Carter Bankshares reported first-quarter 2026 net income of $85.8 million, or $3.88 diluted earnings per share, up sharply from $8.5 million, or $0.38 per share, in the fourth quarter of 2025 and $9.0 million, or $0.39 per share, in the first quarter of 2025.
The jump was driven largely by the March 26 sale of a large nonperforming loan relationship, which brought in $289.5 million in cash. Immediately before the sale, the loans carried an aggregate principal balance of $209.5 million, were all nonperforming and on nonaccrual status, and had $18.0 million of specific reserves attached. The company booked an $80.0 million net gain tied to the transaction, consisting of a $65.0 million gain and a $15.0 million net recovery. Management said the deal added $3.50 to diluted EPS and lifted both book value per share and tangible book value per share by $3.49.
Net interest income rose to $35.9 million from $34.6 million in the prior quarter and $30.1 million a year earlier. On an FTE basis, net interest income was $36.1 million, up 3.8% from the fourth quarter and 19.0% from the first quarter of 2025. Net interest margin improved to 3.07% from 2.92% in the prior quarter and 2.68% a year earlier.
Noninterest income surged to $71.0 million from $5.3 million in the fourth quarter and $6.9 million in the first quarter of 2025, almost entirely because of the $65.0 million gain on the loan sale.
Noninterest expense was $31.0 million, essentially flat with the prior quarter, but up from $28.0 million a year earlier.
Credit metrics moved dramatically lower after the transaction. Nonperforming loans fell to $24.0 million at March 31, 2026 from $244.0 million at December 31, 2025 and $261.4 million a year earlier. Nonperforming assets dropped to $27.4 million from $244.1 million and $262.0 million, respectively. Nonperforming loans as a share of total portfolio loans fell to 0.64% from 6.29% in the prior quarter and 7.09% a year earlier.
The allowance for credit losses to total portfolio loans declined to 1.41% from 1.84% at year-end and 1.99% a year earlier. The allowance for credit losses to nonperforming loans jumped to 219.03% from 29.30% in the prior quarter and 28.12% a year earlier, reflecting the steep drop in nonperforming loans.
The company recorded net recoveries of $14.9 million in the quarter, compared with net charge-offs of $0.1 million in both the fourth quarter of 2025 and the first quarter of 2025.
Total portfolio loans fell $151.1 million from December 31, 2025, but still increased $41.0 million, or 1.1%, from March 31, 2025. Excluding the transaction, first-quarter net loan growth was $58.4 million, or 6.1% annualized.
Total assets declined $52.7 million to $4.8 billion from year-end, as the $151.1 million drop in loans was partly offset by a $123.2 million increase in cash and due from banks. Available-for-sale securities fell $29.5 million, and FHLB stock declined $8.4 million.
On the funding side, FHLB borrowings were cut by $178.5 million during the quarter. Total deposits rose $24.4 million to $4.2 billion, led by a $63.2 million increase in interest-bearing demand deposits and a $17.5 million increase in noninterest-bearing demand deposits, partly offset by declines of $39.6 million in money market accounts and $17.5 million in CDs.
Capital ratios improved materially. Tier 1 capital rose to 13.52% from 10.70% at December 31, 2025. The leverage ratio increased to 11.10% from 9.43%, and total risk-based capital climbed to 14.78% from 11.95%.
Efficiency improved as well. The efficiency ratio fell to 29.01% from 77.84% in the prior quarter and 75.71% a year earlier, while the adjusted efficiency ratio was 72.66%, down from 76.85% and 78.67%. Following these announcements, the company's shares moved 7.5%, and are now trading at a price of $21.94. For more information, read the company's full 8-K submission here.
