Carter Bankshares, Inc. SEC 10-K Report
Carter Bankshares, Inc., a bank holding company operating through its subsidiary Carter Bank & Trust, has released its annual Form 10-K report. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces in the current market environment.
Financial Highlights
Net Interest Income: $114.5 million, a decrease of $7.9 million or 6.4% compared to the previous year, primarily due to higher funding costs.
Total Noninterest Income: $21.4 million, an increase of $3.1 million or 16.9% from the previous year, driven by higher insurance commissions and gains on sales of securities.
Total Noninterest Expense: $110.0 million, an increase of $4.5 million or 4.3% from the previous year, with significant increases in salaries, occupancy expenses, and FDIC insurance expense.
Net Income: $24.5 million, up from $23.4 million in the previous year, reflecting improved financial performance despite challenges.
Diluted EPS: $1.06, compared to $1.00 in the previous year, indicating a positive trend in earnings per share.
Business Highlights
Business Model: Carter Bankshares, Inc. operates as a bank holding company conducting business through its subsidiary, Carter Bank & Trust. The bank generates revenue primarily from interest on loans and securities, as well as fees for financial services.
Strategic Focus: The company is implementing a three-year strategic plan to enhance its brand image and market position, focusing on organic growth and potential acquisitions. This includes introducing new products and services to increase brand awareness.
Product Offerings: The bank provides a comprehensive range of deposit services, including checking and savings accounts, retirement accounts, and certificates of deposit. It also offers commercial and consumer loans, such as residential mortgages and home equity lines of credit.
Digital Services: Carter Bank & Trust offers a suite of online banking products, including mobile banking, online account opening, bill pay, eStatements, mobile deposit, and digital wallet services.
Human Capital Management: As of December 31, 2024, the company employed 680 full-time associates. The company emphasizes competitive compensation, health benefits, and wellness programs to maintain a high level of professional service.
Regulatory Environment: The company is subject to extensive federal and state regulations, including the Bank Holding Company Act and supervision by the Federal Reserve Board. It is also impacted by ongoing regulatory reforms and changes in banking laws.
Community Engagement: The bank is committed to meeting the credit needs of its local communities, receiving a 'satisfactory' rating on its most recent Community Reinvestment Act examination.
Future Outlook: The company plans to focus on prudent growth strategies, supported by strong capital and liquidity positions. It aims to increase fee income while monitoring operating expenses closely.
Strategic Initiatives
Strategic Initiatives: Carter Bankshares, Inc. is focused on refining and enhancing its brand image and position in the markets it serves. The company has embarked on a multi-year implementation plan to create a brand tailored to the needs of its critical growth audiences, with a focus on innovating brand experiences to exceed expectations. This includes aligning processes, operations, and systems around the company’s brand while introducing new products and services. The company is also dedicated to resolving nonaccrual loans, particularly a significant credit relationship, to protect the company, the bank, and shareholders.
Capital Management: The company reported an increase in total capital to $384.3 million at December 31, 2024, reflecting net income, other comprehensive income due to positive changes in fair value of investment securities, and restricted stock activity. The Tier 1 capital ratio was 10.88%, the leverage ratio was 9.56%, and the total risk-based capital ratio was 12.13% at year-end. The company remains well-capitalized, with a focus on maintaining strong capital and liquidity positions to support its strategic vision. Additionally, the company increased its deposit base by $431.5 million, primarily through growth in CDs and interest-bearing demand accounts.
Future Outlook: Carter Bankshares plans to shift from restructuring the balance sheet to pursuing a prudent growth strategy, primarily targeting organic growth but also considering opportunistic acquisitions that fit its strategic vision. The company aims to increase fee income while closely monitoring operating expenses. It will continue to focus on executing its strategy to support the new brand and grow its business in current and new markets. The company is also exploring changes to its interest rate mix strategy in response to potential Federal Reserve actions on short-term interest rates.
Challenges and Risks
Credit Risk: A large percentage of the company's commercial loans are secured by real estate, making it vulnerable to adverse changes in the real estate market. Approximately 94.1% of the commercial loan portfolio is secured by real estate, and any downturn in this market could negatively impact the company's financial condition.
Interest Rate Risk: Fluctuations in interest rates can significantly impact the company's net interest income and the valuation of its assets and liabilities. The Federal Reserve's recent rate changes have introduced volatility, affecting loan origination volumes and funding costs.
Operational Risks: The company is exposed to risks related to cybersecurity and technology failures. A breach in operational or security systems could disrupt business operations and harm the company's reputation.
Regulatory Risks: The company is subject to extensive government regulation, which could change and impose additional costs or restrictions. The evolving regulatory environment, particularly concerning ESG practices, may require the company to adapt its operations and reporting.
Liquidity Risks: The company's liquidity could be impaired by an inability to access short-term funding or monetize liquid assets. The reliance on customer deposits and wholesale funding sources like the FHLB of Atlanta poses a risk if these sources become unavailable or more expensive.
Market Risks: The company faces strong competition from other financial institutions, which could impact its ability to attract and retain customers. Additionally, technological advancements and the rise of fintech companies present a risk of disintermediation, potentially reducing fee income and customer deposits.
Management's Strategy: Management is focused on pursuing a prudent growth strategy, primarily targeting organic growth while considering opportunistic acquisitions. The company aims to increase fee income and closely monitor operating expenses to mitigate risks associated with market and economic conditions.
Market Risk Management: The company is exposed to market risks related to interest rate fluctuations, which can affect the net yield on interest-earning assets and the cost of funding. Management's asset-liability strategy is designed to control these risks, but significant or unexpected changes in interest rates could adversely impact the company's financial performance.
SEC Filing: Carter Bankshares, Inc. [ CARE ] - 10-K - Mar. 07, 2025