Carter Bankshares, Inc. (CARE) 2024 Annual Report Summary
Business Context and Reporting Period
This summary covers the fiscal year ended December 31, 2024, for Carter Bankshares, Inc. (the "Company"), a Virginia-based bank holding company and parent of Carter Bank & Trust. The Company operates 65 branches across Virginia and North Carolina, providing retail and commercial banking services. Total assets reached $4.66 billion at year-end. The Company is currently executing a strategic shift from balance sheet restructuring to prudent organic growth, supported by a new brand identity unveiled in October 2024.
Key Financial Metrics
| Metric | 2024 | 2023 |
|---|---|---|
| Net Income | $24.5 million | $23.4 million |
| Diluted EPS | $1.06 | $1.00 |
| Net Interest Income (GAAP) | $114.5 million | $122.3 million |
| Net Interest Margin (GAAP) | 2.57% | 2.85% |
| Noninterest Income | $21.4 million | $18.3 million |
| Noninterest Expense | $110.0 million | $105.5 million |
| Return on Average Assets (ROAA) | 0.54% | 0.53% |
| Return on Average Equity (ROAE) | 6.67% | 6.79% |
| Total Deposits | $4.15 billion | $3.72 billion |
| Total Loans | $3.62 billion | $3.51 billion |
| Allowance for Credit Losses (ACL) | $75.6 million (2.09% of loans) | $97.1 million (2.77% of loans) |
| Nonperforming Loans (NPL) | $259.3 million (7.15% of loans) | $309.5 million (8.83% of loans) |
| Net Charge-offs | $16.4 million | $2.3 million |
| Tier 1 Capital Ratio | 10.88% | 11.08% |
| Leverage Ratio | 9.56% | 9.48% |
Material Changes vs. Prior Period
- Net Interest Income Decline: Net interest income decreased $7.9 million (6.4%) primarily due to higher funding costs (deposit rates increased 83 basis points) which outpaced the 39 basis point increase in yield on earning assets. The Company's largest nonperforming credit relationship negatively impacted interest income by $35.1 million in 2024.
- Provision for Credit Losses: The Company recorded a $5.0 million recovery in the provision for credit losses, a $10.5 million improvement over the $5.5 million provision in 2023. This was driven by $6.6 million in reserve releases related to $49.9 million in curtailment payments received from its largest nonperforming borrower.
- Asset Quality Improvement: Nonperforming loans decreased by $50.2 million to $259.3 million, reducing the NPL ratio to 7.15%. This decline is almost entirely attributable to payments from the single largest credit relationship (Justice Entities), which comprises 97.2% of total nonperforming loans.
- Deposit Growth: Total deposits increased $431.5 million (11.6%) to $4.2 billion, driven by a $337.7 million increase in Certificates of Deposit (CDs) and growth in interest-bearing demand accounts. This growth allowed the Company to reduce FHLB borrowings by $323.4 million.
- Expense Increases: Noninterest expense rose $4.5 million, with significant increases in FDIC insurance expense ($1.3 million) due to asset quality deterioration, salaries ($2.1 million), and advertising ($0.8 million) related to the new brand initiative.
Outlook, Risks, and Management Commentary
- Strategic Focus: Management is transitioning from restructuring to a "prudent growth strategy," focusing on organic loan and deposit growth and increasing fee income. The Company is closely monitoring the resolution of its largest nonperforming credit relationship, which remains the primary driver of credit risk.
- Major Credit Risk: The Company's largest credit relationship, involving entities associated with former West Virginia Governor James C. Justice II, totaled $252.0 million at year-end. While litigation was dismissed with prejudice and a payoff pathway agreed upon, the loans remain on nonaccrual. Management believes the loans are well-secured but notes uncertainty regarding future collection timing and amounts.
- Interest Rate Risk: The balance sheet is slightly liability-sensitive. Management expects net interest income to increase slightly in a rising rate environment but more significantly in a declining rate environment due to the short-term nature of the deposit portfolio.
- Regulatory Environment: The Company remains "well-capitalized" under regulatory standards. It is monitoring potential regulatory changes under the new presidential administration, including a "Regulatory Freeze Pending Review" memorandum issued in January 2025.
- Unusual Items: Net charge-offs were elevated at $16.4 million, primarily due to a $15.0 million principal charge-off related to the "Other" loan segment (Justice Entities) in the third quarter of 2024.
Key Facts for Investor Verification
- Concentration Risk: Verify the ongoing status and collateral valuation of the $252.0 million nonperforming loan relationship with the Justice Entities, which represents 7.0% of the total loan portfolio and 97.2% of nonperforming loans.
- FDIC Assessment Impact: Confirm the trajectory of FDIC insurance expense, which increased 26.4% in 2024 due to the deterioration in asset quality associated with the large nonperforming loan.
- Deposit Stability: Assess the composition of the $4.2 billion deposit base, noting that 18.4% consists of uninsured deposits and brokered CDs increased to $196.1 million.
- Capital Adequacy: Monitor the Tier 1 Capital Ratio (10.88%) and Leverage Ratio (9.56%) to ensure they remain comfortably above the "well-capitalized" thresholds despite the elevated nonperforming asset levels.
- Securities Portfolio: Review the $82.4 million in gross unrealized losses on the available-for-sale securities portfolio, which management attributes to interest rate fluctuations rather than credit deterioration.