Business Context and Reporting Period
Carter Bankshares, Inc. (CARE) filed this Form 8-K on November 14, 2023, to address a lawsuit filed on November 10, 2023, in the United States District Court for the Southern District of West Virginia. The plaintiffs include West Virginia Governor James C. Justice, II, his family members, and related entities (collectively, the "Justice Parties"). The filing clarifies the Company's position regarding the litigation and its ongoing collection actions against the Justice Parties.
Key Financial Metrics
This filing is a current report regarding a legal event and does not contain financial statements, revenue, profit, cash flow, margin, debt, or liquidity metrics. The filing text does not provide a clear value for any financial performance indicators.
Material Changes and Litigation Background
- Historical Relationship: The Justice Entities have been customers for many years. Approximately seven years ago, Carter Bank began efforts to reduce credit exposure to these entities.
- Restructuring History: The Bank restructured and extended loans on numerous occasions, including a 2021 agreement following a prior lawsuit filed by the Justice Parties. That 2021 lawsuit was dismissed with prejudice in September 2021.
- Recent Agreements: On approximately a dozen occasions, the Justice Parties executed agreements reaffirming loan terms and releasing Carter Bank from claims. The most recent release and reaffirmation agreement was executed in February 2023.
- Default Status: The Justice Entities failed to meet repayment obligations when loans matured in April 2023.
- Collateral: Carter Bank states it is fully secured on all outstanding loans, with collateral including The Greenbrier Resort and related facilities. Loans are backed by personal guarantees from James C. Justice, II, Cathy Justice, and James C. Justice, III.
Management Commentary, Risks, and Outlook
Management asserts that the factual allegations in the lawsuit are false and misleading, largely reciting claims from the previously dismissed 2021 lawsuit. The Company believes the timing of the filing (on a federal holiday) was an attempt to delay scheduled collection actions set for November 15, 2023.
Company Position: Carter Bank intends to vigorously defend against the lawsuit, pursue collection actions, and enforce the validity of release agreements and confessions of judgment.
Risks and Uncertainties: While the Company believes it has meritorious defenses, it notes that the lawsuit is in its early stages and an unredacted copy has not yet been reviewed. Consequently, no prediction can be made regarding the ultimate outcome. The Company is also evaluating whether other creditors of the Justice Parties may assert claims against Carter Bank related to historical transactions.
Investor Verification Checklist
- Verify the status of the November 10, 2023 lawsuit and the November 15, 2023 collection hearing.
- Confirm the specific loan amounts outstanding to the Justice Entities and the current valuation of the Greenbrier Resort collateral.
- Monitor for the release of an unredacted copy of the lawsuit to assess the full scope of allegations.
- Review future filings for any updates on the potential assertion of claims by other creditors of the Justice Parties.
- Assess the impact of this litigation on the Bank's asset quality and allowance for loan losses in upcoming quarterly reports.