Carter Bankshares (CARE) Q3 2024 earnings summary

Executive summary

• Net income for Q3 2024 was $5.6 million ($0.24 per diluted share), up from $3.6 million in Q3 2023 and $4.8 million in Q2 2024, driven by higher net interest income and lower provision for credit losses.

• For the nine months ended September 30, 2024, net income was $16.2 million ($0.70 per share), down from $25.3 million ($1.07 per share) in the same period last year, reflecting higher funding costs and a large nonperforming loan.

• The company’s largest nonperforming lending relationship, with a principal balance of $280.9 million, continues to significantly impact results, though curtailment payments reduced the balance by $21.0 million since year-end.

• The voluntary dismissal of the GLAS Trust Lawsuit and reaffirmation of loan documents by the Justice Entities resolved significant litigation, resulting in a $15.0 million principal charge-off.

• Financial results remain significantly impacted by large nonperforming loans, especially those to the Justice Entities.

Financial highlights

• Net interest income for Q3 2024 rose 5.1% year-over-year to $28.8 million, with net interest margin (FTE) up to 2.59%.

• For the nine months, net interest income fell 10.1% to $85.3 million, and net interest margin (FTE) dropped 41 bps to 2.59%, mainly due to higher funding costs and nonaccrual loans.

• Total deposits increased 20.9% annualized from Q2 2024 and 14.8% year-over-year to $4.1 billion.

• FHLB borrowings decreased by $148.0 million to $90.0 million at September 30, 2024.

• Efficiency ratio improved to 80.17% in Q3 2024 from 81.62% in Q2 2024 and 83.52% in Q3 2023.

Outlook and guidance

• Management expects continued pressure on net interest margin from elevated funding costs and the ongoing impact of the large nonperforming loan, but deposit growth and capital levels remain strong.

• Management expects a decline in cost of funds in Q4 2024 due to recent Fed rate cuts.

• Net interest margin is expected to normalize once the large nonperforming lending relationship is resolved.

• The company is focused on prudent organic growth, fee income expansion, and resolution of nonaccrual loans, with a strategic shift toward growth as balance sheet restructuring nears completion.

• Loan production pipeline remains solid, providing visibility through year-end.