8-K: Carter Bankshares Reports Strong Deposit Growth and Liquidity Position in Q2 2024

Carter Bankshares, Inc. announced strong deposit growth and an improved liquidity position in the second quarter of 2024, alongside strategic investments in growth markets.

Summary

• Carter Bankshares reported a 5.3% annualized deposit growth in Q2 2024.
• The company's available liquidity to uninsured deposits was 195.7% in Q2 2024.
• Approximately 78.4% of the deposit base is from retail customers.
• Around 82.8% of deposits, including collateralized municipal deposits, are FDIC insured.
• The bank is expanding its branch network in strategic growth markets like Charlottesville and Raleigh.
• Total loans increased by $219.1 million year-over-year, primarily in commercial real estate, residential mortgages, and construction.
• Net interest income increased by 5.2% year-over-year.
• Noninterest income increased by 10.0% year-over-year.
• Borrowings decreased by 42.7% year-over-year.
• The company's CET1 ratio is 10.95%.
• The allowance for credit losses (ACL) coverage is 2.72%.
• Total available liquidity is $1.3 billion.
• The company has repurchased 3.8 million shares since December 2021 at an average cost of $15.95 per share.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While there are positives like strong deposit growth, liquidity, and strategic initiatives, the decrease in net income and earnings per share, along with the large non-performing loan relationship, temper the overall sentiment. The company is taking steps to improve its position, but there are still challenges to overcome.

Positives

• The company achieved strong deposit growth and improved liquidity.
• The deposit base is diversified and granular, with a high percentage of retail customers.
• A significant portion of deposits are FDIC insured, providing stability.
• The bank is strategically expanding its branch network in growth markets.
• Loan growth was solid, particularly in commercial real estate, residential mortgages, and construction.
• Net interest income and noninterest income both showed year-over-year growth.
• Borrowings were significantly reduced year-over-year.
• The company maintains a strong capital position with a CET1 ratio of 10.95%.
• The company has a strong liquidity position with $1.3 billion in total available liquidity.
• The company has been actively repurchasing shares, indicating confidence in its value.
• Net charge-offs have decreased, indicating improved asset quality.
• The company's bond portfolio has a shorter maturity profile, reducing interest rate risk.

Negatives

• Net income decreased by 17.3% quarter-over-quarter and 15.8% year-over-year.
• Diluted earnings per share decreased by 16.0% quarter-over-quarter and 12.5% year-over-year.
• The company has a large non-performing loan relationship impacting overall asset quality metrics.
• The company's efficiency ratio increased slightly quarter-over-quarter.
• The company's return on average assets and return on average shareholders' equity decreased quarter-over-quarter.

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 loans.
• Concentrations of loans secured by real estate, particularly commercial real estate, present risks.
• The company is exposed to potential adverse effects from unusual events like weather-related disasters, terrorist acts, and public health events.
• The company faces increasing price and product/service competition.
• The company is exposed to risks related to the soundness of other financial institutions.
• The company is exposed to risks related to general economic conditions and customer behavior.
• The company is exposed to risks related to the housing market and mortgage demand.
• The company is exposed to risks related to the re-emergence of turbulence in global financial and real estate markets.
• The company has a large non-performing loan relationship that is impacting overall asset quality metrics.

Future Outlook

The company will continue to focus on strategic initiatives to enhance associate experience, drive efficiency, invest in brand strategy, deepen existing relationships, acquire new relationships, increase market share in target growth markets, and expand through organic growth and opportunistic acquisition.

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.
• The company is focused on maintaining a strong regulatory capital position in excess of regulatory thresholds.
• The company is focused on ensuring capital levels are commensurate with the company's risk profile and strategic plan objectives.

Industry Context

This announcement reflects a focus on deposit growth and liquidity, which are key concerns in the current banking environment. The strategic branch expansion and focus on technology and customer experience align with industry trends towards digital transformation and customer-centric banking. The company's focus on maintaining strong capital and liquidity positions is consistent with regulatory expectations and industry best practices.

Comparison to Industry Standards

• The company's CET1 ratio of 10.95% is above the regulatory minimum and compares favorably to many regional banks.
• The company's liquidity position, with 195.7% available liquidity to uninsured deposits, is strong compared to industry averages.
• The company's non-performing loan ratio of 8.46% is high, but excluding the largest NPL relationship, it drops to 0.17%, which is significantly better than the peer average of 0.63%.
• The company's net charge-off ratio of 0.04% is better than the peer average of 0.08%.
• The company's efficiency ratio of 81.33% is higher than some of its peers, indicating room for improvement in operational efficiency.
• The company's bond portfolio has a shorter maturity profile with an average life of 5.6 years and an effective duration of 4.3, which is more conservative than some peers and reduces interest rate risk.
• The company's book yield of 3.65% on its bond portfolio is higher than peer averages.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and earnings per share, but encouraged by the strong deposit growth and liquidity.
• Employees may benefit from the company's investment in human capital strategies.
• Customers may benefit from the company's focus on enhancing technology and customer experience.
• The company's strong liquidity position may provide stability for creditors.
• The company's strategic branch expansion may benefit communities in growth markets.

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, leveraging technology and automation.
• The company will make significant investments in the new brand strategy working on updating and enhancing the image and reputation of the Bank.
• 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, asset quality, commercial real estate, nonperforming loans, interest rates, credit losses, shareholders, FDIC, branch expansion