Carter Bankshares, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter earnings report. Carter Bankshares is a Virginia bank holding company operating Carter Bank & Trust, with 65 branches in Virginia and North Carolina.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets | $4.513 billion | $4.205 billion |
| Net interest income | $122.3 million | $139.9 million |
| Net interest margin (GAAP) | 2.85% | 3.48% |
| Net income | $23.4 million | $50.1 million |
| Diluted earnings per share | $1.00 | $2.03 |
| Net cash provided by operating activities | $46.7 million | $70.8 million |
| Total portfolio loans | $3.506 billion | $3.149 billion |
| Total deposits | $3.722 billion | $3.633 billion |
| FHLB borrowings, year-end | $393.4 million | $180.6 million |
| Allowance for credit losses (ACL) | $97.1 million; 2.77% of loans | $93.9 million; 2.98% of loans |
- Return on average assets fell to 0.53% from 1.21%; return on average equity declined to 6.79% from 14.30%.
- Nonperforming loans rose to $309.5 million, or 8.83% of portfolio loans, from $6.6 million, or 0.21%. Total nonperforming assets were $312.0 million.
- Cash and due from banks were $54.5 million. Management reported $1.210 billion in total available liquidity sources, including $578.4 million of highly liquid assets; highly liquid assets were 12.8% of total assets.
- Year-end capital ratios remained above applicable well-capitalized thresholds: company CET1 11.08%, leverage 9.48%, and total risk-based capital 12.34%. The Bank was also categorized as well capitalized.
- Available-for-sale securities had fair value of $779.0 million and gross unrealized losses of $92.3 million. Management attributed the losses primarily to interest rates and reported no credit-related impairment.
Material changes versus 2022
- Net income decreased 53%, and net interest income fell 12.6%. Higher funding costs and approximately $30.0 million of foregone interest on the largest lending relationship were major factors, partly offset by higher asset yields.
- Interest expense increased $53.9 million as deposit and borrowing costs rose. Average deposit cost increased to 1.47% from 0.50%; the year-end loan-to-deposit ratio increased to 94.2% from 86.7%.
- Loans grew 11.3%, led by commercial real estate, residential mortgages and construction. Deposits rose 2.5%, but their mix shifted: CDs increased $325.1 million, while demand and savings balances declined by a combined $265.1 million.
- Noninterest income declined $3.4 million to $18.3 million, including a $1.5 million net securities-sale loss. Noninterest expense rose $8.5 million to $105.5 million, including higher FDIC insurance expense and salaries.
- Nonperforming loans increased sharply after $301.9 million of loans tied to the largest lending relationship were placed on nonaccrual in the second quarter. Capital ratios declined year over year, while total shareholders’ equity increased to $351.2 million.
Outlook, risks and unusual items
- Strategy: Management aims to move from balance-sheet restructuring toward prudent growth when appropriate, primarily organic, while considering suitable acquisitions. It also plans to pursue fee-income growth and monitor expenses. No specific earnings or financial guidance is provided.
- Funding and rates: Management said deposit-cost pressure was beginning to stabilize and noted that 75.9% of time deposits were scheduled to mature and reprice within 12 months. The balance sheet was described as slightly liability sensitive. These are management assessments, not guarantees. The filing’s model showed net interest income down 1.1% under a +200-basis-point rate shock and up 4.4% under a -200-basis-point shock.
- Largest credit exposure: The $301.9 million hospitality, agriculture and energy relationship represented 8.6% of loans, 97.5% of nonperforming loans and 96.8% of nonperforming assets. It was placed on nonaccrual following maturities and failure to pay in full. The company reported a $54.3 million valuation allowance for the relationship and said it believed the exposure was adequately reserved and well secured, while cautioning that recoveries and timing are uncertain.
- Litigation: The Bank is pursuing collection of the Justice-related loans. Related defendants filed federal litigation seeking at least $1.0 billion in damages, and the Bank faces a separate GLAS suit alleging approximately $226 million in transfers were fraudulent or voluntary conveyances. The Bank denies the allegations and intends to defend the cases; management could not reasonably estimate outcomes, timing or possible losses. The filing also describes a foreclosure-related suit filed in February 2024. These matters could affect recoveries on the large credit and create legal costs or other losses.
- Other risks: Concentration in commercial real estate and construction, collateral values, deposit competition and outflows, interest-rate changes, securities valuation, cybersecurity and third-party service providers, regulatory requirements, and local economic conditions could affect results and liquidity.
- Capital returns and unusual items: The company repurchased 1.0 million shares under its 2023 program for $14.2 million; the program was exhausted by August 31, 2023. It reported no cash dividends in 2023 and said future dividends remain discretionary. Three retail offices closed during 2023, with related properties transferred to OREO. Auditors gave unqualified opinions on the financial statements and internal control; the allowance for individually evaluated Other-pool loans was identified as a critical audit matter.
Most important facts for investors to verify
- Updates on collection, collateral, borrower and guarantor capacity, and reserve adequacy for the $301.9 million nonaccrual relationship.
- Developments and potential financial exposure in the Justice and GLAS litigation, including whether any loss becomes estimable or a recovery is achieved.
- Subsequent trends in nonperforming loans, criticized assets, charge-offs, ACL coverage and commercial real estate and construction credit quality.
- Deposit retention, uninsured deposit levels, CD repricing and renewals, FHLB borrowing costs, and remaining collateral-supported borrowing capacity.
- Whether margin and earnings stabilize as funding costs change, and how securities unrealized losses and capital ratios respond to interest-rate movements.