Carter Bankshares: How a Bank Earned $100 Million Without Doing Any Banking

There is a thinking trap that works especially well on banks, because the number looks so large and so unambiguous: the record-profit trap. A bank reports $85.8 million of net income for a quarter. A year earlier it was $8.5 million. Your head computes the tenfold jump and files it under "doing well". What it never asks is where the profit came from. At Carter Bankshares, Inc. (NASDAQ: CARE), the holding company of Carter Bank & Trust in Martinsville, Virginia, three quarters of it came from two asset sales — not from banking.

So let us make a deal. Before we talk about the stock, we read together what the bank itself filed with the U.S. securities regulator, the SEC: the annual report (10-K) for 2025 of March 5, 2026, the quarterly report (10-Q) for March 31, 2026 of May 7, 2026, and the current report (8-K) of July 23, 2026 carrying the second-quarter numbers. Those documents are honest under penalty of law. And they tell a story that took three years: about a single loan that held an entire bank back, and about what happens once it is finally gone.

What this analysis covers

• What Carter Bankshares actually does
• Where the stock landed on our desk — and why the ratio misleads here
• The numbers over the years — what genuinely impresses
• What the filings say — four uncomfortable truths
• Valuation — what the market pays for a $4.8 billion bank
• Opportunities and risks at a glance
• A human conclusion
• Sources

What Carter Bankshares actually does

Carter Bankshares is an ordinary regional bank — and that is meant as a compliment. Its subsidiary Carter Bank & Trust opened for business on December 29, 2006, created by the simultaneous merger of ten Virginia banks, from Blue Ridge Bank in Floyd to Shenandoah National Bank in Staunton. It takes deposits, makes loans and lives off the difference. As of June 30, 2026 that meant $4.8 billion of assets, $4.2 billion of deposits and 63 branches in Virginia and North Carolina. As of December 31, 2025, 687 people worked there.

A look at the loan book shows what this bank is really betting on. Of $3,728.5 million of loans at March 31, 2026, $2,127.9 million were commercial real estate, $513.6 million construction, $815.3 million residential mortgages and only $245.5 million commercial and industrial. Commercial real estate and construction together are roughly 71 percent of the book. The bank knows the concentration and caps it in its own credit policy: commercial real estate at no more than 300 percent of total risk-based capital, construction at no more than 100 percent.

On the other side of the balance sheet sits a pattern that is typical for regional banks and expensive: $1,846.4 million of deposits are certificates of deposit (June 30, 2026), the portion repriced at every turn in rates. As of December 31, 2025, 71.7 percent of those certificates matured within twelve months. That is both curse and blessing: it squeezed the margin at the peak in rates and is now working in the bank's favor as rates come down.

Since October 27, 2025 the holding has been a financial holding company, and since November 13, 2025 the bank has been a member of the Federal Reserve System — both readable as preparation for growth. That frames the central tension of this analysis: this bank has just reported the best half-year in its history, and almost none of it came from banking. The question is what is left when the one-off items run out.

Where the stock landed on our desk — and why the ratio misleads here

We run roughly 3,200 stocks through our scanners every day. CARE reached the research list through our in-house K/FCF ranking — a list that sorts strictly by market value divided by trailing four-quarter free cash flow, cheapest first. On July 27, 2026 the U.S. selection held 545 hits. CARE sat in place 49 with a K/FCF of 2.2 — identical on both brands.

The scanner page, however, shows only the 25 strongest hits. CARE is not on it. Anyone wanting to find the name themselves does not use the scanner but the screener, sets the P/FCF filter to its lowest band and sorts the result by that ratio. These lists are recomputed daily — the place and the value are a dated snapshot.

And now the important part, because this is where the real lesson of this analysis sits: a K/FCF of 2.2 does not mean this bank is dirt cheap. It means the ratio measures something different at a bank than at an industrial company — and that here it is additionally distorted by a one-off transaction.

First, the structure. At a bank, operating cash flow is not what is left after all investment. It includes released loan-loss provisions — money that never flowed, it is simply no longer needed as a buffer. And it excludes a bank's actual capital deployment: lending sits in investing activities. At Carter Bankshares that was $61.4 million net in the first quarter of 2026 and $255.3 million across 2025. Ignore those lines and you mistake net interest income before credit losses for free cash flow. We took the same mechanics apart earlier in this series at a consumer lender — see our analysis of OneMain Holdings.

Second, the one-off. At CARE a second and larger distortion is layered on top. The proceeds from selling the nonperforming claims — $289.5 million — run through the cash flow statement as their own line, "Proceeds From the Transaction", inside operating activities, because the loans were reclassified to held-for-sale before the sale. First-quarter 2026 operating cash flow is therefore $303.9 million, against $6.4 million a year earlier. Here is what that looks like from the inside:

So let us recompute the ratio ourselves. Market value is roughly $753.5 million (22,162,213 shares at June 30, 2026 times the July 24, 2026 price of $34.00). Trailing four-quarter free cash flow is roughly $329 million — which produces the scanner value of about 2.3. Strip out the $289.5 million one-off and roughly $39.8 million remains, a K/FCF of about 19. Measured against completed fiscal 2025 ($39.9 million operating less $8.1 million of capital expenditure) it is about 24. Remember this: a ratio built for factories measures a bank's interest margin before credit losses — and after an asset sale it measures the sale itself.

The same applies to a second figure that sits in our data set and that we expressly do not use here: the Altman Z-score of -1.86. In the Z" variant we use, 1.1 marks the distress zone and 2.6 the safe zone, so a negative reading sounds like an alarm. It is simply meaningless: the formula measures things like working capital and revenue relative to total assets. At a deposit-funded bank, whose balance sheet is 87 percent customer deposits recorded as liabilities, those ratios carry no economic content. Two other banks have already been removed from a scanner in this series for exactly this reason. Anyone judging this bank's safety looks at bank metrics — and as of June 30, 2026 they read: Tier 1 capital ratio 14.26 percent, total risk-based capital 15.51 percent, leverage ratio 11.65 percent, equity to assets 11.23 percent, allowance for credit losses 1.48 percent of loans, nonperforming loans 1.01 percent, allowance coverage of nonperforming loans 146.88 percent. A year earlier the same figures were 10.87, 12.12, 9.46 and 8.48 percent, with coverage at 28.34 percent.

The numbers over the years — what genuinely impresses

Start with what honestly impresses: this bank made money for three straight years while dragging a boulder. Net income was $23.4 million (2023), $24.5 million (2024) and $31.4 million (2025) — earnings per share of $1.00, $1.06 and $1.38. And that was with a credit relationship of eventually $214 million paying not a single dollar of interest across the whole period.

Net interest income rose to $130.8 million in 2025 from $114.5 million, with the net interest margin improving from 2.57 to 2.82 percent. Most of that came from the funding side: the cost of interest-bearing deposits fell from 2.91 to 2.69 percent and the cost of all interest-bearing liabilities from 3.06 to 2.74 percent. In 2025 the bank also bought two North Carolina branches from First Reliance Bank, taking on $55.9 million of deposits — and no loans at all.

Then came 2026. The first half delivered $114.7 million of net income, $5.18 per diluted share. Before you extrapolate that, here are the same quarters next to the figure the company itself adjusts for one-off items:

And that is where the genuinely good news hides: the adjusted figure is growing — from $9.3 million (second quarter of 2025) through $8.6 million to $11.6 million (second quarter of 2026), roughly a quarter more year over year. The interest margin is climbing sharply too: from 2.80 percent to 3.38 percent across four quarters, with quarterly net interest income up from $32.4 million to $40.0 million. The adjusted efficiency ratio improved from 75.55 to 62.66 percent.

What the filings say — four uncomfortable truths

No. 1: Three quarters of first-half profit came from two asset sales

The bank puts it plainly enough in its own release that it deserves quoting:

"As a result of the successful completion of the Insurance Transaction and the sale of the large nonperforming credit relationship (“Loan Sale Transaction”) during the first quarter of 2026, the Company generated approximately $100.9 million of aggregate nonrecurring gains during the first six months of 2026."

— Carter Bankshares, Inc., SEC current report 8-K of July 23, 2026, Exhibit 99.1

The two building blocks: $80.0 million of net gain from the first-quarter loan sale ($65.0 million gain on sale plus $15.0 million of recoveries on previously charged-off amounts) and $35.9 million of pre-tax gain from selling insurance subsidiary Bearing Insurance Group, LLC effective May 1, 2026. Against that: a $12.5 million pre-tax loss from repositioning the securities portfolio in the second quarter. Of the $114.7 million of first-half profit, $20.2 million remains on an adjusted basis.

In fairness: the repositioning was a deliberate decision with a defensible purpose. The bank sold securities with $139.4 million of book value yielding 2.28 percent — 18.7 percent of the portfolio — and bought roughly $88.5 million of new paper yielding roughly 5.27 percent, all of it rated AAA or AA. Realizing a book loss to more than double the running yield is the right move. It is simply being done with money that came from a one-off.

No. 2: The problem loan sold above par

March 26, 2026 is the date that reordered this stock. What exactly happened is in the quarterly report:

"The Company received consideration of $289.5 million in cash in the Transaction. Immediately prior to the Transaction, the Judgments had an outstanding aggregate principal amount of $209.5 million, all of the Judgments were nonperforming and on nonaccrual status, and the Company had recorded a specific reserve with respect to the Judgments of $18.0 million as of December 31, 2025."

— Carter Bankshares, Inc., SEC quarterly report 10-Q for March 31, 2026, Item 2

$289.5 million for $209.5 million of principal — roughly 138 percent. For nonperforming loans that is unusual; they normally change hands at a discount. The explanation sits in the word judgments: the bank had already reduced the loans to court-awarded claims, and interest and costs keep accruing on those after judgment. The report describes the sale as an "absolute, 'as-is, where-is' sale" to an unaffiliated third party — final, no recourse, no earn-out. For the bank that means the matter is closed in both directions.

The borrower is not an anonymous entity. These were companies in which James C. Justice II holds an interest, active in hospitality, agriculture and energy. The loans were placed on nonaccrual in the second quarter of 2023 at $301.9 million, because they matured and were not repaid in full. Litigation followed in both directions: a suit by the Justice family against the bank, dismissed with prejudice in the second quarter of 2024, and a note trustee's suit, voluntarily dismissed in the third quarter of 2024. By December 31, 2025 curtailment payments of $87.9 million had reduced the balance to $214.0 million.

No. 3: The loan cost $91.2 million of interest income over three years

The remarkable thing about this exposure is not the loss — in the end there was none. It is the price of waiting, and the bank quantifies it itself:

"Since placement of these loans, now reduced to judgments, on nonaccrual status during the second quarter of 2023, interest income has been negatively impacted by $26.1 million, $35.1 million and $30.0 million during the years ended December 31, 2025, 2024 and 2023, respectively, or by $91.2 million in the aggregate."

— Carter Bankshares, Inc., SEC annual report 10-K for 2025, Item 7

$91.2 million is nearly three times full-year 2025 net income. That sum never appeared as a loss in the income statement — it was simply absent. It is the reason the interest margin is jumping now without the bank doing anything new: capital that earned nothing for three years is working again. An everyday picture: imagine a landlord whose largest apartment was tied up for three years with a tenant who could not pay. The damage appears nowhere — it only becomes visible once the apartment produces rent again.

No. 4: One concentration is gone, concentration risk is not

How large this single exposure was shows up in one line of the annual report's risk factors:

That concentration is history. Nonperforming loans fell from $250.6 million (June 30, 2025) to $24.0 million (March 31, 2026), and their share of the loan book from 6.69 to 0.64 percent. Except that by June 30, 2026 they were back at $37.6 million, or 1.01 percent. The cause is a commercial relationship of three loans totaling $13.4 million that was downgraded during the quarter. Allowance coverage fell as a result from 219.03 to 146.88 percent.

And the more fundamental concentration remains regardless: $2,127.9 million of commercial real estate loans plus $513.6 million of construction lending are roughly 71 percent of the loan book (March 31, 2026). A regional bank built this way is tied to the property market of its two states, and selling one large loan does not change that. The bank's own risk factors name rising delinquency and foreclosure rates on commercial real estate, and the value of the underlying collateral, as risks.

Valuation — what the market pays for a $4.8 billion bank

Before the arithmetic: these are dated anchors, not buy arguments. Price $34.00 (as of July 24, 2026), 22,162,213 shares (balance sheet at June 30, 2026) — a market value of roughly $753.5 million.

For banks, book value comes first. Equity stood at $539.1 million on June 30, 2026, or $24.33 per share; deduct goodwill ($1.2 million) and the core deposit intangible ($0.8 million) and tangible book value is $24.24 per share. The share price therefore equals roughly 1.4 times book. A year earlier tangible book value was $17.79 — it has risen 36 percent in twelve months, $3.49 of that from the loan sale alone and $1.28 from the insurance sale.

On earnings you have to run two calculations side by side. Against reported first-half earnings of $5.18 per share the price-to-earnings ratio would be single digit — a worthless number, because three quarters of that profit came from asset sales. Annualizing the adjusted quarterly figure of $11.6 million (roughly $2.09 per share per year) gives a multiple of about 16. On completed fiscal 2025 at $1.38 per share it is about 25. For a regional bank that is the upper end — what is being paid for is the expectation that the 3.38 percent margin holds and improves.

Return on equity shows the same thing from another angle: 22.01 percent reported for the second quarter of 2026 (annualized), roughly 8.6 percent on the adjusted figure. The professional view is unusually sober: the average analyst price target in our data set is $28 — roughly 18 percent below the July 24, 2026 price. Targets often lag price moves; here the stock has gained roughly 93 percent in twelve months and sits at the highest level in company history.

Since April 2026 there is a dividend again: $0.10 per share per quarter, declared on April 22 and again on July 22, 2026. The company itself calls it "the first quarterly cash dividend in nearly 10 years". Annualized that is $0.40, a yield of 1.22 percent against the July 22, 2026 closing price of $32.92. For a look at how differently a lending business can be valued, see our earlier piece on a Puerto Rico bank in this series, the analysis of First BanCorp.

Opportunities and risks at a glance

What speaks for Carter Bankshares:

• The legacy exposure is definitively gone. Sold as an absolute, as-is, where-is sale with no recourse: $289.5 million in cash for $209.5 million of principal. Nonperforming loans fell from $250.6 million to $37.6 million within a year.
• The interest margin is climbing hard. From 2.80 percent (second quarter of 2025) to 3.38 percent (second quarter of 2026), with quarterly net interest income up from $32.4 million to $40.0 million — 23.5 percent more year over year.
• Capital is markedly thicker. Tier 1 capital ratio of 14.26 percent against 10.87 percent a year earlier, total risk-based capital 15.51 against 12.12 percent, equity to assets 11.23 against 8.48 percent (June 30, 2026).
• Funding is relaxed. No Federal Home Loan Bank borrowings at all as of June 30, 2026 (previously $178.5 million), an additional $879.5 million of capacity there, and $105.0 million of unsecured lines with four correspondent banks.
• Adjusted profit is growing. $11.6 million in the second quarter of 2026 against $9.3 million a year earlier, with the adjusted efficiency ratio improving from 75.55 to 62.66 percent.

What speaks against it:

• Three quarters of first-half profit is non-repeatable. $114.7 million reported against $20.2 million adjusted; roughly $100.9 million came from two asset sales.
• Concentration risk remains. $2,127.9 million of commercial real estate plus $513.6 million of construction lending are roughly 71 percent of the loan book (March 31, 2026), concentrated in two states.
• Nonperforming loans are already rising again. From $24.0 million to $37.6 million within one quarter, triggered by a $13.4 million relationship; allowance coverage fell from 219.03 to 146.88 percent.
• The share price has front-run the turn. Up roughly 93 percent in twelve months to the highest level in company history, while the average analyst price target sits at $28.
• Expensive funding on the books. $1,846.4 million of certificates of deposit (June 30, 2026); as of December 31, 2025, 71.7 percent of them matured within twelve months. If rates rise again, the tailwind of recent quarters reverses.
• Unrealized losses in the securities book. As of June 30, 2026, amortized cost of $682.3 million compared with fair value of $640.3 million — $42.0 million of unrealized loss, mirrored in a negative $32.9 million equity valuation reserve.

A human conclusion

Back to the record-profit trap. For a bank this size, $85.8 million in one quarter is an exceptional number, and it is real — the money moved, $289.5 million in cash. It simply does not describe a business model; it describes the end of a problem. Valuing the stock on that number means valuing a full stop.

The more interesting number sits underneath. Adjusted quarterly profit has risen from $9.3 million to $11.6 million, the interest margin from 2.80 to 3.38 percent, the Tier 1 ratio from 10.87 to 14.26 percent. That is not a sensation; it is what happens when a bank that dragged $214 million of dead capital for three years puts it back to work. And that is precisely the open question: how much of the new margin is the loan, how much is the rate market — and what is left when the wind turns?

The share price answered before the answer existed: roughly 93 percent up in twelve months, highest level in company history, 1.4 times book. Whether that is too much or too little will be settled by a single quarter without one-off items. That quarter arrives with the next report — and you now know three numbers to measure against: a net interest margin of 3.38 percent, adjusted profit of $11.6 million and nonperforming loans of $37.6 million.

What you make of that is your decision. And that is exactly as it should be.

Sources

• SEC annual report 10-K for 2025, Carter Bankshares, Inc., filed March 5, 2026 (CIK 0001829576)
• SEC quarterly report 10-Q for March 31, 2026, filed May 7, 2026
• SEC quarterly report 10-Q for September 30, 2025, filed November 3, 2025
• SEC annual report 10-K for 2024, filed March 7, 2025
• SEC current report 8-K of July 23, 2026, Exhibit 99.1 (Item 2.02: second-quarter 2026 results)
• SEC current report 8-K of July 23, 2026 (Item 8.01: dividend declared July 22, 2026)
• SEC current report 8-K of April 23, 2026 (Item 8.01: reinstatement of the dividend)
• Fundamental data (ratios, price, analyst and valuation data; as of July 27, 2026, last price July 24, 2026)
• Our in-house stock scanner "K/FCF ranking", U.S. selection, measured July 27, 2026 on both brands

This analysis is journalistic commentary and expressly not investment advice, not a recommendation to buy or sell, and not a solicitation to buy or sell securities. All figures come from the original sources listed above and carry the dates stated; numbers change with every new filing. Stocks can fluctuate substantially and a total loss of invested capital is possible. The author holds no position in the security discussed at the time of publication.