10-K: Carter Bankshares, Inc. Reports Full Year 2023 Results Amidst Strategic Shift

Carter Bankshares, Inc. reports a decrease in net income for 2023, impacted by higher funding costs and a significant nonperforming loan, while focusing on strategic growth and brand enhancement.

Summary

• Carter Bankshares, Inc. reported a net income of $23.4 million for the year ended December 31, 2023, a decrease from $50.1 million in 2022.
• Net interest income decreased by 12.6% to $122.3 million, primarily due to increased funding costs and a $30 million negative impact from a large nonperforming loan.
• The company's nonperforming loans surged to 8.83% of the loan portfolio, up from 0.21% in the previous year, due to a single large lending relationship being placed on nonaccrual status.
• Total deposits increased by 2.5% to $3.7 billion, with a shift from noninterest-bearing accounts to higher-yielding CDs.
• The company is shifting from balance sheet restructuring to a prudent growth strategy, focusing on organic growth and opportunistic acquisitions.
• The company introduced new guiding principles and core values to strengthen its culture and support future growth.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive strategic shifts but significant negative financial results, particularly concerning the increase in nonperforming loans and decrease in net income. The sentiment is cautiously negative.

Positives

• The company's loan portfolio increased by $357.0 million, or 11.3%, primarily due to growth in commercial real estate, residential mortgage, and construction segments.
• The company is focusing on refining and enhancing its brand image and position in the markets it serves.
• The company introduced new guiding principles and core values to strengthen its culture and support future growth.
• The company has a strong capital and liquidity position to support its growth strategy.
• The company is seeking to increase fee income while closely monitoring operating expenses.

Negatives

• Net interest income decreased by 12.6% due to higher funding costs and the impact of a large nonperforming loan.
• Nonperforming loans increased significantly to 8.83% of the loan portfolio.
• Total noninterest income decreased by $3.4 million to $18.3 million.
• Total noninterest expense increased by $8.5 million to $105.5 million.
• The company's net interest margin decreased by 63 basis points to 2.85%.

Risks

• The company's level of credit risk is elevated due to the concentration of commercial real estate loans and commercial real estate construction loans in its portfolio.
• The company's nonperforming assets can take significant time to resolve and may adversely affect the company's results of operations and financial condition.
• The company is subject to interest rate risk and fluctuations in interest rates may adversely affect its earnings and capital levels.
• A failure in or breach of the company's operational or security systems or infrastructure, or those of third parties, could disrupt the company's businesses.
• Adverse developments affecting the financial services industry may have a material adverse effect on the company's financial condition and results of operations.

Future Outlook

The company is focusing on a prudent growth strategy, targeting organic growth and considering opportunistic acquisitions. The company will also seek to increase fee income while closely monitoring operating expenses.

Management Comments

• The company's goal is to shift from restructuring the balance sheet to pursuing a prudent growth strategy when appropriate.
• We believe these new guiding principles will help create alignment to support future growth by empowering our associates and igniting a passion for the Company.
• We believe that the Banks strong capital and liquidity positions support this strategy.

Industry Context

The company is operating in a competitive environment with other commercial banks, savings associations, and non-bank lenders. The company is also facing increasing competition from fintech companies.

Comparison to Industry Standards

• The company's nonperforming loan ratio of 8.83% is significantly higher than the industry average for well-capitalized banks, indicating a potential area of concern.
• The company's net interest margin of 2.85% is lower than the average for many regional banks, suggesting a need to improve asset yields or reduce funding costs.
• The company's return on average assets of 0.53% is below the industry average, indicating a need to improve profitability.
• Compared to peers like First Citizens BancShares (FCNCA) and Truist Financial (TFC), Carter Bankshares has a smaller asset base and a higher nonperforming loan ratio.
• The company's focus on organic growth and brand enhancement aligns with industry trends, but its ability to execute these strategies effectively will determine its success.

Legal Proceedings

• The Bank is engaged in a variety of collection proceedings against various related entities that are owned and/or controlled by James C. Justice, II, Cathy L. Justice and James C. Justice, III.
• The Company, the Bank, and the individual directors of the Company and the Bank were named as defendants in a lawsuit filed in the United States District Court for the Southern District of West Virginia by the Collection Defendants.
• The Bank was named as a defendant in a lawsuit filed in the Circuit Court of Greenbrier County, West Virginia by Greenbrier Sporting Club Development Co., Inc. and The Greenbrier Sporting Club, Inc.
• The Bank was named as a defendant in a lawsuit filed in the United States District Court for the Western District of Virginia by GLAS Trust Company LLC.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and the increase in nonperforming loans.
• Employees may be affected by the company's strategic shift and focus on efficiency.
• Customers may experience changes in products and services as the company refines its brand image.
• Creditors may be concerned about the company's increased credit risk and nonperforming assets.

Next Steps

• The company will focus on refining and enhancing its brand image and position in the markets it serves.
• The company will pursue a prudent growth strategy, targeting organic growth and considering opportunistic acquisitions.
• The company will seek to increase fee income while closely monitoring operating expenses.
• The company will continue to dedicate significant resources to resolving the company's nonaccrual loans and pending litigation.

Key Dates

Keywords

nonperforming loans, net interest income, commercial real estate, credit risk, capital, liquidity, deposits, loan portfolio, interest rates, financial results