Carter Bankshares, Inc. — Q1 2023 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2023, with balance-sheet comparisons to December 31, 2022 and income comparisons to Q1 2022. Carter Bankshares is a Virginia bank holding company; its bank subsidiary operates 66 branches in Virginia and North Carolina. Figures below are in U.S. dollars; “million” and “billion” are used for readability.
Key financial results
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Net interest income | $40.8 million | Up 44.5% from $28.2 million in Q1 2022 |
| Net interest margin | 3.95% GAAP; 3.98% fully taxable equivalent (FTE) | 2.88% GAAP; 2.91% FTE in Q1 2022 |
| Net income; diluted EPS | $15.9 million; $0.67 | $9.3 million; $0.36 in Q1 2022 |
| Noninterest income / expense | $4.7 million / $24.2 million | Income down 11.2%; expense up 7.4% year over year |
| Total assets | $4.37 billion | Up $161.0 million from year-end 2022 |
| Portfolio loans | $3.25 billion | Up $100.0 million, or 12.9% annualized, from year-end |
| Deposits | $3.53 billion | Down $96.9 million, or 2.7%, from year-end |
| Allowance for credit losses (ACL) | $94.7 million; 2.91% of portfolio loans | $93.9 million; 2.98% at year-end |
| Shareholders’ equity | $354.9 million | $328.6 million at year-end |
Cash provided by operating activities was $22.4 million; investing activities used $125.5 million and financing activities provided $137.5 million. Cash and cash equivalents increased $34.5 million during the quarter to $81.4 million. Federal Home Loan Bank (FHLB) borrowings rose to $435.1 million from $180.6 million at year-end; there were no federal funds purchased outstanding at quarter-end. The average interest-bearing liability cost increased to 1.42% from 0.60% in Q1 2022.
The company reported a 1.51% return on average assets and an 18.89% return on average equity for Q1 2023. Its regulatory capital ratios remained above the stated well-capitalized thresholds: company total risk-based capital was 13.54%; the bank’s was 13.42%.
Material changes and financial condition
- Deposit decline included $67.0 million of withdrawals by three customers, which management attributed to specific customer needs and higher-yield investment opportunities. Certificates of deposit rose $45.9 million, while savings fell $77.3 million and money-market balances fell $53.3 million.
- Management reported 87.6% of deposits insured and 12.4% uninsured. Highly liquid assets were $679.7 million, or 15.6% of assets; total available liquidity was 318.6% of uninsured deposits. Liquidity sources totaled $1.40 billion, including $638.0 million of unpledged securities, $461.9 million of remaining FHLB borrowing availability, and $145.0 million in unsecured correspondent-bank lines.
- Available-for-sale securities had fair value of $862.9 million and gross unrealized losses of $95.1 million, offset by $1.4 million of gross unrealized gains. Gross unrealized losses were $109.7 million at year-end. Management attributed the losses primarily to market interest rates and stated it did not intend, and was not more likely than not required, to sell the securities before recovery.
- Nonperforming loans rose to $8.4 million from $6.6 million at year-end, mainly after a $2.1 million residential construction loan moved to nonaccrual. Nonperforming assets were $16.7 million. Net charge-offs were $0.6 million, or 0.07% of average loans on an annualized basis.
- Accumulated other comprehensive loss improved to $73.4 million from $85.6 million, reflecting the quarter’s increase in securities fair value. Regulatory capital ratios declined modestly from year-end, which management attributed partly to loan growth and share repurchases.
Outlook, commentary and risks
Management described a shift from balance-sheet restructuring toward prudent growth, with emphasis on organic loan and deposit growth, fee income, expense monitoring, and possible opportunistic acquisitions. The filing gives no quantified earnings or revenue guidance. Management said rising rates benefited asset yields, but deposit outflows and migration to higher-cost borrowings were increasing funding costs and could pressure future net interest margins. A large customer relationship had enhanced loan pricing; some related loans may not renew or may contribute less to future income.
Risk factors include deposit competition and sudden outflows, market and interest-rate volatility, commercial real estate concentrations, borrower credit deterioration, inflation, and broader financial-industry disruption. Hospitality exposure was approximately $350.5 million, or 10.8% of portfolio loans; management cited labor costs and potential collateral-value declines as risks. The company said credit quality remained favorable and the ACL adequate. It had not accessed the Bank Term Funding Program, although it reported approximately $356.4 million in eligible securities at par. Approximately 6.5% of loans used one-month LIBOR; the company selected one-month term SOFR as its replacement benchmark and expected the transition’s impact to be immaterial.
Q1 repurchases totaled 132,232 shares for $2.3 million. A new authorization for up to 1 million shares over 12 months was approved for a May 1, 2023 start, subject to Federal Reserve non-objection, received April 24; the program does not require purchases. The filing reports no material pending or threatened legal proceedings outside ordinary business. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit balances and funding costs stabilize, and how the higher reliance on FHLB borrowings affects margins and liquidity.
- Whether the $95.1 million of unrealized securities losses remain non-credit-related and whether securities can be held until recovery.
- Performance and collateral support for the new $2.1 million nonaccrual construction loan, other nonperforming loans, and the commercial real estate and hospitality portfolios.
- Whether loan growth, credit quality, and the ACL remain consistent with management’s expectations.
- Actual timing and volume of repurchases under the new authorization, given the company’s liquidity and capital priorities.