Carter Bankshares, Inc. Announces Third Quarter 2025 Financial Results

MARTINSVILLE, VA / ACCESS Newswire / October 23, 2025 / Carter Bankshares, Inc. (the "Company") (NASDAQ:CARE), the holding company of Carter Bank (the "Bank") today announced quarterly net income of $5.4 million, or $0.24 diluted earnings per share ("EPS"), for the third quarter of 2025 compared to net income of $8.5 million, or $0.37 diluted EPS, for the second quarter of 2025 and net income of $5.6 million, or $0.24 diluted EPS, for the third quarter of 2024. Net interest income was $33.7 million for the third quarter of 2025, $32.4 million for the second quarter of 2025, and $28.8 million for the third quarter of 2024. Pre-tax pre-provision income¹ was $10.4 million for the third quarter of 2025, $8.0 million for the second quarter of 2025 and $6.8 million for the third quarter of 2024.

For the nine months ended September 30, 2025, net income was $22.9 million, or $1.00 diluted EPS, compared to net income of $16.2 million, or $0.70 diluted EPS for the same period in 2024. Net interest income was $96.2 million for the nine months ended September 30, 2025, and $85.3 million for the nine months ended September 30, 2024. Pre-tax pre-provision income¹ was $27.3 million and $20.2 million for the nine months ended September 30, 2025 and 2024, respectively.

The Company's financial results continue to be significantly impacted by loans in the Bank's Other segment of the Company's loan portfolio, the significant majority of which have been on nonaccrual status since the second quarter of 2023. The Bank's loans, now reduced to judgments, relate to various entities in which James C. Justice, II has an interest (collectively, the "Justice Entities"), remain the Bank's largest credit relationship and comprise the significant majority of the Other segment with an aggregate principal balance of $228.6 million as of September 30, 2025. Interest income was negatively impacted by $6.5 million during the third quarter of 2025, $6.7 million during the second quarter of 2025, and $8.8 million during the third quarter of 2024, due to these credits being on nonaccrual status. Interest income has been negatively impacted by $85.2 million in the aggregate since placement of these credits on nonaccrual status during the second quarter of 2023.

As of September 30, 2025, $73.4 million of aggregate curtailment payments made by the Justice Entities to the Bank have decreased the aggregate nonperforming loan ("NPL") balance from $301.9 million as of June 30, 2023 to $228.6 million as of September 30, 2025. Curtailment payments received during the third quarter of 2025 totaled $7.0 million. For additional information regarding the Bank's credit relationship with the Justice Entities, see "Credit Quality."

Financial Highlights for the Three and Nine Months Ended September 30, 2025

• Total portfolio loans increased $88.5 million, or 9.4%, on an annualized basis, to $3.8 billion at September 30, 2025 from June 30, 2025 and increased $239.8 million, or 6.7% from September 30, 2024;

• Net interest income totaled $33.7 million, an increase of $1.4 million, or 4.2% compared to the prior quarter, and an increase of $4.9 million, or 17.1% compared to the year ago quarter;

• Net interest margin, increased six basis points to 2.86% for the third quarter of 2025, compared to 2.80% for the prior quarter and increased 28 basis points for the year ago quarter. Net interest margin, on a fully taxable equivalent ("FTE") basis³, increased five basis points to 2.87% for the third quarter of 2025, compared to 2.82% for the prior quarter and increased 28 basis points from the year ago quarter. Net interest income and net interest margin continue to be significantly impacted by the Bank's largest lending relationship remaining on nonaccrual status since the second quarter of 2023;

• NPLs increased by $8.1 million to $258.6 million at September 30, 2025 compared to June 30, 2025. NPLs to total portfolio loans were 6.74% at September 30, 2025, 6.69% at June 30, 2025 and 8.00% at September 30, 2024;

• The allowance for credit losses to total portfolio loans was 1.92%, 1.90% and 2.25% at September 30, 2025, June 30, 2025 and September 30, 2024, respectively; and

• The efficiency ratio was 73.43%, 78.63% and 80.17%, and the adjusted efficiency ratio (non-GAAP)⁴ was 73.37%, 75.55%, and 80.65% for the quarters ended September 30, 2025, June 30, 2025 and September 30, 2024, respectively. The efficiency ratio was impacted by the Bank's largest lending relationship that was placed in nonaccrual status during the second quarter of 2023, a one-time gain on death benefit in the first quarter of 2025, expenses related to the Company's surrender of bank owned life insurance ("BOLI") in the first and second quarters of 2025 and acquisition costs related to the acquisition of two leased branch facilities and the associated deposits from First Reliance Bank in the second quarter of 2025.

"We are pleased to report continued strong fundamentals and positive trends for the third quarter of 2025. During the quarter, we again realized margin expansion and solid loan growth throughout our footprint. Our annualized loan growth of 9.4% reflects good momentum in our commercial lending platform. Our loan pipeline remains healthy and we continue to expect a tailwind from prior construction lending that will come online over the coming 12 to 18 months as projects progress. The Bank continues to add seasoned commercial lenders in key strategic growth markets. Our balance sheet remains slightly liability sensitive. As the Federal Reserve reduces short-term interest rates in the near term, we believe we are well positioned to benefit especially given the short-term nature of our certificates of deposit ("CD") portfolio," stated Litz H. Van Dyke, Chief Executive Officer.

Van Dyke concluded, "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 best protects our Company and our shareholders in the long-term. We continue to believe we are well positioned for a strong remainder of 2025 and continuing into 2026."

Operating Highlights

Credit Quality

NPLs as a percentage of total portfolio loans were 6.74%, 6.69% and 8.00% at September 30, 2025, June 30, 2025 and September 30, 2024, respectively. At September 30, 2025, NPLs increased $8.1 million to $258.6 million compared to June 30, 2025. The increase was primarily driven by two loans that moved into nonaccrual status in the third quarter of 2025 which included a commercial real estate ("CRE") loan of $14.6 million and a residential mortgage loan of $0.8 million. This CRE loan is secured by an office building whose government agency tenants are vacating during the fourth quarter of 2025. Although this CRE loan was originated at a relatively low loan-to-value ratio, the Bank is closely reviewing this CRE loan, and other similar loans in its CRE portfolio, for changes in valuation and other market impacts. This increase was partially offset by $7.0 million in curtailment payments made by the Bank's largest credit relationship.

Since the Bank's largest lending relationship was transferred to nonaccrual status, in the second quarter of 2023 due to loan maturities and failure to pay in full, this relationship's NPL balance has decreased from $301.9 million at June 30, 2023 to $228.6 million at September 30, 2025. This NPL relationship represents 88.4% of total NPLs and 6.0% of total portfolio loans at September 30, 2025. The Company continues to believe it is well secured based on the net carrying value of the credit relationship and is appropriately reserved for potential credit losses with respect to all such loans based on information currently available. However, the Company cannot give any assurance as to the timing or amount of future payments or collections on such loans or that the Company will ultimately collect all amounts contractually due under the terms of such loans.

The specific reserves with respect to the Bank's largest NPL credit relationship were $21.7 million at September 30, 2025 compared to $24.0 million at June 30, 2025. The decline during the third quarter of 2025 was driven by the aforementioned curtailment payments. The Company uses the discounted cash flow model with updated assumptions and inputs regarding the credit relationship, legal risk and related risks.

During the third quarter of 2025, the provision (recovery) for credit losses was an expense of $2.9 million, compared to a recovery of $(2.3) million in the second quarter of 2025 and a recovery of $(432) thousand during the third quarter of 2024. The increase from the prior quarter was primarily driven by $3.8 million in general reserves established for higher new loan volume during the third quarter of 2025, along with the establishment of a $1.2 million specific reserve on an existing CRE relationship that has been in nonaccrual status since the first quarter of 2025 as a result of an updated appraisal. These increases were partially offset by a $2.3 million reduction in the Other segment reserve, resulting from a lower reserve rate, which declined from 10.18% at June 30, 2025 to 9.49% at September 30, 2025, and lower curtailment payments in the third quarter of 2025 compared to the second quarter of 2025.

During the third quarter of 2025, the provision (recovery) for unfunded commitments was an expense of $335 thousand compared to a recovery of $(335) thousand in the second quarter of 2025 and an expense for unfunded commitments of $191 thousand in the third quarter of 2024. The change from the prior quarter was primarily due to increased unfunded commitments in construction loans.

Net Interest Income

Net interest income for the third quarter of 2025 increased $1.4 million, or 4.2%, to $33.7 million compared to the second quarter and increased $4.9 million, or 17.1%, compared to the same period in 2024. The increase in net interest income compared to the second quarter of 2025 was primarily due to a six basis point decline in funding costs, and a two basis point increase compared to the prior quarter in the yield on average interest-earning assets. The increase in net interest income compared to the third quarter of 2024 was primarily due to a 45 basis point decline in funding costs, offset by a five basis point decrease in the yield on average interest-earning assets.

Net interest income on an FTE basis³ was $33.9 million and $96.7 million for the three and nine months ended September 30, 2025, respectively, increasing $4.9 million and $10.8 million compared to the same periods in the prior year. Net interest income for the three and nine months ended September 30, 2025 was positively impacted by lower rates paid on average interest-bearing liabilities and higher average balances of loans compared to the prior year periods. These positive impacts were partially offset by declines in both the average balances and the yields on securities during the three and nine months ended September 30, 2025.

Net interest margin was 2.86% and 2.78% for the three and nine months ended September 30, 2025, respectively, compared to 2.58% and 2.57% for the three and nine months ended September 30, 2024. Net interest margin on an FTE basis³ (non-GAAP) was 2.87% and 2.80% for the three and nine months ended September 30, 2025, respectively, compared to 2.59% for both the three and nine months ended September 30, 2024.

For the three and nine months ended September 30, 2025, lower interest-bearing funding costs were positively impacted by the Federal Reserve's reduction of short-term interest rates by 25 basis points during the third quarter of 2025, as well as by cumulative reductions of 100 basis points implemented between September 2024 to December 2024.

Noninterest Income

Noninterest income was $5.4 million for the third quarter of 2025, an increase of $0.5 million, or 9.4%, compared to the second quarter of 2025, but decreased $0.1 million compared to the third quarter of 2024. The primary driver of the quarter-over-quarter increase was $0.3 million in higher insurance commissions, along with a $0.1 million increase in service charges, commissions and fees.

For the nine months ended September 30, 2025, noninterest income increased $1.2 million compared to the same period in 2024. This growth was primarily due to a $1.8 million increase in other noninterest income, partially offset by a $0.5 million decline in insurance commissions. The increase in other noninterest income included a $1.9 million gain on a BOLI death benefit recorded in the first quarter of 2025. The decline in insurance commissions was due to lower activity in the first nine months of 2025.

Noninterest Expense

Noninterest expense was $28.7 million in the third quarter of 2025, representing a decrease of $0.6 million from the prior quarter. The quarter-over-quarter decline was mainly due to OREO activity on four OREO properties of $0.4 million and a $0.3 million 1035 exchange fee as a result of the early surrender of one of the Company's BOLI policies, both of which were recorded in the second quarter of 2025.

Compared to the third quarter of 2024, noninterest expense increased by $1.3 million. This increase was driven primarily by higher professional and legal fees of $0.7 million due to acquisition costs related to the branch purchase in the second quarter of 2025 previously discussed, higher occupancy expense, net of $0.6 million and other noninterest expense of $0.5 million. These increases were partially offset by $0.6 million in lower salaries and employee benefits. While base salaries increased during the quarter, total salary expenses decreased due to higher salary cost deferrals associated with higher loan growth, which reduced the amount of salary expense recognized in the third quarter. The increase in occupancy expense was due to higher software and maintenance costs and increased depreciation expense from the branch purchase previously discussed. Other noninterest expenses also increased primarily due to the previously mentioned activity on four OREO properties.

For the nine months ended September 30, 2025, noninterest expense increased $4.9 million compared to the same period in 2024. This impact was primarily driven by the following increases; $2.1 million in other noninterest expense, $1.8 million in occupancy expenses, net, $0.8 million in advertising expenses, $0.8 million in professional and legal fees and $0.7 million in data processing expenses. These increases were partially offset by a $1.3 million decrease in salaries and employee benefits. As discussed previously, while base salaries increased during the nine month period, total salary expenses decreased due to higher salary cost deferrals of $5.0 million associated with higher loan growth, which reduced the amount of salary expense recognized in the nine months ended September 30, 2025.

Financial Condition

Total assets increased by $56.0 million, to $4.8 billion as of September 30, 2025, compared to June 30, 2025. Cash and due from banks increased $7.0 million to $106.9 million at September 30, 2025, up from $99.9 million at June 30, 2025. Available-for-sale securities decreased $27.3 million compared to June 30, 2025. These securities represented 15.0% of total assets at September 30, 2025, down slightly from 15.8% at June 30, 2025. The decrease was primarily driven by normal paydowns and calls, the unrealized losses of $8.0 million, partially offset by purchases during the third quarter.

Total portfolio loans increased $88.5 million, or 9.4%, on an annualized basis, to $3.8 billion at September 30, 2025 compared to June 30, 2025. The breakdown of loan growth compared to June 30, 2025 related to the following increases: $62.4 million in commercial real estate loans ("CRE"), $23.1 million in construction, $12.7 million in residential mortgages and $1.1 million in other consumer, partially offset by the following decreases: $7.0 million in Other and $3.8 million in commercial and industrial ("C&I").

Total deposits decreased during the seasonally slow third quarter by $11.9 million to $4.2 billion as of September 30, 2025 compared to June 30, 2025. FHLB borrowings increased $62.0 million to $175.5 million at September 30, 2025 compared to June 30, 2025 to fund loan growth.

At both September 30, 2025 and June 30, 2025, approximately 81.6% of our total deposits of $4.2 billion were insured under standard Federal Deposit Insurance Corporation ("FDIC") insurance coverage limits, and approximately 18.4% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit, respectively.

Capitalization and Liquidity

The Company remained well capitalized at September 30, 2025. The Company's Tier 1 Capital ratio was 10.66% at September 30, 2025 as compared to 10.87% at June 30, 2025. The Company's leverage ratio was 9.41% at September 30, 2025 as compared to 9.46% at June 30, 2025. The Company's Total Risk-Based Capital ratio was 11.91% at September 30, 2025 as compared to 12.12% at June 30, 2025.

During the three and nine months ended September 30, 2025, the Company repurchased 262,269 and 809,601 shares of its common stock at a total cost of $4.9 million and $14.0 million, respectively, at weighted average cost per share of $18.70 and $17.35, respectively.

At September 30, 2025, funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0% of the Company's assets or approximately $1.2 billion, subject to the amount of eligible collateral pledged, of which the Company is eligible to borrow up to an additional $544.0 million. The Company has unsecured facilities with three other correspondent financial institutions totaling $30.0 million, a fully secured facility with one other correspondent financial institution totaling $45.0 million, and access to the institutional CD market. The Company did not have outstanding borrowings on these federal funds lines as of September 30, 2025. In addition to the above funding resources, the Company also has $416.1 million unpledged available-for-sale investment securities, at fair value, as an additional source of liquidity.

About Carter Bankshares, Inc.

Headquartered in Martinsville, VA, Carter Bankshares, Inc. (NASDAQ: CARE) provides a full range of commercial banking, consumer banking, mortgage and services through its subsidiary Carter Bank. The Company has $4.8 billion in assets and 64 branches in Virginia and North Carolina as of September 30, 2025. For more information or to open an account visit www.carterbank.com.

Important Note Regarding Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States ("GAAP"), our management uses, and this press release contains or references, certain non-GAAP financial measures and should be read along with the accompanying tables in our definitions and reconciliations of GAAP to non-GAAP financial measures. This press release and the accompanying tables discuss financial measures that we believe are useful because they enhance the ability of investors and management to evaluate and compare the Company's operating results from period to period in a meaningful manner. Management also believes these measures provide information useful to investors in understanding our underlying business, operational performance and performance trends as these measures facilitate comparisons with the performance of other companies in the financial services industry. Non-GAAP measures should not be considered as an alternative to GAAP or considered to be more relevant than financial results determined in accordance with GAAP, nor are they necessarily comparable with similar non-GAAP measures that may be presented by other companies. Investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.

Important Note Regarding Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements made in Mr. Van Dyke's quotations and may include statements relating to our financial condition, market conditions, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality and nonaccrual and nonperforming loans. Forward looking statements are typically identified by words or phrases such as "will likely result," "expect," "anticipate," "estimate," "forecast," "project," "intend," "believe," "assume," "strategy," "trend," "plan," "outlook," "outcome," "continue," "remain," "potential," "opportunity," "comfortable," "current," "position," "maintain," "sustain," "seek," "achieve" and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may.

These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company's control. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Actual results may differ significantly from those expressed in or implied by these forward-looking statements. The matters discussed in these forward- looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements including, but not limited to the effects of:

• the ability to continue to introduce competitive new products and services on a timely, cost-effective basis;

• managing our internal growth and acquisitions;

• the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating acquired operations will be more difficult, disruptive or more costly than anticipated;

• the soundness of other financial institutions and any indirect exposure related to large bank failures and their impact on the broader market through other customers, suppliers and partners or that the conditions which resulted in the liquidity concerns with those failed banks may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships with;

• 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 and government shutdowns;

• significant weakening of the local economies in which we operate;

• changes in customer behaviors, including consumer spending, borrowing and saving habits;

• changes in deposit flows and loan demand;

• our failure to attract or retain key associates;

• expansions or consolidations in the Company's branch network, including that the anticipated benefits of the Company's branch acquisitions or the Company's branch network optimization project are not fully realized in a timely manner or at all;

• deterioration of the housing market and reduced demand for mortgages; and

• re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses.

Many of these factors, as well as other factors, are described in our filings with the Securities and Exchange Commission, including in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2024. All risk factors and uncertainties described herein and therein should be considered in evaluating the Company's forward-looking statements. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events are expressed in or implied by a forward-looking statement may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update, revise or clarify any forward-looking statement to reflect developments occurring after the statement is made, except as required by law.

Carter Bankshares, Inc.
[email protected]

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
BALANCE SHEETS

CARTER BANKSHARES, INC.
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INCOME STATEMENTS

*All outstanding unvested restricted stock awards are considered participating securities for the earnings per share calculation. As such, these shares have been allocated to a portion of net income and are excluded from the diluted earnings per share calculation.

CARTER BANKSHARES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
NET INTEREST MARGIN (FTE) (QTD AVERAGES)
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CARTER BANKSHARES, INC.
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