Carter Bankshares, Inc.

What they do

The Company operates through its subsidiary bank, taking deposits and making loans, with the loan portfolio as its primary source of interest income. At June 30, 2026, total portfolio loans were $3.73 billion, comprising commercial loans ($2.41 billion), consumer loans ($839.5 million) and construction loans ($489.3 million). Commercial real estate loans were $2.14 billion, or 57.4% of total portfolio loans, concentrated geographically in North Carolina, Virginia and South Carolina. The Company is a legal entity separate from the Bank, and a significant portion of its cash flow comes from dividends paid to it by the Bank.

Revenue drivers

• Commercial Real Estate Lending — CRE loans were $2,143.4 million at June 30, 2026, or 57.4% of total portfolio loans, spanning retail/restaurant, warehouse, hospitality, multifamily, office and long-term care collateral. This is the largest single loan category and the largest contributor to interest income.
• Commercial and Industrial Lending — Commercial and industrial loans were $262.4 million at June 30, 2026, up from $231.9 million at December 31, 2025, part of total commercial loans of $2,405.8 million.
• Residential Mortgage Lending — Residential mortgages were $814.4 million at June 30, 2026, down from $822.1 million at December 31, 2025, and represent the largest consumer loan category.
• Construction Lending — Construction loans were $489.3 million at June 30, 2026, up from $465.6 million at December 31, 2025, and include both CRE-type and residential-type construction exposure.

Recent performance

Second quarter 2026 net income was $28.9 million, or $1.31 diluted EPS, compared with $85.8 million, or $3.88 diluted EPS, in the first quarter of 2026 and $8.5 million, or $0.37 diluted EPS, in the second quarter of 2025. Net interest income was $40.0 million for the second quarter of 2026, up 11.2% from the prior quarter and 23.5% from the prior year quarter, and the net interest margin rose to 3.38% from 3.07% and 2.80%, respectively. Adjusted net income was $11.6 million for the second quarter of 2026, versus $8.6 million in the first quarter of 2026 and $9.3 million a year earlier. For the six months ended June 30, 2026, net income was $114.7 million, or $5.18 diluted EPS, including approximately $100.9 million of aggregate nonrecurring gains from the Insurance Transaction and the Loan Sale Transaction. Total portfolio loans decreased $145.0 million to $3.7 billion from December 31, 2025 to June 30, 2026, largely reflecting the Loan Sale Transaction.

Strategy

During the first half of 2026, the Company completed the sale of its membership interest in Bearing Insurance Group, LLC, recognizing a $35.9 million pre-tax gain, and sold a large nonperforming credit relationship, generating approximately $100.9 million of aggregate nonrecurring gains. Management stated these gains afforded an opportunity to optimize the balance sheet, improve future earnings potential and enhance interest rate risk positioning. In the second quarter of 2026, the Company completed a Portfolio Repositioning, selling $139.4 million in book value of available-for-sale securities with a 2.28% weighted average yield and purchasing approximately $88.5 million of AAA- or AA-rated securities with a weighted average yield of approximately 5.27%, at a pre-tax loss of $12.5 million. The Company expects to use the remaining repositioning proceeds to fund organic loan growth during the remainder of 2026. As of December 31, 2025, the Bank had not elected the Community Bank Leverage Ratio Framework, but management continues to evaluate its potential benefits, and in November 2025 the federal banking regulators proposed lowering the CBLRF leverage ratio from nine percent to eight percent.

Risks

• Commercial Real Estate Concentration — CRE loans represented 57.4% of total portfolio loans at June 30, 2026, with collateral geographically concentrated in North Carolina, Virginia and South Carolina, exposing the Company to adverse real estate market conditions in those markets.
• Asset Quality and Nonperforming Loans — Nonperforming loans increased by $13.6 million to $37.6 million at June 30, 2026 from March 31, 2026, or 1.01% of total portfolio loans, up from 0.64% at March 31, 2026.
• Interest Rate Risk — The Company's earnings are highly dependent on net interest income, and differences in the timing and repricing characteristics of assets and liabilities create interest rate sensitivity gaps.
• Dividend and Capital Restrictions — As a holding company separate from the Bank, the Company's ability to pay dividends depends largely on the Bank's ability to generate earnings and pay dividends, and both entities are subject to federal and state restrictions, including Virginia law limiting dividends to net undivided profits.

Outlook

Management stated that the approximately $100.9 million of nonrecurring gains generated in the first half of 2026 afforded an opportunity to optimize the balance sheet, improve future earnings potential and enhance interest rate risk positioning. The Portfolio Repositioning is expected to enhance future earnings performance through improved asset yields and balance sheet positioning, and the Company expects to use the remaining proceeds to fund organic loan growth during the remainder of 2026. The Company also continues to evaluate electing the Community Bank Leverage Ratio Framework as part of its capital management and strategic planning processes.