8-K: Carter Bankshares Reports Improved First Quarter Results Driven by Deposit Growth and Enhanced Liquidity

Carter Bankshares, Inc. announced positive first quarter results for 2024, highlighted by strong deposit growth, improved liquidity, and a return to positive profitability metrics.

Summary

• Carter Bankshares reported a net income of $5.8 million for the first quarter of 2024, a significant improvement from a net loss of $1.9 million in the previous quarter.
• The company experienced a 2.9% increase in deposits quarter-over-quarter, reaching $3.83 billion, and an 8.3% increase year-over-year.
• Total loans grew to $3.51 billion, an 8% increase year-over-year, with growth primarily in commercial real estate and residential mortgages.
• The net interest margin (FTE) increased to 2.60% from 2.49% in the previous quarter.
• Noninterest income saw a substantial 55.5% increase quarter-over-quarter, while noninterest expenses decreased by 9.7%.
• The company's asset quality metrics showed a nonperforming loan ratio of 8.76% and a delinquency ratio of 0.25%.
• Carter Bankshares maintains a strong liquidity position with total available liquidity of $1.3 billion, representing 199% coverage of uninsured deposits.
• The company is well-capitalized with a Common Equity Tier 1 Ratio of 10.89%, a Total Risk-based Capital Ratio of 12.15%, and a Leverage Ratio of 9.34%.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with improved financial results, but the high nonperforming loan ratio and ongoing litigation introduce some caution. The company is making progress but still faces challenges.

Positives

• The company achieved a significant improvement in net income, moving from a loss to a profit in the first quarter of 2024.
• Strong deposit growth indicates increased customer confidence and a solid funding base.
• The increase in net interest margin suggests improved profitability from lending activities.
• The decrease in noninterest expenses demonstrates effective cost management.
• The company's strong liquidity position provides a buffer against potential financial stress.
• The bank is well-capitalized, exceeding regulatory requirements.
• The company has a diversified deposit base with a large percentage of retail customers and FDIC insured deposits.
• The company is expanding its branch network in strategic growth markets.

Negatives

• The nonperforming loan ratio remains high at 8.76%, indicating potential credit quality issues.
• The company experienced a significant year-over-year decrease in net income, down 63.5% from the first quarter of 2023.
• The company's return on average assets (ROA) and return on average shareholders' equity (ROE) are still relatively low at 0.52% and 6.59% respectively.
• The company's efficiency ratio is high at 79.01%, indicating that a large portion of revenue is being used to cover expenses.

Risks

• The company is exposed to risks related to market interest rates, inflation, and economic fluctuations.
• Changes in government policies and regulations could impact the company's operations.
• Cybersecurity threats and rapid technological changes pose ongoing risks.
• The company faces challenges in resolving nonperforming assets and securing collateral on defaulted loans.
• Concentrations of loans secured by real estate, particularly commercial real estate, present a risk.
• The company is involved in ongoing litigation, including a lawsuit with West Virginia Governor James C. Justice, II.
• The company is exposed to risks related to the soundness of other financial institutions and potential impacts from recent bank failures.
• The company is exposed to risks related to customer behavior, including changes in spending, borrowing, and saving habits.

Future Outlook

The company will continue to focus on strategic initiatives to enhance the associate experience, drive efficiency, invest in the brand, and deepen customer relationships. They will also focus on increasing market share in target growth markets through organic growth and opportunistic acquisitions.

Management Comments

• Management will use the attached investor presentation with investors, analysts, and other interested parties to assist in their understanding of Carter Bankshares, Inc.

Industry Context

The results are being released in a period of economic uncertainty and potential interest rate fluctuations, which are impacting the broader banking industry. The company's focus on deposit growth and liquidity management is consistent with industry trends aimed at mitigating risks in the current environment.

Comparison to Industry Standards

• The company's nonperforming loan ratio of 8.76% is significantly higher than the industry average, which is typically below 1%.
• The company's efficiency ratio of 79.01% is higher than the industry average, which is typically in the 50-60% range, indicating higher operating costs relative to revenue.
• The company's net interest margin of 2.60% is lower than the industry average, which is typically in the 3-4% range, suggesting lower profitability from lending activities.
• Compared to regional banks like Truist Financial and First Horizon, Carter Bankshares has a smaller asset base and a higher concentration of commercial real estate loans.
• The company's capital ratios are within regulatory requirements, but its profitability metrics are lower than those of larger, more established banks.

Legal Proceedings

• The company is involved in a lawsuit filed against the Bank and its directors by West Virginia Governor James C. Justice, II, his wife Cathy Justice, his son James C. Justice, III and various related entities concerning their lending relationship with the Bank.
• There are other lawsuits related to the large NPL relationship.

Stakeholder Impact

• Shareholders will be impacted by the improved financial performance and the company's strategic initiatives.
• Employees will be impacted by the company's focus on enhancing the associate experience.
• Customers will be impacted by the company's efforts to deepen relationships and expand product offerings.
• Creditors will be impacted by the company's strong liquidity position and capital ratios.

Next Steps

• The company will continue to invest in human capital strategies to enhance the associate experience.
• The company will continue to drive efficiency and process improvement across all levels of the organization.
• The company will make significant investments in the new brand strategy.
• The company will continue to enhance the transformational work that has been done over the past five years.
• The company will focus on initiatives around enhancing technology, operations, customer experience, C&I, corporate & social responsibility, channel delivery, and product development.
• The company will strengthen change management systems and leverage the Boards ERM Committee.
• The company will continue strategies to deepen existing relationships and acquire new relationships in current markets.
• The company will focus on increasing market share in target growth markets.
• The company will focus on expanding through organic growth and opportunistic acquisition.

Key Dates

Keywords

bank, financial, deposits, loans, liquidity, capital, net interest margin, asset quality, nonperforming loans, commercial real estate, profitability