[10-Q] Carter Bankshares, Inc. Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended June 30, 2025
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission file number: 001-39731
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
Registrant’s telephone number, including area code: (276 ) 656-1776
| NA | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | x | Emerging growth company | |||||||||||||||||
Non-accelerated filer | o | Smaller reporting company | ||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2025 there were 22,669,834 shares of the registrant’s common stock issued and outstanding.
Table of Contents
TABLE OF CONTENTS
Part I - Financial Information | ||||||||
Item 1. | Financial Statements | 3 | ||||||
Consolidated Balance Sheets - June 30, 2025 (unaudited) and December 31, 2024 (audited) | 3 | |||||||
Consolidated Statements of Income - Three and Six Months Ended June 30, 2025 and 2024 (unaudited) | 4 | |||||||
Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2025 and 2024 (unaudited) | 5 | |||||||
Consolidated Statements of Changes in Shareholders’ Equity - Three and Six Months Ended June 30, 2025 and 2024 (unaudited) | 6 | |||||||
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2025 and 2024 (unaudited) | 7 | |||||||
Notes to Unaudited Consolidated Financial Statements | 9 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 40 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 68 | ||||||
Item 4. | Controls and Procedures | 70 | ||||||
Part II - Other Information | ||||||||
Item 1. | Legal Proceedings | 70 | ||||||
Item 1A. | Risk Factors | 70 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 71 | ||||||
Item 3. | Defaults Upon Senior Securities | 71 | ||||||
Item 4. | Mine Safety Disclosures | 71 | ||||||
Item 5. | Other Information | 72 | ||||||
Item 6. | Exhibits | 72 | ||||||
Signatures | 73 | |||||||
Table of Contents
CARTER BANKSHARES, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
| (Dollars in Thousands Except per Share Data) | June 30, 2025 | December 31, 2024 | ||||||||||||
| ASSETS | ||||||||||||||
Cash and Due From Banks, including Interest-Bearing Deposits of $ | $ | $ | ||||||||||||
Securities Available-for-Sale, at Fair Value (amortized cost of $ | ||||||||||||||
| Equity Securities | ||||||||||||||
| Loans Held-for-Sale | ||||||||||||||
| Portfolio Loans | ||||||||||||||
| Allowance for Credit Losses | ( | ( | ||||||||||||
| Portfolio Loans, net | ||||||||||||||
| Bank Premises and Equipment, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Core Deposit Intangible | ||||||||||||||
| Other Real Estate Owned, net | ||||||||||||||
| Federal Home Loan Bank Stock, at Cost | ||||||||||||||
| Bank Owned Life Insurance | ||||||||||||||
| Other Assets | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| LIABILITIES | ||||||||||||||
| Deposits: | ||||||||||||||
| Noninterest-Bearing Demand | $ | $ | ||||||||||||
| Interest-Bearing Demand | ||||||||||||||
| Money Market | ||||||||||||||
| Savings | ||||||||||||||
| Certificates of Deposit | ||||||||||||||
| Total Deposits | ||||||||||||||
| Federal Home Loan Bank Borrowings | ||||||||||||||
| Reserve for Unfunded Loan Commitments | ||||||||||||||
| Other Liabilities | ||||||||||||||
| Total Liabilities | ||||||||||||||
Commitment and Contingencies - see NOTE 10. | ||||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||||
Common Stock, Par Value $ | ||||||||||||||
Outstanding - | ||||||||||||||
| Additional Paid-in Capital | ||||||||||||||
| Retained Earnings | ||||||||||||||
| Accumulated Other Comprehensive Loss | ( | ( | ||||||||||||
| Total Shareholders’ Equity | ||||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||||||||
See accompanying notes to unaudited Consolidated Financial Statements.
3
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS - (continued)
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in Thousands Except per Share Data) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| INTEREST INCOME | ||||||||||||||||||||||||||
| Loans, including fees | ||||||||||||||||||||||||||
| Taxable | $ | $ | $ | $ | ||||||||||||||||||||||
| Non-Taxable | ||||||||||||||||||||||||||
| Investment Securities | ||||||||||||||||||||||||||
| Taxable | ||||||||||||||||||||||||||
| Non-Taxable | ||||||||||||||||||||||||||
| Federal Reserve Bank Excess Reserves | ||||||||||||||||||||||||||
| Interest on Bank Deposits | ||||||||||||||||||||||||||
| Dividend Income | ||||||||||||||||||||||||||
| Total Interest Income | ||||||||||||||||||||||||||
| Interest Expense | ||||||||||||||||||||||||||
| Interest Expense on Deposits | ||||||||||||||||||||||||||
| Interest on Other Borrowings | ||||||||||||||||||||||||||
| Total Interest Expense | ||||||||||||||||||||||||||
| NET INTEREST INCOME | ||||||||||||||||||||||||||
| (Recovery) Provision for Credit Losses | ( | ( | ||||||||||||||||||||||||
| Recovery for Unfunded Commitments | ( | ( | ( | ( | ||||||||||||||||||||||
| Net Interest Income After (Recovery) Provision for Credit Losses | ||||||||||||||||||||||||||
| NONINTEREST INCOME | ||||||||||||||||||||||||||
| Gains on Sales of Securities, net | ||||||||||||||||||||||||||
| Service Charges, Commissions and Fees | ||||||||||||||||||||||||||
| Debit Card Interchange Fees | ||||||||||||||||||||||||||
| Insurance Commissions | ||||||||||||||||||||||||||
| Bank Owned Life Insurance Income | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total Noninterest Income | ||||||||||||||||||||||||||
| NONINTEREST EXPENSE | ||||||||||||||||||||||||||
| Salaries and Employee Benefits | ||||||||||||||||||||||||||
| Occupancy Expense, net | ||||||||||||||||||||||||||
| FDIC Insurance Expense | ||||||||||||||||||||||||||
| Other Taxes | ||||||||||||||||||||||||||
| Advertising Expense | ||||||||||||||||||||||||||
| Telephone Expense | ||||||||||||||||||||||||||
| Professional and Legal Fees | ||||||||||||||||||||||||||
| Data Processing | ||||||||||||||||||||||||||
| Debit Card Expense | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total Noninterest Expense | ||||||||||||||||||||||||||
| Income Before Income Taxes | ||||||||||||||||||||||||||
| Income Tax Provision | ||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings per Common Share: | ||||||||||||||||||||||||||
| Basic Earnings per Common Share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted Earnings per Common Share | $ | $ | $ | $ | ||||||||||||||||||||||
| Average Shares Outstanding-Basic & Diluted | ||||||||||||||||||||||||||
See accompanying notes to unaudited Consolidated Financial Statements.
4
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS - (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in Thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other Comprehensive Income: | ||||||||||||||||||||||||||
| Net Unrealized Gains on Securities Available-for-Sale: | ||||||||||||||||||||||||||
| Net Unrealized Gains Arising during the Period | ||||||||||||||||||||||||||
| Reclassification Adjustment for Gains included in Net Income | ( | ( | ||||||||||||||||||||||||
| Tax Effect | ( | ( | ( | ( | ||||||||||||||||||||||
| Net Unrealized Gains Recognized in Other Comprehensive Income | ||||||||||||||||||||||||||
| Other Comprehensive Income: | ||||||||||||||||||||||||||
| Comprehensive Income | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying notes to unaudited Consolidated Financial Statements.
5
Table of Contents
CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS - (continued)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | |||||||||||||||||||||||||||||
| 1% Excise Tax on Stock Buybacks | — | ( | — | — | ( | |||||||||||||||||||||||||||
Repurchase of Common Stock ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Forfeiture of Restricted Stock ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Issuance of Restricted Stock ( | ( | — | — | |||||||||||||||||||||||||||||
| Recognition of Restricted Stock Compensation Expense | — | — | — | |||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Three Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | |||||||||||||||||||||||||||||
Forfeitures of Restricted Stock ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Issuance of Restricted Stock ( | ( | — | — | |||||||||||||||||||||||||||||
| Recognition of Restricted Stock Compensation Expense | — | — | — | |||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | |||||||||||||||||||||||||||||
| 1% Excise Tax on Stock Buybacks | — | ( | — | — | ( | |||||||||||||||||||||||||||
Repurchase of Common Stock ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Forfeiture of Restricted Stock ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Issuance of Restricted Stock ( | ( | — | — | |||||||||||||||||||||||||||||
| Recognition of Restricted Stock Compensation Expense | — | — | — | |||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | — | — | — | |||||||||||||||||||||||||||||
Forfeitures of Restricted Stock ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||
Issuance of Restricted Stock ( | ( | — | — | |||||||||||||||||||||||||||||
| Recognition of Restricted Stock Compensation Expense | — | — | — | |||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
See accompanying notes to unaudited Consolidated Financial Statements.
6
Table of Contents
CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS - (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, | ||||||||||||||||||||
| (Dollars in Thousands) | 2025 | 2024 | ||||||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||||||
| Net Income | $ | $ | ||||||||||||||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities | ||||||||||||||||||||
| (Recovery) Provision for Credit Losses, including Recovery for Unfunded Commitments | ( | |||||||||||||||||||
| Origination of Loans Held-for-Sale | ( | ( | ||||||||||||||||||
| Proceeds From Loans Held-for-Sale | ||||||||||||||||||||
| Depreciation/Amortization of Bank Premises and Equipment | ||||||||||||||||||||
| Provision (Benefit) for Deferred Taxes | ( | |||||||||||||||||||
| Net Amortization of Securities | ||||||||||||||||||||
| Tax Credit Amortization | ||||||||||||||||||||
| Gains on Sales of Loans Held-for-Sale | ( | ( | ||||||||||||||||||
| Gains on Sales of Securities, net | ( | |||||||||||||||||||
| Unrealized Gain on Equity Securities | ( | ( | ||||||||||||||||||
| Commercial Loan Swap Derivative Loss (Income) | ( | |||||||||||||||||||
| Increase in the Value of Life Insurance Contracts | ( | ( | ||||||||||||||||||
| Gain on Bank Owned Life Insurance Death Benefit | ( | |||||||||||||||||||
| 1035 Exchange Fee on Bank Owned Life Insurance | ||||||||||||||||||||
| Balance Sheet Hedge Fair Value Adjustment | ||||||||||||||||||||
| Recognition of Restricted Stock Compensation Expense | ||||||||||||||||||||
| Decrease in Other Assets | ||||||||||||||||||||
| Decrease in Other Liabilities | ( | ( | ||||||||||||||||||
| Net Cash Provided By Operating Activities | ||||||||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||||||||
| Securities Available-for-Sale: | ||||||||||||||||||||
| Proceeds from Sales | ||||||||||||||||||||
| Proceeds from Maturities, Redemptions, and Paydowns | ||||||||||||||||||||
| Purchases | ( | ( | ||||||||||||||||||
| Purchase of Equity Securities | ( | |||||||||||||||||||
| Purchase of Bank Premises and Equipment, Net | ( | ( | ||||||||||||||||||
| Net Cash Acquired from Branch Purchase | ||||||||||||||||||||
| (Purchase) Redemption of Federal Home Loan Bank Stock, net | ( | |||||||||||||||||||
| Loan Originations, net | ( | ( | ||||||||||||||||||
| Proceeds from Death Benefit on Bank Owned Life Insurance | ||||||||||||||||||||
| Proceeds from Sales and Payments of Other Real Estate Owned | ||||||||||||||||||||
| Net Cash Used In Investing Activities | ( | ( | ||||||||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||||||||
| Net Change in Demand, Money Markets and Savings Accounts | ( | |||||||||||||||||||
| (Decrease) Increase in Certificates of Deposits | ( | |||||||||||||||||||
| Proceeds from Federal Home Loan Bank Borrowings | ||||||||||||||||||||
| Repayments on Federal Home Loan Bank Borrowings | ( | ( | ||||||||||||||||||
| Repurchase of Common Stock | ( | |||||||||||||||||||
| Net Cash Provided By Financing Activities | ||||||||||||||||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | ( | |||||||||||||||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||||||||||||||
See accompanying notes to unaudited Consolidated Financial Statements.
7
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS - (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
| Six Months Ended June 30, | ||||||||||||||||||||
| (Dollars in Thousands) | 2025 | 2024 | ||||||||||||||||||
| SUPPLEMENTARY DATA | ||||||||||||||||||||
| Cash Interest Paid | $ | $ | ||||||||||||||||||
| Cash Paid for Income Taxes | ||||||||||||||||||||
| Transfer from Loans to Other Real Estate Owned | ||||||||||||||||||||
| Transfer from Fixed Assets to Other Real Estate Owned | ||||||||||||||||||||
| Right-of-use Asset Recorded in Exchange for Lease Liabilities | ||||||||||||||||||||
| Stock Repurchase Excise Tax Settled in Subsequent Period | ( | |||||||||||||||||||
| Stock Repurchases Settled in Subsequent Period | ( | |||||||||||||||||||
See accompanying notes to unaudited Consolidated Financial Statements.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
Principles of Consolidation: The interim Consolidated Financial Statements include the accounts of Carter Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). CB&T Investment Company (the “Investment Company”) is a subsidiary of the Bank. All significant intercompany transactions have been eliminated in consolidation.
Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (“SEC”), on March 7, 2025. In management’s opinion, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.
Reclassification: Amounts in prior periods financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no material effect on prior periods net income or shareholders’ equity.
Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the Consolidated Financial Statements and the disclosures provided, and actual results could differ from those estimates. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.
Accounting Standard Adopted in 2025
On March 29, 2024 the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update, (“ASU”) 2024-02, Codification Improvements— Amendments to Remove References to the Concepts Statements, which amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. The adoption of this ASU 2024-02 was effective January 1, 2025 and did not have a material impact to the Company’s Consolidated Financial Statements.
Accounting Standards Issued but Not Yet Adopted
On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the required disclosures primarily related to the income tax rate reconciliation and income taxes paid. The ASU requires an entity’s income tax rate reconciliation to provide additional information for reconciling items meeting a quantitative threshold, and to disclose certain selected categories within the income tax rate reconciliation. The ASU also requires entities to disclose the amount of income taxes paid, disaggregated by federal, state and foreign taxes. The ASU is effective in the annual period beginning on January 1, 2025, though early adoption is permitted. The Company is currently evaluating the impact of this guidance on its Consolidated Financial Statements.
Accounting Standards Update 2024-04 “Debt - Debt with Conversion and Other Options (Subtopic 470-20)” (“ASU 2024-04”) clarifies wither the settlement of convertible debt, including debt containing cash conversion features at terms that are different from the terms included in the existing debt instrument, should be accounted for as an induced conversion or a debt extinguishment. Updates permit an entity to apply the new guidance on either a prospective or a retrospective basis. ASU 2024-04 is effective for public business entities January 1, 2026 and is not expected to have a significant impact on the Company’s financial statements.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
ASU 2025-01 & 2024-03 – Income Statement — Reporting Comprehensive Income –Expense Disaggregation Disclosures (Subtopic 220-40)
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” (“ASU 2024-03”). The amendments in ASU 2024-03 improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to the financial statements at interim and annual reporting periods. This information is generally not presented in the financial statements today. In January 2025, the FASB issued ASU 2025-01, “Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40).” The amendment in this [Update][ASU] amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Consolidated Financial Statements, but is expected to result in additional disclosures and potential changes to the line items on the Consolidated Statement of Income.
Acquisitions
On May 23, 2025, Carter Bankshares, Inc. the holding company for Carter Bank (“the Bank”) completed the acquisition of two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston-Salem, North Carolina from First Reliance Bankshares, Inc., the holding company for First Reliance Bank (the “Branch Purchase”). The Branch Purchase included approximately $57 thousand in premises and equipment, $517 thousand in cash and other assets, as well as approximately $55.9 million in deposits. The Branch Purchase did not include any loans. This expansion is part of our strategy to expand our footprint in growth markets throughout North Carolina.
The following table summarizes the estimated fair value of the assets acquired, liabilities assumed and consideration transferred in connection with the acquisition (in thousands):
| (Dollars in Thousands) | June 30, 2025 | |||||||
| Total Cash Received From Seller | $ | |||||||
| Fair Value of Total Cash Received From Seller | $ | |||||||
| Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed: | ||||||||
| Cash and Cash Equivalents | $ | |||||||
| Premises and Equipment | ||||||||
| Core Deposit Intangible | ||||||||
| Accrued Interest Receivable and Other Assets | ||||||||
| Total Assets Acquired | ||||||||
| Deposits | ||||||||
| Total Liabilities Assumed | ||||||||
| Net Identifiable Assets / (Liabilities) | ( | |||||||
| Goodwill Recognized | ||||||||
| $ | ||||||||
Acquired Deposits
The fair values of core deposits, such as noninterest and interest-bearing transaction accounts, savings and money market accounts approximated their carrying value at the acquisition date. For certificates of deposit, the fair values were estimated based on discounted cash flows, using interest rates that were being offered at the time of acquisition compared to the contractual interest rates.
Core Deposit Intangible
The Company believes that the customer relationships with the deposits acquired have an intangible value. In connection with the acquisition, the Company recorded a core deposit intangible asset of $1.1 million. The core deposit intangible asset
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
represents the value that the Bank’s core deposits had with their deposit customers. The fair value was estimated based on a discounted cash flow methodology based on assumptions that considered the type of deposit, deposit retention and the cost of the deposit base. The core deposit intangible is being amortized over 10 years on an accelerated basis.
Goodwill
Goodwill is the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed and is the result of the expected operation synergies and other factors. Goodwill of $1.2 million has been recorded. The Bank will monitor valuation inputs for up to one year after the acquisition date according to GAAP. Adjustments will be made to provisional amounts if new information becomes available about facts and circumstances that existed as of the acquisition date.
Merger Related Costs
During the six months ended June 30, 2025, the Company incurred $386 thousand of merger-related costs in connection with the Branch Purchase, primarily for professional fees. These expenses are recorded in professional and legal fees on the Consolidated Income Statement.
NOTE 2 – EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of shares of common stock outstanding, less average participating shares during the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
The following table reconciles the numerators and denominators of basic and diluted earnings per common share calculations for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in Thousands, except share and per share data) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Numerator for Earnings per Common Share – Basic and Diluted | ||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Less: Income allocated to participating shares | ||||||||||||||||||||||||||
| Net Income Allocated to Common Shareholders - Basic & Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted Average Shares Outstanding, including Shares Considered Participating Securities | ||||||||||||||||||||||||||
| Less: Average Participating Securities | ||||||||||||||||||||||||||
| Weighted Average Common Shares Outstanding - Basic & Diluted | ||||||||||||||||||||||||||
| Earnings per Common Share – Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings per Common Share – Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 3 - INVESTMENT SECURITIES
The following tables present the amortized cost and fair value of available-for-sale securities at the dates presented:
| June 30, 2025 | ||||||||||||||||||||||||||
| (Dollars in Thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| U.S. Government Agency Securities | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Residential Mortgage-Backed Securities | ( | |||||||||||||||||||||||||
| Commercial Mortgage-Backed Securities | ( | |||||||||||||||||||||||||
| Other Commercial Mortgage-Backed Securities | ( | |||||||||||||||||||||||||
| Asset Backed Securities | ( | |||||||||||||||||||||||||
| Collateralized Mortgage Obligations | ( | |||||||||||||||||||||||||
| States and Political Subdivisions | ( | |||||||||||||||||||||||||
| Corporate Notes | ( | |||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | |||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| (Dollars in Thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| U.S. Government Agency Securities | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Residential Mortgage-Backed Securities | ( | |||||||||||||||||||||||||
| Commercial Mortgage-Backed Securities | ( | |||||||||||||||||||||||||
| Other Commercial Mortgage-Backed Securities | ( | |||||||||||||||||||||||||
| Asset Backed Securities | ( | |||||||||||||||||||||||||
| Collateralized Mortgage Obligations | ( | |||||||||||||||||||||||||
| States and Political Subdivisions | ( | |||||||||||||||||||||||||
| Corporate Notes | ( | |||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | |||||||||||||||||||||
The Company did no
The following table shows the composition of gross and net realized gains and losses for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in Thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Proceeds from Sales of Securities Available-for-Sale | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross Realized Gains | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross Realized Losses | ||||||||||||||||||||||||||
| Net Realized Gains | $ | $ | $ | $ | ||||||||||||||||||||||
| Tax Impact | $ | $ | $ | $ | ||||||||||||||||||||||
For the three and six months ended June 30, 2025, the Company had no
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity at the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| June 30, 2025 | ||||||||||||||
| (Dollars in Thousands) | Amortized Cost | Fair Value | ||||||||||||
| Due in One Year or Less | $ | $ | ||||||||||||
| Due after One Year through Five Years | ||||||||||||||
| Due after Five Years through Ten Years | ||||||||||||||
| Due after Ten Years | ||||||||||||||
| Residential Mortgage-Backed Securities | ||||||||||||||
| Commercial Mortgage-Backed Securities | ||||||||||||||
| Other Commercial Mortgage-Backed Securities | ||||||||||||||
| Collateralized Mortgage Obligations | ||||||||||||||
| Asset Backed Securities | ||||||||||||||
| Total | $ | $ | ||||||||||||
At June 30, 2025 and December 31, 2024, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S. Government and its Agencies, in an amount greater than 10% of shareholders’ equity. The carrying value of securities pledged for various regulatory and legal requirements was $316.4 million at June 30, 2025 and $300.1 million at December 31, 2024.
Available-for-sale securities with unrealized losses at June 30, 2025 and December 31, 2024, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Government Agency Securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgage-Backed Securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Mortgage-Backed Securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Commercial Mortgage-Backed Securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset Backed Securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collateralized Mortgage Obligations | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| States and Political Subdivisions | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate Notes | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Debt Securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Government Agency Securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgage-Backed Securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Mortgage-Backed Securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Commercial Mortgage-Backed Securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset Backed Securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collateralized Mortgage Obligations | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| States and Political Subdivisions | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate Notes | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Debt Securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
The Company did no no
As of June 30, 2025, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis. The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations, general financial market uncertainty and market volatility. These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities. The fair value is expected to recover as the securities approach their maturity date or repricing date. It should be noted that we may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative.
The Company determined the unrealized losses detailed in the table above are not related to credit; therefore, no ACL has been recognized on the Company’s securities. Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through (recovery) provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes. During the three and six months ended June 30, 2025 and June 30, 2024, the Company had no credit related net investment impairment losses.
Equity Securities
During 2024, the Company purchased $10.0 million of equity securities. These securities are separately reported as “equity securities” on the Company’s Consolidated Balance Sheets. The equity securities consist of our investment in a market-rate, NASDAQ listed mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund mainly focuses on providing affordable housing to low-income and moderate-income borrowers and renters, including those in Majority Minority Census Tracts. The fund invests nationally, but individual bonds are designated to our bank that align with our current footprint. The Company’s investment in the mutual fund is eligible for investment credit under the Community Reinvestment Act.
During the three and six months ended June 30, 2025, the Company recognized an unrealized fair value gain of $22 thousand and $159 thousand on these equity securities. During the three and six months ended June 30, 2024 the Company purchased $5.0 5.1 million and recognized an unrealized fair value gain of
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
$63.3
NOTE 4 – LOANS AND LOANS HELD-FOR-SALE
The composition of the loan portfolio by dollar amount is shown in the table below at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Commercial | ||||||||||||||
| Commercial Real Estate | $ | $ | ||||||||||||
| Commercial and Industrial | ||||||||||||||
| Total Commercial Loans | ||||||||||||||
| Consumer | ||||||||||||||
| Residential Mortgages | ||||||||||||||
| Other Consumer | ||||||||||||||
| Total Consumer Loans | ||||||||||||||
| Construction | ||||||||||||||
| Other | ||||||||||||||
| Total Portfolio Loans | ||||||||||||||
| Loans Held-for-Sale | ||||||||||||||
| Total Loans | $ | $ | ||||||||||||
Loan Restructurings
The following table shows the amortized cost basis as of June 30, 2025 and June 30, 2024 for the loans restructured during the three and six months ended June 30, 2025 and June 30, 2024 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:
| Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Number of Contracts | Amortized Cost Basis | % of Total Class of Financing Receivable | Number of Contracts | Amortized Cost Basis | % of Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||
| Accruing Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Commercial and Industrial | % | % | ||||||||||||||||||||||||||||||||||||
| Residential Mortgages | % | % | ||||||||||||||||||||||||||||||||||||
| Other Consumer | % | % | ||||||||||||||||||||||||||||||||||||
| Construction | % | % | ||||||||||||||||||||||||||||||||||||
| Other | % | % | ||||||||||||||||||||||||||||||||||||
| Total Accruing Restructured Loans | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Nonaccrual Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Commercial and Industrial | % | % | ||||||||||||||||||||||||||||||||||||
| Residential Mortgages | % | % | ||||||||||||||||||||||||||||||||||||
| Other Consumer | % | % | ||||||||||||||||||||||||||||||||||||
| Construction | % | % | ||||||||||||||||||||||||||||||||||||
| Other | % | % | ||||||||||||||||||||||||||||||||||||
| Total Nonaccrual Restructured Loans | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Total Restructured Loans | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Number of Contracts | Amortized Cost Basis | % of Total Class of Financing Receivable | Number of Contracts | Amortized Cost Basis | % of Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||
| Accruing Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Commercial and Industrial | % | % | ||||||||||||||||||||||||||||||||||||
| Residential Mortgages | % | % | ||||||||||||||||||||||||||||||||||||
| Other Consumer | % | % | ||||||||||||||||||||||||||||||||||||
| Construction | % | % | ||||||||||||||||||||||||||||||||||||
| Other | % | % | ||||||||||||||||||||||||||||||||||||
| Total Accruing Restructured Loans | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Nonaccrual Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Commercial and Industrial | % | % | ||||||||||||||||||||||||||||||||||||
| Residential Mortgages | % | % | ||||||||||||||||||||||||||||||||||||
| Other Consumer | % | % | ||||||||||||||||||||||||||||||||||||
| Construction | % | % | ||||||||||||||||||||||||||||||||||||
| Other | % | % | ||||||||||||||||||||||||||||||||||||
| Total Nonaccrual Restructured Loans | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Total Restructured Loans | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
The Bank closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of loans that have been modified during the six months ended June 30, 2025 and 2024:
| As of June 30, 2025 | As of June 30, 2024 | |||||||||||||||||||||||||||||||||||||
| Payment Status (Amortized Cost Basis) | Payment Status (Amortized Cost Basis) | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Current | 30-89 Days Past Due | 90+ Days Past Due | Current | 30-89 Days Past Due | 90+ Days Past Due | ||||||||||||||||||||||||||||||||
| Accruing Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total Accruing Restructured Loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Nonaccrual Restructured Loans | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total Nonaccrual Restructured Loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Total Restructured Loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents the amortized cost of modified loans to borrowers experiencing financial difficulty by portfolio segment and type of modification during the periods presented.
| Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Payment Delay | Accelerated Maturity Date/Modified Rate | Term Extension/Payment Delay | Short-term Extension | Total | % of Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||
| Commercial and Industrial | % | |||||||||||||||||||||||||||||||||||||
| Residential Mortgages | % | |||||||||||||||||||||||||||||||||||||
| Other Consumer | % | |||||||||||||||||||||||||||||||||||||
| Construction | % | |||||||||||||||||||||||||||||||||||||
| Other | % | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Payment Delay | Accelerated Maturity Date/Modified Rate | Term Extension/Payment Delay | Short-term Extension | Total | % of Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||
| Commercial and Industrial | % | |||||||||||||||||||||||||||||||||||||
| Residential Mortgages | % | |||||||||||||||||||||||||||||||||||||
| Other Consumer | % | |||||||||||||||||||||||||||||||||||||
| Construction | % | |||||||||||||||||||||||||||||||||||||
| Other | % | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||
| Three and Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Term Extension/Payment Delay | Term Extension/Payment Delay/Interest Rate Reduction | Total | % of Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||
| Commercial and Industrial | % | |||||||||||||||||||||||||||||||||||||
| Residential Mortgages | % | |||||||||||||||||||||||||||||||||||||
| Other Consumer | % | |||||||||||||||||||||||||||||||||||||
| Construction | % | |||||||||||||||||||||||||||||||||||||
| Other | % | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||
The following table describes the effect of loan modifications made to borrowers experiencing financial difficulty during the periods presented:
| Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Weighted-Average Payment Delay | Weighted-Average Term Extension/Payment Delay | ||||||||||||||||||||||||||||||
| Commercial and Industrial | — | |||||||||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Weighted-Average Payment Delay | Weighted-Average Term Extension/Payment Delay | ||||||||||||||||||||||||||||||
| Commercial and Industrial | — | |||||||||||||||||||||||||||||||
| Residential Mortgages | — | — | ||||||||||||||||||||||||||||||
| Other Consumer | — | 0 | ||||||||||||||||||||||||||||||
| Construction | 0 | |||||||||||||||||||||||||||||||
| Other | — | |||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| Three and Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Weighted-Average Term Extension/Payment Delay | Weighted-Average Interest Rate Reduction | ||||||||||||||||||||||||||||||
| Commercial Real Estate | % | |||||||||||||||||||||||||||||||
| Other | % | |||||||||||||||||||||||||||||||
Commitments to lend additional funds on one restructured loan as of June 30, 2025 totaled $4.8 million. As of December 31, 2024, the Bank had no commitments to lend any additional funds on restructured loans. As of June 30, 2025 and June 30, 2024 the Bank had no loans that defaulted during the period and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification. For purposes of this disclosure, a default occurs when, within 12 months of the original modification, either a full or partial charge-off occurs or the loan becomes 90 days or more past due.
As of June 30, 2025 and December 31, 2024, the Company had $2.0 million and $0.4 million, respectively, of residential real estate in the process of foreclosure. We also had no
NOTE 5 - ALLOWANCE FOR CREDIT LOSSES
The Company maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Company’s financial instruments over the life of those instruments as of the balance sheet date. The Company develops and documents a systematic ACL methodology based on the following portfolio segments: 1) Commercial Real Estate (“CRE”), 2) Commercial and Industrial, (“C&I”), 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.
CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.
C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. These loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Company. The primary repayment sources for these loans include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impact each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio.
Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchased money mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.
Other Consumer loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Construction loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed.
Other loans, which includes the Company’s largest lending relationship, has unique risk attributes considered inconsistent with our current underwriting standards. The ACL reserve for the Other segment is based on models based on projected discounted cash flows and supportable loan amount and reserves will fluctuate based on expected cash flow changes and curtailments in the future. These inconsistencies may include, but are not limited to i) transaction and/or relationship sizes that exceed limits established in 2018, ii) overreliance on secondary, tertiary or guarantor cash flow, iii) land acquisition loans without a defined source of amortization, iv) loan structures on operating lines of credit dependent on the value of real estate rather than trading assets, and v) indirect liabilities of certain guarantees resulting from the nonpayment of financial obligations. Management continuously assesses underwriting standards, but significantly enhanced these standards in 2018.
Current Expected Credit Losses (“CECL”) Model
The CECL model is based on our best estimate of facts known with the most current information. Certain portions of the CECL model are inherently subjective and include, but are not limited to estimates with respect to: prepayment speeds, the timing of prepayments, potential losses given default, discount rates and the timing of future cash flows. Management utilizes widely published economic forecasts as the basis for the regression analysis used to estimate the probability of default in the baseline model. The peaks and troughs of these forecasts serve as guardrails for potential subjective adjustments. In addition to considering the outcomes based on the range of forecasts, management recognizes that the assumptions used in economic forecasts may not perfectly align with our market area, risk profile or unique attributes of our portfolio along with other important considerations. Severe changes in forecasts can also create significant variability and management must assess not only the absolute balance of reserves but also consider the appropriateness of the velocity of change. Therefore, management developed a framework to assess the tolerance and reasonableness of the CECL modeling process by challenging certain elements of the forecasts, when appropriate. These outcomes, known as “challenger models,” provide opportunities to examine and subjectively adjust the CECL model output and are designed to be counter cyclical, thereby reducing variability.
Credit Quality Indicators:
The Company’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.
The Company has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: 1) credit quality of the loan portfolio, 2) compliance with the loan policy, 3) adequacy of documentation in credit files and 4) validity of risk ratings. Since 2020 and continuing through 2025, the Company used a five step approach for loan review in the following categories:
•Individual reviews of the top twenty large loan relationships (“LLRs”), which are defined as any individual commercial loan or aggregate commercial relationship totaling $2.0 million or more;
•A sampling of small LLRs, which are defined as individual commercial loans or relationships with aggregate exposure of $2.0 million or more but not included in the top twenty LLRs;
•A sampling review of commercial loans up to $10 million in commitment; and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
•Focus reviews of micro commercial loans defined as $2.0 million or less, to evaluate emerging risk rather than individual loan risk. Focus reviews are performed annually on a rotational basis.
The Company’s internally assigned grades are as follows:
Pass – The Company uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality.
Special Mention – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.
Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss. The loan portfolio has not yet been significantly impacted by tariffs or other actual or potential changes in trade policies, but potential supply chain disruption and commodity price volatility present addition risk to the loan portfolio.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of June 30:
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | 2020 and Prior | Revolving | Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and Industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Residential Mortgages | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Construction | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Current YTD Period: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of December 31:
| Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 and Prior | Revolving | Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and Industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Residential Mortgages | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Construction | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Current YTD Period: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Gross Charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
The Bank’s largest credit relationship was nonperforming and rated as substandard at June 30, 2025 and December 31, 2024 with an aggregate principal balance of $235.5 million and $252.0 million at June 30, 2025 and December 31, 2024, respectively.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of June 30:
| (Dollars in Thousands) | 2025 | 2024 | 2023 | 2022 | 2021 | 2020 and Prior | Revolving | Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and Industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Residential Mortgages | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Construction | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of December 31:
| (Dollars in Thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 and Prior | Revolving | Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial and Industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Residential Mortgages | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Construction | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Other Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Age Analysis of Past-Due Loans by Class
The following tables include an aging analysis of the recorded investment of past-due portfolio loans at the dates presented:
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Current Loans | Loans 30-59 Days Past Due | Loans 60-89 Days Past Due | Total 30-89 Days Past Due | Nonaccrual Loans | Total Portfolio Loans | ||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Commercial & Industrial | ||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Current Loans | Loans 30-59 Days Past Due | Loans 60-89 Days Past Due | Total 30-89 Days Past Due | Nonaccrual Loans | Total Portfolio Loans | ||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Commercial & Industrial | ||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Loans past due 90 days or more and still accruing are automatically transferred to nonaccrual status and were zero
There were no
The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment of loan at the dates presented. There were no loans at the dates presented that were past due more than 90 days and still accruing.
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Nonaccrual without an Allowance for Credit Losses | Nonaccrual with an Allowance for Credit Losses | Total Nonaccrual Loans | Nonaccrual without an Allowance for Credit Losses | Nonaccrual with an Allowance for Credit Losses | Total Nonaccrual Loans | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgages | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
A loan is considered nonperforming when we transfer the interest methodology from accrual to nonaccrual. Nonaccrual status recognizes that the collection in full of both principal and interest is unlikely. Without applying additional scrutiny at a granular level, management believes delinquency to be a leading indicator with respect to the likelihood of collection in full of both principal and interest. Accordingly, management automatically transfers loans to nonaccrual status if they are 90 or more days’ delinquent. Management reserves the right to exercise discretion at the individual loan level. For example, we may elect to transfer a loan to nonaccrual regardless of the delinquency status if we believe the collection in full of both principal and interest to be unlikely. We may also elect to retain a loan that is 90 or more days’ delinquent in accrual status if we believe the loan is well secured and in the process of collection. Nonaccrual loans and loans that have been characterized as restructured
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
loans may be individually evaluated for credit losses in the Allowance for Credit Losses model if the loan commitment is $1.0 million or greater and/or based on management’s discretion, unless we elect to maintain the loan in the general pool. During the three and six months ended June 30, 2025 and June 30, 2024, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans.
The following table presents the amortized cost basis of individually evaluated loans at the dates presented. Changes in the fair value of the types of collateral and discounted cash flow modeling for individually evaluated loans are reported in the (recovery) provision for credit losses on loans in the period of change.
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Collateral Type | Warehouse | Equipment | Single Family | Discounted Cash Flow | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Fair Value - Collateral | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential Mortgage | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Collateral Type | Equipment | Single Family | Discounted Cash Flow | Total | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Fair Value - Collateral | |||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Residential Mortgage | ||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
The following tables presents activity in the ACL for the periods presented:
| Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgages | Other Consumer | Construction | Other | Total | |||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses on Loans: | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Period | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Provision (Recovery) for Credit Losses on Loans | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||
| Net Recoveries / (Charge-offs) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance, End of Period | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgages | Other Consumer | Construction | Other | Total | |||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses on Loans: | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Year | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Provision (Recovery) for Credit Losses on Loans | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||
| Net (Charge-offs) / Recoveries | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Balance, End of Period | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| Three Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgages | Other Consumer | Construction | Other | Total | |||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses on Loans: | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Period | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Provision (Recovery) for Credit Losses on Loans | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||
| Net Recoveries / (Charge-offs) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance, End of Period | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgages | Other Consumer | Construction | Other | Total | |||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses on Loans: | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, Beginning of Year | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| (Recovery) Provision for Credit Losses on Loans | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||
| Net Charge-offs | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, End of Period | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
NOTE 6 - FAIR VALUE MEASUREMENTS
The Company uses fair value measurements when recording and disclosing certain financial assets and liabilities. Securities available-for-sale, equity securities, loans and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held-for-sale, individually evaluated loans, OREO, and certain other assets.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.
The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. We recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.
The following are descriptions of the valuation methodologies that the Company uses for financial instruments recorded at fair value on either a recurring or nonrecurring basis.
Recurring Basis
Securities Available-for-Sale: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.
Equity Securities: The fair values of equity securities are determined by obtaining quoted prices on nationally recognized or foreign securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. As of June 30, 2025, Level 1 fair values are available for each of the Company’s equity securities.
Derivative Financial Instruments and Hedging Activities: The Company uses derivative instruments such as interest rate swaps for commercial loans with our customers. Upon entering into swaps with the borrower, the Company entered into offsetting positions with counterparties to minimize risk to the Company. The back-to-back swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with borrower and counterparties and their ability to meet contractual terms. We calculate the fair value for derivatives using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Each valuation considers the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, such as interest rate curves and implied volatilities. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty, and, therefore, has no risk. Accordingly, interest rate swaps for commercial loans are classified as Level 2.
The Company previously used pay-fixed/receive-floating interest rate swaps (the “Pay-Fixed Swap Agreements”). The Pay-Fixed Swap Agreements were designated as fair value hedges in order to hedge the risk of changes in the fair value of the fixed rate loans included in the amortizing single family mortgages and CRE loans. These fair value hedges were utilized to convert the hedged loans from a fixed rate to a synthetic floating Secured Overnight Financing Rate (“SOFR”). As long as a hedging instrument was designated and the results of the effectiveness testing support that the instrument qualified for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument were accounted for in net interest income. The fair value of the hedge was recorded in either other assets or in other liabilities depending on the position of the hedge, and the offset was recorded in loans. This was the case whether or not economic mismatches existed in the hedging relationship. As a result, there was no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses was recognized in the period in which the hedged transactions had an impact to earnings. As of June 30, 2025, the Company had since terminated all its Pay-Fixed Swap Agreements.
The Company also enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans to be held-for-sale are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Nonrecurring Basis
Individually Evaluated Loans: Individually evaluated loans with commitments of $1.0 million or greater and/or based on management’s discretion are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent. All loans with a specific reserve are classified as Level 3 in the fair value hierarchy.
Fair value for individually evaluated loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Subsequent to the initial impairment date, existing individually evaluated loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For individually evaluated loans, the first stage of our impairment analysis involves inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will order a new appraisal.
OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets marked to fair value are classified as Level 3. At June 30, 2025 OREO assets were in compliance with the OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third-party real estate brokers.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at the dates presented:
| June 30, 2025 | ||||||||||||||||||||||||||
| (Dollars in Thousands) | Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Securities Available-for-Sale: | ||||||||||||||||||||||||||
| U.S. Government Agency Securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Residential Mortgage-Backed Securities | ||||||||||||||||||||||||||
| Commercial Mortgage-Backed Securities | ||||||||||||||||||||||||||
| Other Commercial Mortgage-Backed Securities | ||||||||||||||||||||||||||
| Asset Backed Securities | ||||||||||||||||||||||||||
| Collateralized Mortgage Obligations | ||||||||||||||||||||||||||
| States and Political Subdivisions | ||||||||||||||||||||||||||
| Corporate Notes | ||||||||||||||||||||||||||
| Total Securities Available-for-Sale | ||||||||||||||||||||||||||
| Equity Securities | ||||||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| (Dollars in Thousands) | Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Securities Available-for-Sale: | ||||||||||||||||||||||||||
| U.S. Government Agency Securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Residential Mortgage-Backed Securities | ||||||||||||||||||||||||||
| Commercial Mortgage-Backed Securities | ||||||||||||||||||||||||||
| Other Commercial Mortgage-Backed Securities | ||||||||||||||||||||||||||
| Asset Backed Securities | ||||||||||||||||||||||||||
| Collateralized Mortgage Obligations | ||||||||||||||||||||||||||
| States and Political Subdivisions | ||||||||||||||||||||||||||
| Corporate Notes | ||||||||||||||||||||||||||
| Total Securities Available-for-Sale | ||||||||||||||||||||||||||
| Equity Securities | ||||||||||||||||||||||||||
| Portfolio Loan Pool Subject to Fair Value Hedge | ||||||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
We have invested in subordinated debt of other financial institutions. We have two securities totaling $7.9 million that are considered to be Level 3 securities at June 30, 2025 and two totaling $7.8 million at December 31, 2024, attributable to the calculated change in fair value of $0.1 million. The Level 3 fair value is benchmarked to other securities that have observable market values in Level 2 using comparable financial ratio analysis specific to the industry in which the underlying company operates. The underwriting includes considerations of capital adequacy, asset quality trends, management’s ability to continue efficient and profitable operations, the institution’s core earnings ability, liquidity management platform and current on and off-balance sheet interest rate risk exposures.
Financial assets measured at fair value on a nonrecurring basis at the dates presented are summarized below:
| June 30, 2025 | ||||||||||||||||||||||||||
| (Dollars in Thousands) | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||||||||
| OREO | $ | $ | $ | $ | ||||||||||||||||||||||
| Individually Evaluated Loans | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| (Dollars in Thousands) | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||||||||
| OREO | $ | $ | $ | $ | ||||||||||||||||||||||
| Individually Evaluated Loans | $ | $ | $ | $ | ||||||||||||||||||||||
The Company had one C&I individually evaluated loan totaling $0.5 million and $0.6 million measured at fair value on a nonrecurring basis as of June 30, 2025 and at December 31, 2024, respectively. The Company’s largest credit relationship is classified as an individually evaluated loan with a net carrying amount totaling $211.5 million at June 30, 2025 and $221.7 million at December 31, 2024. The Company utilized various cash flow and discounting assumptions in the alternative modeling, instead of fair value, which resulted in a valuation allowance of $24.0 million at June 30, 2025 and $30.3 million at December 31, 2024. When evaluating the net carrying value of this credit relationship at June 30, 2025, the Company utilized discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.
OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $1.7 million as of June 30, 2025, compared with $0.7 million at December 31, 2024. This increase was primarily due to three closed branches being transferred to OREO, partially offset by the sale of one of these closed branches during the second quarter of 2025. The Company had $0.4 million and $0.5 million write-downs recorded on OREO for the three and six months ended June 30, 2025 and had zero
The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis at the dates presented:
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Fair Value | Valuation Technique | Unobservable Inputs | Weighted Range | Average | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Individually Evaluated Loans | $ | Appraisals | Estimated Selling Costs | % | ||||||||||||||||||||||||||||||||||
| Total Individually Evaluated Loans | $ | |||||||||||||||||||||||||||||||||||||
| OREO | $ | Internal Valuations | Estimated Selling Costs | % | ||||||||||||||||||||||||||||||||||
| OREO | Discounted Internal Valuations | Management's Subject Discount | — | % | ||||||||||||||||||||||||||||||||||
| Total OREO | $ | |||||||||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Fair Value | Valuation Technique | Unobservable Inputs | Weighted Range | Average | |||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Individually Evaluated Loans | $ | Discounted Appraisals | Estimated Selling Costs | % | ||||||||||||||||||||||||||||||||||
| Total Individually Evaluated Loans | $ | |||||||||||||||||||||||||||||||||||||
| OREO | $ | Internal Valuations | Estimated Selling Costs | % | ||||||||||||||||||||||||||||||||||
| OREO | Discounted Internal Valuations | Management’s Subject Discount | — | % | ||||||||||||||||||||||||||||||||||
| Total OREO | $ | |||||||||||||||||||||||||||||||||||||
A baseline discount rate has been established for impairment measurement. This baseline discount rate was back tested against historical OREO sales, and therefore, represents an average recovery rate based on the transaction sizes and asset types in the population examined. Management considers the unique attributes and characteristics of each specific individually evaluated loan and may use judgment to adjust the baseline discount rate when appropriate.
The carrying values and estimated fair values of our financial instruments at June 30, 2025 and December 31, 2024 are presented in the following tables. Fair values for June 30, 2025 and December 31, 2024 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”
GAAP requires disclosure of fair value information about financial instruments carried at book value on the Consolidated Balance Sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
| Fair Value Measurements at June 30, 2025 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Securities Available-for-Sale | ||||||||||||||||||||||||||||||||
| Equity Securities | ||||||||||||||||||||||||||||||||
| Loans Held-for-Sale | ||||||||||||||||||||||||||||||||
| Portfolio Loans, net | ||||||||||||||||||||||||||||||||
| Federal Home Loan Bank Stock, at Cost | NA | NA | ||||||||||||||||||||||||||||||
| Other Assets- Interest Rate Derivatives | ||||||||||||||||||||||||||||||||
| Accrued Interest Receivable | ||||||||||||||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Other Liabilities- Interest Rate Derivatives | ||||||||||||||||||||||||||||||||
| FHLB Borrowings | ||||||||||||||||||||||||||||||||
| Accrued Interest Payable | ||||||||||||||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| Fair Value Measurements at December 31, 2024 | ||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Securities Available-for-Sale | ||||||||||||||||||||||||||||||||
| Equity Securities | ||||||||||||||||||||||||||||||||
| Portfolio Loans, net | ||||||||||||||||||||||||||||||||
| Federal Home Loan Bank Stock, at Cost | NA | NA | ||||||||||||||||||||||||||||||
| Other Assets- Interest Rate Derivatives | ||||||||||||||||||||||||||||||||
| Accrued Interest Receivable | ||||||||||||||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Other Liabilities- Interest Rate Derivatives | ||||||||||||||||||||||||||||||||
| FHLB Borrowings | ||||||||||||||||||||||||||||||||
| Accrued Interest Payable | ||||||||||||||||||||||||||||||||
NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the Consolidated Balance Sheets at fair value. Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution, or counterparty. In connection with each transaction, the Company originates a floating rate loan to the customer at a notional amount. In turn, the customer contracts with the counterparty to swap the stream of cash flows associated with the floating interest rate loan with the Company for a stream of fixed interest rate cash flows based on the same notional amount as the Company’s loan. The transaction allows the customer to effectively convert a variable rate loan to a fixed rate loan with the Company receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.
The Company also has the ability to execute on balance sheet hedges. On July 11, 2024, the Company entered into two related Pay-Fixed Swap Agreements for a combined notional amount of $300.0 million. The Pay-Fixed Swap Agreements were designated as fair value hedges in order to hedge the risk of changes in the fair value of the fixed rate loans included in amortizing single family mortgages and CRE loans. These fair value hedges were utilized to convert the hedged loans from a fixed rate to a synthetic floating SOFR. On December 19, 2024, the Company terminated the first Pay-Fixed Swap Agreement with an original notional value of $175.0 million that would have matured on July 11, 2029. Negative interest income adjustments related to the termination of this hedge was $154 thousand. On January 13, 2025, the Company terminated the remaining Pay-Fixed Swap Agreement with an original notional value of $125.0 million that would have matured on July 11, 2027. The negative interest income adjustment for the termination of this hedge was $110 thousand. While these two Pay-Fixed Swap Agreements were effective, the Company recognized interest income of $1.2 million related to these agreements.
As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument are accounted for in net interest income. The fair value of the hedge is recorded in either other assets or in other liabilities depending on the position of the hedge, and the offset is recorded in loans. This is the case whether or not economic mismatches exist in the hedging relationship. As a result, there is no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses is recognized in the period in which the hedged transactions impact earnings.
Pursuant to agreements with various financial institutions, the Company may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon current positions and related future collateral requirements relating to them, management believes any effect on our cash flow or liquidity position to be immaterial.
Derivatives contain an element of credit risk, the possibility that the Company will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
institutions may be executed only with counterparties approved by the Asset and Liability Committee (“ALCO”) and all derivatives with customers are approved by a team of members from senior management who have been trained to understand the risk associated with interest rate swaps and have past industry experience. Interest rate swaps are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings in the Consolidated Statements of Income.
The following table indicates the amounts representing the fair value of derivative assets and derivative liabilities at the dates presented:
| Fair Values of Derivative Instruments Asset Derivatives (Included in Other Assets) | ||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Number of Transactions | Notional Amount | Fair Value | Number of Transactions | Notional Amount | Fair Value | ||||||||||||||||||||||||||||||||
| Derivatives not Designated as Hedging Instruments | ||||||||||||||||||||||||||||||||||||||
| Interest Rate Lock Commitments – Mortgage Loans | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Interest Rate Swap Contracts – Commercial Loans | ||||||||||||||||||||||||||||||||||||||
| Total Derivatives not Designated as Hedging Instruments | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Total Derivatives | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Fair Values of Derivative Instruments Liability Derivatives (Included in Other Liabilities) | ||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Number of Transactions | Notional Amount | Fair Value | Number of Transactions | Notional Amount | Fair Value | ||||||||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments | ||||||||||||||||||||||||||||||||||||||
| Interest Rate Swaps - Balance Sheet Hedge | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Total Derivatives Designated as Hedging Instruments | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Derivatives not Designated as Hedging Instruments | ||||||||||||||||||||||||||||||||||||||
| Forward Sale Contracts – Mortgage Loans | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Interest Rate Swap Contracts – Commercial Loans | ||||||||||||||||||||||||||||||||||||||
| Total Derivatives not Designated as Hedging Instruments | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Total Derivatives | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
The following table indicates the (loss) income recognized within “other noninterest income” in the Consolidated Statements of Income for derivatives as of the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in Thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments | ||||||||||||||||||||||||||
| Interest Rate Swaps - Balance Sheet Hedge | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Total Derivative Loss Designated as Hedging Instruments | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Derivatives not Designated as Hedging Instruments | ||||||||||||||||||||||||||
| Interest Rate Lock Commitments – Mortgage Loans | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Forward Sale Contracts – Mortgage Loans | ( | ( | ||||||||||||||||||||||||
| Interest Rate Swap Contracts – Commercial Loans | ( | ( | ||||||||||||||||||||||||
| Total Derivative (Loss) Income not Designated as Hedging Instruments | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Net Derivative (Loss) Income | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.
The following table indicates the gross amounts of derivative assets and derivative liabilities designated as hedging instruments and not designated as hedging instruments, the amounts offset and the carrying values included in the Consolidated Balance Sheets at the dates presented:
| Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||
| (Included in Other Assets) | (Included in Other Liabilities) | |||||||||||||||||||||||||
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments | ||||||||||||||||||||||||||
| Gross Amounts Recognized | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross Amounts Offset | ||||||||||||||||||||||||||
| Net Amounts Presented in the Consolidated Balance Sheets | $ | $ | $ | $ | ||||||||||||||||||||||
| Derivatives not Designated as Hedging Instruments | ||||||||||||||||||||||||||
| Gross Amounts Recognized | $ | $ | $ | $ | ||||||||||||||||||||||
| Gross Amounts Offset | ||||||||||||||||||||||||||
| Net Amounts Presented in the Consolidated Balance Sheets | $ | $ | $ | $ | ||||||||||||||||||||||
| Net Amount | $ | $ | $ | $ | ||||||||||||||||||||||
NOTE 8 – DEPOSITS
The following table presents the composition of deposits at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Noninterest-Bearing Demand | $ | $ | ||||||||||||
| Interest-Bearing Demand | ||||||||||||||
| Money Market | ||||||||||||||
| Savings | ||||||||||||||
| Certificates of Deposits | ||||||||||||||
| Total | $ | $ | ||||||||||||
All deposit accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum amount allowed by law. Certificates of deposits that exceed the FDIC Insurance limit of $250,000 at June 30, 2025 and December 31, 2024 were $300.2 million and $297.9 million, respectively.
At June 30, 2025 and December 31, 2024, total brokered deposits (excluding the Certificate of Deposit Account Registry Services (“CDARS”) and ICS two-way) were $196.1
Certificates of Deposit maturing as of the date presented:
| (Dollars in Thousands) | June 30, 2025 | |||||||
| 3 Months or Less | $ | |||||||
| Over 3 Months through 12 Months | ||||||||
| Over 1 Year Through 3 Years | ||||||||
| Over 3 Years | ||||||||
| Total | $ | |||||||
Overdrafts reclassified to loans were $0.3
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 9 – FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED
Borrowings serve as an additional source of liquidity for the Company. The Company had $113.5 million of Federal Home Loan Bank (“FHLB”) borrowings at June 30, 2025 and $70.0 million at December 31, 2024. The increase of $43.5 million is due to additional FHLB borrowings to fund loan growth. FHLB borrowings are fixed and variable rate advances for various terms and are secured by a blanket lien on select residential mortgages, select multifamily loans, and select commercial real estate loans. Variable rate FHLB borrowings were 60.4 % and 0.0 % of total borrowings at June 30, 2025 or December 31, 2024, respectively. The FHLB charges prepayment fees for advances that are repaid before maturity, which is the net present value between current market rates and the fixed rate on each borrowing. Total loans pledged as collateral were $1.6 no
At June 30, 2025, funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25 % 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 $732.0 million. The Company had the capacity to borrow up to an additional $735.3 million from the FHLB at December 31, 2024. At June 30, 2025 and at December 31, 2024, the Company had $30.0 three 45.0 one
The following table represents the balance of FHLB borrowings, the weighted average interest rate and the borrowing availability at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||||||||
| FHLB Borrowings | $ | $ | ||||||||||||||||||
| Weighted Average Interest Rate | % | % | ||||||||||||||||||
| FHLB Availability | $ | $ | ||||||||||||||||||
The following table represents the balance of federal funds purchased, the weighted average interest rate and the borrowing availability at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||||||||
| Federal Funds Purchased | $ | $ | ||||||||||||||||||
| Weighted Average Interest Rate | % | % | ||||||||||||||||||
| Federal Funds Purchased Availability | $ | $ | ||||||||||||||||||
Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to June 30, 2025 and thereafter are as follows:
| (Dollars in Thousands) | Balance | Weighted Average Rate | ||||||||||||
| 1 year | $ | |||||||||||||
| 2 years | ||||||||||||||
| 3 years | ||||||||||||||
| 4 years | ||||||||||||||
| 5 years | ||||||||||||||
| Thereafter | ||||||||||||||
| Total FHLB Borrowings | $ | |||||||||||||
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Commitments to extend credit, which amounted to $729.7 million at June 30, 2025 and $833.6 million at December 31, 2024, represent agreements to lend to customers with fixed expiration dates or other termination clauses. The Company provides lines of credit to our clients to finance the completion of construction projects and revolving lines of credit to operating companies to
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
finance their working capital needs. Lines of credit for construction projects represented $394.2 million, or 54.0 %, and $445.3 million, or 53.4 %, of the commitments to extend credit at June 30, 2025 and December 31, 2024, respectively. Standby letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements. The Company had outstanding letters of credit totaling $15.3 million at June 30, 2025 and $16.7 million at December 31, 2024.
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Commitments to Extend Credit | $ | $ | ||||||||||||
| Standby and Performance Letter of Credit | ||||||||||||||
| Total | $ | $ | ||||||||||||
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and unconditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.
Life-of-Loss Reserve on Unfunded Loan Commitments
We maintain a life-of-loss reserve on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The life-of-loss reserve is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a draw-down on the commitment. The life-of-loan reserve for unfunded loan commitments is included on our Consolidated Balance Sheets.
The following table presents activity in the life-of-loss reserve for unfunded loan commitments as of and for the dates presented:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in Thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Life-of-Loss Reserve on Unfunded Loan Commitments | ||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Recovery for Unfunded Commitments | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||||||||||||
Amounts are added or subtracted to the recovery for unfunded commitments through a credit or charge to current earnings in the recovery for unfunded commitments. Recoveries of $335 thousand and $449 thousand were recorded for the three and six months ended June 30, 2025, respectively, for unfunded commitments, which were decreases of $99 thousand and $170 thousand, respectively, compared to the same periods in 2024.
Legal Proceedings
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 11 – TAX EFFECTS ON OTHER COMPREHENSIVE INCOME
The following table presents the change in components of other comprehensive income for the periods presented, net of tax effects:
| Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Pre-Tax Amount | Tax Expense | Net of Tax Amount | Pre-Tax Amount | Tax Expense | Net of Tax Amount | ||||||||||||||||||||||||||||||||
| Net Unrealized Gains Arising during the Period | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Other Comprehensive Income | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Pre-Tax Amount | Tax (Expense) Benefit | Net of Tax Amount | Pre-Tax Amount | Tax (Expense) Benefit | Net of Tax Amount | ||||||||||||||||||||||||||||||||
| Net Unrealized Gains Arising during the Period | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Reclassification Adjustment for Gains included in Net Income | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other Comprehensive Income | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
NOTE 12 - PROVISION FOR INCO ME TAXES
The following is a reconciliation of the differences between income tax provision and the amount computed by applying the statutory federal income tax rate to income before taxes for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| Federal Income Tax at Statutory Rate | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| State Income Tax, net of Federal Benefit | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax-exempt Interest, net of Disallowance | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Federal Tax Credits, net of Basis Reduction | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Tax Credit Investment Amortization, net of Federal Benefit | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in Valuation Allowance | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Income from Bank Owned Life Insurance | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Interim Period Effective Tax Rate Adjustment | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Provision and Effective Income Tax Rate | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The Company ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest, tax-exempt income from bank-owned life insurance, and tax benefits resulting from certain partnership investments.
During the six months ended June 30, 2025, tax-exempt bank owned life insurance income increased primarily due to a $1.9 million tax-free bank owned life insurance (“BOLI”) death benefit recorded in the first quarter of 2025.
The Company elected to adopt the proportional amortization method of accounting for all qualifying equity investments within the historic tax credits (“HTC”) program. The Company makes equity investments as a limited partner in various partnerships that sponsor HTC as a strategic tax initiative designed to receive income tax credits and other income tax benefits, such as deductible flow-through losses. As of June 30, 2025 and December 31, 2024, the Company recognized $0.8 million and $1.1 million, respectively, in HTC equity investments recorded as a component of other assets on the Consolidated Balance Sheets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Company records income tax credits and other income tax benefits received from its HTC investments as a component of the income tax provision on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows.
Investments accounted for using the proportional amortization method are amortized and recorded as a component of the income tax provision on the Consolidated Statements of Income.
The Company records non-income-tax-related activity and other returns received from its HTC investments as a component of other noninterest income on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows. As of June 30, 2025 and June 30, 2024, the Company has not recognized any non-income-tax-related activity from its HTC investments.
NOTE 13 – STOCK REPURCHASE PLAN
On May 20, 2025, the Company announced that its Board authorized a repurchase program to purchase up to $20.0 million of the Company’s common stock in the aggregate through May 14, 2026. The program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the program, and the number of shares actually purchased under the program, will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements. The repurchase program may be modified or terminated by the Board at any time. The repurchase program does not obligate the Company to purchase any particular number of shares.
During the six months ended June 30, 2025, the Company repurchased 547,332 shares of its common stock at a total cost of $9.1 million and an weighted average cost per share of $16.70 .
NOTE 14 - SEGMENT REPORTING
The Company is a holding company and the parent company to the Bank and conducts its business solely through the Bank. As a state-chartered commercial bank, the Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to customers. The Company operates through a single operating and reporting segment, Community Banking that offers services which include accepting a full range of deposit products and originating commercial and consumer loans. All financial information is reported on a consolidated basis and is evaluated regularly by the Chief Executive Officer, the Company’s Chief Operating Decision Maker (“CODM”) in allocating resources and assessing performance. The CODM uses the consolidated net income to benchmark the Company against it competitors. The benchmarking analysis in conjunction with monitoring of actual to budget results are used in assessment of performance and in establishing compensation. Loans, investments and deposits provide the revenues, net in the community bank’s operation. Interest expense, (recovery) provision for credit losses and salaries and benefits provide the significant expenses in the community bank’s operation. The results of operations for the Company’s single reporting segment are shown within the Consolidated Statements of Income and Consolidated Balance Sheets.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Carter Bankshares, Inc., its operations, and its present business environment, and its consolidated results of operations and financial condition and highlights material changes in its financial condition and results of operations as of and for the three and six month periods ended June 30, 2025 and June 30, 2024. The MD&A is provided as a supplement to, and should be read in conjunction with, The Company’s Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this Quarterly Report on Form 10-Q. Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods. The MD&A includes the following sections:
•Important Note Regarding Forward-Looking Statements
•Explanation of Use of Non-GAAP Financial Measures
•Critical Accounting Estimates
•Overview and Strategy
•Results of Operations and Financial Condition
◦Earnings Summary
◦Financial Condition
◦Liquidity and Capital Resources
◦Contractual Obligations
◦Off-Balance Sheet Arrangements
Important Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include statements relating to our financial condition, market conditions, results of operations, plans, including our strategic plan, brand strategy, and guiding principles and the anticipated results of the foregoing, 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. 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:
•market interest rates and the impacts of market interest rates on economic conditions, customer behavior, and the Company’s net interest margin, net interest income and its deposit, loan and securities portfolios;
•inflation, market and monetary fluctuations;
•changes in trade, tariffs, monetary and fiscal policies and laws of the U.S. government and the related impacts on economic conditions and financial markets, and changes in policies of the Federal Reserve, FDIC and U.S. Department of the Treasury;
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
•changes in accounting policies, practices, or guidance, for example, our adoption of Current Expected Credit Losses (“CECL”) methodology, including potential volatility in the Company’s operating results due to application of the CECL methodology;
•cyber-security threats, attacks or events;
•rapid technological developments and changes;
•our ability to resolve our nonperforming assets and our ability to secure collateral on loans that have entered nonaccrual status due to loan maturities and failure to pay in full;
•changes in the Company’s liquidity and capital positions;
•concentrations of loans secured by real estate, particularly CRE loans, and the potential impacts of changes in market conditions on the value of real estate collateral;
•increased delinquency and foreclosure rates on CRE loans;
•an insufficient allowance for credit losses;
•the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other geopolitical conflicts or public health events, and of any governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth;
•a change in spreads on interest-earning assets and interest-bearing liabilities;
•regulatory supervision and oversight, including our relationship with regulators and any actions that may be initiated by our regulators;
•legislation affecting the financial services industry as a whole, and the Company and the Bank, in particular;
•the outcome of pending and future litigation and/or governmental proceedings;
•increasing price and product/service competition;
•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;
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
•general economic or business conditions, including unemployment levels, supply chain disruptions and slowdowns in economic growth;
•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.
Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and any of the Company’s subsequent filings with the Securities and Exchange Commission (“SEC”). 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.
Explanation of Use of Non-GAAP Financial Measures
In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), management uses, and this quarterly report contains or references, interest and dividend income, yield on interest earning assets, net interest income and net interest margin on a fully taxable equivalent, (“FTE”) basis, which are non-GAAP financial measures. Management believes these measures provide information useful to investors in understanding the Company’s underlying business, operational performance and performance trends as these measures facilitate comparisons with the performance of other companies in the financial services industry. The Company believes the presentation of interest and dividend income, yield on interest earning assets, net interest income and net interest margin on an FTE basis ensures the comparability of interest and dividend income, yield on interest earning assets, net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest and dividend income (GAAP) per the Consolidated Statements of Income is reconciled to interest and dividend income adjusted on an FTE basis, yield on interest earning assets (GAAP) is reconciled to yield on interest earning assets adjusted on an FTE basis, net interest income (GAAP) is reconciled to net interest income adjusted on an FTE basis and net interest margin (GAAP) is reconciled to net interest margin adjusted on an FTE basis in the "Results of Operations and Financial Condition - Net Interest Income" section of this MD&A.
Although management believes that these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered 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 which 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Critical Accounting Estimates
The Company’s critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2025 have remained unchanged from the disclosures presented under the heading “Critical Accounting Estimates” in its Annual Report on Form 10-K for the year ended December 31, 2024 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are incorporated herein by reference.
Overview and Strategy
Carter Bankshares, Inc. (the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.8 billion at June 30, 2025. The Company is the parent company of its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). The Bank is a Federal Deposit Insurance Corporation (“FDIC”) insured, Virginia state-chartered bank, which operates 64 branches in Virginia and North Carolina. The Company provides a full range of financial services with retail, and commercial banking products and insurance. The Company’s common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE”.
At the close of business on May 23, 2025, the Company completed the acquisition of two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston-Salem, North Carolina, from First Reliance Bank (the “Branch Purchase”). In the Branch Purchase, the Bank acquired $55.9 million of deposits, as well as cash, personal property and other fixed assets related to the branch locations purchased, and welcomed 10 new associates to its team. The Branch Purchase did not include any loans.
The Company earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. The Company incurs expenses for the cost of deposits, borrowings, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, FDIC expense, occupancy and income tax provision.
Part of the Company’s current three-year strategic plan is to focus on refining and enhancing its brand image and position in the markets it serves. With this brand strategy, the Company has embarked on a multi-year implementation plan to create a brand tailored to the needs of its critical growth audiences, with a focus on innovating brand experiences to exceed expectations and to build a brand that stands apart. This means a commitment to aligning processes, operations and systems around the Company’s brand while introducing new products and services, so that in time the Company can increase its brand awareness in the communities it serves. To strengthen and further shape the brand and culture of the Company, a new set of guiding principles was introduced to associates in June 2023. The guiding principles include a new purpose statement: To create opportunities for more people and businesses to prosper; supported by our new set of core values: Build Relationships, Earn Trust and Take Ownership. We believe these new guiding principles will help create alignment to support future growth by empowering our associates and igniting a passion for the Company. On October 30, 2024, the Company unveiled the new brand identity centered entirely around the people who matter most: customers and associates of the Bank and the communities it serves to help deliver on its promise of helping people experience a life lived full.
The Company’s goal is to shift from restructuring the balance sheet to pursuing a prudent growth strategy when appropriate. We believe this strategy will be primarily targeted at organic growth, but will also consider opportunistic acquisitions that fit this strategic vision. We believe that the Bank’s strong capital and liquidity positions support this strategy. In addition to loan and deposit growth, the Company will seek to increase fee income while closely monitoring operating expenses.
The Company is focused on executing this strategy to successfully support the new brand and grow its business in its current markets as well as any new markets it may enter. As part of executing this strategy, the Company continues to dedicate significant resources to the resolution of the Company’s nonaccrual loans, the significant majority of which are related to a single large credit relationship that the Company placed on nonaccrual status in the second quarter of 2023, in a manner that best protects the Company, the Bank and shareholders.
The Company’s financial results continue to be significantly impacted by the single large credit relationship that the Company placed on nonaccrual status during the second quarter of 2023, which has an aggregate principal balance of $235.5 million as of June 30, 2025. Since placement of these loans, now reduced to judgements, on nonaccrual status during the second quarter of
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
2023, interest income has been negatively impacted by $6.7 million and $9.1 million during the three months ended June 30, 2025 and 2024, respectively, and by $13.5 million and $18.4 million during the six months ended June 30, 2025 and 2024, respectively, or by $78.6 million in the aggregate.
Results of Operations and Financial Condition
Earnings Summary
Highlights for the Three Months Ended June 30, 2025
•Net interest income increased $4.3 million, or 15.2%, to $32.4 million for the three months ended June 30, 2025 compared to $28.1 million for the same period in 2024;
•The (recovery) provision for credit losses was a recovery of $2.3 million for the three months ended June 30, 2025, compared to a provision for credit losses of $0.5 million during the same period in 2024;
•Total noninterest income decreased $0.6 million to $4.9 million for the three months ended June 30, 2025 compared to the same period in 2024;
•Total noninterest expense increased $1.9 million to $29.3 million for the three months ended June 30, 2025 compared to the same period in 2024; and
•Provision for income taxes increased $1.0 million to $2.1 million for the three months ended June 30, 2025 compared to the same period in 2024.
Highlights for the Six Months Ended June 30, 2025
◦Net interest income increased $6.0 million, or 10.6%, to $62.5 million for the six months ended June 30, 2025 compared to $56.5 million for the same period in 2024;
◦The (recovery) provision for credit losses was a recovery of $4.4 million for the six months ended June 30, 2025, compared to a provision for credit losses of $0.5 million for the the same period in 2024;
◦Total noninterest income increased $1.2 million to $11.8 million for the six months ended June 30, 2025 compared to the same period in 2024;
◦Total noninterest expense increased $3.6 million to $57.3 million for the six months ended June 30, 2025 compared to the same period in 2024; and
◦Provision for income taxes increased $1.8 million to $4.3 million for the six months ended June 30, 2025 compared to the same period in 2024.
Balance Sheet Highlights (period-end balances, June 30, 2025 compared to December 31, 2024)
•The available-for-sale securities portfolio increased $36.8 million and is currently 15.8% of total assets compared to 15.4% of total assets;
•Total portfolio loans increased $122.3 million, or 6.8%, on an annualized basis, due to loan growth during the six months ended June 30, 2025;
•The portfolio loans to deposit ratio was 88.7%, compared to 87.3%;
•At June 30, 2025, nonperforming loans decreased by $8.8 million to $250.6 million compared to December 31, 2024. Nonperforming loans as a percentage of total portfolio loans were 6.69% compared to 7.15%.;
•The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 1.90% compared to 2.09%. The ACL on portfolio loans totaled $71.0 million at June 30, 2025, compared to $75.6 million at December 31, 2024;
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
•Total deposits increased $68.8 million, or 3.3%, on an annualized basis, to $4.2 billion at June 30, 2025, compared to December 31, 2024; and
•FHLB borrowings increased $43.5 million to $113.5 million at June 30, 2025 compared to $70.0 million at December 31, 2024.
The Company reported net income of $8.5 million, or $0.37 diluted earnings per share, and $17.5 million, or $0.76 diluted earnings per share for the three and six months ended June 30, 2025, respectively, compared to net income of $4.8 million, or $0.21 diluted earnings per share, and $10.6 million, or $0.46 diluted earnings per share, for the three and six months ended June 30, 2024, respectively.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| PERFORMANCE RATIOS | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Return on Average Assets | 0.72 | % | 0.43 | % | 0.75 | % | 0.47 | % | ||||||||||||||||||
| Return on Average Shareholders' Equity | 8.45 | % | 5.40 | % | 8.85 | % | 5.99 | % | ||||||||||||||||||
| Portfolio Loans to Deposit Ratio | 88.75 | % | 91.45 | % | 88.75 | % | 91.45 | % | ||||||||||||||||||
| Allowance for Credit Losses to Total Portfolio Loans | 1.90 | % | 2.72 | % | 1.90 | % | 2.72 | % | ||||||||||||||||||
| Nonperforming Loans to Total Portfolio Loans | 6.69 | % | 8.46 | % | 6.69 | % | 8.46 | % | ||||||||||||||||||
Net Interest Income
Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balances of interest-earning assets and interest-bearing liabilities, as well as changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee (“ALCO”), in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Company believes is an acceptable level of net interest income.
Net interest income and the net interest margin are presented on an FTE basis. The FTE basis (non-GAAP) adjusts net interest income and net interest margin for the tax benefit of income on certain tax-exempt loans and securities using the applicable federal statutory tax rate for each period (which was 21% for the periods presented) and the dividend-received deduction for equity securities. The Company believes this FTE basis presentation provides a relevant comparison between taxable and non-taxable sources of interest income. Refer to the “Explanation of Use of Non-GAAP Financial Measures” above for additional discussion regarding the non-GAAP measures used in this Quarterly Report on Form 10-Q.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The following table reconciles interest and dividend income (GAAP), yield on interest-earning assets (GAAP), net interest margin (GAAP) and net interest income (GAAP) per the Consolidated Statements of Income to interest and dividend income on an FTE basis (non-GAAP), yield on interest-earning assets on an FTE basis (non-GAAP), net interest margin on an FTE basis (non-GAAP) and net interest income on an FTE basis (non-GAAP), respectively, for the periods presented:
| (Dollars in Thousands) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Interest and Dividend Income (GAAP) | $ | 57,747 | $ | 54,583 | $ | 113,754 | $ | 108,632 | ||||||||||||||||||
| Tax Equivalent Adjustment | 171 | 197 | 349 | 403 | ||||||||||||||||||||||
| Interest and Dividend Income (FTE) (Non-GAAP) | $ | 57,918 | $ | 54,780 | $ | 114,103 | $ | 109,035 | ||||||||||||||||||
| Average Earning Assets | 4,634,635 | 4,437,077 | 4,594,591 | 4,433,049 | ||||||||||||||||||||||
| Yield on Interest-earning Assets (GAAP) | 5.00 | % | 4.95 | % | 4.99 | % | 4.93 | % | ||||||||||||||||||
| Yield on Interest-earning Assets (FTE) (Non-GAAP) | 5.01 | % | 4.97 | % | 5.01 | % | 4.95 | % | ||||||||||||||||||
| Net Interest Income (GAAP) | $ | 32,359 | $ | 28,092 | $ | 62,497 | $ | 56,511 | ||||||||||||||||||
| Tax Equivalent Adjustment | 171 | 197 | 349 | 403 | ||||||||||||||||||||||
| Net Interest Income (FTE) (Non-GAAP) | $ | 32,530 | $ | 28,289 | $ | 62,846 | $ | 56,914 | ||||||||||||||||||
| Average Earning Assets | 4,634,635 | 4,437,077 | 4,594,591 | 4,433,049 | ||||||||||||||||||||||
| Net Interest Margin (GAAP) | 2.80 | % | 2.55 | % | 2.74 | % | 2.56 | % | ||||||||||||||||||
| Net Interest Margin (FTE) (Non-GAAP) | 2.82 | % | 2.56 | % | 2.76 | % | 2.58 | % | ||||||||||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Average Balance Sheet and Net Interest Income Analysis (FTE)
The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented:
| (Dollars in Thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Income/ Expense | Yield/Rate | Average Balance | Income/ Expense | Yield/Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Deposits with Banks | $ | 58,006 | $ | 643 | 4.45 | % | $ | 31,083 | $ | 420 | 5.43 | % | ||||||||||||||||||||||||||||||||||||||||||||
Tax-Free Investment Securities2 | 11,622 | 85 | 2.93 | % | 11,779 | 86 | 2.94 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Taxable Investment Securities | 818,588 | 6,796 | 3.33 | % | 841,787 | 7,721 | 3.69 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Securities | 830,210 | 6,881 | 3.32 | % | 853,566 | 7,807 | 3.68 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Tax-Free Loans1, 2 | 89,362 | 732 | 3.29 | % | 105,487 | 854 | 3.26 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable Loans1 | 3,648,629 | 49,522 | 5.44 | % | 3,430,330 | 45,395 | 5.32 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Loans | 3,737,991 | 50,254 | 5.39 | % | 3,535,817 | 46,249 | 5.26 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Home Loan Bank Stock | 8,428 | 140 | 6.66 | % | 16,611 | 304 | 7.36 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Interest-Earning Assets | 4,634,635 | $ | 57,918 | 5.01 | % | 4,437,077 | $ | 54,780 | 4.97 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest Earning Assets | 126,303 | 91,648 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 4,760,938 | $ | 4,528,725 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Demand | $ | 805,749 | $ | 3,661 | 1.82 | % | $ | 532,700 | $ | 1,689 | 1.28 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Money Market | 536,366 | 3,510 | 2.62 | % | 510,828 | 3,926 | 3.09 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Savings | 347,863 | 129 | 0.15 | % | 411,457 | 145 | 0.14 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Certificates of Deposit | 1,885,486 | 16,759 | 3.57 | % | 1,731,358 | 16,963 | 3.94 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Interest-Bearing Deposits | 3,575,464 | 24,059 | 2.70 | % | 3,186,343 | 22,723 | 2.87 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| FHLB Borrowings | 108,753 | 1,186 | 4.37 | % | 283,154 | 3,675 | 5.22 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Funds Purchased | — | — | — | % | — | — | — | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other Borrowings | 10,713 | 143 | 5.35 | % | 8,460 | 93 | 4.42 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Borrowings | 119,466 | 1,329 | 4.46 | % | 291,614 | 3,768 | 5.20 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Interest-Bearing Liabilities | 3,694,930 | 25,388 | 2.76 | % | 3,477,957 | 26,491 | 3.06 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest-Bearing Liabilities | 662,168 | 693,336 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | 403,840 | 357,432 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 4,760,938 | $ | 4,528,725 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Interest Income2 | $ | 32,530 | $ | 28,289 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Interest Margin2 | 2.82 | % | 2.56 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
1 Nonaccruing loans are included in the daily average loan amounts outstanding.
2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
| (Dollars in Thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Income/ Expense | Rate | Average Balance | Income/ Expense | Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Deposits with Banks | $ | 62,670 | $ | 1,391 | 4.48 | % | $ | 27,606 | $ | 755 | 5.50 | % | ||||||||||||||||||||||||||||||||||||||||||||
Tax-Free Investment Securities2 | 11,642 | 169 | 2.93 | % | 11,799 | 171 | 2.91 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Taxable Investment Securities | 813,269 | 13,451 | 3.34 | % | 847,664 | 15,464 | 3.67 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Securities | 824,911 | 13,620 | 3.33 | % | 859,463 | 15,635 | 3.66 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Tax-Free Loans1, 2 | 91,410 | 1,493 | 3.29 | % | 108,479 | 1,751 | 3.25 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable Loans1 | 3,608,131 | 97,347 | 5.44 | % | 3,418,994 | 90,212 | 5.31 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Loans | 3,699,541 | 98,840 | 5.39 | % | 3,527,473 | 91,963 | 5.24 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Home Loan Bank Stock | 7,469 | 252 | 6.80 | % | 18,507 | 682 | 7.41 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Interest-Earning Assets | 4,594,591 | $ | 114,103 | 5.01 | % | 4,433,049 | $ | 109,035 | 4.95 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest Earning Assets | 124,048 | 91,409 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 4,718,639 | $ | 4,524,458 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Demand | $ | 775,490 | $ | 7,047 | 1.83 | % | $ | 514,376 | $ | 2,801 | 1.10 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Money Market | 530,944 | 6,829 | 2.59 | % | 517,862 | 7,922 | 3.08 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Savings | 351,473 | 242 | 0.14 | % | 425,616 | 282 | 0.13 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Certificates of Deposit | 1,901,751 | 34,964 | 3.71 | % | 1,683,589 | 32,435 | 3.87 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Interest-Bearing Deposits | 3,559,658 | 49,082 | 2.78 | % | 3,141,443 | 43,440 | 2.78 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| FHLB Borrowings | 89,400 | 1,888 | 4.26 | % | 324,968 | 8,494 | 5.26 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Federal Funds Purchased | — | — | — | % | — | — | — | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other Borrowings | 10,566 | 287 | 5.48 | % | 8,081 | 187 | 4.65 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Borrowings | 99,966 | 2,175 | 4.39 | % | 333,049 | 8,681 | 5.24 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Interest-Bearing Liabilities | 3,659,624 | 51,257 | 2.82 | % | 3,474,492 | 52,121 | 3.02 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest-Bearing Liabilities | 661,308 | 693,814 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | 397,707 | 356,152 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 4,718,639 | $ | 4,524,458 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Interest Income2 | $ | 62,846 | $ | 56,914 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Interest Margin2 | 2.76 | % | 2.58 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
1 Nonaccruing loans are included in the daily average loan amounts outstanding.
2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent.
Net interest income (GAAP) increased $4.3 million, or 15.2% and $6.0 million, or 10.6% for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Net interest income, on an FTE basis (non-GAAP), increased $4.2 million, or 15.0%, and $5.9 million, or 10.4% for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Net interest margin (GAAP) increased 25 basis points and 18 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024. Net interest margin, on an FTE basis (non-GAAP), also increased 26 basis points and 18 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024. The increases resulted from higher yields on average earning assets of four and six basis points and funding costs that declined 30 and 20 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024. During the six months ended June 30, 2025, $1.3 billion of CDs matured and repriced from an average rate of 4.29% to an average rate of 3.47%.
Interest and dividend income (GAAP) increased $3.2 million and $5.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024. Interest and dividend income, on an FTE basis (non-GAAP), increased $3.1 million and $5.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024, primarily resulting from average loan growth of $202.2 million and $172.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Average interest-earning assets increased primarily due to growth in average loans and increases of $26.9 million and $35.1 million in average interest-bearing deposits with banks during the three and six months ended June 30, 2025, respectively, partially offset by decreases of $23.4 million and $34.6 million in average investment securities and decreases of $8.2 million and $11.0 million in average FHLB stock for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The change in average investment securities and average loans is the result of active balance sheet management to deploy the proceeds from securities maturities and principal curtailments into higher yielding loans, rather than reinvesting those proceeds back into the securities portfolio. The portfolio has been diversified as to bond types, maturities, and interest rate structures. As of June 30, 2025, the securities portfolio was comprised of 41.8% variable rate securities with approximately 89.4% that will reprice at least once over the next 12 months. We believe having a balanced mix of variable and fixed rate securities is an important strategy, especially during times of rising interest rates because fixed-rate bond prices generally fall when interest rates increase, which can result in unrealized losses. However, variable rate securities do not carry as much interest rate risk as fixed rate securities, so there is much less price volatility. This variable rate strategy has limited the impact of past upward shifts in the yield curve on the Company’s unrealized losses on debt securities. If the Federal Reserve continues reducing short-term interest rates, the Bank may consider changes to this interest rate mix strategy going forward.
Interest expense decreased $1.1 million and $0.9 million for the three and six months ended June 30, 2025 compared to the same periods in 2024. Average interest-bearing deposits increased $389.1 million and $418.2 million, of which $196.1 million was brokered deposits, for the three and six months ended June 30, 2025, respectively. compared to the same periods in 2024. Average borrowings decreased $172.1 million and $233.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024, primarily due to increased deposit balances. Overall, the cost of interest-bearing liabilities decreased 30 and 20 basis points for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024.
Our balance sheet is currently exhibiting characteristics of a liability sensitive position due to the short-term nature of our deposit portfolio and FHLB borrowings. Specifically, 70.5% of our CD portfolio and 100.0% of our outstanding FHLB borrowings will mature and reprice over the next twelve months. This strategy gives us flexibility to manage the structure and pricing of our deposit and borrowing portfolios to reduce future funding costs should the Federal Open Market Committee (“FOMC”) continue cutting short-term rates in the future.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
| Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Volume3 | Rate | Increase/ (Decrease) | Volume3 | Rate | Increase/ (Decrease) | ||||||||||||||||||||||||||||||||
| Interest Earned on: | ||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Deposits with Banks | $ | 310 | $ | (87) | $ | 223 | $ | 802 | $ | (166) | $ | 636 | ||||||||||||||||||||||||||
Tax-free Investment Securities2 | (1) | — | (1) | (2) | — | (2) | ||||||||||||||||||||||||||||||||
| Taxable Investment Securities | (208) | (717) | (925) | (609) | (1,404) | (2,013) | ||||||||||||||||||||||||||||||||
| Total Securities | (209) | (717) | (926) | (611) | (1,404) | (2,015) | ||||||||||||||||||||||||||||||||
Tax-free Loans1 2 | (132) | 10 | (122) | (279) | 21 | (258) | ||||||||||||||||||||||||||||||||
Taxable Loans1 | 2,942 | 1,185 | 4,127 | 5,070 | 2,065 | 7,135 | ||||||||||||||||||||||||||||||||
| Total Loans | 2,810 | 1,195 | 4,005 | 4,791 | 2,086 | 6,877 | ||||||||||||||||||||||||||||||||
| Federal Home Loan Bank Stock | (138) | (26) | (164) | (377) | (53) | (430) | ||||||||||||||||||||||||||||||||
| Total Interest-Earning Assets | $ | 2,773 | $ | 365 | $ | 3,138 | $ | 4,605 | $ | 463 | $ | 5,068 | ||||||||||||||||||||||||||
| Interest Paid on: | ||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Demand | $ | 1,069 | $ | 903 | $ | 1,972 | $ | 1,832 | $ | 2,414 | $ | 4,246 | ||||||||||||||||||||||||||
| Money Market | 189 | (605) | (416) | 196 | (1,289) | (1,093) | ||||||||||||||||||||||||||||||||
| Savings | (23) | 7 | (16) | (51) | 11 | (40) | ||||||||||||||||||||||||||||||||
| Certificates of Deposit | 1,441 | (1,645) | (204) | 4,061 | (1,532) | 2,529 | ||||||||||||||||||||||||||||||||
| Total Interest-Bearing Deposits | 2,676 | (1,340) | 1,336 | 6,038 | (396) | 5,642 | ||||||||||||||||||||||||||||||||
| Federal Home Loan Bank Borrowings | (1,977) | (512) | (2,489) | (5,222) | (1,384) | (6,606) | ||||||||||||||||||||||||||||||||
| Federal Funds Purchased | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other Borrowings | 28 | 22 | 50 | 63 | 37 | 100 | ||||||||||||||||||||||||||||||||
| Total Borrowings | (1,949) | (490) | (2,439) | (5,159) | (1,347) | (6,506) | ||||||||||||||||||||||||||||||||
| Total Interest-Bearing Liabilities | $ | 727 | $ | (1,830) | $ | (1,103) | $ | 879 | $ | (1,743) | $ | (864) | ||||||||||||||||||||||||||
| Change in Net Interest Margin | $ | 2,046 | $ | 2,195 | $ | 4,241 | $ | 3,726 | $ | 2,206 | $ | 5,932 | ||||||||||||||||||||||||||
1 Nonaccruing loans are included in the daily average loan amounts outstanding.
2 Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.
3 Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.
(Recovery) Provision for Credit Losses
The Company recognizes (recovery) provision for credit losses based on the difference between the existing balance of ACL reserves and the ACL reserve balance necessary to adequately absorb expected credit losses associated with the Company’s financial instruments. Similarly, the Company recognizes (recovery) provision for unfunded commitments based on the difference between the existing balance of reserves for unfunded commitments and the reserve balance for unfunded commitments necessary to adequately absorb expected credit losses associated with those commitments. (Recovery) provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb expected life-of-loan losses in the loan portfolio, after giving consideration to charge-offs and recoveries for the period.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The following table presents information regarding the (recovery) provision for credit losses and net charge-offs for the periods presented:
| (Dollars in Thousands) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | 2025 | 2024 | $ Change | |||||||||||||||||||||||||||||||||
| (Recovery) Provision for Credit Losses | $ | (2,330) | $ | 491 | $ | (2,821) | $ | (4,355) | $ | 507 | $ | (4,862) | ||||||||||||||||||||||||||
| Recovery for Unfunded Commitments | (335) | (236) | (99) | (449) | (279) | (170) | ||||||||||||||||||||||||||||||||
| Total Recovery for Credit Losses on Loans | (2,665) | 255 | (2,920) | (4,804) | 228 | (5,032) | ||||||||||||||||||||||||||||||||
| Provision for Securities | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total Recovery for Credit Losses | $ | (2,665) | $ | 255 | $ | (2,920) | $ | (4,804) | $ | 228 | $ | (5,032) | ||||||||||||||||||||||||||
| Net Loan Charge-offs | $ | 165 | $ | 341 | $ | (176) | $ | 222 | $ | 873 | $ | (651) | ||||||||||||||||||||||||||
| Net Loan Charge-offs / Average Portfolio Loans | 0.02 | % | 0.04 | % | 0.01 | % | 0.05 | % | ||||||||||||||||||||||||||||||
The (recovery) provision for credit losses was a recovery of 2.3 million and a recovery of 4.4 million for the three and six months ended June 30, 2025, respectively, compared to a provision for credit losses of $491 thousand and $507 thousand for the same periods in 2024, respectively. The changes compared to the same periods in 2024 were primarily driven by a decline in the Other segment reserve rate, specifically the Company’s largest credit relationship, higher curtailment payments during the three and six months ended June 30, 2025 compared to the same periods in 2024, partially offset by loan growth during the three and six months ended June 30, 2025.
The recovery for unfunded commitments was a recovery of $335 thousand and a recovery of $449 thousand for the three and six months ended June 30, 2025, respectively, compared to recoveries of $236 thousand and $279 thousand for the same periods in 2024, respectively. The changes compared to the same periods in 2024 were primarily due to decreased unfunded commitments in construction loans.
See the “Allowance for Credit Losses” section of this MD&A for additional details regarding our charge-offs.
Noninterest Income
| (Dollars in Thousands) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Gains on Sales of Securities, net | $ | — | $ | 36 | $ | (36) | 100.0 | % | $ | — | $ | 36 | $ | (36) | (100.0) | % | ||||||||||||||||||||||||||||||||||
| Service Charges, Commissions and Fees | 1,765 | 1,852 | (87) | (4.7) | % | 3,639 | 3,727 | (88) | (2.4) | % | ||||||||||||||||||||||||||||||||||||||||
| Debit Card Interchange Fees | 1,942 | 1,933 | 8 | 0.4 | % | 4,046 | 4,019 | 27 | 0.7 | % | ||||||||||||||||||||||||||||||||||||||||
| Insurance Commissions | 714 | 934 | (220) | (23.6) | % | 1,058 | 1,548 | (490) | (31.7) | % | ||||||||||||||||||||||||||||||||||||||||
| Bank Owned Life Insurance Income | 357 | 365 | (8) | (2.2) | % | 698 | 713 | (15) | (2.1) | % | ||||||||||||||||||||||||||||||||||||||||
| Other | 130 | 413 | (283) | (68.5) | % | 2,368 | 535 | 1,833 | 342.6 | % | ||||||||||||||||||||||||||||||||||||||||
| Total Noninterest Income | $ | 4,908 | $ | 5,533 | $ | (625) | (11.3) | % | $ | 11,809 | $ | 10,578 | $ | 1,231 | 11.6 | % | ||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2025 total noninterest income decreased $0.6 million, or 11.3% and, for the six months ended June 30, 2025, total noninterest income increased $1.2 million, or 11.6% compared to the same periods in 2024. The most significant decreases compared to the three months ended June 30, 2024 were $0.3 million in other noninterest income and $0.2 million in insurance commissions due to lower activity during the three months ended June 30, 2025. The most significant increase during the six months ended June 30, 2025 was related to other noninterest income as a result of a $1.9 million gain on a bank owned life insurance (“BOLI”) death benefit recorded in the first quarter of 2025. Partially offsetting the increase in other noninterest income compared to the six months ended June 30, 2024 was a decline of $0.5 million in insurance commissions due to lower activity in the six months ended June 30, 2025.
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CARTER BANKSHARES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Noninterest Expense
| (Dollars in Thousands) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Salaries and Employee Benefits | $ | 14,082 | $ | 14,216 | $ | (134) | (0.9) | % | $ | 27,739 | $ | 28,416 | $ | (677) | (2.4) | % | ||||||||||||||||||||||||||||||||||
| Occupancy Expense, net | 4,230 | 3,793 | 437 | 11.5 | % | 8,702 | 7,541 | 1,161 | 15.4 | % | ||||||||||||||||||||||||||||||||||||||||
| FDIC Insurance Expense | 1,436 | 1,566 | (130) | (8.3) | % | 2,866 | 3,253 | (387) | (11.9) | % | ||||||||||||||||||||||||||||||||||||||||
| Other Taxes | 922 | 894 | 28 | 3.1 | % | 1,869 | 1,802 | 67 | 3.7 | % | ||||||||||||||||||||||||||||||||||||||||
| Advertising Expense | 708 | 528 | 180 | 34.1 | % | 1,619 | 885 | 734 | 82.9 | % | ||||||||||||||||||||||||||||||||||||||||
| Telephone Expense | 307 | 342 | (35) | (10.2) | % | 611 | 759 | (148) | (19.5) | % | ||||||||||||||||||||||||||||||||||||||||
| Professional and Legal Fees | 1,921 | 1,542 | 379 | 24.6 | % | 3,151 | 3,055 | 96 | 3.1 | % | ||||||||||||||||||||||||||||||||||||||||
| Data Processing | 1,395 | 1,234 | 161 | 13.0 | % | 2,839 | 2,125 | 714 | 33.6 | % | ||||||||||||||||||||||||||||||||||||||||
| Debit Card Expense | 991 | 808 | 183 | 22.6 | % | 1,983 | 1,564 | 419 | 26.8 | % | ||||||||||||||||||||||||||||||||||||||||
| Other | 3,312 | 2,523 | 789 | 31.3 | % | 5,967 | 4,303 | 1,664 | 38.7 | % | ||||||||||||||||||||||||||||||||||||||||
| Total Noninterest Expense | $ | 29,304 | $ | 27,446 | $ | 1,858 | 6.8 | % | $ | 57,346 | $ | 53,703 | $ | 3,643 | 6.8 | % | ||||||||||||||||||||||||||||||||||
For the three and six months ended June 30, 2025, total noninterest expense increased $1.9 million and $3.6 million compared to the same periods in 2024. During the three months ended June 30, 2025, other noninterest expenses increased $0.8 million, occupancy expenses increased $0.4 million and professional and legal fees increased $0.4 million. The increase in other noninterest expense related to: (1) losses on sales and write-downs of other real estate owned, net, due to a net loss of $0.3 million in the second quarter of 2025 which included $0.5 million in write-downs on OREO branches, partially offset by a $0.2 gain on the sale of an OREO branch property and (2) $0.3 million of 1035 exchange fees in the second quarter of 2025, as a direct result of the early surrender and transfer to new carriers of the Company’s BOLI policies. Occupancy expense, net increased for the three months ended June 30, 2025 primarily due to additional software and maintenance expenses and higher depreciation expense. For the three months ended June 30, 2025, professional and legal fees also increased $0.4 million due to costs related to the Branch Purchase that were expensed during the quarter.
During the six months ended June 30, 2025, other noninterest expenses increased $1.7 million, occupancy expenses increased $1.2 million, advertising expenses increased $0.7 million and data processing expenses increased $0.7 million, partially offset by decreases of $0.7 million in salaries and employee benefits and $0.4 million in FDIC insurance expense. The primary increase in other noninterest expense was due to the above mentioned 1035 exchange fees, which increased $0.5 million year-to-date, as a result of the early surrender and transfer to new carriers of the Company’s BOLI policies. As discussed above, the increase in occupancy expense, net, for the six months ended June 30, 2025 was primarily due to additional software and maintenance expenses and higher depreciation expense. The increase in advertising expenses primarily related to contributions made during the first quarter of 2025, as well as additional expenses incurred during the six months of 2025 related to the launching of the new brand refresh that commenced in the fourth quarter of 2024. The increase in data processing expenses relates primarily to general inflationary cost increases for existing and new service agreements in the beginning of the year. The decreases in salaries and employee benefits primarily resulted from higher deferred compensation costs due to increased loan volume and the effects of a new cost study in the third quarter of 2024. This decrease was partially offset by higher medical expenses, annual merit increases and higher incentive costs during the six months ended June 30, 2025. The decrease in FDIC insurance expense was primarily due to the aforementioned curtailment payments which have reduced the outstanding balance of the aforementioned large nonperforming credit relationship from $301.9 million at June 30, 2024 to $235.5 million at June 30, 2025, which is a component used to determine the assessment.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Provision for Income Taxes
The provision for income taxes increased $1.0 million and $1.8 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Pre-tax income increased $4.7 million and $8.6 million for the three and six months ended June 30, 2025 compared to the same periods in 2024. The increase for the three and six months ended June 30, 2025 compared to the same periods in 2024 primarily related to an increase of $4.3 million and $6.0 million, respectively in net interest income, recording recoveries of $2.3 million and $4.4 million, respectively to the (recovery) provision for credit losses, as well as, a tax-exempt gain of $1.9 million for a BOLI death benefit recorded in first quarter of 2025. The effective tax rate was 19.9% and 19.8% for the three and six months ended June 30, 2025 compared to 18.9% and 19.3% for the same periods in 2024. The Company ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest income, tax credit projects and bank owned life insurance (“BOLI”).
Financial Condition
June 30, 2025
Total assets increased $124.9 million, to $4.8 billion at June 30, 2025 compared to December 31, 2024. Total portfolio loans increased $122.3 million, or 6.8%, on an annualized basis, at June 30, 2025 compared to December 31, 2024, primarily due to growth in the commercial real estate (“CRE”) and residential mortgage portfolios, partially offset by the aforementioned curtailment payments in the Other segment. The available-for-sale securities portfolio increased $36.8 million and is currently 15.8% of total assets at June 30, 2025 compared to 15.4% of total assets at December 31, 2024. The increase is due to new security purchases during the first six months of 2025.
During the six months ended June 30, 2025, the Company initiated a 1035 exchange of $20.7 million in BOLI in order to transfer the proceeds to new insurance carriers and take advantage of enhanced credit ratings and better yields due to improving BOLI markets. The exchange was an opportunity to retire below market yielding BOLI assets and reinvest the proceeds from the exchange into higher yielding BOLI related assets on the balance sheet.
Total deposits increased $68.8 million to $4.2 billion at June 30, 2025 compared to December 31, 2024. Total deposits included $55.9 million related to the Branch Purchase that the Company completed during the second quarter of 2025. Deposits increased primarily due to growth in interest-bearing demand accounts and money market accounts, partially offset by decreases in CDs and savings accounts. FHLB borrowings increased $43.5 million at June 30, 2025 compared to December 31, 2024. The Company had no outstanding federal funds purchased at June 30, 2025 and December 31, 2024.
Securities
The following table presents the composition of available-for-sale securities at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | $ Change | |||||||||||||||||
| U.S. Government Agency Securities | $ | 22,898 | $ | 26,950 | $ | (4,052) | ||||||||||||||
| Residential Mortgage-Backed Securities | 97,265 | 96,153 | 1,112 | |||||||||||||||||
| Commercial Mortgage-Backed Securities | 24,597 | 21,587 | 3,010 | |||||||||||||||||
| Other Commercial Mortgage-Backed Securities | 29,578 | 21,970 | 7,608 | |||||||||||||||||
| Asset Backed Securities | 115,106 | 118,521 | (3,415) | |||||||||||||||||
| Collateralized Mortgage Obligations | 172,592 | 148,588 | 24,004 | |||||||||||||||||
| States and Political Subdivisions | 229,168 | 221,181 | 7,987 | |||||||||||||||||
| Corporate Notes | 64,008 | 63,450 | 558 | |||||||||||||||||
| Total | $ | 755,212 | $ | 718,400 | $ | 36,812 | ||||||||||||||
The Company invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the ALCO to diversify and reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
purchases are subject to our investment policy that is approved annually by our Board and administered through ALCO and our treasury function.
The securities portfolio increased $36.8 million at June 30, 2025 compared to December 31, 2024, primarily due to purchases and changes in market values driven by fluctuations in intermediate treasury yields. During the six months ended June 30, 2025, there were new security purchases totaling $53.3 million, partially offset by normal paydowns and maturities. Securities comprise 15.8% of total assets at June 30, 2025 compared to 15.4% at December 31, 2024. As of June 30, 2025, the securities portfolio was comprised of 41.8% variable rate securities with approximately 89.4% that will reprice at least once over the next 12 months.
At June 30, 2025, total gross unrealized gains in the available-for-sale portfolio were $0.3 million, offset by $67.0 million of gross unrealized losses. At December 31, 2024, total gross unrealized gains in the available-for-sale portfolio were $0.1 million, offset by $82.4 million of gross unrealized losses.
The unrealized losses on debt securities are believed to be temporary primarily because these unrealized losses are due to reductions in market value caused by upward movement in interest rates since the securities purchase (as applicable), and not related to the credit quality of these securities. Our portfolio consists of 45.1% of securities issued by United States government sponsored entities and carry an implicit government guarantee. States and political subdivisions comprise 30.3% of the portfolio and are largely general obligations or essential purpose revenue bonds, which have performed very well historically over all business cycles, and are rated AA and AAA. We have the ability to hold these securities to maturity and expect full recovery of the amortized cost. We may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative.
The Company’s investment securities with intermediate and long-term maturities were the largest driver of these gross unrealized losses, as the market values of these securities are significantly impacted by the Treasury yield curve for similar durations (i.e., 5- and 10-year Treasury securities). This portion of the Treasury yield curve has moved lower over the past three months, driving unrealized losses on outstanding securities lower. Changes in short-term interest rates can affect the yield on floating rate securities. Yields on floating rate securities will fall as the Federal Reserve Board lowers short-term rates. Changes in intermediate and long-term interest rates, which are market driven, affect the market value of fixed rate securities with similar maturities. The Company expects that market values on the Bank’s intermediate and long-term maturity holdings will continue to fluctuate in large part driven by treasury yield changes.
At June 30, 2025 the 5-year and 10-year U.S. Treasury yields were 3.79% and 4.24%, respectively. At December 31, 2024, those same bond yields were 4.38% and 4.58%, respectively. Therefore, these decreases of 59 bps and 34 bps, respectively in the intermediate part of the yield curve largely caused the reduction in unrealized losses for the six months of 2025. The effects were generally greater for longer maturity bonds, such as municipal bonds. On the other hand, floating rate bonds largely held consistent values, as those interest rates adjust in line with Federal Reserve interest rate changes.
Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through (recovery) provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes. At June 30, 2025 and December 31, 2024, the Company had no credit related impairment.
The Basel rules permit most banking organizations to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Loan Composition
The following table summarizes our loan portfolio at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Commercial | ||||||||||||||
| Commercial Real Estate | $ | 2,000,766 | $ | 1,869,831 | ||||||||||
| Commercial and Industrial | 221,880 | 230,483 | ||||||||||||
| Total Commercial Loans | 2,222,646 | 2,100,314 | ||||||||||||
| Consumer | ||||||||||||||
| Residential Mortgages | 814,188 | 777,471 | ||||||||||||
| Other Consumer | 27,991 | 28,908 | ||||||||||||
| Total Consumer Loans | 842,179 | 806,379 | ||||||||||||
| Construction | 443,573 | 462,930 | ||||||||||||
| Other | 238,723 | 255,203 | ||||||||||||
| Total Portfolio Loans | 3,747,121 | 3,624,826 | ||||||||||||
| Loans Held-for-Sale | 246 | — | ||||||||||||
| Total Loans | $ | 3,747,367 | $ | 3,624,826 | ||||||||||
Our loan portfolio represents our most significant source of interest income. The risk that borrowers are unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay. For a discussion of the risk factors relevant to our business and operations, please refer to Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2024.
Total portfolio loans increased $122.3 million, or 6.8% on an annualized basis, at June 30, 2025 compared to December 31, 2024 with production primarily in our CRE and residential mortgage loan portfolios, partially offset by a decline in the Other segment due to $16.4 million curtailment payments made during the first half of 2025. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations. At June 30, 2025, the loan portfolio was comprised of 25.3% floating rates which reprice monthly, 38.4% variable rates that reprice at least once during the life of the loan and the remaining 36.3% are fixed rate loans. The Company continues to carefully monitor the loan portfolio during 2025, including in light of market conditions that impact our borrowers and the interest rate environment.
Total CRE represented 53.4% of total portfolio loans at June 30, 2025 compared to 51.6% at December 31, 2024. The collateral for the Company’s CRE loans are geographically concentrated predominantly in North Carolina, Virginia, South Carolina, West Virginia and Georgia and within the retail/restaurant, warehouse, hospitality, multifamily, and office industries.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The following table presents the Company's CRE loan portfolio breakout by collateral type, loan amounts for each collateral type included in special mention and substandard and the related percentages by segment to the collateral types at the dates presented:
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgage | Construction | Other | Total | CRE Collateral Type in Special Mention and Substandard Risk Rating | % of Each Segment to Total CRE Collateral Type | ||||||||||||||||||||||||||||||||||||||||||
| Retail/Restaurant | $ | 459,751 | $ | 118 | $ | 390 | $ | 61,744 | $ | — | $ | 522,003 | $ | 35 | 19.7 | % | ||||||||||||||||||||||||||||||||||
| Warehouse | 434,772 | 482 | — | 48,448 | — | 483,702 | 9,584 | 18.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Hospitality | 288,427 | — | — | 27,052 | 51,552 | 367,031 | 51,552 | 13.8 | % | |||||||||||||||||||||||||||||||||||||||||
| Multifamily | 341,541 | — | — | 92,320 | — | 433,861 | 4,516 | 16.3 | % | |||||||||||||||||||||||||||||||||||||||||
| Office | 219,939 | — | — | 8,811 | 508 | 229,258 | 542 | 8.6 | % | |||||||||||||||||||||||||||||||||||||||||
| Land | 630 | — | — | 113,507 | 49,112 | 163,249 | 49,158 | 6.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Single Family | 21,444 | — | 60,360 | 26,502 | 13,367 | 121,673 | 13,478 | 4.6 | % | |||||||||||||||||||||||||||||||||||||||||
| Country Club | 3,369 | — | — | — | 45,002 | 48,371 | 45,002 | 1.8 | % | |||||||||||||||||||||||||||||||||||||||||
| Long-term Care | 54,439 | — | — | 17,550 | — | 71,989 | — | 2.7 | % | |||||||||||||||||||||||||||||||||||||||||
| Other | 180,660 | 276 | 1,993 | 32,283 | — | 215,212 | — | 8.1 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,004,972 | $ | 876 | $ | 62,743 | $ | 428,217 | $ | 159,541 | $ | 2,656,349 | $ | 173,867 | 100.0 | % | ||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgage | Construction | Other | Total | CRE Collateral Type in Special Mention and Substandard Risk Rating | % of Each Segment to Total CRE Collateral Type | ||||||||||||||||||||||||||||||||||||||||||
| Retail/Restaurant | $ | 415,624 | $ | 122 | $ | — | $ | 55,093 | $ | — | $ | 470,839 | $ | 451 | 18.5 | % | ||||||||||||||||||||||||||||||||||
| Warehouse | 405,333 | 493 | — | 53,990 | — | 459,816 | 3,865 | 18.1 | % | |||||||||||||||||||||||||||||||||||||||||
| Hospitality | 288,505 | — | — | 14,647 | 51,552 | 354,704 | 51,552 | 13.9 | % | |||||||||||||||||||||||||||||||||||||||||
| Multifamily | 286,203 | — | — | 105,677 | — | 391,880 | 4,516 | 15.4 | % | |||||||||||||||||||||||||||||||||||||||||
| Office | 221,445 | — | — | 7,468 | 508 | 229,421 | 1,080 | 9.0 | % | |||||||||||||||||||||||||||||||||||||||||
| Land | 771 | — | — | 114,344 | 57,925 | 173,040 | 57,975 | 6.8 | % | |||||||||||||||||||||||||||||||||||||||||
| Single Family | 25,630 | — | 50,334 | 37,622 | 13,367 | 126,953 | 13,445 | 5.0 | % | |||||||||||||||||||||||||||||||||||||||||
| Country Club | 3,393 | — | — | — | 45,002 | 48,395 | 45,002 | 1.9 | % | |||||||||||||||||||||||||||||||||||||||||
| Long-term Care | 30,474 | — | — | 17,492 | — | 47,966 | — | 1.9 | % | |||||||||||||||||||||||||||||||||||||||||
| Other | 197,655 | 389 | — | 36,964 | 7,628 | 242,636 | 12,159 | 9.5 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,875,033 | $ | 1,004 | $ | 50,334 | $ | 443,297 | $ | 175,982 | $ | 2,545,650 | $ | 190,045 | 100.0 | % | ||||||||||||||||||||||||||||||||||
CRE loans represent a portfolio concentration risk. The majority of our CRE loans are made in the above noted geographies and granted to experienced developers and sponsors with loan guaranty structures that provide recourse to individuals with access to financial resources. We believe our knowledge of CRE and our operating knowledge at the local and regional levels of these markets allows us to effectively manage concentration risk. Our operating knowledge at the local and regional levels is derived from our front-line connection to the customer and our understanding of their business model. We also have access to research tools that inform us about market statistics such as occupancy, lease growth rates and new construction starts. This data is reviewed frequently by our credit officers and disseminated to our lenders. The Bank’s underwriting process includes multiple shock scenarios primarily focused on cash flow and leverage in order to determine a supportable loan amount.
We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry while actively managing concentrations. When concentrations exist in certain segments, we seek to mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends of the loans in these segments. The Company established transaction, relationship and specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk-based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk-based capital. Investment real estate property types
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and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio and are based on management’s risk tolerance relative to capital. In addition, there are specific targets for various categories of real estate loans with respect to debt service coverage ratios, loan-to-value ratios, loan terms, and amortization periods. We also have policy limits on loan-to-cost for construction projects. Although leverage is important, the Company also focuses on cash flow generation and employs stress testing to calculate a supportable loan amount.
Aggregate commitments to our top 10 credit relationships were $683.9 million, or 18.2% of gross loans, at June 30, 2025, compared to $685.9 million, or 18.9% of gross loans, at December 31, 2024. The Other segment represents 34.4% of the top 10 credit relationships and the Company transferred its largest credit relationship with a current balance of $235.5 million as of June 30, 2025 to nonaccrual during the second quarter of 2023, as described in more detail below under “Credit Quality” in this MD&A.
The following table summarizes our top 10 relationships and a description of industries represented at the dates presented:
| For the Periods Ending | ||||||||||||||||||||||||||||||||
| Dollars in Thousands | June 30, 2025 | December 31, 2024 | Change | June 30, 2025 % of Gross Loans | June 30, 2025 % of RBC | |||||||||||||||||||||||||||
| 1. Hospitality, Agriculture & Energy | $ | 235,542 | $ | 251,982 | $ | (16,440) | 6.29 | % | 46.34 | % | ||||||||||||||||||||||
| 2. Multifamily | 58,741 | 58,871 | (130) | 1.57 | % | 11.56 | % | |||||||||||||||||||||||||
| 3. Office & Retail | 55,426 | 40,462 | 14,964 | 1.48 | % | 10.90 | % | |||||||||||||||||||||||||
| 4. Multifamily | 51,984 | 51,990 | (6) | 1.39 | % | 10.23 | % | |||||||||||||||||||||||||
| 5. Retail & Office | 51,163 | 52,913 | (1,750) | 1.37 | % | 10.07 | % | |||||||||||||||||||||||||
| 6. Warehouse | 48,832 | 49,661 | (829) | 1.30 | % | 9.60 | % | |||||||||||||||||||||||||
| 7. Retail | 48,087 | 44,511 | 3,576 | 1.28 | % | 9.46 | % | |||||||||||||||||||||||||
| 8. Long-Term Care | 46,199 | 46,199 | — | 1.23 | % | 9.09 | % | |||||||||||||||||||||||||
| 9. Health Care Facility | 44,779 | 44,779 | — | 1.19 | % | 8.81 | % | |||||||||||||||||||||||||
| 10. Warehouse | 43,121 | 44,577 | (1,456) | 1.15 | % | 8.48 | % | |||||||||||||||||||||||||
| Top Ten (10) Relationships | $ | 683,874 | $ | 685,945 | $ | (2,071) | 18.25 | % | 134.54 | % | ||||||||||||||||||||||
| Total Gross Loans | $ | 3,747,367 | $ | 3,624,826 | $ | 122,541 | ||||||||||||||||||||||||||
| % of Total Gross Loans | 18.25 | % | 18.92 | % | (0.67) | % | ||||||||||||||||||||||||||
| Concentration (25% of Risk Based Capital ("RBC")) | $ | 127,075 | $ | 125,190 | ||||||||||||||||||||||||||||
Unfunded commitments on lines of credit were $565.3 million at June 30, 2025 as compared to $620.8 million at December 31, 2024. The majority of unused commitments are for construction projects that will be drawn as the construction progresses toward completion. Total utilization was 57.0% at June 30, 2025 and 53.8% at December 31, 2024. Unfunded commitments on commercial operating lines of credit was 57.8% at June 30, 2025 and 53.8% at December 31, 2024.
Unsecured loans pose higher risk for the Company due to the lack of a well-defined secondary source of repayment. Commercial unsecured loans are reserved for the best quality customers with well-established businesses that operate with low financial and operating leverage. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. The Company significantly increased the standards for consumer unsecured lending by adjusting upward the required qualifying Fair Isaac Corporation (“FICO”) scores and restricting loan amounts at lower FICO scores, which resulted in a significant decline in the loss rate.
Deferred costs and fees included in the portfolio balances above were $12.0 million and $8.8 million at June 30, 2025 and December 31, 2024, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $91.5 thousand and $104.1 thousand at June 30, 2025 and December 31, 2024, respectively.
Refer to Note 4, Loans and Loans Held-for-Sale, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our loans.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Credit Quality
On a monthly basis, a Criticized Asset Committee meets to review certain watch, special mention and substandard risk rated loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to the Company. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral.
On a quarterly basis, the Credit Risk Committee of the Board meets to review our loan portfolio metrics, approve segment limits, approve the adequacy of ACL, and review the findings from Loan Review identified in the previous quarter. Annually, this same committee approves credit related policy changes and policy enhancements as they become available.
Additional credit risk management practices include continuous reviews of trends in our lending footprint and our lending policies and procedures to support sound underwriting practices, concentrations, delinquencies and annual portfolio stress testing. Our Loan Review department serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as determining the appropriateness of risk ratings for those loans reviewed and providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms. Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Loans past due 90 days are automatically transferred to nonaccrual status. Management reserves the right to exercise discretion at the individual loan level. For example, we may elect to transfer a loan to nonaccrual regardless of the delinquency status if we believe the collection in full of both principal and interest to be unlikely. We may also elect to retain a loan that is 90 or more days’ delinquent in accrual status if we believe the loan is well secured and in the process of collection. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.
The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.
Nonperforming assets consist of nonaccrual loans and OREO. The following table summarizes nonperforming assets at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | Change | |||||||||||||||||
| Nonaccrual Loans | ||||||||||||||||||||
| Commercial Real Estate | $ | 9,613 | $ | 1,176 | $ | 8,437 | ||||||||||||||
| Commercial and Industrial | 1,048 | 1,078 | (30) | |||||||||||||||||
| Residential Mortgages | 4,142 | 4,865 | (723) | |||||||||||||||||
| Other Consumer | 29 | 20 | 9 | |||||||||||||||||
| Construction | 207 | 228 | (21) | |||||||||||||||||
| Other | 235,542 | 251,982 | (16,440) | |||||||||||||||||
| Total Nonperforming Loans | 250,581 | 259,349 | (8,768) | |||||||||||||||||
| Other Real Estate Owned | 1,657 | 659 | 998 | |||||||||||||||||
| Total Nonperforming Assets | $ | 252,238 | $ | 260,008 | $ | (7,770) | ||||||||||||||
Nonperforming assets decreased $7.8 million to $252.2 million at June 30, 2025 compared to December 31, 2024. The decrease of $8.8 million in nonperforming loans was primarily related to $16.4 million of curtailment payments made by the Bank’s largest nonperforming credit relationship, partially offset by the transfer of a $9.5 million CRE relationship, consisting of four loans, to NPL status during the first quarter of 2025.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
During the second quarter of 2023, the Company placed $301.9 million of commercial loans that reside in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest credit relationship, on nonaccrual status due to loan maturities and failure to pay in full. These loans with a current outstanding principal balance of $235.5 million at June 30, 2025, remained on nonaccrual status at June 30, 2025 and December 31, 2024. These nonperforming loans are 94.0% of the Company's total nonperforming loans and 93.4% of the Company's total nonperforming assets at June 30, 2025.
During 2024 and the six months ended June 30, 2025, $66.4 million of curtailment payments made by the various entities in which James C. Justice, II has an interest to the Bank decreased the aggregate nonperforming loan balance outstanding to the Bank from $301.9 million as of June 30, 2023 to $235.5 million as of June 30, 2025. The Company believes it is well secured based on the net carrying value of the credit relationship and it has appropriately reserved for expected 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, the timing of any credit credit administration or collection efforts, or that the Company will ultimately collect all amounts contractually due. The Company is closely monitoring all developments that may impact collateral values or potential recoveries on its nonperforming loans, including claims that may be asserted by other purported creditors.
Based on analyses of the credit relationship and various discounted cash flow valuation techniques utilized in the alternative modeling, which resulted in specific reserves with respect to these loans of $24.0 million at June 30, 2025, or 10.2% of these loans aggregate principal amount as compared to $30.3 million or 12.0% of these loans aggregate principal amount at December 31, 2024. This decline was driven by the aforementioned curtailments, updated analysis of the credit relationship during the second quarter of 2025 using the discounted cash flow model with updated assumptions and inputs regarding the credit relationship, legal risk and related risks.
As the borrowers on these loans operate in the hospitality, agriculture, and energy sectors, this credit relationship is secured by, among other collateral, commercial real estate properties in these sectors including but not limited to top-tier hospitality properties. When evaluating the net carrying value of this credit relationship at June 30, 2025, the Company utilized discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.
The following is an analysis of nonperforming loans by loan portfolio segment at the dates presented, and each segment’s relative contribution to total nonperforming loans:
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (Dollars in Thousands) | Amount | % of NPLs | Amount | % of NPLs | ||||||||||||||||||||||
| Commercial Real Estate | $ | 9,613 | 3.8 | % | $ | 1,176 | 0.4 | % | ||||||||||||||||||
| Commercial and Industrial | 1,048 | 0.4 | % | 1,078 | 0.4 | % | ||||||||||||||||||||
| Residential Mortgages | 4,142 | 1.7 | % | 4,865 | 1.9 | % | ||||||||||||||||||||
| Other Consumer | 29 | — | % | 20 | — | % | ||||||||||||||||||||
| Construction | 207 | 0.1 | % | 228 | 0.1 | % | ||||||||||||||||||||
| Other | 235,542 | 94.0 | % | 251,982 | 97.2 | % | ||||||||||||||||||||
| Balance End of Period | $ | 250,581 | 100.0 | % | $ | 259,349 | 100.0 | % | ||||||||||||||||||
Closed retail bank offices had a book value of $1.7 million at June 30, 2025 and $0.7 million at December 31, 2024, and are recorded in OREO on the Consolidated Balance Sheets. During the six months ended June 30, 2025, the Bank transferred three closed branches to OREO, which was partially offset by the sale of one of these closed branches in the second quarter of 2025.
Past Company legacy underwriting standards relied heavily on loan to value and did not necessarily consider the income characteristics of the borrower or the repayment capacity of collateral with respect to speculative, and land financing. An overreliance on value as a primary repayment source can become compromised during real estate cycles. As a result, management has worked through these legacy credits and has installed a number of underwriting guardrails that consider the global cash flows and repayment capability of borrowers and/or guarantors, the proportion of speculation, transaction limits and introduced sensitivity analysis in order to determine supportable loan amounts. While these guardrails do not insulate the Company from credit cycles, management believes it should reduce the experience of defaults.
Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments. Other multi-payment obligations with
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including loans that are at risk for becoming delinquent and early stage delinquencies in order to identify emerging patterns and potential problem loans.
Allowance for Credit Losses
The following is the allocation of the ACL balance by segment at the dates presented:
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (Dollars in Thousands) | Amount | % of Loans in each Category to Total Portfolio Loans | Amount | % of Loans in each Category to Total Portfolio Loans | ||||||||||||||||||||||
| Commercial Real Estate | $ | 20,723 | 53.4 | % | $ | 20,146 | 51.6 | % | ||||||||||||||||||
| Commercial & Industrial | 2,722 | 5.9 | % | 2,791 | 6.4 | % | ||||||||||||||||||||
| Residential Mortgages | 11,143 | 21.7 | % | 10,389 | 21.4 | % | ||||||||||||||||||||
| Other Consumer | 668 | 0.8 | % | 682 | 0.8 | % | ||||||||||||||||||||
| Construction | 11,764 | 11.8 | % | 11,297 | 12.8 | % | ||||||||||||||||||||
| Other | 24,003 | 6.4 | % | 30,295 | 7.0 | % | ||||||||||||||||||||
| Balance End of Period | $ | 71,023 | 100.0 | % | $ | 75,600 | 100.0 | % | ||||||||||||||||||
The ACL was $71.0 million, or 1.90%, of total portfolio loans at June 30, 2025 compared to $75.6 million, or 2.09%, of total portfolio loans at December 31, 2024.
The following table summarizes the credit quality ratios and their components at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Allowance for Credit Losses to Total Portfolio Loans | ||||||||||||||
| Allowance for Credit Losses | $ | 71,023 | $ | 75,600 | ||||||||||
| Total Portfolio Loans | 3,747,121 | 3,624,826 | ||||||||||||
| Allowance for Credit Losses to Total Portfolio Loans | 1.90 | % | 2.09 | % | ||||||||||
| Nonperforming Loans to Total Portfolio Loans | ||||||||||||||
| Nonperforming Loans | $ | 250,581 | $ | 259,349 | ||||||||||
| Total Portfolio Loans | 3,747,121 | 3,624,826 | ||||||||||||
| Nonperforming Loans to Total Portfolio Loans | 6.69 | % | 7.15 | % | ||||||||||
| Allowance for Credit Losses to Nonperforming Loans | ||||||||||||||
| Allowance for Credit Losses | $ | 71,023 | $ | 75,600 | ||||||||||
| Nonperforming Loans | 250,581 | 259,349 | ||||||||||||
| Allowance for Credit Losses to Nonperforming Loans | 28.34 | % | 29.15 | % | ||||||||||
| Net Charge-offs to Average Portfolio Loans | ||||||||||||||
| Net Charge-offs (annualized) | $ | 447 | $ | 16,413 | ||||||||||
| Average Total Portfolio Loans | 3,699,267 | 3,560,297 | ||||||||||||
| Net Charge-offs to Average Portfolio Loans | 0.01 | % | 0.46 | % | ||||||||||
The (recovery) provision for credit losses, which includes a (recovery) provision for credit losses was a recovery of 4.4 million for the six months ended June 30, 2025 compared to a provision for credit losses of $507 thousand for the same period in 2024, respectively. The change compared to the same period in 2024 was primarily due to a decline in the Other segment reserve rate, specifically the Company’s largest credit relationship, from 12.01% at December 31, 2024 to 10.18% at June 30, 2025, and $16.4 million of curtailment payments made by the Bank’s largest nonperforming credit relationship, partially offset by loan growth during the six months ended June 30, 2025.
The recovery for unfunded commitments was a recovery of $449 thousand for the six months ended June 30, 2025 compared to a recovery of $279 thousand for the same period in 2024. The change compared to the same period in 2024 was primarily due to decreased unfunded commitments in construction loans during the six months ended June 30, 2025. The reserve for unfunded
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
commitments is largely comprised of unfunded commitments related to real estate construction loans and pressure on the reserve rates. There are three basic factors that influence the reserve rates associated with unfunded commitments for real estate construction loans. First, the reserve rate is extrapolated from the reserve rates calculated for certain commercial real estate funded loans within the ACL model. These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts, average portfolio life, etc. Refer to Note 1, Summary of Significant Accounting Policies, in Item 8. Financial Statements and Supplementary Data for our ACL Policy, contained in our Annual Report on Form 10-K for the year ended December 31, 2024. Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain CRE loans. The proportion of these segments affect the weighting. Third, volume changes impact the total reserve calculation.
Net charge-offs were $0.2 million for the three and six months ended June 30, 2025 compared to $0.3 million and $0.9 million for the same periods in 2024, respectively. As a percentage of average portfolio loans, net charge-offs were 0.02% and 0.01% for the three and six months ended June 30, 2025 compared to 0.04% and 0.05% for the same periods in 2024, respectively.
At June 30, 2025, NPLs decreased $8.8 million since December 31, 2024. NPLs as a percentage of total portfolio loans were 6.69% and 7.15% as of June 30, 2025 and December 31, 2024, respectively.
The following table summarizes portfolio loans past due 30-89 days for the periods presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | $ Change | |||||||||||||||||
| Loans 30 to 89 Days Past Due | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| Commercial Real Estate | $ | 8,047 | $ | 2,642 | $ | 5,405 | ||||||||||||||
| Commercial & Industrial | 216 | 180 | 36 | |||||||||||||||||
| Total Commercial Loans | 8,263 | 2,822 | 5,441 | |||||||||||||||||
| Consumer | ||||||||||||||||||||
| Residential Mortgages | 3,159 | 917 | 2,242 | |||||||||||||||||
| Other Consumer | 228 | 306 | (78) | |||||||||||||||||
| Total Consumer Loans | 3,387 | 1,223 | 2,164 | |||||||||||||||||
| Construction | 4,598 | 783 | 3,815 | |||||||||||||||||
| Other | — | — | — | |||||||||||||||||
| Total Loans 30 to 89 Days Past Due | $ | 16,248 | $ | 4,828 | $ | 11,420 | ||||||||||||||
Portfolio loans past due 30 to 89 days or more and still accruing increased $11.4 million to $16.2 million at June 30, 2025 compared to $4.8 million at December 31, 2024. The increase is primarily attributable to $8.2 million of performing CRE loans that had matured at June 30, 2025, but had not yet been extended or renewed. Also contributing to the increase are several credits in residential mortgages with four loans totaling $2.4 million and an additional credit of $4.5 million in the construction segment.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The following tables represent credit exposures by internally assigned risk ratings at the dates presented:
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgages | Other Consumer | Construction | Other | Total | |||||||||||||||||||||||||||||||||||||
| Pass | $ | 1,991,101 | $ | 218,914 | $ | 809,956 | $ | 27,962 | $ | 437,743 | $ | 3,181 | $ | 3,488,857 | ||||||||||||||||||||||||||||||
| Special Mention | 52 | 1,878 | 90 | — | 705 | — | 2,725 | |||||||||||||||||||||||||||||||||||||
| Substandard | 9,613 | 1,088 | 4,142 | 29 | 5,125 | 235,542 | 255,539 | |||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | 2,000,766 | $ | 221,880 | $ | 814,188 | $ | 27,991 | $ | 443,573 | $ | 238,723 | $ | 3,747,121 | ||||||||||||||||||||||||||||||
| Performing Loans | $ | 1,991,153 | $ | 220,832 | $ | 810,046 | $ | 27,962 | $ | 443,366 | $ | 3,181 | $ | 3,496,540 | ||||||||||||||||||||||||||||||
| Nonaccrual Loans | 9,613 | 1,048 | 4,142 | 29 | 207 | 235,542 | 250,581 | |||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | 2,000,766 | $ | 221,880 | $ | 814,188 | $ | 27,991 | $ | 443,573 | $ | 238,723 | $ | 3,747,121 | ||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Commercial Real Estate | Commercial & Industrial | Residential Mortgages | Other Consumer | Construction | Other | Total | |||||||||||||||||||||||||||||||||||||
| Pass | $ | 1,860,313 | $ | 227,412 | $ | 772,514 | $ | 28,888 | $ | 458,223 | $ | 3,221 | $ | 3,350,571 | ||||||||||||||||||||||||||||||
| Special Mention | 2,460 | — | 92 | — | 4,479 | — | 7,031 | |||||||||||||||||||||||||||||||||||||
| Substandard | 7,058 | 3,071 | 4,865 | 20 | 228 | 251,982 | 267,224 | |||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | 1,869,831 | $ | 230,483 | $ | 777,471 | $ | 28,908 | $ | 462,930 | $ | 255,203 | $ | 3,624,826 | ||||||||||||||||||||||||||||||
| Performing Loans | $ | 1,868,655 | $ | 229,405 | $ | 772,606 | $ | 28,888 | $ | 462,702 | $ | 3,221 | $ | 3,365,477 | ||||||||||||||||||||||||||||||
| Nonaccrual Loans | 1,176 | 1,078 | 4,865 | 20 | 228 | 251,982 | 259,349 | |||||||||||||||||||||||||||||||||||||
| Total Portfolio Loans | $ | 1,869,831 | $ | 230,483 | $ | 777,471 | $ | 28,908 | $ | 462,930 | $ | 255,203 | $ | 3,624,826 | ||||||||||||||||||||||||||||||
At June 30, 2025 and December 31, 2024, the Company had no loans that were risk rated as doubtful. Special mention and substandard loans at June 30, 2025 decreased compared to December 31, 2024, with a decrease of $11.7 million in substandard and a decrease of $4.3 million in special mention. The decrease of $11.7 million in substandard was primarily related to the previously mentioned $16.4 million curtailment payments received during the six months ended June 30, 2025 and a $1.4 million CRE relationship that paid off during the six months ended June 30, 2025, partially offset by a CRE relationship, consisting of four loans totaling $9.5 million that were downgraded during the six months ended June 30, 2025. At June 30, 2025 and December 31, 2024 substandard loans were impacted by the above mentioned large nonaccrual credit relationship in the Other loan category, which was placed on nonaccrual status during the second quarter of 2023.
Refer to Note 5, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s ACL.
Deposits
The following table presents the composition of deposits at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | $ Change | % Change | ||||||||||||||||||||||
| Noninterest-Bearing Demand | $ | 635,192 | $ | 634,436 | $ | 756 | 0.12 | % | ||||||||||||||||||
| Interest-Bearing Demand | 805,013 | 726,947 | 78,066 | 10.74 | % | |||||||||||||||||||||
| Money Market | 544,764 | 512,162 | 32,602 | 6.37 | % | |||||||||||||||||||||
| Savings | 343,659 | 355,506 | (11,847) | (3.33) | % | |||||||||||||||||||||
| Certificates of Deposit | 1,893,611 | 1,924,370 | (30,759) | (1.60) | % | |||||||||||||||||||||
| Total Deposits | $ | 4,222,239 | $ | 4,153,421 | $ | 68,818 | 1.66 | % | ||||||||||||||||||
Deposits are the Company’s primary source of funds. The Company believes that the deposit base is stable and that the Company has the ability to attract new depositors while diversifying the deposit composition. Total deposits at June 30, 2025, increased $68.8 million, primarily due to $55.9 million of deposits assumed in the Branch Purchase. The decrease in savings
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was primarily due to customers preferences shifting to higher-yielding deposit products or repositioning funds into transactional deposit accounts. The decrease in certificates of deposit was primarily due to clients diversifying a portion of their deposits into more liquid, interest-bearing demand and money market products.
At June 30, 2025, noninterest-bearing deposits comprised 15.0% of total deposits compared to 15.3% at December 31, 2024. CDs comprised 44.8% and 46.3% of total deposits at June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 81.5% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits, and approximately 18.5% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit. The Company’s deposit base is diversified and granular and is comprised of approximately 78.0% of retail deposits.
The following table presents additional information in relation to deposits at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Deposits from the CDARS | $ | — | $ | — | ||||||||||
| Noninterest-Bearing Public Funds Deposits | 41,896 | 55,385 | ||||||||||||
| Interest-Bearing Public Funds Deposits | 125,429 | 125,342 | ||||||||||||
Total Deposits not Covered by Deposit Insurance1 | 782,490 | 762,937 | ||||||||||||
| Certificates of Deposits not Covered by Deposit Insurance | 300,214 | 297,938 | ||||||||||||
| Deposits for Certain Directors, Executive Officers and their Affiliates | 2,680 | 2,305 | ||||||||||||
1These deposits are presented on an estimated basis. This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements.
Maturities of CDs over $250,000 or more, excluding brokered deposits, not covered by deposit insurance at June 30, 2025 are summarized as follows:
| (Dollars in Thousands) | Amount | Percent | ||||||||||||
| Three Months or Less | $ | 118,886 | 39.6 | % | ||||||||||
| Over Three Months Through Twelve Months | 124,155 | 41.3 | % | |||||||||||
| Over Twelve Months Through Three Years | 55,440 | 18.5 | % | |||||||||||
| Over Three Years | 1,733 | 0.6 | % | |||||||||||
| Total | $ | 300,214 | 100.0 | % | ||||||||||
FHLB Borrowings and Federal Funds Purchased
Information pertaining to FHLB borrowings and federal funds purchased at the dates presented are summarized in the table below:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||||||||
| Balance at Period End | ||||||||||||||||||||
| Federal Home Loan Bank Borrowings | $ | 113,500 | $ | 70,000 | ||||||||||||||||
| Federal Funds Purchased | — | — | ||||||||||||||||||
| Average Balance during the Period | ||||||||||||||||||||
| Federal Home Loan Bank Borrowings | $ | 89,400 | $ | 222,719 | ||||||||||||||||
| Federal Funds Purchased | — | — | ||||||||||||||||||
| Average Interest Rate during the Period | ||||||||||||||||||||
| Federal Home Loan Bank Borrowings | 4.26 | % | 5.11 | % | ||||||||||||||||
| Federal Funds Purchased | — | % | — | % | ||||||||||||||||
| Maximum Month-end Balance during the Period | ||||||||||||||||||||
| Federal Home Loan Bank Borrowings | $ | 113,500 | $ | 403,000 | ||||||||||||||||
| Federal Funds Purchased | — | — | ||||||||||||||||||
| Average Interest Rate at Period End | ||||||||||||||||||||
| Federal Home Loan Bank Borrowings | 4.33 | % | 4.02 | % | ||||||||||||||||
| Federal Funds Purchased | — | % | — | % | ||||||||||||||||
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Borrowings are an additional source of liquidity for the Company. FHLB borrowings increased $43.5 million to $113.5 million at June 30, 2025 from $70.0 million at December 31, 2024 primarily due to additional FHLB advances to fund loan growth. The Company had no overnight federal funds purchased at June 30, 2025 or at December 31, 2024. The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan growth, investment securities, deposit growth and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity.
The Company held FHLB of Atlanta stock of $8.7 million and $6.5 million at June 30, 2025 and December 31, 2024, respectively. The increase in FHLB stock was due to a higher required level of stock holdings due to a higher level of FHLB borrowings. Dividends recorded on restricted stock were $0.1 million and $0.3 million for the three and six months ended June 30, 2025, respectively, compared to $0.3 million and $0.7 million for the same periods in 2024, respectively. The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Atlanta. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.
Refer to Note 9, Federal Home Loan Bank Borrowings and Federal Funds Purchased, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s borrowings.
Liquidity and Capital Resources
Liquidity
Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk the Company’s Board has delegated authority to ALCO for formulation, implementation and oversight of liquidity risk management for the Company. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO closely monitors and manages liquidity by reviewing cash flow projections, performing balance sheet stress tests and by maintaining a detailed contingency funding plan that includes specific liquidity measures that are reviewed by the ALCO monthly. Our liquidity policy and contingency funding plan provide graduated risk tolerance levels for multiple liquidity measures and potential liquidity environments. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.
The Company’s primary funding and liquidity source is a stable customer deposit base. Management believes that we have the ability to retain existing deposits and attract new deposits, mitigating any potential funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Company has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0% of the Company’s assets or approximating $1.2 billion, subject to the amount of eligible collateral pledged, of which the Company is eligible to borrow up to an additional $732.0 million at June 30, 2025. 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, and the brokered deposit market. The Company did not have outstanding borrowings on these facilities as of June 30, 2025. In addition to the above funding resources, the Company also has $438.8 million of unpledged available-for-sale investment securities, at fair value, at June 30, 2025 as an additional source of liquidity. Please refer to the Liquidity Sources table below for available funding with the FHLB and our secured and unsecured lines of credit with correspondent banks. As of June 30, 2025, approximately 81.5% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits, and approximately 18.5% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity and will use other borrowing means or other liquidity and funding strategies and sources to fund its liquidity needs as needed. The Company is also closely tracking the potential impacts on the Company’s liquidity of declines in the fair value of the Company’s securities portfolio due to fluctuations in interest rates and developments in the financial markets, and in light of developments in the banking industry that may change the availability of traditional sources of liquidity or market expectations with respect to available sources and amounts of additional liquidity.
An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets or assets that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. At June 30, 2025, the Bank had $491.0 million in highly liquid assets, which consisted of Federal Reserve Board Excess Reserves and interest-bearing deposits in other financial institutions of $51.9 million, loans held-for-sale of $0.3 million and $438.8 million in unpledged securities. This resulted in highly liquid assets to total assets ratio of 10.3% at June 30, 2025. Total available liquidity to uninsured deposits was 179.6% at June 30, 2025.
If an extended recession, or significant industry or market volatility, caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
The following table provides detail of liquidity sources at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Cash and Due From Banks, including Interest-bearing Deposits | $ | 99,905 | $ | 131,171 | ||||||||||
| Unpledged Investment Securities | 438,823 | 418,350 | ||||||||||||
| Excess Pledged Securities | 59,839 | 33,022 | ||||||||||||
| FHLB Borrowing Availability | 731,967 | 735,294 | ||||||||||||
| Collateralized Lines of Credit | 45,000 | 45,000 | ||||||||||||
| Unsecured Lines of Credit Availability | 30,000 | 30,000 | ||||||||||||
| Total Liquidity Sources | $ | 1,405,534 | $ | 1,392,837 | ||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The following table provides total liquidity sources and ratios at the dates presented:
| (Dollars in Thousands) | June 30, 2025 | December 31, 2024 | ||||||||||||
| Total Liquidity Sources | $ | 1,405,534 | $ | 1,392,837 | ||||||||||
Highly Liquid Assets1 to Total Assets | 10.3 | % | 10.9 | % | ||||||||||
Highly Liquid Assets1 to Uninsured Deposits | 62.7 | % | 66.8 | % | ||||||||||
| Total Available Liquidity to Uninsured Deposits | 179.6 | % | 182.6 | % | ||||||||||
1 Highly liquid assets consist of $51.9 million in Federal Reserve Board excess reserves and interest-bearing deposits in other financial institutions, $0.3 million in loans held-for-sale and $438.8 million in unpledged securities.
Capital Resources
The Company reviews, on an ongoing basis, its and the Bank’s capital levels and opportunities to effectively deploy the Company’s capital or return capital to shareholders through stock repurchases or potential dividends. The following table summarizes the actual risk-based capital amounts and ratios for the Company and the Bank at the dates presented:
| (Dollars in Thousands) | Minimum Required Basel III | Well Capitalized 1 | June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||||||||
| Carter Bankshares, Inc. | ||||||||||||||||||||||||||||||||||||||
| Leverage Ratio | 4.00 | % | NA | $ | 455,619 | 9.46 | % | $ | 448,834 | 9.56 | % | |||||||||||||||||||||||||||
| Common Equity Tier 1 (to Risk-weighted Assets) | 7.00 | % | NA | 455,619 | 10.87 | % | 448,834 | 10.88 | % | |||||||||||||||||||||||||||||
| Tier 1 Capital (to Risk-weighted Assets) | 8.50 | % | NA | 455,619 | 10.87 | % | 448,834 | 10.88 | % | |||||||||||||||||||||||||||||
| Total Capital (to Risk-weighted Assets) | 10.50 | % | NA | 508,298 | 12.12 | % | 500,759 | 12.13 | % | |||||||||||||||||||||||||||||
| Carter Bank & Trust | ||||||||||||||||||||||||||||||||||||||
| Leverage Ratio | 4.00 | % | 5.00 | % | $ | 444,729 | 9.25 | % | $ | 441,916 | 9.42 | % | ||||||||||||||||||||||||||
| Common Equity Tier 1 (to Risk-weighted Assets) | 7.00 | % | 6.50 | % | 444,729 | 10.62 | % | 441,916 | 10.72 | % | ||||||||||||||||||||||||||||
| Tier 1 Capital (to Risk-weighted Assets) | 8.50 | % | 8.00 | % | 444,729 | 10.62 | % | 441,916 | 10.72 | % | ||||||||||||||||||||||||||||
| Total Capital (to Risk-weighted Assets) | 10.50 | % | 10.00 | % | 497,360 | 11.87 | % | 493,760 | 11.98 | % | ||||||||||||||||||||||||||||
1 To be “well capitalized” under the prompt corrective action framework applies to the Bank only.
Total capital of $405.6 million at June 30, 2025, reflects an increase of $21.3 million compared to December 31, 2024. The increase in total capital from December 31, 2024 is primarily due to net income of $17.5 million, an increase of $12.3 million in other comprehensive income due to positive changes in fair value of investment securities, partially offset by $9.2 million related to the repurchase of common stock that includes a 1% excise tax. The remaining difference of $0.7 million related to restricted stock activity during the six months ended June 30, 2025.
The Company and the Bank are subject to various capital requirements administered by the federal banking regulators. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulations to ensure capital adequacy require us to maintain minimum amounts and ratios.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At June 30, 2025 and December 31, 2024, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
The Company remains well capitalized. The Tier 1 capital ratio was 10.87% at June 30, 2025 compared to 10.88% at December 31, 2024. The leverage ratio was 9.46% at June 30, 2025, compared to 9.56% at December 31, 2024 and the total risk-based capital ratio was 12.12% at June 30, 2025 compared to 12.13% at December 31, 2024.
The Bank also remained well capitalized as of June 30, 2025. The Bank’s Tier 1 capital ratio was 10.62% at June 30, 2025 compared to 10.72% at December 31, 2024. The Bank’s leverage ratio was 9.25% at June 30, 2025 compared to 9.42% at December 31, 2024. The Bank’s total risk-based capital ratio was 11.87% at June 30, 2025 compared to 11.98% at December 31, 2024. At June 30, 2025, the Bank continues to maintain its capital position with a leverage ratio of 9.25% compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 7.00% compared to the regulatory guideline of 6.50% to be well-capitalized. The Company’s risk-based Tier 1 and Total Capital ratios place them above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00% and 10.00%, respectively. We believe that we have the ability to raise additional capital, if necessary.
The Basel rules permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.
The Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum, but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.
Stock Repurchase Plan
On May 20, 2025, the Company announced that its Board had authorized, effective May 1, 2025, a common share repurchase program to purchase up to $20.0 million of the Company’s common stock in the aggregate through May 1, 2026 (the “2025 Program”), subject to receipt of non-objection from the Federal Reserve Bank of Richmond, which was received on May 19, 2025. The 2025 Program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Exchange Act. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the 2025 Program, and the number of shares actually purchased under the 2025 Program, will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements. The 2025 Program does not obligate the Company to purchase any particular number of shares and may be modified of terminated by the Board at any time. As of June 30, 2025, the Company repurchased 547,332 shares of its common stock at a total cost of $9.1 million and an weighted average cost per share of $16.70.
Contractual Obligations
As of June 30, 2025, there have been no material changes to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 ( the “2024 Annual Report”).
Off-Balance Sheet Arrangements
As of June 30, 2025, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Off-Balance Sheet Arrangements" in the Company’s 2024 Annual Report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions, market risk arises primarily from interest rate risk inherent in lending, investment, and deposit-taking activities. Interest rate risk can arise from timing differences in the repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time, depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve, where interest rates increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk).
Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value. However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity, and solvency. The Company’s ALCO is responsible for the reviewing the interest rate sensitivity position of the institution, establishing policies to monitor and limit exposure to this type of risk, and employing strategies to ensure our asset-liability structure produces the maximum yield-cost spread available based on current market conditions. The Company’s Investment / Interest Rate Risk Committee, a committee of the Board of Directors, reviews and approves the policies established by ALCO.
Earnings Simulation Modeling
The ALCO uses an asset liability model (“ALM”) to forecast earning simulations that measure the sensitivity of net interest income to changes in interest rates. The ALM calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that support the ALM process. The ALCO derives the assumptions used in the ALM from historical trends and management’s outlook, including expected loan growth, loan prepayment rates, deposit growth rates, changes to deposit product betas and non-maturity deposit decay rates, and projected yields and rates. The ALM assumes that all maturities, calls, and prepayments in the securities portfolio are reinvested in like instruments. These assumptions may not be realized and unanticipated events and circumstances may also occur that cause the assumptions to be inaccurate. The ALM also does not take into account any future actions management may take to mitigate the impact of unforeseen interest rate changes. A sensitivity analysis for deposit betas, deposit decay rates and loan prepayment speeds is performed at least annually within the ALM to help ALCO better understand the impact of these critical assumptions on the ALM results. The ALCO reviews the assumptions of the ALM at least quarterly and periodically adjusts them when deemed appropriate.
The ALCO also uses different interest rate scenarios and shifts in yield curve shapes to measure the sensitivity of earnings to various interest rate environments. Interest rates on unique asset and liability accounts move differently when the short-term market rate changes. These differences are reflected in the different rate scenarios utilized by the ALM. For earning simulations, our policy guidelines limit the change in net interest income over a 12-month and 24-month horizon using rate shocks of +/- 100, 200, 300, 400 basis points and for non-parallel yield curve shift scenarios. We have temporarily suspended the + 300 and + 400 basis point rate shock analyses. Due to the FOMC’s action taken at their last three scheduled meetings of 2024 to reduce the Fed Funds Target Rate range by an aggregate of 100 bps from 5.25% - 5.50% to 4.25% - 4.50% coupled with current rate forecasts that imply that the FOMC is unlikely to increase the Fed Funds Target Rate during 2025 and 2026, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position nor does it project a probable interest rate environment for the foreseeable future.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following tables reflect the earnings simulation results at the dates presented utilizing a forecasted static balance sheet over the next twelve months. All percentage changes presented are within prescribed ranges set by ALCO.
| June 30, 2025 | December 31, 2024 | |||||||||||||
| Change in Interest Rate (basis points) | % Change in Pretax Net Interest Income | % Change in Pretax Net Interest Income | ||||||||||||
| 200 | (0.5)% | 1.9% | ||||||||||||
| 100 | (0.1)% | 1.1% | ||||||||||||
| -100 | 2.8% | 2.1% | ||||||||||||
| -200 | 5.8% | 4.6% | ||||||||||||
| -300 | 7.4% | 6.8% | ||||||||||||
| -400 | 6.3% | 6.6% | ||||||||||||
The results from the earnings simulation imply that the Company’s balance sheet is liability sensitive at June 30, 2025 and December 31, 2024. The above table indicates that as of June 30, 2025, in a rising interest rate environment, the Company is positioned to have a small decrease in net interest income due to the balance sheet composition, related maturity structures, and repricing correlations to market interest rates for assets and liabilities. In a declining interest rate environment, the Company is positioned to have an increase in net interest income for the same period driven by the same factors discussed above and below. The liability sensitive position at June 30, 2025 is due to a variety of factors which include 1) higher than market rate unfunded loan commitments that were originated during 2024 with fixed rates that are assumed to draw down, or convert to funded loan balances, during the next twelve months, 2) shortening maturities of the time deposit portfolio due to shorter term time deposit promotional campaigns in response to the recent inverted yield curve, and 3) more aggressive non maturing deposit betas utilized in a rates down environment versus a rates up environment based on bank specific non-maturing deposit rate beta assumptions observed during the most recent rate cycle.
Economic Value of Equity Modeling
Economic value of equity simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. The ALM calculates the economic value of equity based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value of equity over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The Company uses the same assumptions in the economic value of equity simulation model as in the earnings simulation model. The economic value of equity simulation model uses instantaneous rate shocks to the balance sheet. For economic value of equity simulation, our policy guidelines limit the change in economic value of equity given changes in rates of +/- 100, 200, 300, 400 basis points and for non-parallel yield curve shift scenarios. We have temporarily suspended the + 300 and + 400 basis point rate shock analyses. Due to the FOMC’s action taken at their last three scheduled meetings of 2024 to reduce the Fed Funds Target Rate range by 100 bps from 5.25% - 5.50% to 4.25% - 4.50% coupled with current rate forecasts that imply that the FOMC is unlikely to increase the Fed Funds Target Rate during 2025 and 2026, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position nor does it project a probable interest rate environment for the foreseeable future.
Results for the economic value of equity modeling are driven primarily by the shape of the underlying yield curves and option-adjusted spreads used to discount the projected cash flows of assets and liabilities, and the assumed life span of the assets and liabilities being discounted.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (continued)
The following tables reflect the economic value of equity analyses results at the dates presented. All percentage changes presented are within prescribed ranges set by management.
| June 30, 2025 | December 31, 2024 | |||||||||||||
| Change in Interest Rate (basis points) | % Change in Economic Value of Equity | % Change in Economic Value of Equity | ||||||||||||
| 200 | (8.0) | % | (8.3) | % | ||||||||||
| 100 | (3.3) | % | (3.3) | % | ||||||||||
| -100 | 2.3 | % | 2.4 | % | ||||||||||
| -200 | 3.4 | % | 3.8 | % | ||||||||||
| -300 | 0.6 | % | 2.9 | % | ||||||||||
| -400 | (8.0) | % | (1.9) | % | ||||||||||
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2025. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to the Company’s management, including our CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.
Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective in all material respects, as of the end of the period covered by this Report.
Changes in Internal Control Over Financial Reporting
No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2025 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty. As of June 30, 2025, the Company is not involved in any material pending or threatened legal proceedings other than proceedings occurring in the ordinary course of business.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors faced by the Company from those disclosed in our 2024 Annual Report on Form 10-K.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 20, 2025, the Company announced that its Board had authorized, effective May 1, 2025, a common share repurchase program to purchase up to $20.0 million of the Company’s common stock in the aggregate through May 1, 2026 (the “2025 Program”) subject to receipt of non-objection from the Federal Reserve Bank of Richmond, which was received on May 19, 2025. The 2025 Program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Exchange Act. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the 2025 Program, and the number of shares actually purchased under the 2025 Program, will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements. The 2025 Program does not obligate the Company to purchase any particular number of shares and may be modified of terminated by the Board at any time. As of June 30, 2025, the Company repurchased 547,332 shares of its common stock at a total cost of $9.1 million and a weighted average cost per share of $16.70.
The following table provides information regarding the Company’s purchases of its common stock during the quarter ended June 30, 2025:
| Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||
| Period | Total Number of Shares Purchased1 | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum number (or approximate dollar value) of Shares that may yet be purchased under the plans or programs2 | ||||||||||||||||||||||
| 04/01/2025 - 04/30/2025 | 2,980 | $14.71 | — | $20,000,000 | ||||||||||||||||||||||
| 05/01/2025 - 05/31/2025 | 96,439 | 16.35 | 94,200 | 18,458,003 | ||||||||||||||||||||||
| 06/01/2025 - 06/30/2025 | 453,132 | 16.77 | 453,132 | 10,861,190 | ||||||||||||||||||||||
| Total | 552,551 | $16.68 | 547,332 | |||||||||||||||||||||||
1 Reflects 5,219 shares that were withheld upon vesting of restricted shares granted to employees of the Company in order to satisfy tax withholding obligations and 547,332 shares repurchased during the period under the 2025 Program.
2 The number shown represents, as of the end of each period, the approximate dollar value of Common Stock shares that may yet be purchased under the 2025 Program, which was announced on May 20, 2025 and authorizes the purchase of up to $20.0 million of the Company’s common stock in the aggregate through May 1, 2026. The shares may be purchased, from time-to-time, depending on a variety of factors.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted terminated
ITEM 6. EXHIBITS.
Exhibits:
3.1 | Articles of Incorporation of Carter Bankshares, Inc., effective October 7, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020) | ||||
3.2 | Bylaws of Carter Bankshares, Inc., as adopted October 28, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020) | ||||
31.1 | Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith) | ||||
31.2 | Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith) | ||||
32 | Certification by principal executive officer and principal financial officer pursuant to 18 U.S.C. §1350 (furnished herewith) | ||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101) | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CARTER BANKSHARES, INC. | ||||||||
| (Registrant) | ||||||||
| By: | /s/ Litz H. Van Dyke | |||||||
| Name: | Litz H. Van Dyke | |||||||
| Title: | Chief Executive Officer (Principal Executive Officer) | |||||||
| Date: | August 4, 2025 | |||||||
| By: | /s/ Wendy S. Bell | |||||||
| Name: | Wendy S. Bell | |||||||
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |||||||
| Date: | August 4, 2025 | |||||||
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Carter Bankshares Inc
NASDAQ:CARE
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Jul 28, 2025
[8-K] Carter Bankshares, Inc. Reports Material Event
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[8-K] Carter Bankshares, Inc. Reports Material Event
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389.69M
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48.82%
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Banks - Regional
National Commercial Banks
United States
MARTINSVILLE