CARE

Carter Bankshares, Inc. (CARE) - Q1 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2026. Carter Bankshares, Inc. is a financial holding company headquartered in Martinsville, Virginia, operating primarily through its wholly-owned subsidiary, Carter Bank & Trust. The Bank operates 63 branches in Virginia and North Carolina and became a member of the Federal Reserve System in November 2025. The quarter was defined by the resolution of a significant nonperforming asset relationship.

Key Financial Metrics

Material Changes vs. Prior Period

• The "Transaction": The primary driver of Q1 2026 results was the sale of all loans reduced to judgments related to the "Justice Entities" (the Company's largest nonperforming relationship). The Company received $289.5 million in cash consideration.
• Non-GAAP Gains: The Transaction resulted in a $65.0 million gain on sale and a $15.0 million net recovery, totaling $80.0 million in non-core income. This included the release of $18.0 million in specific reserves previously established for these loans.
• Asset Quality Improvement: Nonperforming loans dropped from $244.0 million (6.29% of portfolio) at year-end 2025 to $24.0 million (0.64% of portfolio) at March 31, 2026. The ACL to total portfolio loans ratio improved to 1.41% from 1.84%.
• Liquidity and Funding: Proceeds from the Transaction were used to repay $178.5 million in Federal Home Loan Bank (FHLB) borrowings, reducing the balance to zero. Cash and due from banks increased by $123.2 million.
• Expense Growth: Noninterest expenses increased 10.6% year-over-year to $31.0 million, driven by higher salaries, data processing costs, and legal fees associated with the Transaction.

Guidance, Outlook, and Risks

• Strategic Shift: Management indicated a strategic shift from balance-sheet restructuring to a "prudent growth strategy," focusing on organic growth and opportunistic acquisitions.
• Subsequent Event: On May 1, 2026, the Company completed the sale of its membership interest in Bearing Insurance Group, LLC, expecting to recognize a pre-tax gain of approximately $35.8 million in Q2 2026.
• Legal Proceedings: On April 12, 2026, the Company was named as a defendant in a lawsuit filed by the Justice Entities regarding the sale of the Judgments. Plaintiffs seek to rescind the sale and claim damages of at least $500 million. The Company denies the allegations and intends to vigorously defend the matter; no loss estimate can be made at this early stage.
• Capital Position: The Company remains "well-capitalized" under regulatory standards, with a Common Equity Tier 1 ratio of 13.52% and a Leverage Ratio of 11.10%.
• Stock Repurchase: A new $10.0 million stock repurchase program was authorized in February 2026. No shares were repurchased under this specific plan during Q1 2026, though 12,154 shares were withheld for tax obligations on vested restricted stock.

Investor Verification Checklist

• Transaction Sustainability: Verify the extent to which Q1 earnings are driven by the one-time $80.0 million gain from the Justice Entities sale versus core banking operations.
• Legal Exposure: Monitor the progress of the lawsuit filed by the Justice Entities seeking to rescind the sale and the potential for significant liability.
• Asset Quality Trends: Confirm that the reduction in nonperforming loans is permanent and monitor the "Other" loan segment, which previously held the bulk of the risk.
• Deposit Stability: Assess the stability of the deposit base, noting that 17.2% of deposits remain uninsured and the mix of interest-bearing vs. noninterest-bearing accounts.
• Subsequent Gain Recognition: Track the expected $35.8 million gain from the Bearing Insurance Group sale in the upcoming Q2 2026 filing.