Carter Bankshares, Inc. (NASDAQ:CARE) is a leading community bank with a rich 50-year history of serving customers across Virginia and North Carolina. As the company celebrates its golden anniversary, it has unveiled a new brand identity that reflects its unwavering commitment to its customers and the communities it serves.
Company History and Growth
The company's origins can be traced back to 1974, when it opened its first branch in Rocky Mount, Virginia. Over the decades, Carter Bankshares has evolved into a formidable regional player, expanding its footprint and diversifying its product offerings to meet the changing needs of its customers. Today, the bank operates 65 branches throughout its two-state footprint, providing a wide range of financial services to both retail and commercial clients.
Throughout its history, Carter Bankshares has faced and overcome various challenges, demonstrating its resilience and adaptability. In the early 2000s, the company encountered difficulties during the housing market downturn, which led to increased loan defaults and credit losses. The management team responded by strengthening the bank's underwriting standards and risk management practices, effectively addressing these issues and positioning the company for future growth.
Despite these challenges, Carter Bankshares continued to expand, pursuing both organic growth and strategic acquisitions. The company's commitment to its core values of building relationships, earning trust, and taking ownership has been a key driver of its success over the past five decades. This customer-focused approach has helped Carter Bankshares navigate various economic challenges and emerge as a leading community bank in its markets.
Resilience in Challenging Times
One of the key highlights of Carter Bankshares' history is its ability to navigate challenging economic environments. In 2020, the company faced a significant headwind in the form of the COVID-19 pandemic, which disrupted industries and consumer behavior across the globe. Despite these challenges, Carter Bankshares demonstrated its resilience, leveraging its strong balance sheet and prudent risk management practices to weathered the storm.
Financials
As of September 30, 2024, the company reported total assets of $4.60 billion, representing a 2.3% increase from the previous year. This growth was primarily driven by a 3.4% increase in the company's loan portfolio, which reached $3.60 billion. The bank's deposit base also exhibited strong growth, expanding by 9.8% to $4.09 billion.
The company's profitability metrics have remained solid, with a net income of $16.24 million for the nine months ended September 30, 2024. This translates to a return on average assets (ROAA) of 0.48% and a return on average equity (ROAE) of 5.99%. However, it's worth noting that the company's financial performance has been significantly impacted by the challenges posed by its largest nonperforming lending relationship, which was placed on nonaccrual status in the second quarter of 2023.
For the most recent fiscal year (2023), Carter Bankshares reported revenue of $136.61 million, net income of $23.38 million, operating cash flow of $46.73 million, and free cash flow of $36.93 million. In the most recent quarter (Q3 2024), the company's revenue was $62.017 million, net income was $5.629 million, operating cash flow was $10.312 million, and free cash flow was $8.432 million.
Innovation and Rebranding
Despite these headwinds, Carter Bankshares has demonstrated its ability to adapt and innovate. The company's new brand identity, unveiled in late 2024, is a testament to its forward-looking approach. The rebranding effort is designed to better align the bank's image with its customer-centric values and its commitment to fostering strong relationships within the communities it serves.
Liquidity
In terms of liquidity and capital, Carter Bankshares maintains a solid financial position. As of September 30, 2024, the company's Tier 1 capital ratio stood at 10.83%, well above the regulatory requirement of 8.50% for well-capitalized institutions. The bank's leverage ratio was 9.53%, also comfortably above the 5.00% threshold for well-capitalized status.
The company's debt-to-equity ratio is 0.2326633490596523, indicating a relatively low level of leverage. Carter Bankshares has $104.99 million in cash on hand and maintains access to various credit facilities. These include $30 million in unsecured facilities with three correspondent financial institutions, a $45 million fully secured facility with another correspondent financial institution, and access to the institutional certificate of deposit (CD) and brokered deposit markets.
Loan Portfolio and Asset Quality
Carter Bankshares' loan portfolio is the primary driver of its revenue, comprising the majority of its assets. The portfolio is diversified across several key segments:
1. Commercial Real Estate (CRE): This is the largest segment, representing 51.7% of total portfolio loans as of September 30, 2024. CRE loans increased by $187.4 million, or 11.2% on an annualized basis, during the first nine months of 2024.
2. Commercial and Industrial (CI): Comprising 6.7% of the total loan portfolio, this segment decreased by $30 million, or 11.1%, during the first nine months of 2024.
3. Residential Mortgage: Making up 21.8% of the loan portfolio, this segment decreased by $5 million, or 0.6%, year-to-date.
4. Other Consumer: Representing 0.8% of total loans, this segment decreased by $4.5 million, or 13.1%, in the first nine months of 2024.
5. Construction: Accounting for 11.1% of the portfolio, this segment decreased by $36.8 million, or 8.4%, during the first nine months.
6. Other: Comprising 7.9% of total loans, this segment decreased by $21.1 million, or 6.9%, primarily due to curtailment payments received on the company's largest nonperforming lending relationship.
Overall, the total loan portfolio increased by $90 million, or 3.4% on an annualized basis, during the first nine months of 2024, with growth primarily seen in the CRE segment. The allowance for credit losses (ACL) decreased to 2.25% of total loans as of September 30, 2024, down from 2.77% at the end of 2023. Nonperforming loans declined to 8.0% of total loans from 8.83% at the end of 2023, driven by curtailment payments on the company's largest nonperforming relationship.
Future Outlook
Looking ahead, Carter Bankshares remains focused on executing its strategic plan, which includes a prudent growth strategy, a continued emphasis on improving asset quality, and a steadfast commitment to enhancing its brand and customer experience. The company's leadership team is working diligently to resolve the challenges posed by its largest nonperforming lending relationship, with the goal of minimizing the impact on the bank's overall financial performance.
The company continues to dedicate significant resources to resolving its nonaccrual loans, the majority of which are related to a single large lending relationship placed on nonaccrual status in the second quarter of 2023. Carter Bankshares is closely monitoring developments that may impact collateral values or potential recoveries on its nonperforming loans, including claims that may be asserted by other purported creditors.
In a positive development, during the third quarter of 2024, the company obtained a voluntary dismissal with prejudice of a lawsuit filed against the bank by GLAS Trust Company, LLC. In connection with this, certain entities owned or controlled by the Justice family executed documents reaffirming the validity of their loan obligations to the bank.
In conclusion, Carter Bankshares, Inc. (NASDAQ:CARE) is a resilient and innovative community bank that has weathered numerous challenges over its 50-year history. As it celebrates this milestone, the company is well-positioned to continue serving its customers and communities with the same dedication and commitment that has defined its legacy. Investors and stakeholders can take comfort in the bank's strong financial foundations and its unwavering focus on long-term growth and sustainability.