8-K: Carter Bankshares Reports Strong Q4, Full-Year 2025 Earnings

Carter Bankshares, Inc. announced strong fourth quarter and full year 2025 financial results, despite the continued impact of a significant nonaccrual loan relationship.

Summary

• Net income for the fourth quarter of 2025 was $8.5 million, or $0.38 diluted earnings per share (EPS), compared to $5.4 million ($0.24 diluted EPS) in Q3 2025 and $8.3 million ($0.36 diluted EPS) in Q4 2024.
• For the full year ended December 31, 2025, net income was $31.4 million, or $1.38 diluted EPS, an increase from $24.5 million ($1.06 diluted EPS) in 2024.
• Net interest income totaled $34.6 million in Q4 2025, an increase of $0.9 million (2.6%) from the prior quarter and $5.5 million (18.7%) from Q4 2024.
• Full year 2025 net interest income was $130.8 million, up $16.4 million (14.3%) compared to 2024.
• The company's largest credit relationship, loans to the Justice Entities, remained on nonaccrual status, negatively impacting interest income by $6.1 million in Q4 2025 and $26.1 million for the full year 2025.
• The aggregate principal balance of the Justice Entities loans decreased from $301.9 million at June 30, 2023, to $214.0 million at December 31, 2025, due to $87.9 million in curtailment payments.
• Total portfolio loans increased $43.9 million, or 4.5% on an annualized basis, to $3.9 billion at December 31, 2025.
• Nonperforming loans (NPLs) decreased by $14.7 million to $244.0 million at December 31, 2025, with NPLs to total portfolio loans declining to 6.29% from 6.74% in Q3 2025.
• Net interest margin increased six basis points to 2.92% in Q4 2025 compared to the prior quarter.
• The company repurchased 315,089 shares of common stock for $6.0 million in Q4 2025 and 1,124,690 shares for $20.0 million for the full year 2025.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive report, demonstrating strong underlying financial performance and strategic growth initiatives, despite the persistent drag from the large nonperforming loan relationship. The improvements in key profitability and asset quality metrics are encouraging.

Positives

• Significant increase in quarterly net income to $8.5 million and diluted EPS to $0.38, demonstrating strong sequential and year-over-year growth.
• Robust full-year net income of $31.4 million and diluted EPS of $1.38, marking a substantial improvement over the prior year.
• Consistent growth in net interest income, increasing 2.6% quarter-over-quarter and 18.7% year-over-year for Q4 2025, and 14.3% for the full year 2025.
• Improvement in net interest margin, rising six basis points to 2.92% in Q4 2025.
• Reduction in Nonperforming Loans (NPLs) by $14.7 million and an improved NPLs to total portfolio loans ratio of 6.29% at year-end.
• Solid total portfolio loan growth of $43.9 million (4.5% annualized) in Q4 2025, driven by commercial real estate and commercial and industrial loans.
• Continued curtailment payments from the largest nonperforming loan relationship, reducing its principal balance by $87.9 million since Q2 2023.
• Strategic expansion with new seasoned commercial lending teams added in Western North Carolina and entry into South Carolina (Greenville).
• Healthy loan pipeline and expected tailwind from prior construction lending projects funding over the next 12 to 18 months.
• Balance sheet is slightly liability sensitive, positioning the company to benefit from anticipated Federal Reserve short-term interest rate reductions.
• Maintained a well-capitalized status with strong capital ratios (Tier 1 Capital ratio of 10.70%, Leverage ratio of 9.43%, Total Risk-Based Capital ratio of 11.95%).
• Share repurchase program returned $6.0 million to shareholders in Q4 2025 and $20.0 million for the full year 2025.

Negatives

• The Justice Entities loan relationship continues to significantly impact financial and credit metrics, remaining on nonaccrual status.
• Interest income was negatively impacted by $6.1 million in Q4 2025 and $26.1 million for the full year 2025 due to the nonaccrual status of the Justice Entities loans.
• Efficiency ratio increased to 77.84% in Q4 2025 from 73.43% in Q3 2025, partly due to the nonaccrual relationship and higher noninterest expenses.
• Noninterest expense increased by $2.3 million (8.0%) quarter-over-quarter, primarily due to higher seasonal salaries and employee benefits, elevated medical claims, and lower deferred compensation.
• New loans were transferred to nonperforming status during 2025, including a $9.5 million commercial real estate (CRE) relationship and a $14.3 million CRE loan.
• A $1.0 million specific reserve was established for a $14.3 million CRE loan in Q4 2025 due to an updated appraisal and government agency tenants vacating the office building.
• Noninterest income decreased slightly by $0.1 million in Q4 2025 compared to both Q3 2025 and Q4 2024, mainly due to lower insurance commissions.

Risks

• Impacts of market interest rates on economic conditions, customer behavior, net interest margin, net interest income, funding costs, and deposit, loan, and securities portfolios.
• Inflation, market, and monetary fluctuations.
• Changes in trade policies, 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 from 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.
• Changes in the company's liquidity and capital positions.
• Concentrations of loans secured by real estate, particularly 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.
• Adverse effects of unusual and infrequently occurring events (e.g., weather-related disasters, terrorist acts, war, geopolitical conflicts, public health events) on borrowers, collateral value, loan demand, liquidity, capital, third-party service providers, business operations, financial markets, and economic growth.
• A change in spreads on interest-earning assets and interest-bearing liabilities.
• Regulatory supervision and oversight, including relationship with regulators and potential actions.
• Legislation affecting the financial services industry.
• Outcome of pending and future litigation and/or governmental proceedings.
• Increasing price and product/service competition.
• Ability to continue to introduce competitive new products and services on a timely, cost-effective basis.
• Challenges in managing internal growth and acquisitions, including integration difficulties or higher costs.
• The possibility that anticipated benefits from acquisitions cannot be fully realized.
• The soundness of other financial institutions and any indirect exposure related to large bank failures.
• Material increases in costs and expenses.
• Reliance on significant customer relationships.
• General economic or business conditions, including unemployment levels, supply chain disruptions, slowdowns in economic growth, government shutdowns, and geopolitical instability.
• Significant weakening of the local economies in which the company operates.
• 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 company's branch network, including unrealized benefits from branch acquisitions or optimization projects.
• 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.

Future Outlook

The company expects a tailwind from prior construction lending that will fund over the coming 12 to 18 months. Management believes the company is well positioned to benefit from Federal Reserve interest rate reductions, including further margin expansion, especially given the short-term nature of its certificates of deposit portfolio. The company continues to believe it is well positioned for a strong 2026 and beyond.

Management Comments

• "We are pleased to report continued strong fundamentals and positive trends for the fourth quarter and for the full year 2025."
• "During the quarter, we again realized margin expansion and solid loan growth throughout our footprint. Our annual loan growth of 7.0% reflects good momentum in our commercial lending platform."
• "In the second half of 2025, we were fortunate to add new seasoned commercial lending teams in Western North Carolina, and we also entered South Carolina with the establishment of a commercial lending presence in Greenville."
• "Our loan pipeline remains healthy and we continue to expect a tailwind from prior construction lending that will fund online over the coming 12 to 18 months as projects progress."
• "Our balance sheet remains slightly liability sensitive. As the Federal Reserve continues to reduce short-term interest rates, we believe we are well positioned to benefit, including with further margin expansion, especially given the short-term nature of our certificates of deposit (CD) portfolio."
• "Although our large nonperforming credit relationship continues to have a negative impact on our financial and credit metrics, aside from this impact, our fundamentals, financial performance, and asset quality metrics all remain solid."
• "We are committed to resolving this lending relationship in a manner that is most beneficial to our Company and our shareholders. We continue to believe we are well positioned for a strong 2026 and beyond."

Industry Context

StockSavvy.ai notes that regional banks like Carter Bankshares are navigating a complex interest rate environment. The company's ability to expand net interest margin despite ongoing nonaccrual loan challenges suggests effective balance sheet management and a potential competitive advantage as interest rates decline. Its strategic expansion into new commercial lending markets aligns with broader trends of regional banks seeking growth opportunities outside saturated areas.

Stakeholder Impact

• Shareholders: Positive impact due to increased net income, EPS, share repurchases, and improved capital ratios. Potential for further gains if the nonperforming loan issue is resolved.
• Employees: Positive impact from expansion into new markets and adding seasoned commercial lending teams.
• Customers: Continued provision of commercial banking, consumer banking, mortgage, and services.
• Creditors: Improved credit quality metrics and strong capital position enhance confidence.

Next Steps

• Funding of prior construction lending projects over the coming 12 to 18 months.
• Continued monitoring and resolution of the largest nonperforming credit relationship.
• Benefit from Federal Reserve interest rate reductions.

Key Dates

Recommendation

The company delivered strong financial results for both the quarter and the full year, demonstrating significant growth in net income, EPS, and net interest income. The reduction in nonperforming loans and the strategic expansion into new markets are positive indicators. While the large nonperforming credit relationship remains a concern, the company's proactive management, including curtailment payments and establishing reserves, along with its strong capital position and share repurchase program, suggest resilience and potential for future upside. The liability-sensitive balance sheet positions it well for anticipated Federal Reserve rate reductions. A seasoned investor would likely see this as an opportune time to buy, anticipating continued recovery and growth once the legacy NPL issue is fully resolved.

Keywords

Carter Bankshares, CARE, Financial Results, Q4 2025, Full Year 2025, Net Income, EPS, Net Interest Income, Net Interest Margin, Nonperforming Loans, NPLs, Loan Growth, Commercial Real Estate, CRE Loans, Banking, Financial Services, SEC Filing, Earnings Report, Share Repurchase, Capital Ratios, Credit Quality, Justice Entities