Carter Bankshares (CARE -1.02%), a regional bank focused on commercial and consumer lending across Virginia and the Carolinas, released its earnings for Q2 2025 on July 24, 2025. The most notable news was a strong beat on reported earnings per share (GAAP), which landed at $0.37 in Q2 2025 -- outpacing the consensus forecast of $0.34 (GAAP). The quarter showed improved net interest margin and credit metrics, though revenue headwinds and efficiency challenges remain.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP) | $0.37 | $0.34 | $0.21 | 76.2% |
| Net Interest Margin (Non-GAAP) | 2.82% | N/A | 2.56% | 0.26 pp |
| Pre-tax Pre-Provision Income (Non-GAAP) | $8.0 million | N/A | $6.2 million | 29.0% |
| Efficiency Ratio (GAAP) | 78.63% | N/A | 81.62% | (2.99) pp |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Overview of Carter Bankshares’s Business
The company operates as a regional bank serving communities in Virginia and North Carolina. Its core business centers on providing commercial real estate loans, residential mortgages, and deposit products through a branch network. The bank has focused on differentiating itself through brand enhancement and personalized relationships, hoping to stand out from larger rivals and non-bank lenders.
In recent years, the company has sharpened its strategy around expanding market presence, attracting new commercial loan clients, and returning capital to shareholders via stock buybacks. Critical success factors include maintaining strong credit quality, adhering to regulatory standards, building effective teams, and ensuring its capital position can fund both organic growth and branch acquisitions. Competitiveness, human capital, and regulatory compliance remain central to its operating model.
Quarter Highlights and Financial Developments
The quarter was mixed but showed improvement versus last year. EPS (GAAP) of $0.37 surpassed analyst expectations, largely due to a lower provision for credit losses and stronger net interest margins in Q2 2025. However, an outcome shaped by the lingering effects of nonperforming loans -- especially the ongoing exposure to the Justice Entities relationship. This loan relationship, which sits in the "Other" category of Carter’s portfolio, represented $235.5 million in principal as of Q2 2025. and accounted for about 94.0% of nonperforming loans (NPLs) at June 30, 2025.
Carter’s asset quality improved during the period. Nonperforming loans dropped to $250.6 million, down from $300.2 million in Q2 2024. The largest problematic loan, tied to the Justice Entities, received $66.4 million in curtailment payments from June 30, 2023 to June 30, 2025, shrinking the exposure and pushing NPLs down as a percentage of total loans from 8.46% in Q2 2024 to 6.69% in Q2 2025. The allowance for credit losses stood at $71.0 million, equal to 1.90% of total loans as of Q2 2025. The provision for credit losses (GAAP) actually flipped to a net recovery in Q2 2025, supporting profits.
Commercial real estate loans -- Carter’s largest business -- rose to $2.00 billion, up from $1.80 billion in Q2 2024, reflecting ongoing momentum in that segment. Residential mortgages increased by $30.3 million from June 30, 2024 to June 30, 2025. Deposit growth appeared robust on the surface, rising to $4.22 billion from $3.88 billion (GAAP) in Q2 2025. However, this growth resulted from a completed branch acquisition in North Carolina, adding $55.9 million in new deposits in Q2 2025. Excluding this acquisition, core deposits actually declined as several large commercial clients repositioned funds in Q2 2025. This contributed to an increased reliance on wholesale funding, with Federal Home Loan Bank borrowings rising to $113.5 million at Q2 2025.
Net interest margin -- a key profitability measure that compares interest income earned to interest paid on deposits -- expanded to 2.82% (non-GAAP, FTE basis) in Q2 2025. This boost came in part from declines in funding costs following rate cuts by the Federal Reserve in late 2024. Despite higher net interest income, Carter continued to see substantial negative impact from the nonaccrual status of the Justice Entities loans, which reduced interest income by $6.7 million in Q2 2025.
Noninterest income (GAAP) fell 11.3% from last year to $4.9 million in Q2 2025, with a sharp drop quarter over quarter due to the absence of a one-time $1.9 million death benefit gain recorded in Q1 2025. Other declines stemmed from lower insurance commissions and softer other fee revenue in Q2 2025. Operating costs rose to $29.3 million in Q2 2025, with specific expense drivers including higher salary costs from the new branches and increased legal fees. Although the efficiency ratio (GAAP) improved to 78.63% in Q2 2025 from 81.62% in Q2 2024.
On the strategic front, Carter completed the purchase of two branch offices from First Reliance Bank, bolstering its North Carolina presence and adding 10 new associates. It also aggressively returned capital through stock repurchases: 547,332 shares bought as of June 30, 2025 at an average price of $16.70, at a total cost of $9.1 million out of a $20 million approved program. Capital ratios slipped slightly due to buybacks but remain "well-capitalized" by regulatory standards as of Q2 2025.
Looking Ahead
Management signaled confidence for the rest of FY2025, pointing to a healthy loan pipeline—especially in construction lending, which is expected to begin contributing more meaningfully over the next 12 to 18 months. The company remains sensitive to Federal Reserve rate moves, stressing that its short-term certificate of deposit portfolio should benefit from additional rate cuts, as noted by management in Q2 2025. No precise quantitative guidance was offered for revenue, EPS, or loan growth. The focus remains on deposit retention, further credit resolution, and capturing the benefits of brand investments and new branches.
Key issues for investors in coming quarters include the eventual outcome of the Justice Entities loan, trends in organic deposit growth excluding acquisitions, and Carter's ability to control expenses and improve efficiency closer to industry peer levels. Monitoring capital deployment -- especially the pace of share repurchases against ongoing credit and funding risks -- will also remain central to understanding the bank's risk profile and growth prospects.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
