8-K: Carter Bankshares Reports Net Loss in Q4 2023 Amidst Nonperforming Loan Impact

Carter Bankshares, Inc. announced a net loss of $1.9 million for the fourth quarter of 2023, primarily due to the impact of a large nonperforming loan.

Summary

• Carter Bankshares, Inc. reported a net loss of $1.9 million, or $(0.08) per share, for the fourth quarter of 2023, a significant decrease compared to a net income of $3.6 million in the previous quarter and $15.6 million in the same quarter of 2022.
• The company's full-year 2023 net income was $23.4 million, or $1.00 per share, down from $50.1 million, or $2.03 per share, in 2022.
• A major factor impacting the results was the placement of $301.9 million in loans on nonaccrual status in the second quarter of 2023, which reduced interest income by $30.0 million for the full year.
• Net interest income remained consistent with the previous quarter at $27.4 million but decreased by $14.1 million compared to the fourth quarter of 2022.
• The net interest margin decreased to 2.47% in Q4 2023, down from 4.04% in Q4 2022.
• Total portfolio loans increased to $3.5 billion, an 11.0% annualized increase from the previous quarter.
• Total deposits increased to $3.7 billion, an 18.1% annualized increase from the previous quarter.
• Nonperforming loans (NPL) reached 8.83% of total portfolio loans at the end of 2023, up from 0.21% at the end of 2022.
• The company's efficiency ratio was 94.8% for the fourth quarter of 2023, compared to 58.7% in the same quarter of 2022.
• The company sold $30 million of available-for-sale securities, resulting in a $1.5 million loss, to reposition the securities portfolio.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the reported net loss, significant increase in nonperforming loans, and decrease in net interest margin. While there are some positives like loan and deposit growth, the overall tone is concerning due to the impact of the large nonperforming loan.

Positives

• Total portfolio loans increased by $95 million in the quarter to $3.5 billion, showing solid loan growth.
• Total deposits increased by $162.4 million in the quarter to $3.7 billion, indicating deposit growth.
• The company opened a new flagship branch in Charlottesville, VA and a commercial production office in Raleigh, NC, demonstrating investment in growth.
• The company believes the loss on the sale of securities will be recovered in less than one year.
• Capital and liquidity levels remain strong.
• The company believes funding cost pressures are beginning to stabilize.

Negatives

• The company reported a net loss of $1.9 million for the fourth quarter of 2023.
• Net income for the full year 2023 decreased significantly compared to 2022.
• A large loan relationship of $301.9 million was placed on nonaccrual status, negatively impacting interest income.
• The net interest margin decreased significantly compared to the previous year.
• Nonperforming loans increased substantially, reaching 8.83% of total portfolio loans.
• The efficiency ratio deteriorated significantly compared to the previous year.
• The company incurred a $1.5 million loss on the sale of securities.

Risks

• The large nonperforming loan relationship continues to negatively impact financial results.
• The company faces risks related to market interest rates, inflation, and economic conditions.
• There are risks associated with changes in government policies and regulations.
• The company is exposed to cyber-security threats and rapid technological changes.
• There are risks related to the company's ability to resolve nonperforming assets and secure collateral.
• The company faces risks related to concentrations of loans secured by real estate.
• The company is exposed to potential adverse effects of unusual events such as weather-related disasters and public health events.
• There are risks related to increasing price and product/service competition.
• The company faces risks related to managing internal growth and acquisitions.
• There are risks related to the soundness of other financial institutions and their impact on the broader market.
• The company faces risks related to general economic conditions and changes in customer behavior.

Future Outlook

The company expects the net interest margin to return to a more normalized level once the large nonperforming loan is resolved and anticipates respectable loan growth in the near term. They believe funding cost pressures are beginning to stabilize.

Management Comments

• Litz Van Dyke, Chief Executive Officer, stated that the fourth quarter was impacted by a large nonaccrual loan and related expenses, but the financial performance was solid otherwise.
• Van Dyke also mentioned that the company is positive about the structure of their balance sheet, with solid loan growth, a high-quality bond portfolio, and strong capital and liquidity levels.
• Van Dyke expressed confidence in the company's condition and positioning, stating they are well prepared to navigate through any challenges.
• Van Dyke emphasized the company's focus on resolving the large nonperforming loan and protecting shareholders.

Industry Context

The results reflect challenges faced by many financial institutions due to rising interest rates and the impact of nonperforming loans. The company's focus on resolving the large NPL and managing funding costs is consistent with industry trends.

Comparison to Industry Standards

• The increase in nonperforming loans to 8.83% is significantly higher than the industry average, indicating a potential issue with asset quality compared to peers.
• The net interest margin of 2.47% is lower than many regional banks, suggesting challenges in managing interest rate risk and funding costs.
• The efficiency ratio of 94.8% is considerably worse than the industry average, indicating higher operating costs relative to revenue.
• The company's loan growth of 11% annualized is solid, but the high level of nonperforming loans raises concerns about the quality of the loan portfolio.
• The company's deposit growth of 18.1% annualized is strong, but the shift from non-maturing deposits to higher-yielding products is a common trend in the current interest rate environment.
• Compared to companies like Truist Financial Corporation (TFC) and Bank of America (BAC), Carter Bankshares is facing more significant challenges with asset quality and profitability.

Legal Proceedings

• The company is involved in a lawsuit filed by West Virginia Governor James C. Justice, II, his wife Cathy Justice, his son James C. Justice, III and various related entities concerning their lending relationship with the Bank.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and the decrease in profitability.
• Employees may be affected by potential cost-cutting measures.
• Customers may be impacted by changes in interest rates and loan availability.
• Suppliers and creditors may be affected by the company's financial performance.

Next Steps

• The company will continue to pursue all remedies to resolve the large nonperforming loan.
• The company will focus on managing funding costs and improving the net interest margin.
• The company will continue to invest in strong markets within its footprint.
• The company will monitor and manage asset quality.

Key Dates

Keywords

nonperforming loans, net interest margin, financial results, loan growth, deposit growth, efficiency ratio, interest income, credit losses, capitalization, liquidity