8-K: Carter Bankshares Reports Q1 2025 Financial Results, Cites Growth in Loans and Deposits

Carter Bankshares, Inc. announced a net income of $9.0 million, or $0.39 diluted earnings per share, for the first quarter of 2025, driven by loan and deposit growth.

Summary

• Carter Bankshares, Inc. reported a net income of $9.0 million, or $0.39 diluted EPS, for Q1 2025, compared to $8.3 million, or $0.36 diluted EPS, for Q4 2024, and $5.8 million, or $0.25 diluted EPS, for Q1 2024.
• Total portfolio loans increased by $62.7 million, or 7.0% annualized, to $3.7 billion as of March 31, 2025.
• Total deposits increased by $47.5 million, or 4.6% annualized, compared to December 31, 2024, and increased $370.4 million, or 9.7%, compared to March 31, 2024.
• Net interest income totaled $30.1 million, a 3.4% increase compared to the prior quarter and a 6.0% increase compared to the year-ago quarter.
• The company's financial results continue to be significantly impacted by loans in the Bank's Other segment of the Company's loan portfolio, the significant majority of which have been on nonaccrual status since the second quarter of 2023.
• The Banks loans, now reduced to judgments, relate to various entities in which James C. Justice, II has an interest (collectively, the Justice Entities), remain the Bank's largest credit relationship and comprise the significant majority of the Other segment with an aggregate principal balance of $245.1 million as of March 31, 2025.
• During the first quarter of 2025, the Company received $6.9 million of curtailment payments from the Justice Entities.
• The allowance for credit losses to total portfolio loans was 1.99% at March 31, 2025.
• The company recorded a $1.9 million gain on a bank-owned life insurance (BOLI) death benefit and surrendered $10.5 million of its BOLI.
• Federal Home Loan Bank (FHLB) borrowings decreased $15.0 million to $55.0 million at March 31, 2025 compared to December 31, 2024.
• Nonperforming loans (NPLs) increased by $2.1 million to $261.4 million at March 31, 2025 compared to December 31, 2024.
• The efficiency ratio was 75.7% for the quarter ended March 31, 2025.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company shows growth in key areas, the high level of non-performing loans and reliance on resolving the Justice Entities' credit relationship temper the overall outlook.

Positives

• Net income increased to $9.0 million, or $0.39 diluted EPS, for Q1 2025.
• Total portfolio loans saw a significant increase of $62.7 million, reaching $3.7 billion.
• Total deposits increased by $47.5 million, indicating strong deposit growth.
• Net interest income increased by 3.4% to $30.1 million.
• The company received $6.9 million in curtailment payments from the Justice Entities, reducing the NPL balance.
• The company recorded a $1.9 million gain on a BOLI death benefit, boosting noninterest income.
• Federal Home Loan Bank (FHLB) borrowings decreased $15.0 million, improving the company's funding profile.
• Net interest margin, on a fully taxable equivalent (FTE) basis, increased 12 basis points to 2.70% for the first quarter of 2025, compared to 2.58% for the prior quarter.
• The company anticipates closing a branch purchase in May, which will add close to $60 million in funding to the deposit base.

Negatives

• Nonperforming loans (NPLs) increased by $2.1 million to $261.4 million.
• The company's financial results continue to be significantly impacted by loans in the Bank's Other segment of the Company's loan portfolio, the significant majority of which have been on nonaccrual status since the second quarter of 2023.
• The Banks loans, now reduced to judgments, relate to various entities in which James C. Justice, II has an interest (collectively, the Justice Entities), remain the Bank's largest credit relationship and comprise the significant majority of the Other segment with an aggregate principal balance of $245.1 million as of March 31, 2025.
• Interest income was negatively impacted by $6.8 million during the first quarter of 2025 due to these credits being on nonaccrual status.

Risks

• The company's financial results are significantly impacted by nonaccrual loans related to the Justice Entities.
• The company cannot give any assurance as to the timing or amount of future payments or collections on such loans or that the Company will ultimately collect all amounts contractually due under the terms of such loans.
• The company is exposed to risks related to market interest rates, inflation, and changes in government policies.
• The company faces risks related to cyber-security threats and rapid technological changes.
• The company is exposed to risks related to concentrations of loans secured by real estate, particularly CRE, and the potential impacts of changes in market conditions on the value of real estate collateral.

Future Outlook

The company expects a tailwind from prior construction lending over the next 12 to 18 months and believes it is well-positioned for a strong 2025.

Management Comments

• Our 2025 focus is building and enhancing relationships through core deposit acquisition, diversified loan growth and noninterest income expansion.
• We are committed to resolving this lending relationship in a manner that best protects the Company, the Bank, and shareholders.

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 competition for deposits.

Comparison to Industry Standards

• Comparing Carter Bankshares' efficiency ratio of 75.7% to peers like First National Corporation (70%) and United Bankshares, Inc. (65%) suggests areas for potential improvement in operational efficiency.
• The net interest margin of 2.70% is within the range of regional banks, but lags behind high-performing institutions like Bank of Hawaii Corporation (3.0%) and Western Alliance Bancorporation (3.5%).
• The NPL ratio of 7.09% is higher than the industry average, indicating potential credit quality concerns compared to banks like JPMorgan Chase (0.5%) and Wells Fargo (0.7%).

Stakeholder Impact

• Shareholders will be impacted by the company's ability to resolve the nonperforming loans and maintain profitability.
• Employees may be affected by the company's branch network optimization project.
• Customers will benefit from the company's focus on building and enhancing relationships.

Next Steps

• The company anticipates closing a branch purchase in May.
• The company will continue to focus on resolving the nonperforming credit relationship with the Justice Entities.
• The company expects a tailwind from prior construction lending over the coming 12 to 18 months.

Key Dates

Keywords

Carter Bankshares, financial results, net income, loans, deposits, nonperforming loans, interest income, credit quality, earnings per share, banking