8-K: Carter Bankshares Reports Strong Q2 2025 Performance Amid Strategic Growth and Improved Asset Quality

Carter Bankshares, Inc. announced robust second-quarter 2025 financial results, driven by significant loan and deposit growth, improved net interest margin, and strategic branch expansion, despite ongoing challenges with a large nonperforming loan relationship.

Summary

• Net Income for Q2 2025 was $8.51 million, up $3.71 million year-over-year from Q2 2024, but down $0.44 million quarter-over-quarter from Q1 2025.
• Total Assets reached $4.78 billion as of June 30, 2025, an increase of $251.58 million year-over-year and $83.80 million quarter-over-quarter.
• Gross Loans grew to $3.75 billion, up $197.85 million year-over-year and $59.87 million quarter-over-quarter, primarily in commercial real estate, construction, and residential mortgages.
• Total Deposits increased by $340.94 million year-over-year and $21.31 million quarter-over-quarter, reaching $4.22 billion.
• Net Interest Income for Q2 2025 was $32.36 million, up $4.27 million year-over-year and $2.22 million quarter-over-quarter.
• Net Interest Margin (FTE) improved to 2.82% in Q2 2025, up from 2.70% in Q1 2025 and 2.56% in Q2 2024.
• A recovery of $2.33 million for credit losses was recorded in Q2 2025, following a $2.03 million recovery in Q1 2025, compared to a provision of $0.49 million in Q2 2024.
• Diluted Earnings Per Share for Q2 2025 was $0.37, up $0.16 year-over-year but down $0.02 quarter-over-quarter.
• Return on Average Assets (ROA) was 0.72% and Return on Average Shareholders' Equity (ROE) was 8.45% for Q2 2025, both up year-over-year but down quarter-over-quarter.
• The Adjusted Efficiency Ratio improved to 75.55% in Q2 2025, down from 78.67% in Q1 2025 and 81.33% in Q2 2024.
• Nonperforming Loans (NPL) to Portfolio Loans decreased to 6.69% in Q2 2025 from 7.09% in Q1 2025 and 8.46% in Q2 2024. Excluding the largest lending relationship, the NPL ratio was 0.40%.
• Allowance for Credit Losses (ACL) to Portfolio Loans was 1.90%, or 1.26% excluding the largest lending relationship reserve.
• Total available liquidity stood at $1.41 billion, providing 179.6% coverage of uninsured deposits.
• The company repurchased 547,332 shares of common stock for $9.1 million at an average cost of $16.70 per share under its 2025 program.

Sentiment

Score: 8

Explanation: The filing presents a strong financial performance with significant growth in key areas like loans and deposits, improved efficiency, and robust capital and liquidity. The recovery in credit loss provision is a positive sign. While the large nonperforming loan remains a concern, the company's adjusted asset quality metrics are favorable compared to peers, and management is actively addressing it through curtailment payments. The strategic initiatives and recent branch acquisition also point to a positive outlook for continued growth and operational improvements.

Positives

• Strong year-over-year growth in Net Interest Income ($4.27 million increase), Total Assets ($251.58 million increase), Gross Loans ($197.85 million increase), and Total Deposits ($340.94 million increase).
• Net Interest Margin (FTE) improved to 2.82% in Q2 2025, showing positive trends quarter-over-quarter and year-over-year.
• Recorded a recovery in provision for credit losses of $2.33 million in Q2 2025, following a $2.03 million recovery in Q1 2025.
• Improved (lower) Adjusted Efficiency Ratio of 75.55% indicates enhanced operational efficiency.
• Nonperforming Loans (NPL) to Portfolio Loans decreased to 6.69% and Nonperforming Assets (NPA) to Total Assets plus OREO decreased to 6.73%, showing improved asset quality trends.
• Excluding the largest lending relationship, the NPL ratio of 0.40% is significantly better than the peer average of 0.67%.
• Maintained a strong liquidity position with $1.41 billion in total available liquidity, providing 179.6% coverage of uninsured deposits.
• Well-capitalized with all regulatory capital ratios significantly above thresholds: CET1 of 10.87%, Total Risk-based Capital of 12.12%, and Leverage Ratio of 9.46%.
• Successfully completed the acquisition of two North Carolina branches from First Reliance Bank, adding $55.9 million in deposits and 10 new associates.
• 71.0% of Year-to-Date 2025 loan production was funded at a weighted average rate of 6.82%.
• Diversified and granular deposit base with approximately 78.0% retail customers and 81.5% FDIC insured deposits.
• Material improvement in unrealized losses in the bond portfolio due to bond maturities, amortizations, and lower intermediate-term interest rates.
• The bond portfolio's book yield of 3.38% is noted as higher than peers.

Negatives

• Net Income, Diluted EPS, Return on Average Assets, and Return on Average Shareholders' Equity all decreased quarter-over-quarter, despite year-over-year improvements.
• A single largest lending relationship with a principal balance of $235.5 million remains on nonaccrual status, accounting for 94.0% of total nonperforming loans.
• Past Due Loans (30-89 days) increased by $11.4 million to $16.2 million at June 30, 2025, primarily due to $8.2 million in commercial real estate loan maturities without completed internal extension processes.
• Borrowings increased by $58.5 million quarter-over-quarter to $113.5 million, although they are down year-over-year.
• Allowance for Credit Losses (ACL) to Portfolio Loans decreased quarter-over-quarter and year-over-year, which could be a concern if credit quality deteriorates in the future.

Risks

• Market interest rates and their impacts on economic conditions, customer behavior, net interest margin, net interest income, and deposit, loan, and securities portfolios.
• Inflation, market, and monetary fluctuations.
• Changes in trade, tariffs, monetary and fiscal policies and laws of the U.S. government, and changes in policies of the Federal Reserve, FDIC, and U.S. Department of the Treasury.
• Changes in accounting policies, practices, or guidance, including potential volatility in operating results due to the application of the Current Expected Credit Losses (CECL) methodology.
• Cyber-security threats, attacks, or events.
• Rapid technological developments and changes.
• Ability to resolve nonperforming assets and secure collateral on loans that have entered nonaccrual status due to loan maturities and failure to pay in full.
• Changes in liquidity and capital positions.
• Concentrations of loans secured by real estate, particularly Commercial Real Estate (CRE) loans, and the potential impacts of changes in market conditions on the value of real estate collateral.
• Increased delinquency and foreclosure rates on CRE loans.
• An insufficient allowance for credit losses.
• Potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other geopolitical conflicts or public health events, and of any governmental and societal responses thereto.
• A change in spreads on interest-earning assets and interest-bearing liabilities.
• Regulatory supervision and oversight, including relationships with regulators and any actions that may be initiated by regulators.
• Legislation affecting the financial services industry as a whole, and the Company and the Bank, in particular.
• The outcome of pending and future litigation and/or governmental proceedings.
• Increasing price and product/service competition.
• The ability to continue to introduce competitive new products and services on a timely, cost-effective basis.
• Managing internal growth and acquisitions, including the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating acquired operations will be more difficult, disruptive or more costly than anticipated.
• The soundness of other financial institutions and any indirect exposure related to large bank failures and their impact on the broader market.
• Material increases in costs and expenses.
• Reliance on significant customer relationships.
• General economic or business conditions, including unemployment levels, supply chain disruptions and slowdowns in economic growth.
• Significant weakening of the local economies in which operations are conducted.
• Changes in customer behaviors, including consumer spending, borrowing and saving habits.
• Changes in deposit flows and loan demand.
• Failure to attract or retain key associates.
• Expansions or consolidations in the branch network, including that the anticipated benefits of branch acquisitions or network optimization projects are not fully realized.
• Deterioration of the housing market and reduced demand for mortgages.
• Re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact performance.

Future Outlook

The company plans to continue growing responsibly with financial safety and soundness, providing exceptional customer experiences, and gaining operational efficiencies. This involves investments in human capital, brand strategy, technology, operations, customer experience, C&I, CRA, ESG, DEI, channel delivery, and product development. The company also aims to strengthen change management systems, deepen existing customer relationships, acquire new relationships in current markets, and increase market share through organic growth and opportunistic acquisitions. Construction loans of approximately $450 million are expected to fund over the next 12-18 months. Strategies are in place to grow non-maturity deposit accounts with a focus on lower cost of funds and to expand deposit offerings for retail and commercial customers.

Management Comments

• "We are thrilled to welcome First Reliances associates and customers to the Carter family and help the people of Winston-Salem and Lake Norman live life to the fullest. I'm very proud of our team's hard work to ensure the smoothest transition possible for both the customers and bank associates, and we are very excited to continue building and expanding these relationships." Litz Van Dyke, CEO.

Industry Context

The filing highlights a regional bank's efforts to grow organically and through targeted acquisitions (First Reliance Bank branches) within its Virginia and North Carolina footprint, including fast-growing markets. The focus on diversifying loan and deposit portfolios, improving efficiency, and maintaining strong capital and liquidity positions reflects broader industry trends where banks are navigating interest rate fluctuations, managing credit quality (especially in CRE), and investing in technology and customer experience to remain competitive. The emphasis on a conservative credit culture and well-reserved positions, particularly in light of a large nonperforming loan, indicates a cautious approach in a potentially volatile economic environment. The short maturity profile of the CD portfolio suggests agility in managing deposit costs as interest rates evolve.

Comparison to Industry Standards

• Excluding the largest lending relationship, the Q2 2025 Nonperforming Loan (NPL) ratio of 0.40% is significantly better than the peer average of 0.67%.
• The Q2 2025 delinquency ratio of 0.43% is the same as the peer average of 0.43%.
• Peers mentioned for comparison include AROW, BHB, CFFI, CCBG, CHCO, CCNE, CTBI, FCBC, GSBC, HTB, MPB, MVBF, ORRF, PFIS, FRST, RBCA.A, SHBI, SMBK, SYBT, UVSP, WASH, BHRB, THFF, PEBO.
• The bond portfolio's book yield of 3.38% is noted as 'higher than peer'.

Corporate Governance

Stakeholder Impact

• Shareholders: Positive impact due to strong financial performance, increased net income, improved EPS, share repurchase program, and strong capital position. The adjusted book value also provides a clearer picture of underlying value.
• Customers: Positive impact from strategic investments in customer experience, expanded product offerings, and the acquisition of new branches, which broadens access to services.
• Employees: Positive impact from welcoming 10 new associates through acquisition and planned investments in human capital strategies to enhance the associate experience.
• Community: Positive impact through significant charitable donations and sponsorships ($473,531), volunteer community service hours (1,314), support for nonprofits, and financial education classes.
• Creditors: Positive impact due to strong liquidity position ($1.4B total available liquidity) and robust capital ratios, indicating financial stability and ability to meet obligations.

Next Steps

• Continue to build and expand relationships with new associates and customers from the acquired branches.
• Focus on initiatives around enhancing technology, operations, customer experience, C&I, CRA, ESG, DEI, channel delivery, and product development.
• Strengthen change management systems and leverage the Board's ERM Committee.
• Deepen existing customer relationships and acquire new relationships in current markets.
• Increase market share in target growth markets.
• Expand through organic growth and opportunistic acquisition.
• Fund approximately $450 million in construction loans over the next 12-18 months.
• Implement strategies to grow non-maturity deposit accounts with a focus on lower cost of funds.
• Execute on the established product road map to expand deposit offerings for retail and commercial customers.

Key Dates

Recommendation

The filing indicates a strong financial position with significant year-over-year growth in core banking metrics like loans, deposits, and net interest income. The improving net interest margin and efficiency ratio demonstrate effective management and operational leverage. While a large nonperforming loan exists, the company's adjusted asset quality metrics are superior to peers, and the recovery in credit loss provision suggests effective risk management. The robust capital and liquidity levels provide a solid foundation for future growth and resilience. The strategic initiatives, including branch expansion and focus on lower-cost deposits, are well-aligned for continued performance. The share repurchase program also signals management's confidence in the stock's valuation. These factors collectively suggest a positive outlook for investors.

Keywords

Banking, Financial Services, Regional Bank, Commercial Real Estate, Deposits, Loans, Net Interest Margin, Asset Quality, Capital Ratios, Liquidity, SEC Filing, Investor Presentation, Branch Acquisition, Nonperforming Loans, Share Repurchase, Virginia, North Carolina