10-K: Carter Bankshares Reports Strong 2025 Earnings, Strategic Growth

Carter Bankshares, Inc. announced a significant increase in net income and diluted earnings per share for 2025, driven by loan growth and improved net interest margin.

Summary

• Net income for the year ended December 31, 2025, increased to $31.4 million, up from $24.5 million in 2024.
• Diluted earnings per share rose to $1.38 in 2025, compared to $1.06 in 2024.
• Net interest income increased by $16.4 million, or 14.3%, to $130.8 million in 2025.
• Total assets grew by $192.7 million to $4.9 billion at December 31, 2025.
• Total portfolio loans increased by $254.7 million, or 7.0%, to $3.9 billion, primarily in commercial real estate (CRE), residential mortgages, and construction loans.
• Nonperforming loans (NPLs) declined by $15.4 million to $244.0 million, representing 6.29% of the total loan portfolio, down from 7.15% in 2024.
• The Allowance for Credit Losses (ACL) to total portfolio loans ratio was 1.84% at year-end 2025, down from 2.09% in 2024.
• Total deposits increased by $57.5 million, or 1.4%, to $4.2 billion, including $55.9 million from a branch acquisition.
• The company completed the acquisition of two leased branch facilities and associated deposits from First Reliance Bank in May 2025.
• A new brand identity was unveiled in October 2024, followed by renovations of 47 retail branch locations and seven corporate offices in 2025.
• The 2025 stock repurchase program of $20.0 million was fully utilized by October 30, 2025, repurchasing 1,124,690 shares at a weighted average cost of $17.78 per share.
• A new $10.0 million stock repurchase program was authorized on February 2, 2026, for the next twelve months.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance, with significant improvements in net income, EPS, and asset quality. Strategic initiatives like branch acquisitions and brand enhancement, coupled with effective capital management through stock repurchases, indicate a positive trajectory, despite some increases in noninterest expenses.

Positives

• Net income increased by 28.0% to $31.4 million in 2025 from $24.5 million in 2024.
• Diluted earnings per share increased by 30.2% to $1.38 in 2025 from $1.06 in 2024.
• Net interest income grew by $16.4 million (14.3%) to $130.8 million in 2025.
• Net interest margin improved by 25 basis points to 2.82% in 2025.
• Total assets increased by $192.7 million to $4.9 billion, indicating balance sheet growth.
• Total portfolio loans increased by $254.7 million (7.0%) to $3.9 billion, driven by growth in CRE, residential mortgages, and construction loans.
• Nonperforming loans (NPLs) decreased by $15.4 million to $244.0 million, and NPLs as a percentage of total portfolio loans improved to 6.29% from 7.15%.
• The company received $38.0 million in curtailment payments on its largest nonperforming credit relationship during 2025, reducing its balance from $251.982 million to $214.020 million.
• Total deposits increased by $57.5 million (1.4%) to $4.2 billion, including $55.9 million from a branch acquisition.
• The company successfully acquired two leased branch facilities and associated deposits, expanding its footprint in North Carolina.
• Shareholders' equity increased to $419.7 million at December 31, 2025, up $35.4 million from 2024, supported by net income and an improvement in unrealized losses on investment securities.
• The company and the Bank remained well capitalized at December 31, 2025, exceeding all regulatory capital requirements.
• The 2025 stock repurchase program of $20.0 million was fully utilized, demonstrating commitment to shareholder returns.
• Unrealized losses on available-for-sale securities improved by $28.6 million, driven by favorable movements in intermediate term U.S. Treasury yields.

Negatives

• Total noninterest expense increased by $7.1 million (6.4%) to $117.1 million in 2025, driven by operational growth, strategic initiatives, and inflationary pressures.
• Occupancy expenses, net, increased by $2.0 million due to higher software maintenance, rebranding, building/equipment maintenance, and depreciation from the Branch Purchase.
• Professional and legal fees rose by $1.2 million, attributed to acquisition-related activity, consulting for troubled/NPLs, and special asset management.
• Data processing expenses increased by $0.8 million due to inflationary cost increases.
• Debit card expense increased by $0.8 million due to higher miscellaneous fees and fraud activity.
• Advertising expense increased by $0.6 million due to rebranding and new account promotions.
• Insurance commission income decreased by $1.0 million, reflecting lower activity levels.
• Average investment securities declined, reflecting a strategy to deploy proceeds into higher-yielding loans rather than reinvesting in securities.
• Noninterest-bearing deposits decreased by $17.5 million (2.7%) on average, and as a percentage of total deposits, declined to 14.7% from 15.3%.

Risks

• Nonperforming assets can take significant time to resolve and may adversely affect results of operations and financial condition, potentially leading to additional losses.
• Credit risk is elevated due to a large credit relationship (Justice Entities) with $214.0 million in loans, now reduced to judgments, which comprises 87.7% of nonperforming assets.
• A significant portion of the commercial loan portfolio (94.4%) is secured by real estate, making the company vulnerable to adverse changes in real estate market or economic conditions.
• Concentration in commercial real estate (CRE) loans, including construction loans, increases credit risk, particularly in retail/restaurant, warehouse, hospitality, multifamily, and office sectors.
• Reliance on independent appraisals and other valuation techniques for real estate collateral may not accurately describe the net value of the asset, potentially leading to higher credit losses.
• The allowance for credit losses (ACL) may be insufficient to absorb expected losses, and is sensitive to changes in economic conditions and management assumptions.
• Real estate lending activities may result in the acquisition of Other Real Estate Owned (OREO), increasing expenses and negatively impacting financial condition.
• The business is subject to interest rate risk, and fluctuations in interest rates may adversely affect earnings, income, cash flow, capital levels, and credit quality.
• Inflation could negatively impact the business, profitability, and stock price by increasing operating costs and potentially reducing demand for products and services.
• A failure, disruption, or breach of operational, cybersecurity, or information technology systems, or those of third-party service providers, could disrupt business and adversely affect results and reputation.
• Reliance on third-party service providers for critical business functions poses risks of interruption, failure, or cessation of services.
• Failure to keep pace with rapid technological change could adversely affect business and competitiveness, and implementing new technologies may cause operational challenges.
• The business is dependent on its executive management team and other key personnel, and the loss of their services could adversely affect operations.
• The company uses models in its business, and flaws in design, implementation, or use of these models could lead to adverse outcomes or regulatory scrutiny.
• The company is subject to physical and financial risks associated with climate change and other weather and natural disaster impacts.
• Liquidity risks and adverse developments affecting the financial services industry could materially adversely affect financial condition and results of operations.
• The company's liquidity could be adversely affected if it were unable to access short-term funding or monetize liquid assets.
• Dependence on dividends from the bank subsidiary for substantially all revenue, with regulatory restrictions on the Bank's ability to pay dividends, could adversely affect financial condition.
• Profitability is significantly influenced by economic conditions in the markets served, making the company sensitive to regional economic downturns.
• Significant competition from financial institutions and other providers of banking and financial services could adversely affect growth and profitability.
• Customers may increasingly bypass traditional banking relationships, which could adversely affect revenue and funding sources.
• The ability to execute business strategy depends on attracting and retaining qualified personnel, with intense competition potentially leading to rising compensation costs.
• Extensive regulation and supervision, and changes in laws or regulatory expectations (e.g., CFPB, AI), could materially adversely affect the business and increase compliance burden.
• Regulatory capital and liquidity requirements could require higher capital and liquid assets, adversely affecting profitability and business operations.
• Failure to maintain effective internal control over financial reporting and disclosure controls could materially adversely affect financial condition and results of operations.
• Claims, litigation, and other legal proceedings could expose the company to significant costs and liabilities and adversely affect reputation.
• The risk management framework may not be effective in identifying or mitigating all risks.
• Earnings and financial condition are significantly influenced by monetary and fiscal policies of the federal government and its agencies (e.g., FRB).
• Heightened scrutiny and evolving expectations regarding environmental, social, and governance (ESG) matters may increase costs and expose the company to additional risks.
• The development and use of Artificial Intelligence (AI) technologies present risks related to accuracy, bias, data privacy, intellectual property, and regulatory compliance.
• The company is subject to losses due to errors, omissions, or fraud by associates, clients, counterparties, or other third parties.
• The market price of common stock may fluctuate significantly and could decline, resulting in losses to investors.
• Future issuances of common stock or securities convertible into common stock could dilute existing shareholders and adversely affect the market price.
• Common stock is subordinate to existing and future indebtedness and structurally subordinated to the claims of the Bank's creditors.
• Trading volumes in common stock may not provide adequate liquidity for investors, and significant sales could cause a decline in price.

Future Outlook

The company's goal is to shift from balance-sheet restructuring to pursuing a prudent growth strategy, primarily focusing on organic growth but also considering opportunistic acquisitions. It aims to increase fee income while closely monitoring operating expenses. Management continues to dedicate significant resources to the resolution of nonaccrual loans. The company is also evaluating potential changes to its interest rate mix strategy for securities if the Federal Reserve continues reducing short-term interest rates in 2026.

Management Comments

• "To create opportunities for more people and businesses to prosper, supported by our new set of core values: Build Relationships, Earn Trust, and Take Ownership."
• "The Companys goal is to shift from balance-sheet restructuring to pursuing a prudent growth strategy when appropriate."
• "We believe this strategy will primarily focus on organic growth, but will also consider opportunistic acquisitions that align with this strategic vision."
• "We believe that the Banks strong capital and liquidity positions support this strategy."
• "In addition to loan and deposit growth, the Company will seek to increase fee income while closely monitoring operating expenses."
• "Management believes its local and regional market expertise enables effective management of CRE concentration risk."

Industry Context

StockSavvy.ai notes that Carter Bankshares' strong financial performance in 2025, marked by increased net income and loan growth, positions it favorably within the competitive banking sector. The company's strategic focus on organic growth, opportunistic acquisitions, and enhancing its brand identity aligns with broader industry trends where regional banks seek to expand market share and differentiate through customer experience and digital capabilities. The improvement in net interest margin, despite a dynamic interest rate environment influenced by FOMC rate reductions, demonstrates effective asset-liability management. The ongoing challenge of resolving nonperforming assets, particularly the large credit relationship, is a common theme for banks managing legacy portfolios, while the emphasis on cybersecurity and AI risks reflects increasing regulatory and operational concerns across the financial services industry.

Comparison to Industry Standards

• The company's performance goals for executive compensation (Core ROAA, Core Efficiency Ratio, Non-Performing Assets Ratio, TSR) are measured relative to a selected peer group based on the ABAQ Index of publicly traded community banking companies.
• The company's investment in a NASDAQ-listed mutual fund that supports community development initiatives, particularly affordable housing in low and moderate-income areas, qualifies for consideration under the Community Reinvestment Act (CRA), aligning with industry efforts in community engagement.

Corporate Governance

Legal Proceedings

• Not involved in any material pending or threatened legal proceedings other than proceedings occurring in the ordinary course of business as of December 31, 2025.
• A federal court lawsuit filed against the Company and the Bank by the Justice Entities was dismissed with prejudice during the second quarter of 2024, with the Justice Entities agreeing upon a pathway of curtailment and payoff of outstanding loans.
• A lawsuit filed by GLAS Trust Company, LLC against the Bank was voluntarily dismissed with prejudice during the third quarter of 2024, with GLAS Trust waiving all causes of action against the Bank.

Related Party Transactions

• Loans to principal officers, directors, and their affiliates totaled $2.168 million at December 31, 2025, down from $2.502 million at the beginning of the year.
• Total deposit dollars from executive officers, directors, and their related interests were $3.207 million at December 31, 2025, up from $2.305 million at December 31, 2024.

Stakeholder Impact

• **Shareholders:** Benefited from increased net income and diluted EPS, as well as the utilization of a $20.0 million stock repurchase program, indicating management's focus on shareholder returns. Future dividends remain subject to Board discretion and financial performance.
• **Employees:** Welcomed ten new associates through the Branch Purchase. The company emphasizes competitive compensation, comprehensive benefits, wellness initiatives, and professional development, fostering engagement and retention. Stock-based compensation awards are granted to key associates.
• **Customers:** Gained access to new branch locations in North Carolina through the acquisition. The company's brand strategy aims to innovate brand experiences and introduce new products and services to meet customer needs. Digital banking services are a full suite of offerings.
• **Communities:** The company's investment in a mutual fund supports community development initiatives, particularly affordable housing for low and moderate-income borrowers, qualifying for Community Reinvestment Act (CRA) consideration. The new purpose statement emphasizes creating opportunities for people and businesses to prosper.
• **Regulators:** The company's election to become a financial holding company and the Bank's membership in the Federal Reserve System indicate increased regulatory oversight. Compliance with extensive federal and state regulations, including capital adequacy and consumer protection, is ongoing.

Next Steps

• Continue to refine and enhance the brand image and position in markets served.
• Pursue a prudent growth strategy, primarily organic, but also considering opportunistic acquisitions.
• Seek to increase fee income while closely monitoring operating expenses.
• Dedicate significant resources to the resolution of nonaccrual loans, particularly the largest credit relationship.
• Evaluate potential changes to the interest rate mix strategy for investment securities if the Federal Reserve continues reducing short-term rates in the future.

Key Dates

Recommendation

Carter Bankshares demonstrated strong financial performance in 2025 with significant increases in net income and EPS, coupled with improved net interest margin and loan growth. The reduction in nonperforming loans and the successful execution of a stock repurchase program are positive indicators. However, the company still faces elevated credit risk from a large nonperforming loan relationship, and noninterest expenses have risen. While strategic initiatives like brand enhancement and branch expansion are promising, the competitive and evolving regulatory landscape, along with potential interest rate volatility, warrant a 'hold' recommendation. Investors should monitor the continued resolution of the large NPL, the effectiveness of expense management, and the impact of future monetary policy on the company's liability-sensitive balance sheet.

Keywords

Banking, Financial Services, Commercial Real Estate, Loans, Deposits, Net Interest Income, Nonperforming Loans, Credit Risk, Cybersecurity, Regulatory Compliance, Stock Repurchase, Virginia, North Carolina, Community Banking, SEC Filing, 10-K