Carter Bankshares, Inc. Reports Transformative Q1 2026 Results Driven by Major Loan Sale

Martinsville, VA – April 23, 2026: Carter Bankshares, Inc. (NASDAQ: CARE), the holding company for Carter Bank, has released its financial results for the first quarter of 2026, delivering a dramatic improvement in profitability, asset quality, and capital strength, largely fueled by the strategic sale of a major portfolio of nonperforming loans. These results represent a significant development for shareholders and may have a material impact on the company’s stock price.

Key Financial Highlights

• Net Income: Carter Bankshares reported net income of \$85.8 million (\$3.88 diluted EPS), a near tenfold increase from \$8.5 million (\$0.38 diluted EPS) in Q4 2025 and \$9.0 million (\$0.39 diluted EPS) in Q1 2025.
• Net Interest Income: Grew to \$35.9 million, up 3.8% quarter-over-quarter and 19.2% year-over-year.
• Pre-tax Pre-provision Income: Surged to \$75.9 million, compared to \$8.8 million in Q4 2025 and \$9.0 million in Q1 2025.
• Net Interest Margin: Rose 15 basis points to 3.07% from the prior quarter, and up 39 basis points year-over-year.
• Efficiency Ratio: Sharply improved to 29.01% from 77.84% in Q4 2025 and 75.71% in Q1 2025 (primarily due to the gain on the loan sale).
• Return on Average Assets (annualized): Jumped to 7.13% (from 0.70% in Q4 2025).
• Book Value and Tangible Book Value Per Share: Increased \$3.49 per share in the quarter.

Strategic Sale of Nonperforming Loans – Major Driver of Results

• On March 26, 2026, Carter Bank completed the absolute “as-is, where-is” sale of all loans (reduced to judgments) related to entities associated with James C. Justice, II, to an unaffiliated third party.
• Transaction Details:
  • Received \$289.5 million in cash consideration.
  • Loans sold had an outstanding principal of \$209.5 million and were fully nonperforming and on nonaccrual status.
  • A specific reserve of \$18.0 million had been recorded against these loans as of December 31, 2025.
  • Recognized a net gain of \$80.0 million from the transaction: \$65.0 million gain on sale and \$15.0 million net recovery; \$18.0 million of reserves released.
  • The transaction was accretive to diluted EPS by \$3.50 and increased both book value and tangible book value per share by \$3.49.

Improvements in Asset Quality and Capital Position

• Nonperforming Loans (NPLs): Dropped dramatically by \$220 million to \$24 million at March 31, 2026 (from \$244 million at December 31, 2025).
• NPLs as a Percentage of Total Portfolio Loans: Fell to 0.64% from 6.29% in the prior quarter and 7.09% a year ago.
• Allowance for Credit Losses: Now 1.41% of total portfolio loans, down from 1.84% last quarter, reflecting the reserve release.
• Allowance Coverage of NPLs: Surged to 219%, up from 29% last quarter.
• Net Recoveries: \$14.9 million for the quarter, compared to net charge-offs of just \$0.1 million in the prior quarters.

Balance Sheet and Liquidity Developments

• Total Assets: Decreased by \$52.7 million to \$4.8 billion, driven by the loan sale, partially offset by \$58.4 million in organic net loan growth (6.1% annualized, net of the transaction).
• Cash and Banks Balances: Increased by \$123.2 million due to transaction proceeds.
• Deposits: Increased by \$24.4 million to \$4.2 billion, with improved deposit insurance coverage (82.8% insured under FDIC limits).
• Federal Home Loan Bank Borrowings: Reduced by \$178.5 million as proceeds from the loan sale repaid borrowings.
• Capital Ratios:
  • Tier 1 Capital: 13.52% (up from 10.70%).
  • Leverage Ratio: 11.10% (up from 9.43%).
  • Total Risk-Based Capital: 14.78% (up from 11.95%).
  • Shareholders’ Equity / Assets: 10.52% (up from 8.65%).
• Liquidity: \$816.6 million available borrowing capacity at the FHLB, \$407.8 million in unpledged AFS securities, and \$55 million in correspondent credit lines.

Operational and Strategic Commentary

CEO Litz H. Van Dyke described the loan sale as “an important milestone” that “meaningfully strengthened our balance sheet, increased tangible book value, and improved key financial ratios.” The transaction resolves Carter Bank’s largest nonperforming credit relationship and positions the company for future growth with a healthier risk profile.

Van Dyke also highlighted continued momentum in commercial and small business lending, with strong pipelines and increasing traction in commercial and industrial lending. The bank expects further loan growth supported by prior construction commitments and is positioned to benefit from potential Fed rate cuts due to its liability-sensitive balance sheet.

Other Notable Developments

• Noninterest Expense: Stable at \$31.0 million for the quarter. Y/Y increase mainly from higher salaries, incentive comp, and some infrastructure investments.
• Efficiency: Adjusted (non-GAAP) efficiency ratio improved to 72.66%, reflecting underlying operational improvements aside from the one-off gain.
• No Share Repurchases: No shares were repurchased during Q1 2026.

Potential Price-Sensitive/Shareholder-Relevant Items

• The successful sale of all Justice-related nonperforming loans, resulting in a massive one-time gain, removal of significant credit risk, and a substantial boost to capital, book value, and earnings per share. This transformative event cleans up the balance sheet and materially changes the risk and return profile of the company.
• Marked improvement in asset quality metrics and capital ratios could drive investor confidence and re-rating of the shares.
• Ongoing momentum in organic loan growth (excluding the transaction) demonstrates that the bank’s underlying businesses remain healthy.
• Improved efficiency and profitability metrics, both on a GAAP and adjusted (non-GAAP) basis.
• Stronger liquidity and funding profile post-transaction, with a high percentage of insured deposits and ample borrowing capacity.

Financial Tables (Selected)

• Q1 2026 Net Interest Income: \$35.9 million
• Q1 2026 Noninterest Income: \$71.0 million (including \$65 million gain on the loan transaction)
• Q1 2026 Noninterest Expense: \$31.0 million
• Q1 2026 Net Income: \$85.8 million
• Book Value per Share, March 31, 2026: \$22.78
• Tangible Book Value per Share, March 31, 2026: \$22.69
• Return on Average Assets (Annualized): 7.13%
• Return on Average Equity (Annualized): 80.05%

Bottom Line for Investors: Carter Bankshares, Inc.’s Q1 2026 report is highly eventful, marking a turning point in the company’s risk and capital profile. The one-time sale of a large block of troubled assets has delivered a windfall gain and cleaned up the balance sheet, providing a platform for renewed organic growth, improved profitability, and potentially driving a significant re-rating of the stock.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Readers should do their own research or consult with a qualified financial advisor before making investment decisions. Forward-looking statements in the company’s disclosures are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Please consult the company’s filings and risk factors for more details.

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