Carter Bankshares, Inc.CARE
Carter Bankshares, Inc. Income Taxes Disclosure
FEDERAL AND STATE INCOME TAXES
The components of the income tax provision (benefit) were as follows:
| (Dollars in Thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current | ||||||||||||||||||||
| Federal | $ | 5,693 | $ | 3,159 | $ | 4,243 | ||||||||||||||
| State | 775 | 498 | 726 | |||||||||||||||||
| Total Current | 6,468 | 3,657 | 4,969 | |||||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | 2,047 | 2,396 | 531 | |||||||||||||||||
| State | 124 | 293 | (163) | |||||||||||||||||
| Total Deferred | 2,171 | 2,689 | 368 | |||||||||||||||||
| Total Income Tax Provision | $ | 8,639 | $ | 6,346 | $ | 5,337 | ||||||||||||||
The Company does not have income from foreign sources and therefore does not have any foreign income tax.
The following is a reconciliation of the differences between the income tax provision and the amount computed by applying the statutory federal income tax rate to income before income taxes:
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||||
| U.S. Federal Statutory Rate | $ | 8,400 | 21.0 | $ | 6,482 | 21.0 | $ | 6,031 | 21.0 | |||||||||||||||||||||||||||||
State and Local Income Taxes, Net of Federal Income Tax Effect1 | 711 | 1.8 | 628 | 2.0 | 442 | 1.5 | ||||||||||||||||||||||||||||||||
| Tax Credits | ||||||||||||||||||||||||||||||||||||||
| Rehabilitation Tax Credits, Net of Basis Reduction | (624) | (1.6) | (485) | (1.5) | (2,366) | (8.2) | ||||||||||||||||||||||||||||||||
| Tax Credit Investment Amortization, Net of Federal Benefit | 513 | 1.3 | 408 | 1.3 | 1,660 | 5.8 | ||||||||||||||||||||||||||||||||
| Change in Valuation Allowance | 7 | — | 36 | 0.1 | 780 | 2.7 | ||||||||||||||||||||||||||||||||
| Nontaxable or Nondeductible Items | ||||||||||||||||||||||||||||||||||||||
| Tax-Exempt Interest, Net of Disallowance | (445) | (1.1) | (513) | (1.7) | (708) | (2.5) | ||||||||||||||||||||||||||||||||
| Income From Bank Owned Life Insurance | (687) | (1.7) | (309) | (1.0) | (290) | (1.0) | ||||||||||||||||||||||||||||||||
| Other | 7 | — | 97 | 0.4 | 35 | 0.1 | ||||||||||||||||||||||||||||||||
| Other Adjustments | ||||||||||||||||||||||||||||||||||||||
| Taxes and Penalty on Surrender of Bank Owned Life Insurance | 757 | 1.9 | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other | — | — | 2 | — | (247) | (0.8) | ||||||||||||||||||||||||||||||||
| Income Tax Provision and Effective Income Tax Rate | $ | 8,639 | 21.6 | $ | 6,346 | 20.6 | $ | 5,337 | 18.6 | |||||||||||||||||||||||||||||
1For the years ended 2025 and 2023, North Carolina comprised the majority (greater than 50%) of the tax effect in this category, and for the year ended 2024, North Carolina and West Virginia comprised the majority of the tax effect.
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The Company ordinarily generates an annual effective income tax rate, per the table above, that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest, tax-exempt income from bank-owned life insurance,
and tax benefits resulting from certain partnership investments. For the period ended December 31, 2025, the annual effective tax rate was greater than the statutory rate of 21%, primarily due to the surrender of certain BOLI policies, which resulted in taxable gains of $2.4 million and $0.2 million in related Modified Endowment Contract (“MEC”) penalties, partially offset by the receipt of a $1.9 million tax-exempt BOLI death benefit.
The Company elected to adopt the proportional amortization method of accounting for all qualifying equity investments within the historic tax credits (“HTC”) program. The Company makes equity investments as a limited partner in various partnerships that sponsor HTC as a strategic tax initiative designed to receive income tax credits and other income tax benefits, such as deductible flow-through losses. As of December 31, 2025 and December 31, 2024, the Company recognized $0.5 million and $1.1 million, respectively, in HTC equity investments recorded as a component of other assets on the Consolidated Balance Sheets.
The Company records income tax credits and other income tax benefits received from its HTC investments as a component of the income tax provision on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows.
Investments accounted for using the proportional amortization method are amortized and recorded as a component of income tax provision on the Consolidated Statements of Income.
The Company records non-income-tax-related activity and other returns received from its HTC investments as a component of other noninterest income on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows. As of December 31, 2025 and December 31, 2024, the Company recognized $122.7 thousand and $38.5 thousand, respectively, in non-income-tax-related activity from its HTC investments.
Deferred income tax provision reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
| (Dollars in Thousands) | 2025 | 2024 | ||||||||||||
| Deferred Tax Assets | ||||||||||||||
| Allowance for Credit Losses | $ | 15,655 | $ | 16,667 | ||||||||||
| Net Unrealized Loss on Available-for-sale Securities | 11,594 | 17,820 | ||||||||||||
| Capital Loss Carryforward | 1,136 | 1,151 | ||||||||||||
| Accrued Interest on Nonaccrual Loans | 1,792 | 1,717 | ||||||||||||
| Operating Lease Liabilities | 2,393 | 2,293 | ||||||||||||
| Other | 2,323 | 2,110 | ||||||||||||
| Gross Deferred Tax Assets | 34,893 | 41,758 | ||||||||||||
| Less: Valuation Allowance | (897) | (903) | ||||||||||||
| Total Deferred Tax Assets | $ | 33,996 | $ | 40,855 | ||||||||||
| (Dollars in Thousands) | 2025 | 2024 | ||||||||||||
| Deferred Tax Liabilities | ||||||||||||||
| Fixed Asset Depreciation | $ | (4,537) | $ | (4,095) | ||||||||||
| Acquisition-Related Fair Value Adjustments | (2,218) | (2,480) | ||||||||||||
| Deferred Loan Income | (3,166) | (1,943) | ||||||||||||
| Operating Lease Right-of-Use Assets | (2,197) | (2,172) | ||||||||||||
| Equity Investment in Partnerships | (903) | (607) | ||||||||||||
| Other | (157) | (343) | ||||||||||||
| Total Deferred Tax Liabilities | (13,178) | (11,640) | ||||||||||||
| Net Deferred Tax Assets | $ | 20,818 | $ | 29,215 | ||||||||||
The following is a summary of income taxes paid, net of refunds received:
| (Dollars in Thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| U.S. Federal | $ | 3,000 | $ | (151) | $ | 4,725 | ||||||||||||||
| U.S. State and Local | ||||||||||||||||||||
| North Carolina | 505 | 315 | 345 | |||||||||||||||||
| West Virginia | 50 | 45 | 290 | |||||||||||||||||
| Maryland | 20 | 28 | 43 | |||||||||||||||||
| South Carolina | 70 | 26 | 165 | |||||||||||||||||
| Georgia | 20 | 21 | 55 | |||||||||||||||||
| Other | 52 | 19 | 70 | |||||||||||||||||
| Total Income Taxes Paid | $ | 3,717 | $ | 303 | $ | 5,693 | ||||||||||||||
Management assesses all available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to utilize existing deferred tax assets. Based on this evaluation, at both December 31, 2025 and December 31, 2024, a valuation allowance of $0.9 million was recorded on deferred tax assets related to capital loss carryforwards resulting from exits of equity investments in partnerships and sales of securities. The Company has not identified prudent and feasible strategies to generate future capital gains to offset the entirety of the capital loss carryforward prior to its expiration.
At December 31, 2025 and December 31, 2024, the Company had no ASC 740-10 unrecognized tax benefits or accrued interest and penalties recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Company recognizes interest and penalties on unrecognized tax benefits as a component of income tax provision.
The Company is subject to U.S. federal income tax, as well as various other state and local jurisdictions. The Company is generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 8, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 11, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.