Carter Widens Margin as Funding Costs Ease
Net interest margin expanded 31 basis points to 3.38% as asset yields rose and funding costs declined.
Carter Bankshares (CARE), the community-bank holding company, expanded its net interest margin by 31 basis points from the first quarter and 58 basis points from a year earlier to 3.38%. Net interest income rose 11.2% QoQ and 23.5% YoY to $40.0 million, extending an acceleration that began over the previous two quarters.
The margin widened as interest-earning-asset yields increased 16 basis points and funding costs declined 10 basis points. Favorable loan repricing, steadier deposit pricing and the repayment of higher-cost Federal Home Loan Bank borrowings helped, alongside $0.6 million of loan-prepayment penalties. Carter also sold $139.4 million of securities yielding 2.28% and purchased $88.5 million yielding about 5.27%, a repositioning expected to lift future asset yields and earnings.
Loan growth remained restrained after $132.6 million of commercial real-estate payoffs. Portfolio loans increased $6.1 million QoQ to $3.735 billion, slowing from $58.4 million of transaction-adjusted growth in the first quarter. Loans declined 0.3% YoY as reported but rose 6.45% excluding the first-quarter loan sale. Deposits fell $37.7 million QoQ to $4.198 billion, though noninterest-bearing demand deposits increased $17.5 million to $655.5 million.
Noninterest income dropped to $28.7 million from $71.0 million as the prior quarter’s $65.0 million loan-sale gain rolled off. The second quarter included a $35.9 million insurance-sale gain and a $12.5 million loss on the securities repositioning. Core fees were mixed, while noninterest expense declined $1.0 million QoQ to $30.0 million. The adjusted efficiency ratio improved to 62.66% from 72.66%.
Capital strengthened during the quarter. Tier 1 risk-based capital increased 74 basis points QoQ to 14.26%, the leverage ratio rose 55 basis points to 11.65%, and total risk-based capital climbed 73 basis points to 15.51%. Carter repurchased 108,601 shares for $2.9 million at an average price of $26.50.
Credit costs normalized following the first quarter’s loan-sale benefit. Carter recorded a $2.0 million provision for credit losses after a $33.9 million recovery, while net recoveries fell to $0.7 million from $14.9 million. Nonperforming loans increased 37 basis points QoQ to 1.01% of loans after a $13.4 million commercial-and-industrial relationship was downgraded. The allowance rose seven basis points to 1.48% of loans, though coverage of nonperforming loans declined to 146.88% from 219.03%.
The higher-yielding securities mix and stabilizing deposit pricing provided support for future margin performance, while subdued loan growth and the increase in nonperforming loans set the operating markers for the coming quarters.