Business Context and Reporting Period
Carter Bankshares, Inc. (CARE) is a bank holding company headquartered in Martinsville, Virginia, operating primarily through its wholly-owned subsidiary, Carter Bank & Trust. The company serves Virginia and North Carolina with 64 branches. This 10-K covers the fiscal year ended December 31, 2025. During the period, the company elected to become a financial holding company and the Bank became a member of the Federal Reserve System. The company completed a branch purchase in North Carolina, acquiring $55.9 million in deposits.
Key Financial Metrics
| Metric | 2025 | 2024 |
|---|---|---|
| Total Assets | $4.85 billion | $4.66 billion |
| Total Portfolio Loans | $3.88 billion | $3.62 billion |
| Total Deposits | $4.21 billion | $4.15 billion |
| Net Interest Income (GAAP) | $130.8 million | $114.5 million |
| Net Interest Margin (GAAP) | 2.82% | 2.57% |
| Net Income | $31.4 million | $24.5 million |
| Diluted EPS | $1.38 | $1.06 |
| Return on Average Assets | 0.66% | 0.54% |
| Return on Average Equity | 7.74% | 6.67% |
| Nonperforming Loans (NPLs) | $244.0 million (6.29% of loans) | $259.3 million (7.15% of loans) |
| Allowance for Credit Losses (ACL) | $71.5 million (1.84% of loans) | $75.6 million (2.09% of loans) |
| Net Charge-offs | $0.5 million | $16.4 million |
| Capital Ratios (Carter Bankshares) | CET1: 10.70% | Tier 1: 10.70% | Total: 11.95% | CET1: 10.88% | Tier 1: 10.88% | Total: 12.13% |
Material Changes vs. Prior Period
- Profitability: Net income increased 28.1% to $31.4 million, driven by a 14.3% increase in net interest income and a significant reduction in net charge-offs.
- Asset Quality: Nonperforming loans decreased by $15.4 million to $244.0 million. This improvement was primarily due to $38.0 million in curtailment payments received from the company's largest credit relationship (the "Justice Entities").
- Provision for Credit Losses: The company recorded a recovery of $3.6 million in 2025, compared to a recovery of $5.0 million in 2024. The recovery was lower due to new reserves established on specific CRE loans and lower curtailment payments compared to the prior year.
- Balance Sheet: Total loans grew 7.0% to $3.88 billion, led by growth in Commercial Real Estate (CRE), residential mortgages, and construction loans. FHLB borrowings increased $108.5 million to $178.5 million to support loan growth.
- Expenses: Total noninterest expense increased 6.4% to $117.1 million, driven by higher occupancy costs (rebranding and branch purchase), professional fees, and data processing costs.
Guidance, Outlook, and Risks
Management Commentary: Management is shifting from balance-sheet restructuring to a prudent growth strategy, focusing on organic growth and opportunistic acquisitions. The company continues to dedicate resources to resolving its nonaccrual loans, particularly the large credit relationship with the Justice Entities, which remains on nonaccrual status with a balance of $214.0 million.
Stock Repurchases: The company fully utilized a $20.0 million repurchase program in 2025. A new $10.0 million program was authorized in February 2026.
Key Risks:
- Concentration Risk: The company's largest credit relationship ($214.0 million) represents 87.7% of total nonperforming assets. While the company believes it is well-secured, future collections are uncertain.
- Commercial Real Estate (CRE): CRE loans comprise 54.5% of the total loan portfolio. The company faces risks related to occupancy levels, rental rates, and collateral values in sectors such as hospitality, office, and retail.
- Interest Rate Risk: The balance sheet is liability-sensitive. A decline in interest rates could compress net interest margins, while rising rates could increase funding costs and credit losses.
- Cybersecurity: The company relies heavily on third-party service providers for critical technology functions, creating operational risk.
Investor Verification Checklist
- Justice Entities Resolution: Verify the status of the $214.0 million nonperforming loan relationship, including the timeline for remaining curtailment payments and the adequacy of the $18.0 million specific reserve.
- CRE Portfolio Health: Review the specific performance of the hospitality and office sectors within the CRE portfolio, which represent significant concentrations.
- Deposit Stability: Assess the composition of deposits, noting that 18.7% are uninsured and the maturity profile of Certificates of Deposit (CDs) which reprice quickly.
- Capital Adequacy: Confirm that the company remains "well-capitalized" under Prompt Corrective Action provisions despite the high level of nonperforming assets.
- Unrealized Losses: Review the $54.2 million in gross unrealized losses on available-for-sale securities and management's intent to hold these assets to maturity.