Carter Bankshares, Inc. (CARE) - Q3 2024 10-Q Summary
Business Context and Reporting Period
Carter Bankshares, Inc. is a bank holding company headquartered in Martinsville, Virginia, operating as Carter Bank & Trust with 65 branches in Virginia and North Carolina. This report covers the quarterly period ended September 30, 2024. The Company is an accelerated filer with total assets of $4.61 billion as of the reporting date.
Key Financial Metrics
| Metric | Q3 2024 (3 Months) | Q3 2023 (3 Months) | YTD 2024 (9 Months) | YTD 2023 (9 Months) |
|---|---|---|---|---|
| Net Income | $5.6 million | $3.6 million | $16.2 million | $25.3 million |
| Diluted EPS | $0.24 | $0.16 | $0.70 | $1.07 |
| Net Interest Income (GAAP) | $28.8 million | $27.4 million | $85.3 million | $94.9 million |
| Net Interest Margin (FTE) | 2.59% | 2.54% | 2.59% | 3.00% |
| Provision for Credit Losses | $(0.4) million (Recovery) | $1.1 million | $0.1 million | $2.6 million |
| Noninterest Income | $5.4 million | $5.3 million | $16.0 million | $15.0 million |
| Noninterest Expense | $27.4 million | $27.3 million | $81.1 million | $76.4 million |
| Total Assets | $4.61 billion (Sep 30, 2024) vs $4.51 billion (Dec 31, 2023) | |||
| Total Deposits | $4.09 billion (Sep 30, 2024) vs $3.72 billion (Dec 31, 2023) | |||
| Portfolio Loans | $3.60 billion (Sep 30, 2024) vs $3.51 billion (Dec 31, 2023) | |||
| Allowance for Credit Losses (ACL) | $80.9 million (2.25% of loans) | |||
| Nonperforming Loans (NPL) | $287.7 million (8.00% of loans) | |||
| Shareholders' Equity | $386.8 million |
Material Changes vs. Prior Period
- Profitability: Net income increased 55% quarter-over-quarter to $5.6 million, driven by a $1.5 million decrease in the provision for credit losses (turning into a recovery) and a $1.4 million increase in net interest income. However, year-to-date net income decreased 36% compared to 2023.
- Asset Quality: Nonperforming loans decreased by $21.8 million to $287.7 million, primarily due to $21.0 million in curtailment payments from the Company's largest nonperforming lending relationship (Justice Entities). The NPL ratio improved to 8.00% from 8.83% at year-end 2023.
- Charge-offs: Net charge-offs were significantly elevated at $15.3 million for the quarter and $16.2 million year-to-date. This was driven by a $15.0 million principal charge-off related to the Justice Entities settlement payment.
- Deposits and Funding: Total deposits grew $363.2 million (9.8%) year-over-year, fueled by a $343.4 million increase in Certificates of Deposit (CDs), including $146.1 million in new brokered CDs. Consequently, FHLB borrowings were reduced by $303.4 million to $90.0 million.
- Securities: The available-for-sale securities portfolio decreased $36.4 million. Gross unrealized losses improved to $68.4 million from $92.3 million at year-end 2023, driven by a decline in intermediate Treasury yields.
Outlook, Risks, and Management Commentary
- Legal Resolution: The Company settled the "GLAS Federal Court Litigation" regarding the Justice Entities. The lawsuit was dismissed with prejudice, and the Justice Entities reaffirmed the validity of loan documents. A settlement payment was made, recognized as a charge-off due to the nonperforming status of the underlying loans.
- Nonperforming Loan Concentration: The Company's financial results remain significantly impacted by its largest lending relationship ($280.9 million), which constitutes 97.6% of total nonperforming loans. Management is monitoring collateral values and potential recoveries closely.
- Interest Rate Environment: The Company entered into two interest rate swaps totaling $300 million in July 2024 to hedge fixed-rate loans against falling rates. Management notes the balance sheet is currently liability-sensitive but positioned to manage funding costs if the Federal Reserve continues cutting rates.
- Capital Position: The Company remains "well-capitalized" under regulatory guidelines. The Tier 1 capital ratio was 10.83% and the Total Risk-Based Capital ratio was 12.09% as of September 30, 2024.
- Strategic Focus: Management is shifting from balance sheet restructuring to a prudent growth strategy, focusing on organic growth and brand enhancement while resolving nonperforming assets.
Investor Verification Checklist
- Justice Entities Recovery: Verify the timeline and probability of future recoveries on the $280.9 million nonperforming loan balance, which dominates the credit quality metrics.
- Deposit Cost Stability: Assess the sustainability of deposit growth given the heavy reliance on higher-cost brokered CDs ($216.1 million) and the impact of potential rate cuts on net interest margin.
- ACL Adequacy: Review the specific reserve methodology for the "Other" loan segment, which holds the majority of the nonperforming balance and saw a $17.4 million reduction in reserves year-to-date.
- Securities Portfolio: Monitor the $68.4 million in unrealized losses on available-for-sale securities and the Company's intent to hold these to maturity versus potential forced sales in a liquidity stress scenario.
- Expense Management: Track noninterest expense trends, particularly FDIC insurance expenses which rose 76.4% year-to-date due to asset quality deterioration.