capital Ratios (March 31, 2024) | Ratio | Value | | :-------------------- | :------ | | Tier 1 Capital Ratio | 10.89% | | Leverage Ratio | 9.34% | | Total Risk-Based Capital Ratio | 12.15% | - Funding sources accessible to the Company include FHLB borrowing availability of approximately $1.1 billion (eligible to borrow up to an additional $593.8 million), unsecured facilities totaling $50.0 million, a fully secured facility of $45.0 million, and $465.4 million in unpledged available-for-sale investment securities[20] Company Information & Disclosures This section covers Carter Bankshares, Inc. overview, non-GAAP measures, and disclosures on forward-looking statements and key risk factors About Carter Bankshares, Inc. Carter Bankshares, Inc., based in Martinsville, VA, is a financial holding company with $4.6 billion in assets and 65 branches, offering diverse banking services - Carter Bankshares, Inc. (NASDAQ: CARE) is headquartered in Martinsville, VA[50] - The Company provides commercial banking, consumer banking, mortgage, and other services through its subsidiary Carter Bank & Trust[50] - The Company has $4.6 billion in assets and 65 branches in Virginia and North Carolina[50] Important Note Regarding Non-GAAP Financial Measures Non-GAAP financial measures are used by management for performance evaluation but are not GAAP alternatives and may not be comparable to other companies - Non-GAAP financial measures are used by management and presented to investors to evaluate and compare the Company's operating results from period to period in a meaningful manner[52] - Non-GAAP measures should not be considered as an alternative to any measure of performance under GAAP, nor are they necessarily comparable to non-GAAP performance measures presented by other companies[52] Important Note Regarding Forward-Looking Statements & Risk Factors Forward-looking statements are subject to risks and uncertainties, including market interest rates, inflation, regulatory changes, credit quality, and economic conditions - Forward-looking statements are not guarantees of future results and involve risks, uncertainties, and assumptions that are difficult to predict and often beyond the Company's control[54] - Key risk factors include market interest rates and their impacts, inflation, changes in government policies (Federal Reserve, FDIC, Treasury), changes in accounting policies (e.g., CECL methodology), and concentrations of loans secured by real estate[54][9] - Additional risks include increased delinquency and foreclosure rates, insufficient allowance for credit losses, impacts of unusual events (weather, war, public health), ability to resolve nonperforming assets, regulatory oversight, litigation, cyber-security threats, and general economic conditions[9][31][42][43][34][36] Consolidated Selected Financial Data This section presents detailed consolidated financial statements, including income statements, balance sheets, and key performance ratios Income Statements This table details the consolidated income statement for Q1 2024, Q4 2023, and Q1 2023, covering interest, noninterest, and net income Income Statement Data (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Interest Income | $54,049 | $51,863 | $51,955 | | Interest Expense | $25,630 | $24,443 | $11,170 | | NET INTEREST INCOME | $28,419 | $27,420 | $40,785 | | Provision for Credit Losses | $16 | $2,895 | $1,415 | | (Recovery) Provision for Unfunded Commitments | $(43) | $587 | $84 | | TOTAL NONINTEREST INCOME | $5,045 | $3,245 | $4,735 | | TOTAL NONINTEREST EXPENSE | $26,257 | $29,072 | $23,576 | | INCOME (LOSS) BEFORE INCOME TAXES | $7,234 | $(1,889) | $20,445 | | NET INCOME (LOSS) | $5,811 | $(1,888) | $15,941 | | Basic Earnings (Loss) Per Common Share | $0.25 | $(0.08) | $0.67 | | Diluted Earnings (Loss) Per Common Share | $0.25 | $(0.08) | $0.67 | | Net Interest Margin | 2.58% | 2.47% | 3.95% | | Efficiency Ratio | 78.46% | 94.81% | 51.79% | Net Interest Margin (FTE) (QTD Averages) This table presents average balances, income/expense, and rates for interest-earning assets and liabilities, calculating FTE net interest income and margin Net Interest Margin (FTE) Data (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Total Interest-Earning Assets (Avg Balance) | $4,429,020 | $4,404,458 | $4,186,164 | | Total Interest-Bearing Liabilities (Avg Balance) | $3,471,027 | $3,439,815 | $3,197,486 | | Yield on Interest-earning Assets (FTE) | 4.93% | 4.69% | 5.06% | | Rate on Total Interest-Bearing Liabilities | 2.97% | 2.82% | 1.42% | | Net Interest Income (FTE) | $28,625 | $27,656 | $41,049 | | Net Interest Margin (FTE) | 2.60% | 2.49% | 3.98% | Loans and Loans Held-for-Sale This table details the company's loan portfolio composition by category for March 31, 2024, December 31, 2023, and March 31, 2023 Loan Portfolio Composition (Thousands) | Loan Type | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Commercial Real Estate | $1,728,929 | $1,670,631 | $1,575,675 | | Commercial and Industrial | $257,176 | $271,511 | $290,293 | | Residential Mortgages | $788,125 | $787,929 | $675,340 | | Other Consumer | $32,428 | $34,277 | $41,308 | | Construction | $397,219 | $436,349 | $361,003 | | Other | $305,194 | $305,213 | $305,279 | | Total Portfolio Loans | $3,509,071 | $3,505,910 | $3,248,898 | Asset Quality Data This table presents key asset quality metrics, including NPLs, OREO, total nonperforming assets, and related ratios for specified periods Asset Quality Metrics (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :---------------------------------------------------- | :------------- | :---------------- | :------------- | | Total Nonperforming Loans | $307,297 | $309,535 | $8,368 | | Other Real Estate Owned | $2,528 | $2,463 | $8,291 | | Total Nonperforming Assets | $309,825 | $311,998 | $16,659 | | Nonperforming Loans to Total Portfolio Loans | 8.76% | 8.83% | 0.26% | | Nonperforming Assets to Total Portfolio Loans plus OREO | 8.82% | 8.89% | 0.51% | | Allowance for Credit Losses to Total Portfolio Loans | 2.75% | 2.77% | 2.91% | | Allowance for Credit Losses to Nonperforming Loans | 31.41% | 31.35% | 1,131.62% | | Net Loan Charge-offs (Recoveries) QTD | $532 | $317 | $573 | Allowance for Credit Losses This table details the movement in the allowance for credit losses, including beginning balance, provision, charge-offs, and recoveries Allowance for Credit Losses Movement (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Balance Beginning of Period | $97,052 | $94,474 | $93,852 | | Provision for Credit Losses | $16 | $2,895 | $1,415 | | Total Charge-offs | $677 | $638 | $661 | | Total Recoveries | $145 | $321 | $88 | | Total Net Charge-offs | $532 | $317 | $573 | | Balance End of Period | $96,536 | $97,052 | $94,694 | Balance Sheets This table presents consolidated balance sheet data, including assets, liabilities, equity, and key performance/capitalization ratios Balance Sheet Data (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Total Assets | $4,554,946 | $4,512,539 | $4,365,655 | | Total Deposits | $3,830,521 | $3,721,915 | $3,536,988 | | Federal Home Loan Bank Borrowings | $310,500 | $393,400 | $435,135 | | Total Liabilities | $4,195,880 | $4,161,296 | $4,010,669 | | Total Shareholders' Equity | $359,066 | $351,243 | $354,986 | | Return on Average Assets (QTD Annualized) | 0.52% | (0.17)% | 1.51% | | Return on Average Shareholders' Equity (QTD Annualized) | 6.59% | (2.24)% | 18.88% | | Portfolio Loans to Deposit Ratio | 91.61% | 94.20% | 91.85% | | Shareholders' Equity to Assets | 7.88% | 7.78% | 8.13% | | Tier 1 Leverage Ratio | 9.34% | 9.48% | 10.09% | | Risk-Based Capital - Tier 1 | 10.89% | 11.08% | 12.28% | | Risk-Based Capital - Total | 12.15% | 12.34% | 13.55% | Definitions and Reconciliation of GAAP to Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP financial measures, including pre-provision income, net income, FTE net interest income, and efficiency ratio Pre-provision Income (Non-GAAP) (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Pre-provision Income (GAAP) | $7,207 | $1,593 | $21,944 | | Pre-provision Income (Non-GAAP) | $6,858 | $3,495 | $22,088 | Net Income (Non-GAAP) (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Net Income (Loss) (GAAP) | $5,811 | $(1,888) | $15,941 | | Net Income (Loss) (Non-GAAP) | $5,535 | $(385) | $16,055 | | Diluted EPS (Non-GAAP) | $0.24 | $(0.02) | $0.68 | Net Interest Income (FTE) (Non-GAAP) (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Net Interest Income (GAAP) | $28,419 | $27,420 | $40,785 | | Tax Equivalent Adjustment | $206 | $236 | $264 | | Net Interest Income (FTE) (Non-GAAP) | $28,625 | $27,656 | $41,049 | | Net Interest Margin (FTE) (Non-GAAP) | 2.60% | 2.49% | 3.98% | Efficiency Ratio (Non-GAAP) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Efficiency Ratio (GAAP) | 78.46% | 94.81% | 51.79% | | Efficiency Ratio (Non-GAAP) | 79.01% | 88.48% | 51.18% |