10-Q: Carter Bankshares Reports Increased Net Income for Q1 2025

Carter Bankshares, Inc. announces a rise in net income to $9.0 million for the first quarter of 2025, driven by increased net interest income and a recovery in credit losses.

Summary

• Carter Bankshares, Inc. reported a net income of $9.0 million, or $0.39 diluted earnings per share, for the three months ended March 31, 2025, compared to $5.8 million, or $0.25 diluted earnings per share, for the same period in 2024.
• Net interest income increased by 6.0% to $30.1 million for the quarter.
• The company experienced a recovery in credit losses of $2.0 million, compared to a provision of $16 thousand in the prior year.
• Noninterest income rose by $1.9 million to $6.9 million, primarily due to a gain on a Bank Owned Life Insurance (BOLI) death benefit.
• Noninterest expense increased by $1.8 million to $28.0 million.
• Total assets reached $4.7 billion at the end of the quarter.
• Total portfolio loans increased by $62.7 million, or 7.0% annualized.
• Total deposits increased by $47.5 million, or 4.6% annualized, to $4.2 billion.
• The allowance for credit losses to total portfolio loans ratio was 1.99%.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to improved profitability and growth in key areas. However, the high level of nonperforming loans and increased noninterest expenses temper the overall outlook.

Positives

• Net interest income increased $1.7 million, or 6.0%, to $30.1 million.
• The (recovery) provision for credit losses decreased $2.0 million to a recovery of $2.0 million.
• Total noninterest income increased $1.9 million to $6.9 million.
• Total portfolio loans increased $62.7 million, or 7.0%, on an annualized basis.
• Total deposits increased $47.5 million, or 4.6%, on an annualized basis, to $4.2 billion.

Negatives

• Noninterest expense increased $1.8 million to $28.0 million.
• Nonperforming loans increased by $2.1 million to $261.4 million.
• The Allowance for Credit Losses, (ACL) to total portfolio loans ratio decreased from 2.09% to 1.99%.

Risks

• The company's financial results continue to be significantly impacted by a single large credit relationship that was placed on nonaccrual status during the second quarter of 2023, with an aggregate principal balance of $245.1 million as of March 31, 2025.
• The company is closely monitoring all developments that may impact collateral values or potential recoveries on its nonperforming loans, including claims that may be asserted by other purported creditors.
• The company is subject to various legal and administrative proceedings and claims.

Future Outlook

The Company aims to shift from restructuring the balance sheet to pursuing a prudent growth strategy, primarily targeting organic growth and considering opportunistic acquisitions. The Company is focused on executing this strategy to successfully support the new brand and grow its business in current and new markets.

Management Comments

• Part of the Company's current three-year strategic plan is to focus on refining and enhancing its brand image and position in the markets it serves.
• The Company's goal is to shift from restructuring the balance sheet to pursuing a prudent growth strategy when appropriate.
• We believe that the Banks strong capital and liquidity positions support this strategy.

Industry Context

The report reflects the challenges and opportunities facing regional banks in the current economic environment, including managing interest rate risk, credit quality, and deposit growth. The company's focus on organic growth and strategic acquisitions aligns with industry trends.

Comparison to Industry Standards

• Comparing Carter Bankshares' performance to peers like First National Corporation (FXNC) and Atlantic Union Bankshares Corporation (AUB) reveals some similarities and differences.
• For example, Carter's net interest margin of 2.68% is within the range of regional banks, but specific comparisons would require analyzing peer financials for the same period.
• Similarly, the ACL ratio of 1.99% needs to be benchmarked against peers to assess its relative conservatism.
• The nonperforming loan ratio of 7.09% is relatively high and warrants close monitoring compared to industry averages.

Legal Proceedings

• In the normal course of business, the Company is subject to various legal and administrative proceedings and claims.

Stakeholder Impact

• Shareholders benefit from increased profitability and improved financial performance.
• Customers may see enhanced services and products as the company pursues its growth strategy.
• Employees may experience opportunities for advancement as the company expands.

Next Steps

• The Company expects the transaction to acquire two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston Salem, North Carolina, from First Reliance Bank to close during the second quarter of 2025.

Key Dates

Keywords

net income, credit losses, portfolio loans, deposits, noninterest income, noninterest expense, FHLB borrowings, nonperforming loans, allowance for credit losses, interest income, interest expense, Carter Bankshares, financial results, Q1 2025