Carter Bankshares (CARE) Q3 2026 earnings review
Carter Bankshares widens lending margins, but loan defaults cut profit
Carter Bankshares, a commercial bank in Virginia and North Carolina, expanded its lending spreads while new commercial loan defaults cut into quarterly profit. Net interest income rose 22% from a year ago as last quarter's bond portfolio overhaul lifted asset yields and deposit costs fell. However, the bank wrote off $12 million on two troubled commercial borrowers, so profit excluding one-offs dropped 35% from the second quarter to $8 million.
| Loans from continuing portfolio | +4.5% from a year ago (-1.7% reported) |
|---|---|
| Net interest income | $41.2M +22% from a year ago |
| Profit excluding one-offs | $7.6M -35% from last quarter (+32% YoY) |
| 12–18 month loan pipeline outlook | Unchanged construction commitments to fund |
⚖️ Verdict: 🔴 Bearish
The story got worse because commercial credit losses and rising staff pay offset the gains from earlier balance-sheet cleanup. Chief executive Litz H. Van Dyke called the loan write-offs isolated headwinds, yet a sudden borrower bankruptcy forced a $10 million credit provision while employee compensation jumped $2 million. On the positive side, the continuing loan book grew 5% from a year ago despite heavy early payoffs, and the bank launched a nationwide small-business lending team.
The question now is whether third-quarter loan write-offs were a one-time cleanup of two bad relationships or the start of wider stress across the commercial loan book. If credit losses return to normal, the higher lending margin will flow straight to profit; if more commercial appraisals fall, provisions will keep eating up the spread gains. Fourth-quarter nonaccrual additions and charge-offs will tell.
🐂 Bull Case
Bond Overhaul and Cheaper Deposits Lifted Lending Spreads
Carter Bankshares makes most of its money from net interest income, the gap between what it earns on loans and bonds and what it pays on deposits. During the second quarter, the bank sold $139.4 million of low-yielding bonds and bought $88.5 million of higher-yielding ones, a move aimed at "supporting the management of interest rate risk and providing additional liquidity to support organic loan growth".
- Net interest income: $41.2 million, up 22.3% from a year ago and 3.2% from last quarter
- Net interest margin on a tax-equivalent basis: 3.55%, up 0.68 percentage points from a year ago
- Yield on investment securities: 3.71%, up 0.42 percentage points from last quarter
- Cost of interest-bearing liabilities: 2.34%, down 0.36 percentage points from a year ago
That second-quarter bond swap paid off in the third quarter because higher bond yields combined with cheaper deposit funding to lift lending spreads for afourth consecutive quarter. The Virginia-based lender also cut its reliance on expensive Federal Home Loan Bank (FHLB) advances compared to last year. Because net interest income rose while credit costs jumped, core pre-tax, pre-provision profit grew 60.9% from a year ago by our math to $16.7 million.
What to watch: the cost of certificates of deposit, which fell 0.07 percentage points from last quarter to 3.22%. Further declines as these time deposits mature would show the bank can keep expanding its lending margin even if asset yields level off.
Underlying Loan Book Grew Despite Heavy Payoffs
Reported total loans fell 1.7% from a year ago to $3.77 billion because Carter Bankshares sold a $209.5 million troubled loan relationship in the first quarter. When excluding that first-quarter sale to compare the continuing portfolio, loans from businesses it held a year ago grew 4.53%, adding $163.5 million by our math.
During the third quarter, the bank added $36.0 million in net new loans even though borrowers paid off $161.0 million of existing balances early. Chief executive Litz H. Van Dyke pointed to a "healthy lending pipeline and growing momentum in small business and commercial and industrial lending". To build on that commercial demand, the lender launched a Small Business Administration (SBA) team offering government-backed 7(a) loans nationwide. Commercial and industrial balances rose 19.6% from a year ago by our math to $260.7 million.
What to watch: quarterly loan payoffs against net portfolio additions in the fourth quarter. If early payoffs slow from $161.0 million while the new SBA team starts booking loans, quarterly loan growth will accelerate above the third quarter's 3.8% annualized pace.
🐻 Bear Case
Commercial Loan Write-Offs Cut Profit by a Third
"Our core operating performance remained strong during the quarter, highlighted by continued net interest margin expansion and growth in our loan portfolio across our markets, despite some isolated credit headwinds," chief executive Litz H. Van Dyke said. Yet those credit losses were large enough to reduce net profit excluding one-offs by 34.8% from last quarter by our math, down to $7.6 million.
Carter Bankshares wrote off $12.1 million of uncollectible loans during the quarter, compared to $0.7 million of net recoveries in the second quarter. An $8.0 million write-off came from three commercial and industrial loans that stopped paying interest in the second quarter, after collection issues "including a voluntary Chapter 11 bankruptcy filing, which created uncertainty regarding the timing and magnitude of expected cash flows". Updated property appraisals also forced a $4.0 million write-off on a commercial real estate loan and a $0.9 million reserve addition on another real estate relationship.
Because the bank had only set aside $3.7 million in specific reserves for the two written-off relationships by June, it had to record a $10.5 million provision expense this quarter to replenish its allowance. Even small defaults in the commercial book can erase the earnings gain from wider lending margins.
What to watch: new nonaccrual loan additions and commercial real estate appraisals in the fourth quarter. Another round of appraisal write-downs on existing $17.5 million nonperforming commercial real estate loans would keep credit provisions elevated and depress quarterly profit.
Higher Staff Pay Pushed Operating Efficiency Backward
Banks track their cost control using the efficiency ratio, which measures noninterest operating expenses as a share of revenue; a lower figure means a more efficient bank. Excluding one-time gains and property sales, Carter Bankshares saw its adjusted efficiency ratio worsen by nearly 2 percentage points from last quarter to 64.64%.
Salaries and employee benefits drove the cost increase, rising $2.3 million from both last quarter and a year ago to $16.3 million. By our math, staff costs climbed 4.0 percentage points from last quarter to reach 34.8% of adjusted operating revenue. The company cited higher base pay, incentive bonuses, medical bills and stock grants, while FDIC deposit insurance costs also rose $0.7 million from last quarter to $0.5 million as a second-quarter credit true-up faded.
Reported operating expenses only looked lower at $29.5 million because the bank booked a one-off $0.9 million gain from selling two foreclosed properties and $0.7 million in prior-year tax refunds. Without those one-time credits, underlying overhead grew faster than revenue.
What to watch: quarterly salaries and employee benefits in the fourth quarter. If staff expenses remain above $16 million after the new SBA lending team is in place, the bank will struggle to bring its adjusted efficiency ratio below 60%.
Insurance Sale Left a Hole in Fee Income
In May 2026, Carter Bankshares sold its ownership stake in Bearing Insurance Group for a $35.9 million pre-tax gain. While that deal boosted capital in the second quarter, the third quarter showed the permanent loss of the recurring fee stream that came with it.
Total noninterest income fell 7.2% from a year ago by our math to $5.0 million. Insurance commissions dropped by $1.0 million compared to last year's third quarter, turning slightly negative at minus $34 thousand. Higher deposit account service charges added $0.6 million from a year ago to reach $2.5 million, and a bank-owned life insurance death benefit added $0.3 million, but an unrealized $0.5 million loss on equity investments wiped out that life insurance gain.
What to watch: service charges and SBA loan sale fees over the next two quarters. Unless the new SBA team begins selling guaranteed loan portions for fee gains, noninterest income will stay near $5 million a quarter and leave revenue dependent on interest spreads.
👓 Other Themes
New Dividend Reinvestment Plan Alongside Share Buybacks
Carter Bankshares bought back 74,151 shares for $2.2 million at an average price of $29.85 in the third quarter, bringing nine-month repurchases to $5.1 million under its $10 million plan. At the same time, the holding company created a Dividend Reinvestment and Stock Purchase Plan offering up to 1.0 million shares, allowing shareholders "to acquire additional shares of the Company’s common stock through the reinvestment of cash dividends and optional cash purchases".
💲 Other KPIs
Total customer deposits fell by $80.2 million from last quarter and declined 2.2% from a year ago by our math. Customers pulled $62.0 million out of certificates of deposit as the bank lowered the rates it pays. To fund loan growth and cover the deposit outflow, the bank drew down $174.8 million of cash and borrowed $20.0 million from the FHLB.
Tangible book value — net worth per share excluding goodwill and intangibles — dipped 2.0% from $24.24 last quarter, though it remains up 29.6% from $18.33 a year ago by our math due to first-half asset sale gains. The quarterly dip came from a $16.2 million increase in unrealized bond losses in accumulated other comprehensive loss, plus $1.4 million of tax credit investment write-downs in paid-in capital.
Nonperforming loans — credits that have stopped paying interest — dropped by $9.6 million from last quarter to $27.9 million, down from 1.01% of total loans in June and 6.74% a year ago. The drop happened because the lender wrote off $12.1 million of bad loans against its reserve rather than collecting cash, while two residential mortgages totaling $2.0 million entered nonaccrual status.
🔮 Guidance
Unchanged. Chief executive Litz H. Van Dyke repeated that construction loan commitments will fund over the next 12 to 18 months as building projects move forward, supporting commercial and small business growth. Carter Bankshares does not issue numerical quarterly or annual revenue or profit targets. Unfunded loan commitments sit on the balance sheet with a $2.1 million credit reserve, down slightly from $2.2 million in June.
❓ Key Questions
Why issue up to 1M DRIP shares while buying back stock?
Carter Bankshares spent $5.1 million buying back 182,752 shares at $27.86 this year, yet just registered 1.0 million shares for dividend reinvestment and optional cash purchases. Shareholders need to know if the bank plans to issue new shares or buy them on the open market.
How much tax credit amortization sits in paid-in capital?
The bank recorded a $1.4 million income tax benefit in Q3 from buying investment tax credits, while additional paid-in capital fell $1.5 million despite minimal buyback par impact. Management should clarify the accounting for these tax credit investments and their ongoing quarterly tax rate impact.
What caused the $8M C&I relationship to fail so fast?
Three commercial and industrial loans entered nonaccrual status in Q2 with a $3.1 million reserve, then filed Chapter 11 bankruptcy in Q3 and required an $8.0 million write-off. Investors need to know the industry and whether other commercial borrowers face similar cash flow pressures.
What are the production targets for the new SBA team?
The company hired an SBA 7(a) lending team to serve small businesses nationwide, which helped push quarterly salaries and benefits up $2.3 million. Management has not disclosed how many lenders joined or when SBA loan sales will replace the lost $1.0 million quarterly insurance fees.