Carter Bankshares, Inc. (NASDAQ: CARE) announced that its wholly‑owned subsidiary, Carter Bank, has been approved to become a state member bank of the Federal Reserve System through the Federal Reserve Bank of Richmond. The approval adds the Board of Governors of the Federal Reserve System to the bank’s existing regulatory oversight by the Virginia State Corporation Commission, creating a dual‑regulatory framework that is expected to streamline compliance and broaden access to federal liquidity facilities.
The approval comes amid a period of mixed financial performance for the company. In the third quarter of 2025, Carter Bankshares reported earnings per share of $0.24, falling short of the consensus estimate of $0.43, and net interest income of $33.7 million, below the projected $39.2 million. Net income declined to $1.2 million from $2.5 million in the prior quarter, a drop largely attributable to the continued impact of nonaccrual loans tied to the “Justice Entities,” which have eroded interest income and increased provisioning requirements.
The earnings miss reflects a combination of headwinds: the bank’s loan portfolio contains a significant concentration of nonaccrual loans that have required higher provisions, while interest rate volatility has compressed net interest margins. At the same time, the bank’s operating expenses have risen modestly due to investments in technology and branch expansion, further weighing on profitability. Management noted that the nonaccrual loan exposure remains a key risk factor and that the company is actively working to reduce its balance‑sheet concentration.
The Federal Reserve membership is expected to bring tangible benefits. Direct oversight by the Board of Governors can improve the bank’s access to the discount window and participation in the Fed’s payment system, potentially reducing liquidity risk. In addition, the dual regulatory structure may streamline compliance by consolidating oversight responsibilities, which could translate into cost savings over time. However, the bank will also face additional reporting requirements and supervisory scrutiny, which may increase administrative overhead.
Carter Bankshares’ recent election to become a financial holding company—completed in early November 2025—provides the company with broader strategic flexibility. The holding‑company status allows the firm to pursue a wider range of financial activities, including potential acquisitions and expanded service offerings, which aligns with the CEO’s stated goal of “innovating and growing.” The combination of financial holding company status and Federal Reserve membership positions the bank to pursue growth opportunities while maintaining a robust regulatory framework.
CEO Litz Van Dyke emphasized that the Federal Reserve approval “marks a significant step toward our future strategic objectives” and that the company’s new regulatory alignment will streamline operations and enhance efficiency. He also acknowledged the ongoing challenges posed by nonaccrual loans but expressed confidence that the company’s risk‑management framework is well‑positioned to address them.
Analysts maintain a “Hold” consensus on the stock, with a 12‑month price target of $22.00. While the recent earnings miss has tempered enthusiasm, the strategic regulatory shift is viewed as a positive long‑term development that could support the company’s expansion plans.
In summary, Carter Bankshares’ approval to join the Federal Reserve System represents a strategic milestone that could improve liquidity access and regulatory efficiency. The move is tempered by ongoing headwinds from nonaccrual loan exposure and modest earnings shortfalls, but the company’s financial holding company status and management’s focus on risk mitigation suggest a cautious but forward‑looking outlook.
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