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Item 1. Financial Statements

2024-11-07 compared with 2024-08-01 · 415 added, 272 removed, 1170 unchanged (37% of the section changed)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in Thousands) 2024 2023

1 unchanged sentence

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities

Provision for Credit Losses, including (Recovery) Provision for Unfunded Commitments 228 1,944

(Recovery) Provision for Credit Losses, including Provision (Recovery) for Unfunded Commitments ( 13 ) 2,919

Origination of Loans Held-for-Sale ( 6,233 ) ( 5,524 )

1 unchanged sentence

Depreciation/Amortization of Bank Premises and Equipment 5,216 4,689

(Benefit) Provision for Deferred Taxes ( 1,418 ) 539

Provision for Deferred Taxes 1,377 256

Net Amortization of Securities 2,735 3,696

3 unchanged sentences

(Gains) Losses on Sales of Securities, net ( 36 ) 10

Commercial Loan Swap Derivative (Income) Loss ( 16 ) 144

Commercial Loan Swap Derivative Loss (Income) 112 ( 90 )

Increase in the Value of Life Insurance Contracts ( 1,088 ) ( 1,028 )

Balance Sheet Hedge Fair Value Adjustment ( 103 ) —

Recognition of Restricted Stock Compensation Expense 1,324 1,171

28 unchanged sentences

Transfer from Loans to Other Real Estate Owned 1,181 —

Transfer from Fixed Assets to Other Real Estate Owned — 1,388

Right-of-use Asset Recorded in Exchange for Lease Liabilities 2,511 —

Stock Repurchase Excise Tax Settled in Subsequent Period — ( 153 )

Stock Repurchases Settled in Subsequent Period — ( 328 )

See accompanying notes to unaudited consolidated financial statements.

50 unchanged sentences

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted.

The Company has one reporting segment therefore, will not impact our Consolidated Financial Statements;

The Company has one reporting segment and will not impact our Consolidated Financial Statements;

however, this ASU requires disclosure of the title and position of the chief operating decision maker and an explanation of how resources are allocated.

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Subject to the outcome of this litigation, the disclosure requirements of the final rule will start to phase-in commencing with the Company's fiscal year beginning January 1, 2026.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of shares of common stock outstanding during the period.

NOTE 2 – EARNINGS PER COMMON SHARE

Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of shares of common stock outstanding, less average participating shares during the period.

Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table reconciles the numerators and denominators of basic and diluted earnings per common share calculations for the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in Thousands, except share and per share data) 2024 2023 2024 2023

8 unchanged sentences

Earnings per Common Share – Diluted $ 0.24 $ 0.16 $ 0.70 $ 1.07

All outstanding unvested restricted stock awards are considered participating securities for the earnings per share calculation.

As such, these shares have been allocated to a portion of net income and are excluded from the diluted earnings per common share calculation .

CARTER BANKSHARES, INC.

2 unchanged sentences

The following tables present the amortized cost and fair value of available-for-sale securities as of the dates presented:

June 30, 2024

September 30, 2024

(Dollars in Thousands) Amortized

21 unchanged sentences

Total Debt Securities $ 870,546 $ 734 $ ( 92,277 ) $ 779,003

The Company did not have securities classified as held-to-maturity at June 30, 2024 or December 31, 2023.

The Company did not have securities classified as held-to-maturity at September 30, 2024 or December 31, 2023.

The following table shows the composition of gross and net realized gains and losses for the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in Thousands) 2024 2023 2024 2023

2 unchanged sentences

Gross Realized Losses — ( 1 ) — ( 139 )

Net Realized Gains (Losses) 36 3 36 ( 9 )

Net Realized (Losses) Gains — ( 1 ) 36 ( 10 )

Tax Impact $ — $ — $ 8 $ ( 2 )

Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold.

The net realized gains (losses) above reflect reclassification adjustments in the calculation of Other Comprehensive Income (Loss).

The net realized gains (losses) are included in noninterest income as gains (losses) on sales of securities, net in the Consolidated Statements of Income.

The net realized (losses) gains above reflect reclassification adjustments in the calculation of Other Comprehensive Income (Loss).

The net realized (losses) gains are included in noninterest income as (losses) gains on sales of securities, net in the Consolidated Statements of Income.

The tax impact is included in income tax provision in the Consolidated Statements of Income.

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NOTE 3 – INVESTMENT SECURITIES (continued)

June 30, 2024

September 30, 2024

(Dollars in Thousands) Amortized

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Total Debt Securities $ 810,935 $ 742,635

At June 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than those securities issued by the U.S.

At September 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than those securities issued by the U.S.

Government and its Agencies, in an amount greater than 10% of shareholders’ equity.

The carrying value of securities pledged for various regulatory and legal requirements was $ 308.1 million at June 30, 2024 and $ 215.5 million at December 31, 2023.

Available-for-sale securities with unrealized losses at June 30, 2024 and December 31, 2023, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

June 30, 2024

The carrying value of securities pledged for various regulatory and legal requirements was $ 309.3 million at September 30, 2024 and $ 215.5 million at December 31, 2023.

Available-for-sale securities with unrealized losses at September 30, 2024 and December 31, 2023, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

September 30, 2024

Less Than 12 Months 12 Months or More Total

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NOTE 3 – INVESTMENT SECURITIES (continued)

The Company did not record an allowance for credit losses, (“ACL”), on its investment securities during the quarter ended June 30, 2024 or the year ended December 31, 2023 as there was no related impairment.

The Company did not record an allowance for credit losses, (“ACL”), on its investment securities as of September 30, 2024 or December 31, 2023 as there was no related impairment.

The Company regularly reviews debt securities for expected credit loss using both qualitative and quantitative criteria, as necessary, based on the composition of the portfolio at period end.

As of June 30, 2024, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis.

As of September 30, 2024, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis.

The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations, general financial market uncertainty and market volatility.

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It should be noted that we may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative.

As of June 30, 2024, the Company determined the unrealized losses detailed in the table above are not related to credit;

As of September 30, 2024, the Company determined the unrealized losses detailed in the table above are not related to credit;

therefore, no ACL has been recognized on the Company’s securities.

Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes.

During the three and six months ended June 30, 2024 and June 30, 2023, the Company had no credit related net investment impairment losses.

During the three and nine months ended September 30, 2024 and September 30, 2023, the Company had no credit related net investment impairment losses.

Equity Securities

During the second quarter of 2024, the Company purchased $ 5.0 million of equity securities with carrying value totaling $ 5.1 million at June 30, 2024.

These securities are separately reported as “equity securities” on the Company’s consolidated balance sheet.The equity securities consist of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States.

During the second quarter of 2024, the Company purchased $ 5.0 million of equity securities with carrying value totaling $ 5.2 million at September 30, 2024.

These securities are separately reported as “equity securities” on the Company’s Consolidated Balance Sheets.

The equity securities consist of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States.

The mutual fund focuses exclusively on providing affordable housing to low- and moderate-income borrowers and renters, including those in Majority Minority Census Tracts.

The Company’s investment in the mutual fund is eligible for investment credit under the Community Reinvestment Act.

During the three months ended June 30, 2024, we recognized an unrealized fair value gain of $ 63.3 thousand on these equity securities.

During the three and nine months ended September 30, 2024, the Company recognized an unrealized fair value gain of $ 181.5 thousand and $ 207.1 thousand, respectively, on these equity securities.

This unrealized fair value gain is recorded in Other Income on the Consolidated Statements of Income.

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(Dollars in Thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Commercial Real Estate

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Other 284,145 305,213

Total Portfolio Loans 3,595,861 3,505,910

Loans Held-for-Sale 390 —

Total Loans $ 3,596,251 $ 3,505,910

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For a discussion with respect to reserve calculations regarding individually evaluated loans refer to the “Nonrecurring Basis” section in Note 6, Fair Value Measurements, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

The following table shows the amortized cost basis as of June 30, 2024 for loans restructured during the three and six months ended June 30, 2024 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

The following table shows the amortized cost basis as of September 30, 2024 for loans restructured during the three and nine months ended September 30, 2024 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

Restructured Loans

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024

(Dollars in Thousands) Number of Contracts Amortized Cost Basis % of Total Class of Financing Receivable Number of Contracts Amortized Cost Basis % of Total Class of Financing Receivable

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Total Restructured Loans 3 $ 15,710 4.91 % 15 $ 297,049 93.75 %

There were no loans to borrowers experiencing financial difficulty restructured during the three and six months ended June 30, 2023.

There were no loans to borrowers experiencing financial difficulty restructured during the three and nine months ended September 30, 2023.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

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NOTE 4 – LOANS (continued)

The following table presents the aging analysis of modifications to borrowers experiencing financial difficulty in the last 12 months as of June 30, 2024:

The following table presents the aging analysis of modifications to borrowers experiencing financial difficulty in the last 12 months as of September 30, 2024:

Payment Status (Amortized Cost Basis)

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Total Restructured Loans $ 297,049 $ — $ — $ 297,049

The following table presents the amortized cost of loans to borrowers experiencing financial difficulty by portfolio segment and type of modification during the periods presented.

For the Three and Six Months Ended June 30, 2024

(Dollars in Thousands) Term Extension/Payment Delay Term Extension/Payment Delay/Interest Rate Reduction Total % of Portfolio Segment

The following table presents the amortized cost of modified loans to borrowers experiencing financial difficulty by portfolio segment and type of modification during the periods presented.

For the Three Months Ended September 30, 2024

(Dollars in Thousands) Principal Deferral Accelerated Maturity Date/Modified Rate Total % of Portfolio Segment

Commercial Real Estate $ — $ — $ — — %

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Total $ 13,604 $ 2,106 $ 15,710 4.91 %

For the Nine Months Ended September 30, 2024

(Dollars in Thousands) Principal Deferral Accelerated Maturity Date/ Modified Rate Term Extension/Payment Delay Term Extension/Payment Delay/Interest Rate Reduction Total % of Portfolio Segment

Commercial Real Estate $ — $ — $ 434 $ — $ 434 0.02 %

Commercial and Industrial 13,604 — — — 13,604 5.63 %

Residential Mortgages — 2,106 — — 2,106 0.27 %

Other Consumer — — — — — — %

Construction — — — — — — %

Other — — — 280,905 280,905 98.86 %

Total $ 13,604 $ 2,106 $ 434 $ 280,905 $ 297,049 93.75 %

CARTER BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – LOANS (continued)

The following table describes the effect of loan modifications made to borrowers experiencing financial difficulty during the periods presented:

For the Three and Six Months Ended June 30, 2024

Weighted-Average Term Extension/Payment Delay Weighted Average Interest Rate Reduction

For the Three Months Ended September 30, 2024

Weighted Average Principal Deferral Weighted Average Accelerated Maturity Date Weighted Average Modified Rate

Commercial Real Estate — — —

Commercial & Industrial 0.58 years — — %

Residential Mortgage — 19.26 years 4.63 %

Other — — — %

Total 0.58 years 19.26 years 4.63 %

For the Nine Months Ended September 30, 2024

Weighted Average Principal Deferral Weighted Average Accelerated Maturity Date Weighted-Average Modified Rate Weighted-Average Term Extension/Payment Delay Weighted-Average Interest Rate Reduction

Commercial Real Estate — — — % 4.91 years — %

Commercial & Industrial 0.58 years — — % — — %

Residential Mortgage — 19.26 years 4.63 % — — %

Other — — — % 2.58 years 0.66 %

Total 7.5 years 0.63 %

At June 30, 2024 and December 31, 2023, the Bank had no commitments to lend any additional funds on restructured loans.

At June 30, 2024 and June 30, 2023, the Bank had no loans that defaulted during the period and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification.

Total 0.58 years 19.26 years 4.63 % 7.49 years 0.66 %

At September 30, 2024 and December 31, 2023, the Bank had no commitments to lend any additional funds on restructured loans.

A payment default is defined as a loan having a payment past due 90 days or more.

There were no payment defaults for during the three and nine months ended September 30, 2024 and September 30, 2023 related to loans that were modified within the 12 months prior to default.

For purposes of this disclosure, a default occurs when, within 12 months of the original modification, either a full or partial charge-off occurs or the loan becomes 90 days or more past due.

As of June 30, 2024 and December 31, 2023, the Bank had $ 0.1 million and $ 2.0 million, respectively, of residential real estate loans in the process of foreclosure.

The Company also had no residential real estate loans included in other real estate owned (“OREO”) at June 30, 2024 and $ 62 thousand at December 31, 2023.

CARTER BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2024 and December 31, 2023, the Bank had zero and $ 2.0 million, respectively, of loans in the process of foreclosure.

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES

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The primary repayment source for these loans include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority.

The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment.

The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

risk for this segment.

The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio.

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The ACL reserve for the Other segment is based on a discounted cash flow methodology and reserves will fluctuate based on expected cash flow changes in the future.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

credit dependent on the value of real estate rather than trading assets, and v) indirect liabilities of certain guarantees resulting from the nonpayment of financial obligations.

These inconsistencies may include, but are not limited to i) transaction and/or relationship sizes that exceed limits established in 2018, ii) overreliance on secondary, tertiary or guarantor cash flow, iii) land acquisition loans without a defined source of amortization, iv) loan structures on operating lines of credit dependent on the value of real estate rather than trading assets, and v) indirect liabilities of certain guarantees resulting from the nonpayment of financial obligations.

Management continuously assesses underwriting standards, but significantly enhanced these standards in 2018.

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The Company’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all.

The Company’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors.

The Company’s internal credit risk grading system is based on debt service coverage,

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

collateral values and other subjective factors.

Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.

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Special Mentio n – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any.

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The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the periods presented:

June 30, 2024

September 30, 2024

(Dollars in Thousands) 2024 2023 2022 2021 2020 2019 and Prior Revolving Total Portfolio Loans

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The following table presents portfolio loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the periods presented:

June 30, 2024

September 30, 2024

(Dollars in Thousands) 2024 2023 2022 2021 2020 2019 and Prior Revolving Total Portfolio Loans

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The following tables include an aging analysis of the recorded investment of past due portfolio loans as the periods presented:

June 30, 2024

September 30, 2024

(Dollars in Thousands) Current

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Total $ 3,190,343 $ 5,611 $ 421 $ 6,032 $ 309,535 $ 3,505,910

The Company had no loans past due 90 days or more and still accruing at June 30, 2024 and December 31, 2023.

Loans past due 90 days are automatically transferred to nonaccrual status.

Loans past due 30 to 89 days and still accruing decreased $ 4.3 million to $ 1.7 million at June 30, 2024 compared to December 31, 2023.

Construction past due loans decreased $ 3.4 million partly due to a delinquent construction loan totaling $ 1.5 million that went permanent to a residential mortgage and is now current in the second quarter of 2024.

In addition, a second construction loan in the amount of $ 1.1 million paid off in the first quarter of 2024.

Residential mortgages decreased $ 1.0 million during the second quarter of 2024.

The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment for the periods presented:

June 30, 2024

The following tables present loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment for the periods presented:

September 30, 2024

(Dollars in Thousands)

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Total $ 4,493 $ 305,042 $ 309,535 $ —

Nonperforming loans remained significantly elevated at June 30, 2024 and December 31, 2023 due to the aggregate nonperforming loan balance that was reduced from $ 301.9 million as of March 31, 2024 to $ 294.1 million as of June 30, 2024 associated with the Bank’s largest lending relationship, that was placed on nonaccrual status during the second quarter of 2023.

During the second quarter of 2024, the Bank received payment of $ 7.8 million, which reduced the Bank’s amortized cost associated with these loans, pursuant to the pathway of curtailment and payoff of the outstanding nonperforming loan agreed between the relevant borrowers and the Bank.

There were no nonaccrual or past due loans related to loans held-for-sale at June 30, 2024 or December 31, 2023.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

There were no nonaccrual or past due loans related to loans held-for-sale at September 30, 2024 or December 31, 2023.

A loan is considered nonperforming when we transfer the interest methodology from accrual to nonaccrual.

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unless we elect to maintain the loan in the general pool.

During the three and six months ended June 30, 2024 and June 30, 2023, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans.

During the three and nine months ended September 30, 2024 and September 30, 2023, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents the amortized cost basis of individually evaluated loans as of the periods presented.

Changes in the fair value of the types of collateral and discounted cash flow modeling for individually evaluated loans are reported as provision for credit loss on loans in the period of change.

June 30, 2024 December 31, 2023

Changes in the fair value of the types of collateral and discounted cash flow modeling for individually evaluated loans are reported as a (recovery) or provision for credit loss on loans in the period of change.

September 30, 2024 December 31, 2023

(Dollars in Thousands) Fair Value - Real Estate Discounted Cash Flow Total Fair Value - Real Estate Discounted Cash Flow Total

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The following tables present activity in the ACL for the periods presented:

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

(Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans

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Recoveries — 1 5 97 — — 103

Net Recoveries/(Charge-offs) — — 18 ( 359 ) — — ( 341 )

Net Charge-offs — ( 20 ) — ( 324 ) ( 1 ) ( 15,000 ) ( 15,345 )

Balance at End of Period $ 20,067 $ 2,936 $ 10,520 $ 724 $ 9,742 $ 36,920 $ 80,909

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

(Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans

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Balance at Beginning of Period $ 19,873 $ 3,286 $ 10,879 $ 868 $ 7,792 $ 54,354 $ 97,052

(Recovery) Provision for Credit Losses on Loans ( 56 ) ( 75 ) ( 132 ) 589 1,581 ( 1,400 ) 507

Provision (Recovery) for Credit Losses on Loans 194 ( 313 ) ( 356 ) 877 2,107 ( 2,434 ) 75

Charge-offs — ( 40 ) ( 32 ) ( 1,389 ) ( 157 ) ( 15,000 ) ( 16,618 )

2 unchanged sentences

Balance at End of Period $ 20,067 $ 2,936 $ 10,520 $ 724 $ 9,742 $ 36,920 $ 80,909

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

(Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans

4 unchanged sentences

Recoveries — — 10 129 — — 139

Net Recoveries / (Charge-offs) — 5 ( 66 ) ( 532 ) ( 42 ) — ( 635 )

Net Charge-offs — ( 50 ) ( 123 ) ( 602 ) — — ( 775 )

Balance at End of Period $ 19,490 $ 2,987 $ 10,619 $ 971 $ 6,747 $ 53,660 $ 94,474

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans

4 unchanged sentences

Recoveries — 5 12 335 — — 352

Net Recoveries / (Charge-offs) — 4 ( 68 ) ( 1,102 ) ( 42 ) — ( 1,208 )

Net Charge-offs — ( 46 ) ( 191 ) ( 1,704 ) ( 42 ) — ( 1,983 )

Balance at End of Period $ 19,490 $ 2,987 $ 10,619 $ 971 $ 6,747 $ 53,660 $ 94,474

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The Company uses fair value measurements when recording and disclosing certain financial assets and liabilities.

Securities available-for-sale, equity securities and derivative financial instruments are recorded at fair value on a recurring basis.

Securities available-for-sale, equity securities, loans and derivative financial instruments are recorded at fair value on a recurring basis.

Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held-for-sale, individually evaluated loans, OREO, and certain other assets.

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This valuation method is classified as Level 1 in the fair value hierarchy.

As of June 30, 2024, Level 1 fair values are available for each of the Company’s equity securities.

As of September 30, 2024, Level 1 fair values are available for each of the Company’s equity securities.

Derivative Financial Instruments and Hedging Activities:

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OREO and other repossessed assets marked to fair value are classified as Level 3.

At June 30, 2024 OREO assets were in compliance with the OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third-party real estate brokers.

At September 30, 2024 OREO assets were in compliance with the OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third-party real estate brokers.

Financial assets measured at fair value on a recurring basis are summarized below for the periods presented:

June 30, 2024

September 30, 2024

(Dollars in Thousands) Carrying

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Equity Securities 5,207 5,207 — —

Portfolio Loan Pool Subject to Fair Value Hedge 8,484 — 8,484 —

Derivatives 13,756 — 13,756 —

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We have invested in subordinated debt of other financial institutions.

We have two securities totaling $ 7.5 million that are considered to be Level 3 securities at June 30, 2024 and two totaling $ 7.3 million at December 31, 2023, attributable to the calculated change in fair value of $ 0.2 million.

The Level 3 fair value is benchmarked to other securities that have observable

We have two securities totaling $ 7.6 million that are considered to be Level 3 securities at September 30, 2024 and two totaling $ 7.3 million at December 31, 2023, attributable to

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

market values in Level 2 using comparable financial ratio analysis specific to the industry in which the underlying company operates.

the calculated change in fair value of $ 0.3 million.

The Level 3 fair value is benchmarked to other securities that have observable market values in Level 2 using comparable financial ratio analysis specific to the industry in which the underlying company operates.

The underwriting includes considerations of capital adequacy, asset quality trends, management’s ability to continue efficient and profitable operations, the institution’s core earnings ability, liquidity management platform and current on and off-balance sheet interest rate risk exposures.

Financial assets measured at fair value on a nonrecurring basis are summarized below for the periods presented:

June 30, 2024

September 30, 2024

(Dollars in Thousands) Level 1 Level 2 Level 3 Fair Value

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Individually Evaluated Loans $ — $ — $ — $ —

The Company had $ 0.6 million in individually evaluated loans measured at fair value on a nonrecurring basis as of June 30, 2024 and zero at December 31, 2023.

The Company’s largest lending relationship is classified at June 30, 2024 as an individually evaluated loan with a net carrying amount totaling $ 241.2 million.

The Company utilized various cash flow and discounting assumptions in the alternative modeling, instead of fair value, which resulted in a valuation allowance of $ 52.9 million at June 30, 2024.

When evaluating the net carrying value of this credit relationship at June 30, 2024, the Company utilized discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $ 2.5 million as of June 30, 2024 and at December 31, 2023, primarily due to sales offset by transfers to OREO from loans.

The Company had no write-downs recorded on OREO for the six months ended June 30, 2024 or for the same period in 2023.

The Company had $ 0.6 million in individually evaluated loans measured at fair value on a nonrecurring basis as of September 30, 2024 and zero at December 31, 2023.

The Company’s largest lending relationship is classified at September 30, 2024 as an individually evaluated loan with a net carrying amount totaling $ 244.0 million.

The Company utilized various cash flow and discounting assumptions in the alternative modeling, instead of fair value, which resulted in a valuation allowance of $ 36.9 million at September 30, 2024.

When evaluating the net carrying value of this credit relationship at September 30, 2024, the Company utilized discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $ 1.5 million and $ 2.5 million as of September 30, 2024 and December 31, 2023, respectively, primarily due to sales offset by transfers to OREO from loans.

The Company had no write-downs recorded on OREO for the three and nine months ended September 30, 2024 and had $ 0.9 million write-downs recorded on OREO for the nine months ended September 30, 2023.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis for the periods presented:

June 30, 2024

September 30, 2024

(Dollars in Thousands) Fair

26 unchanged sentences

Management considers the unique attributes and characteristics of each specific individually evaluated loan and may use judgment to adjust the baseline discount rate when appropriate.

The carrying values and estimated fair values of our financial instruments at June 30, 2024 and December 31, 2023 are presented in the following tables.

Fair values for June 30, 2024 and December 31, 2023 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

The carrying values and estimated fair values of our financial instruments at September 30, 2024 and December 31, 2023 are presented in the following tables.

Fair values for September 30, 2024 and December 31, 2023 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

GAAP requires disclosure of fair value information about financial instruments carried at book value on the Consolidated Balance Sheet.

3 unchanged sentences

Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Fair Value Measurements at June 30, 2024

Fair Value Measurements at September 30, 2024

(Dollars in Thousands) Carrying Value Level 1 Level 2 Level 3 Total

37 unchanged sentences

These agreements could have floors or caps on the contracted interest rates.

Effective July 11, 2024, the Company entered into two related pay-fixed/receive-floating interest rate swaps (the “Pay-Fixed Swap Agreements”) for a combined notional amount of $ 300.0 million with a combined fair value of $ 8.1 million at September 30, 2024.

The Pay-Fixed Swap Agreements were designated as fair value hedges in order to hedge the risk of changes in the fair value of the fixed rate loans included in the amortizing single family mortgages and CRE loans.

These fair value hedges convert the hedged loans from a fixed rate to a synthetic floating Secured Overnight Financing Rate (“SOFR”).

The first Pay-Fixed Swap Agreement with a notional value of $ 125.0 million matures on July 11, 2027 and the Company will pay a fixed coupon rate of 4.188 % while receiving the overnight SOFR.

The second Pay-Fixed Swap Agreement with a notional value of $ 175.0 million matures on July 11, 2029 (but includes partial amortization beginning July 11, 2027) and the Company will pay a fixed coupon rate of 4.004 % while receiving the overnight SOFR.

As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument are accounted for in net interest income.

The fair value of these hedges is recorded in either other assets or in other liabilities depending on the position of the hedge, and the offset is recorded in loans.

This is the case whether or not economic mismatches exist in the hedging relationship.

As a result, there is no periodic measurement or recognition of ineffectiveness.

Rather, the full impact of hedge gains and losses is recognized in the period in which the hedged transactions impact earnings.

The hedges were determined to be effective during all periods presented and the Company expects them to remain effective during the remaining terms.

Pursuant to agreements with various financial institutions, the Company may receive collateral or may be required to post collateral based upon mark-to-market positions.

5 unchanged sentences

As such, changes in the estimated fair value of the derivatives are recorded in current earnings in the Consolidated Statements of Income.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – (continued)

The following table indicates the amounts representing the fair value of derivative assets and derivative liabilities at the dates presented:

1 unchanged sentence

(Included in Other Assets)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(Dollars in Thousands) Number of Transactions Notional Amount Fair Value Number of Transactions Notional Amount Fair Value

Derivatives Designated as Hedging Instruments

Interest Rate Swaps - Balance Sheet Hedge — $ — $ — — $ — $ —

Total Derivatives Designated as Hedging Instruments — $ — $ — — $ — $ —

Derivatives not Designated as Hedging Instruments

2 unchanged sentences

Total Derivatives not Designated as Hedging Instruments 61 $ 373,498 $ 13,756 61 $ 387,764 $ 17,440

Total Derivatives 61 $ 373,498 $ 13,756 61 $ 387,764 $ 17,440

Fair Value of Derivative Liabilities

(Included in Other Liabilities)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(Dollars in Thousands) Number of Transactions Notional Amount Fair Value Number of Transactions Notional Amount Fair Value

Derivatives Designated as Hedging Instruments

Interest Rate Swaps - Balance Sheet Hedge 2 $ 300,000 $ 8,109 — $ — $ —

Total Derivatives Designated as Hedging Instruments 2 $ 300,000 $ 8,109 — $ — $ —

Derivatives not Designated as Hedging Instruments

2 unchanged sentences

Total Derivatives not Designated as Hedging Instruments 61 $ 373,498 $ 13,656 61 $ 387,764 $ 17,228

Total Derivatives 63 $ 673,498 $ 21,765 61 $ 387,764 $ 17,228

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – (continued)

The following table indicates the income (loss) recognized on derivatives for the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

The following table indicates the (loss) income recognized on derivatives for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in Thousands) 2024 2023 2024 2023

Derivatives Designated as Hedging Instruments

Interest Rate Swaps - Balance Sheet Hedge $ 103 $ — $ 103 $ —

Total Derivative Income Designated as Hedging Instruments $ 103 $ — $ 103 $ —

Derivatives not Designated as Hedging Instruments

2 unchanged sentences

Interest Rate Swap Contracts – Commercial Loans ( 128 ) 234 ( 112 ) 90

Total Derivative Income (Loss) $ 2 $ 50 $ 16 $ ( 144 )

Total Derivative (Loss) Income not Designated as Hedging Instruments $ ( 128 ) $ 234 $ ( 112 ) $ 90

Total Derivative (Loss) Income $ ( 25 ) $ 234 $ ( 9 ) $ 90

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted.

For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:

The following table indicates the gross amounts of derivative assets and derivative liabilities designated as hedging instruments and not designated as hedging instruments, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:

Derivative Assets

1 unchanged sentence

(Included in Other Liabilities)

(Dollars in Thousands) June 30,

(Dollars in Thousands) September 30,

2024 December 31,

2023 June 30,

2023 September 30,

2024 December 31,

Derivatives Designated as Hedging Instruments

Gross Amounts Recognized $ — $ — $ 8,381 $ —

Gross Amounts Offset — — 272 —

Net Amounts Presented in the Consolidated Balance Sheets — — 8,109 —

Derivatives not Designated as Hedging Instruments

2 unchanged sentences

Net Amounts Presented in the Consolidated Balance Sheets 13,756 17,440 13,656 17,228

Gross Amounts Not Offset — — — —

Net Amount $ 13,756 $ 17,440 $ 21,765 $ 17,228

1 unchanged sentence

The following table presents the composition of deposits at the dates presented:

(Dollars in Thousands) June 30, 2024 December 31, 2023

(Dollars in Thousands) September 30, 2024 December 31, 2023

Noninterest-Bearing Demand $ 628,901 $ 685,218

6 unchanged sentences

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, makes permanent the $250,000 limit for federal deposit insurance and the coverage limit applies per depositor, per insured depository institution for each account ownership.

Certificates of deposits that exceed the FDIC Insurance limit of $250,000 at June 30, 2024 and December 31, 2023 were $ 273.1 million and $ 235.0 million, respectively.

At June 30, 2024 and December 31, 2023, total brokered deposits were $ 115.6 million and $ 70.0 million, respectively.

Certificates of deposits that exceed the FDIC Insurance limit of $250,000 at September 30, 2024 and December 31, 2023 were $ 288.0 million and $ 235.0 million, respectively.

At September 30, 2024 and December 31, 2023, total brokered deposits were $ 216.1 million and $ 70.0 million, respectively.

Certificates of Deposit maturing as of the date presented:

(Dollars in Thousands) June 30, 2024

(Dollars in Thousands) September 30, 2024

3 Months or Less $ 588,873

3 unchanged sentences

Total $ 1,930,075

Overdrafts reclassified to loans were $ 0.3 million at both June 30, 2024 and December 31, 2023.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Overdrafts reclassified to loans were $ 0.3 million at both September 30, 2024 and December 31, 2023.

NOTE 9 – FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED

Borrowings serve as an additional source of liquidity for the Company.

The Company had $ 238.0 million Federal Home Loan Bank (“FHLB”) borrowings at June 30, 2024 and $ 393.4 million at December 31, 2023.

FHLB borrowings are fixed and variable rate advances for various terms and are secured by a blanket lien on select residential mortgages, select multifamily loans, and select commercial real estate loans.

Variable rate FHLB borrowings were 7.6 % and 5.6 % of total borrowings at June 30, 2024 and December 31, 2023, respectively.

Total loans pledged as collateral were $ 1.6 billion at June 30, 2024 and $ 1.5 billion at December 31, 2023.

There were no securities available-for-sale pledged as collateral at both June 30, 2024 and December 31, 2023.

At June 30, 2024, funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0 % of the Company’s assets or approximately $ 1.1 billion, subject to the amount of eligible collateral pledged, of which the Company is eligible to borrow up to an additional $ 669.5 million.

The Company has unsecured facilities with three other correspondent financial institutions totaling $ 50.0 million at both June 30, 2024 and December 31, 2023, respectively, a fully secured facility with one other correspondent financial institution totaling $ 45.0 million, and access to the institutional certificate of deposit (“CD”) and brokered deposit markets.

The Company did not have outstanding borrowings on these fed funds lines as of June 30, 2024 or December 31, 2023.

The Company had $ 90.0 million Federal Home Loan Bank (“FHLB”) borrowings at September 30, 2024 and $ 393.4 million at December 31, 2023.

FHLB borrowings are fixed rate advances for various terms and are secured by a blanket lien on select residential mortgages, select multifamily loans, and select commercial real estate loans.

Variable rate FHLB borrowings were 0.0 % and 5.6 % of total borrowings at September 30, 2024 and December 31, 2023, respectively.

Total loans pledged as collateral were $ 1.6 billion at September 30, 2024 and $ 1.5 billion at December 31, 2023.

There were no securities available-for-sale pledged as collateral at both September 30, 2024 and December 31, 2023.

At September 30, 2024, funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0 % of the Company’s assets or approximately $ 1.2 billion, subject to the amount of eligible collateral pledged, of which the Company is eligible to borrow up to an additional $ 791.4 million.

The Company has unsecured facilities with three other correspondent financial institutions totaling $ 30.0 million at September 30, 2024 and $ 50.0 million at December 31, 2023, respectively, a fully secured facility with one other correspondent financial institution totaling $ 45.0 million, and access to the institutional certificate of deposit (“CD”) and brokered deposit markets.

The Company did not have outstanding borrowings on these fed funds lines as of September 30, 2024 or December 31, 2023.

The Company had the capacity to borrow up to an additional $ 480.3 million from the FHLB at December 31, 2023.

The following table represents the balance of FHLB borrowings and the weighted average interest rate as of the periods presented:

(Dollars in Thousands) June 30, 2024 December 31, 2023

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands) September 30, 2024 December 31, 2023

FHLB Borrowings $ 90,000 $ 393,400

2 unchanged sentences

The following table represents the balance of federal funds purchased and the weighted average interest rate as of the periods presented:

(Dollars in Thousands) June 30, 2024 December 31, 2023

(Dollars in Thousands) September 30, 2024 December 31, 2023

Federal Fund Purchased $ — $ —

1 unchanged sentence

Federal Funds Purchased Availability $ 75,000 $ 50,000

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to June 30, 2024 and thereafter are as follows:

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to September 30, 2024 and thereafter are as follows:

(Dollars in Thousands) Balance Weighted

7 unchanged sentences

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Commitments to extend credit, which amounted to $ 698.0 million at June 30, 2024 and $ 702.3 million at December 31, 2023, represent agreements to lend to customers with fixed expiration dates or other termination clauses.

Commitments to extend credit, which amounted to $ 799.8 million at September 30, 2024 and $ 702.3 million at December 31, 2023, represent agreements to lend to customers with fixed expiration dates or other termination clauses.

The Company provides lines of credit to our clients to finance the completion of construction projects and revolving lines of credit to operating companies to finance their working capital needs.

Lines of credit for construction projects represented $ 409.7 million, or 58.7 % and $ 452.2 million, or 64.4 %, of the commitments to extend credit at June 30, 2024 and December 31, 2023, respectively.

Lines of credit for construction projects represented $ 435.3 million, or 54.4 % and $ 452.2 million, or 64.4 %, of the commitments to extend credit at September 30, 2024 and December 31, 2023, respectively.

Standby letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third-party.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

Those guarantees are primarily issued to support public and private borrowing arrangements.

The Company had outstanding letters of credit totaling $ 17.9 million at June 30, 2024 and $ 19.6 million at December 31, 2023.

The Company had outstanding letters of credit totaling $ 18.2 million at September 30, 2024 and $ 19.6 million at December 31, 2023.

The following table sets forth our commitments and letters of credit as of the dates presented:

(Dollars in Thousands) June 30, 2024 December 31, 2023

(Dollars in Thousands) September 30, 2024 December 31, 2023

Commitments to Extend Credit $ 799,808 $ 702,301

6 unchanged sentences

We maintain a life-of-loss reserve on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements.

The life-of-loss reserve is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a draw-down on the commitment.

The life-of-loss reserve is computed using a methodology similar to that used to determine

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

the ACL for loans, modified to take into account the probability of a draw-down on the commitment.

The life-of-loan reserve for unfunded commitments is included on our Consolidated Balance Sheets.

The following table presents activity in the life-of-loss reserve on unfunded loan commitments as of and for the dates presented:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in Thousands) 2024 2023 2024 2023

1 unchanged sentence

Balance at Beginning of Period $ 2,914 $ 2,736 $ 3,193 $ 2,292

(Recovery) Provision for Unfunded Commitments ( 236 ) 360 ( 279 ) 444

Provision (Recovery) for Unfunded Commitments 191 ( 130 ) ( 88 ) 314

Balance at End of Period $ 3,105 $ 2,606 $ 3,105 $ 2,606

Amounts are added or subtracted to the provision for unfunded commitments through a charge or credit to current earnings in the (recovery) provision for unfunded commitments.

A recovery of $ 0.2 million was recorded for the three months ended June 30, 2024, which resulted in a decrease of $ 0.6 million compared to the provision of $ 0.4 million for the three months ended June 30, 2023.

The decrease in the (recovery) provision for unfunded commitments was primarily due to a decline in construction commitments.

Amounts are added or subtracted to the reserve for unfunded commitments through a charge or credit to current earnings in the provision (recovery) for unfunded commitments.

A provision of $ 0.2 million was recorded for the three months ended September 30, 2024, which resulted in an increase of $ 0.3 million compared to a recovery of $( 0.1 ) million for the three months ended September 30, 2023.

The increase in the provision (recovery) for unfunded commitments was primarily due to an increase in construction commitments.

Legal Proceedings

3 unchanged sentences

In addition, because legal proceedings may be resolved over an extended period of time, potential losses are subject to change due to the outcome of intermediate procedural and substantive rulings, actions by other parties which may be influenced by their settlement posture or their evaluation of the strength or weakness of their case, and other factors.

For these reasons, the Company cannot reasonably estimate the ultimate outcome or timing of, or possible losses resulting from, the matters described below, and cannot conclude if the outcome of any of these matters would have a material impact to the Company.

Other than as set forth below, as of June 30, 2024, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

Settlement of Certain Justice Disput es

On June 26, 2024, the Bank announced that it had agreed to a pathway of curtailment and payoff of loans outstanding to the Bank owed or guaranteed by James C.

Justice, II, Cathy L.

Justice and James C.

Justice, III, and various entities that are owned or controlled by them (such entities, the “Justice Entities” and collectively, the “Justice Obligors”).

In connection with this agreement, several legal proceedings involving the Bank and the Justice Obligors were dismissed, as described below, and the Justice Obligors executed a release that waives all causes of action of any kind that they might claim to have against the Company or the Bank.

Justice Collection Actions

The Bank has been engaged in a variety of collection proceedings (the “Collection Actions”) against James C.

Justice, II, Cathy L.

Justice, James C.

Justice, III and various Justice Entities (collectively, the “Collection Defendants”).

On April 20, 2023 and May 15, 2023, the Bank filed in the Circuit Court of the City of Martinsville, Virginia (the “Martinsville Circuit Court”) confessions of judgment against the Collection Defendants with respect to amounts owed on matured promissory notes made or guaranteed by the Collection Defendants with an aggregate principal balance of approximately $ 301.9 million.

On May 12, 2023 and June 7, 2023, the Collection Defendants filed motions to set aside the confessions of judgment that the Bank had filed.

On February 21, 2024, the Martinsville Circuit Court issued final orders denying such motions.

On February 26, 2024, the Collection Defendants filed a notice of appeal regarding the Martinsville Circuit Court’s order denying such motions.

In connection with the settlement described above, on July 3, 2024, the Collection Defendants withdrew their notices of appeal, and the Collection Defendants have agreed not to challenge further the confessions of judgment or the final orders related thereto issued by the Martinsville Circuit Court.

Justice Federal Court Litigation

On November 10, 2023, the Company, the Bank, and the individual directors of the Company and the Bank were named as defendants in a lawsuit (the “Justice Federal Court Litigation”) filed in the United States District Court for the Southern District of West Virginia by the Collection Defendants.

The allegations contained in the Justice Federal Court Litigation related to the matured promissory notes made or guaranteed by the Collection Defendants that have been reduced to judgment in the Martinsville Circuit Court.

In the Justice Federal Court Litigation, as plaintiffs the Collection Defendants alleged that the Company, the Bank and to a vicarious and limited extent, the individual directors (i) breached an implied covenant of good faith and fair dealing, (ii) breached fiduciary duties, (iii) tortiously interfered with business relations and (iv) violated anti-tying restrictions of the Bank Holding Company Act of 1956, as amended, and alleged that the individual directors aided and abetted the same.

As plaintiffs in the Justice Federal Court Litigation, the Collection Defendants sought monetary damages of not less than $ 1.0 billion, additional punitive damages and interest on damages as allowed by law, payment of costs, expenses and attorneys’ fees, and a declaratory judgment from the court that certain confessions of judgment, and certain guarantees, be declared void and unenforceable.

On December 6, 2023, the Company and the Bank filed a motion to transfer venue of the Justice Federal Court Litigation to the United States District Court for the Western District of Virginia.

That motion was granted on April 24, 2024.

In connection with the settlement described above, on June 26, 2024 the Justice Federal Court Litigation was dismissed with prejudice.

Justice Foreclosure Litigation

On February 7, 2024, the Bank was named as a defendant in a lawsuit (the “Justice Foreclosure Litigation”) filed in the Circuit Court of Greenbrier County, West Virginia (the “Greenbrier Circuit Court”) by The Greenbrier Sporting Club Development Company, Inc.

and The Greenbrier Sporting Club, Inc.

(collectively, “Sporting Club”).

The Justice Foreclosure Litigation related to a deed of trust (the “Trust Deed”) granted by Sporting Club in favor of the Bank.

The trustee under this deed of trust was also named as a defendant.

In the Justice Foreclosure Litigation, Sporting Club requested that the Greenbrier Circuit Court issue declaratory judgments that the Trust Deed was invalid and unenforceable, that the Notice of Sale (defined below) was invalid and of no effect, and that the trustee and the Bank could not sell the property described in the Notice of Sale.

Sporting Club also requested that the Greenbrier Circuit Court issue a declaratory judgment that the debts secured by the Trust Deed were not payable and therefore no trustee sale was permitted, or alternatively that Sporting Club was entitled to final

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

adjudication of the Justice Federal Court Litigation before any sale of property by the trustee under the Trust Deed might proceed.

On or about February 6, 2024, a notice of sale (the “Notice of Sale”) was published in multiple newspapers regarding the proposed sale by the Trustee of certain real estate encumbered by the Trust Deed.

On February 16, 2024, the Bank voluntarily cancelled the proposed sale by the Trustee of the real estate encumbered by the Trust Deed.

In connection with the settlement described above, on June 28, 2024 the Justice Foreclosure Litigation was dismissed with prejudice.

As of September 30, 2024, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business.

GLAS Federal Court Litigation

6 unchanged sentences

Justice, III.

In the GLAS Federal Court Litigation, GLAS alleges that it serves as trustee for investors that acquired notes via a series of securities transactions that repackaged the Bluestone Entities’ obligations to repay Greensill and sold them to those investors.

In the GLAS Federal Court Litigation, GLAS alleges that certain transfers to the Bank executed during 2018 by the Bluestone Entities or Greensill, which in the aggregate total approximately $ 226 million, each constitute either a fraudulent conveyance, or a voluntary conveyance, under Virginia law.

In the GLAS Federal Court Litigation, GLAS seeks an award equal to the full amount of such fraudulent conveyances and/or voluntary conveyances plus interest and payment of attorneys’ fees and costs.

On March 29, 2024, the Bank filed a motion to dismiss the original complaint filed by GLAS due to lack of subject matter jurisdiction and failure to assert facts sufficient to support the claims alleged by GLAS.

Subsequently, GLAS filed an amended complaint on April 19, 2024, which contains substantively similar allegations regarding fraudulent and/or voluntary conveyances, and seeks the same relief, in each case as the original complaint.

On May 13, 2024, the Bank filed a motion to dismiss the amended complaint filed by GLAS on similar grounds.

The Company and the Bank deny the allegations contained in the GLAS Federal Court Litigation and intend to defend vigorously all claims asserted in the GLAS Federal Court Litigation.

Based on information presently available to the Company and the Bank and based on consultation with legal counsel, the Company believes that the Bank has meritorious defenses to all allegations contained in the GLAS Federal Court Litigation.

During the course of the Bank’s lending transactions with James C.

Justice, II, Cathy L.

Justice and James C.

Justice, III, and various Justice Entities, each of James C.

In the GLAS Federal Court Litigation, GLAS alleged that it serves as trustee for investors that acquired notes via a series of securities transactions that repackaged the Bluestone Entities’ obligations to repay Greensill and sold them to those investors.

In the GLAS Federal Court Litigation, GLAS alleged that certain transfers to the Bank executed during 2018 by the Bluestone Entities or Greensill, which in the aggregate totaled approximately $ 226 million, each constitute either a fraudulent conveyance, or a voluntary conveyance, under Virginia law.

In the GLAS Federal Court Litigation, GLAS sought an award equal to the full amount of such fraudulent conveyances and/or voluntary conveyances plus interest and payment of attorneys’ fees and costs.

On August 28, 2024, the Bank announced that it had agreed to a settlement with GLAS (the “GLAS Settlement”).

In connection with the GLAS Settlement, the GLAS Federal Court Litigation was dismissed with prejudice, certain entities that are owned or controlled by James C.

Justice, II, Cathy L.

Justice and James C.

Justice, III and all Collection Defendants agreed (the “Justice Indemnity Agreement”) to indemnify, defend and hold harmless the Bank from damages, claims, liabilities, losses, and expenses incurred in connection with certain claims that may be asserted against the Bank, including the claims that are asserted in the GLAS Federal Court Litigation.

These indemnity obligations are supported by substantial pledged collateral.

The Company and the Bank intend to pursue vigorously all remedies available to the Bank under the Justice Indemnity Agreement.

The Company cannot reasonably estimate the ultimate outcome or timing of, or possible losses resulting from, the GLAS Federal Court Litigation or any related legal proceedings that may commence, and cannot conclude if the outcome of any of these matters would have a material impact to the Company.

Justice, III (each, a “Justice Entity” and collectively, the “Justice Entities”) executed documents reaffirming the legality, validity and binding nature of all loan documents they have executed and judgments granted in favor of the Bank, and GLAS and certain affiliates and parties on whose behalf GLAS was acting have executed a release that waives any and all causes of action of any kind that they might claim to have against the Bank.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

Also in connection with the GLAS Settlement, the Company tendered a payment (the “Settlement Payment”) in consideration of the voluntary dismissal of the GLAS Federal Court Litigation.

Because certain of the Justice Entities had previously agreed to indemnify the Bank against the claims asserted in the GLAS Federal Court Litigation, certain of the Justice Entities executed a promissory note in favor of the Bank further evidencing this indemnification obligation as related to the Settlement Payment.

This promissory note was recognized as a principal charge-off during the three months ended September 30, 2024 due to the nonperforming status of the Bank’s loans with the Justice Entities, and because the settled claims asserted in the GLAS Federal Court Litigation related to allegedly preferential payments made on those nonperforming loans.

For more information about the Company’s principal charge-offs, see Note 5 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

NOTE 11 – TAX EFFECTS ON OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the change in components of other comprehensive income (loss) for the periods presented, net of tax effects:

(Dollars in Thousands) Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

Pre-Tax Amount Tax (Expense) Benefit Net of Tax Amount Pre-Tax Amount Tax Benefit Net of Tax Amount

(Dollars in Thousands) Three Months Ended September 30, 2024 Three Months Ended September 30, 2023

Pre-Tax Amount Tax (Expense) Net of Tax Amount Pre-Tax Amount Tax Benefit Net of Tax Amount

Net Unrealized Gains (Losses) Arising during the period $ 20,910 $ ( 4,582 ) $ 16,328 $ ( 14,773 ) $ 3,197 $ ( 11,576 )

Reclassification Adjustment for Gains included in Net Income ( 36 ) 8 ( 28 ) ( 3 ) 1 ( 2 )

Reclassification Adjustment for Losses included in Net Income — — — 1 — 1

Other Comprehensive Income (Loss) $ 20,910 $ ( 4,582 ) $ 16,328 $ ( 14,772 ) $ 3,197 $ ( 11,575 )

(Dollars in Thousands) Six Months Ended June 30, 2024 Six Months Ended June 30, 2023

Pre-Tax Amount Tax (Expense) Benefit Net of Tax Amount Pre-Tax Amount Tax Expense Net of Tax Amount

Net Unrealized Gains Arising during the period $ 2,369 $ ( 535 ) $ 1,834 $ 4,597 $ ( 973 ) $ 3,624

(Dollars in Thousands) Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

Pre-Tax Amount Tax (Expense) Net of Tax Amount Pre-Tax Amount Tax Benefit Net of Tax Amount

Net Unrealized Gains (Losses) Arising during the period $ 23,279 $ ( 5,117 ) $ 18,162 $ ( 10,176 ) $ 2,224 $ ( 7,952 )

Reclassification Adjustment for (Gains) Losses included in Net Income ( 36 ) 8 ( 28 ) 10 ( 2 ) 8

Other Comprehensive Income $ 2,333 $ — $ ( 527 ) $ 1,806 $ 4,606 $ ( 975 ) $ 3,631

Other Comprehensive Income (Loss) $ 23,243 $ ( 5,109 ) $ 18,134 $ ( 10,166 ) $ 2,222 $ ( 7,944 )

NOTE 12 – STOCK REPURCHASE PLAN

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The Board of Directors authorized the repurchase of 1,000,000 shares of common stock under the 2023 Program and on August 31, 2023 reached the maximum number of shares that could be purchased under the 2023 Program.

The Company’s Board of Directors has not authorized a new repurchase program as of June 30, 2024.

The Company’s Board of Directors has not authorized a new repurchase program as of September 30, 2024.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help readers understand Carter Bankshares, Inc., our operations, our present business environment, and our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations as of and for the three and six month periods ended June 30, 2024 and June 30, 2023.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help readers understand Carter Bankshares, Inc., our operations, our present business environment, and our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations as of and for the three and nine month periods ended September 30, 2024 and September 30, 2023.

The MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this Quarterly Report on Form 10-Q.

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◦ Earnings Summary

◦ Financial Condition

◦ Liquidity and Capital Resources

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Forward looking statements are typically identified by words or phrases such as “will likely result,” “expect,” “anticipate,” “estimate,” “forecast,” “project,” “intend,” “ believe,” “assume,” “strategy,” “trend,” “plan,” “outlook,” “outcome,” “continue,” “remain,” “potential,” “opportunity,” “comfortable,” “current,” “position,” “maintain,” “sustain,” “seek,” “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may.

These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumption that are difficult to predict and often are beyond the Company’s control.

These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company’s control.

Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect.

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• inflation, market and monetary fluctuations;

• changes in trade, monetary and fiscal policies and laws of the U.S.

government, including policies of the Federal Reserve, FDIC and Treasury Department;

• changes in accounting policies, practices, or guidance, for example, our adoption of Current Expected Credit Losses (“CECL”) methodology, including potential volatility in the Company’s operating results due to application of the CECL methodology;

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (continued)

• changes in trade, monetary and fiscal policies and laws of the U.S.

government, including policies of the Federal Reserve, Federal Deposit Insurance Corporation, (“FDIC”) and Treasury Department;

• cyber-security threats, attacks or events;

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• legislation affecting the financial services industry as a whole, and the Company and the Bank, in particular;

• the outcome of pending and future litigation and/or governmental proceedings, including the outcome of lawsuits related to the largest nonperforming loan (“NPL”) relationship;

• the outcome of pending and future litigation and/or governmental proceedings;

• increasing price and product/service competition;

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• the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating acquired operations will be more difficult, disruptive or more costly than anticipated;

• the soundness of other financial institutions and any indirect exposure related to recent large bank failures and their impact on the broader market through other customers, suppliers and partners or that the conditions which resulted in the liquidity concerns with those failed banks may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships with;

• the soundness of other financial institutions and any indirect exposure related to large bank failures and their impact on the broader market through other customers, suppliers and partners or that the conditions which resulted in the liquidity concerns with those failed banks may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships with;

• material increases in costs and expenses;

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (continued)

• reliance on significant customer relationships;

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• changes in deposit flows and loan demand;

• our failure to attract or retain key employees;

• our failure to attract or retain key associates;

• expansions or consolidations in the Company’s branch network, including that the anticipated benefits of the Company’s branch network optimization project are not fully realized in a timely manner or at all;

• deterioration of the housing market and reduced demand for mortgages;

• re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (continued)

• turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses.

Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 , and any of our subsequent filings with the Securities and Exchange Commission (“SEC”).

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Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more relevant than financial results determined in accordance with GAAP, nor is it necessarily comparable with similar non-GAAP measures which may be presented by other companies.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (continued)

Critical Accounting Estimates

Our critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2024 have remained unchanged from the disclosures presented under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are incorporated herein by reference.

Our critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of September 30, 2024 have remained unchanged from the disclosures presented under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are incorporated herein by reference.

Overview and Strategy

Carter Bankshares, Inc.

(the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.5 billion at June 30, 2024.

(the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.6 billion at September 30, 2024.

The Company is the parent company of its wholly owned subsidiary, Carter Bank & Trust (the “Bank”).

The Bank is a Federal Deposit Insurance Corporation, (“FDIC”) insured, Virginia state-chartered bank, which operates 65 branches in Virginia and North Carolina.

The Bank is a FDIC insured, Virginia state-chartered bank, which operates 65 branches in Virginia and North Carolina.

The Company provides a full range of financial services with retail, and commercial banking products and insurance.

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The Company incurs expenses for the cost of deposits, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and income tax provision.

Beginning in 2023, and continuing into 2024 and 2025, the Company is focusing on refining and enhancing its brand image and position in the markets it serves.

To strengthen and further shape the culture of the Company, a new set of guiding principles were introduced to associates in June 2023.

Part of the Company’s current three-year strategic plan is to focus on refining and enhancing its brand image and position in the markets it serves.

With this new brand strategy, the Company has embarked on a multi-year implementation plan to c reate a brand tailored to the needs of our critical growth audiences, with a focus on innovating brand experiences to exceed expectations and to build a brand that stands apart.

This means a commitment to aligning processes, operations and systems around the Company’s brand while introducing new products and services, so that in time the Company can increase its brand awareness in the communities it serves.

To strengthen and further shape the brand and culture of the Company, a new set of guiding principles were introduced to associates in June 2023.

The guiding principles include a new purpose statement:

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supported by our new set of core values:

Build Relationships, Earn Trust and Take

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

Build Relationships, Earn Trust and Take Ownership.

We believe these new guiding principles will help create alignment to support future growth by empowering our associates and igniting a passion for the Company.

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In addition to loan and deposit growth, the Company will seek to increase fee income while closely monitoring operating expenses.

The Company is focused on executing this strategy to successfully build our new brand and grow our business in our current markets as well as any new markets we may enter.

The Company is focused on executing this strategy to successfully support the new brand and grow our business in our current markets as well as any new markets we may enter.

As part of executing this strategy, the Company continues to dedicate significant resources to the ultimate resolution of the Company’s nonaccrual loans, the significant majority of which are related to a single large lending relationship that the Company placed on nonaccrual status in the second quarter of 2023, in a manner that best protects the Company, the Bank and shareholders.

The Company is closely monitoring all developments that may impact collateral values or potential recoveries on its nonperforming loans, including claims that may be asserted by other purported creditors.

During the third quarter of 2024 , the Company obtained a voluntary stipulation of dismissal of the lawsuit filed against the Bank in the United States District Court for the Western District of Virginia (Danville Division) on February 10, 2024 (the “GLAS Trust Lawsuit”) by GLAS Trust Company, LLC, in its capacity as Note Trustee (“GLAS Trust”) “with prejudice.” Accordingly, GLAS Trust may not bring any future legal action in any court based on the facts alleged in the GLAS Trust Lawsuit.

Moreover, in connection with the dismissal of the GLAS Trust Lawsuit, GLAS Trust and certain affiliates and parties on whose behalf it is acting have executed a release that waives any and all causes of action of any kind that they might claim to have against the Bank.

The dismissal of the GLAS Trust Lawsuit ended all pending litigation brought against the Bank by GLAS Trust in connection with the Bank’s lending relationship with James C.

Justice, II and the entities in which he has an interest.

Also in connection with the dismissal of the GLAS Trust Lawsuit, certain Justice Entities executed documents reaffirming the legality, validity and binding nature of all loan documents they have executed in favor of the Bank.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

The Company tendered a payment (the “Settlement Payment”) in consideration of the voluntary dismissal of the GLAS Trust Lawsuit.

This promissory note was recognized as a principal charge-off during the three months ended September 30, 2024 due to the nonperforming status of the Bank’s loans with the Justice Entities, and because the settled claims related to allegedly preferential payments made on those nonperforming loans.

During the second quarter of 2024 the federal court lawsuit filed against the Company and the Bank by West Virginia Governor James C.

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Justice, his son James C.

Justice, III, and related entities that he and/or they own (collectively, the “Justice Entities”) was dismissed with prejudice.

In connection with the dismissal of this litigation, the Justice Entities have agreed upon a pathway of curtailment and payoff of the outstanding loans with the Bank.

The Justice Entities have already started that process of curtailment, and the aggregate nonperforming loan balance associated with the Justice Entities has been reduced from $301.9 million as of March 31, 2024 to $294.1 million as of June 30, 2024.

Justice, III, and related entities that he and/or they own was dismissed with prejudice.

In connection with the dismissal of this litigation, the Justice Entities agreed upon a pathway of curtailment and payoff of the outstanding loans with the Bank.

The Justice Entities have reduced the aggregate nonperforming loan balance associated with the Justice Entities has been reduced from $301.9 million as of March 31, 2024 to $280.9 million as of September 30, 2024.

The Company’s financial results continue to be significantly impacted by the Bank’s largest nonperforming lending relationship that was placed on nonaccrual status during the second quarter of 2023, which has an aggregate principal balance of $280.9 million as of September 30, 2024.

As a result, interest income was negatively impacted by $8.8 million and $9.3 million during the third quarter of 2024 and 2023, respectively, and $27.2 million and $20.7 million during the nine months ended September 30, 2024 and the same period in 2023, respectively.

Interest income has been negatively impacted by $57.2 million in the aggregate since placement of these loans on nonaccrual status during the second quarter of 2023.

Results of Operations and Financial Condition

Earnings Summary

Highlights for the Three Months Ended June 30, 2024

• Net interest income increased $1.4 million, or 5.2% compared to the three months ended June 30, 2023, primarily due to an 84 basis point increase in the yield on earning assets offset by a 98 basis point increase in funding costs;

• The provision for credit losses increased $0.4 million for the three months ended June 30, 2024, compared to the same period in 2023;

• Total noninterest income increased $0.5 million to $5.5 million for the three months ended June 30, 2024, compared to the same period in 2023;

• Total noninterest expense increased $1.9 million to $27.4 million for the three months ended June 30, 2024 compared to the same period in 2023;

• Provision for income taxes increased $1.1 million for the three months ended June 30, 2024 compared to the same period in 2023.

Highlights for the Six Months Ended June 30, 2024

• Net interest income decreased $11.0 million, or 16.3%, to $56.5 million for the six months ended June 30, 2024 compared to the same period in 2023.

The decline in net interest income was significantly driven by the Bank’s largest NPL relationship that was placed on nonaccrual status during the second quarter of 2023, which negatively impacted interest income by $18.4 million for the six months ended June 30, 2024 and by $11.3 million for the same period in

Highlights for the Three Months Ended September 30, 2024

• Net interest income increased $1.4 million, or 5.1% compared to the three months ended September 30, 2023, primarily due to a 57 basis point increase in the yield on earning assets, offset by a 61 basis point increase in funding costs;

• The (recovery) provision for credit losses decreased $1.5 million for the three months ended September 30, 2024, compared to the same period in 2023;

• Total noninterest income increased $0.2 million to $5.4 million for the three months ended September 30, 2024, compared to the same period in 2023;

• Total noninterest expense increased $0.2 million to $27.4 million for the three months ended September 30, 2024 compared to the same period in 2023;

• Provision for income taxes increased $0.6 million for the three months ended September 30, 2024 compared to the same period in 2023.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

Funding costs increased 127 basis points, offset by an increase of 36 basis points on the yield on earning assets for the six months ended June 30, 2024 compared to the same period in 2023;

• The provision for credit losses decreased $1.0 million to $0.5 million for the six months ended June 30, 2024 compared to the same period in 2023;

• Total noninterest income increased $0.8 million to $10.6 million for the six months ended June 30, 2024 compared to the same period in 2023;

• Total noninterest expense increased $4.6 million to $53.7 million for the six months ended June 30, 2024 compared to the same period in 2023;

• Provision for income taxes decreased $2.0 million to $2.5 million for the six months ended June 30, 2024 compared to the same period in 2023.

Balance Sheet Highlights (period-end balances, June 30, 2024 compared to December 31, 2023)

Highlights for the Nine Months Ended September 30, 2024

• Net interest income decreased $9.6 million, or 10.1%, to $85.3 million for the nine months ended September 30, 2024 compared to the same period in 2023, reflecting the impact of rising rates on funding costs, which more than offset loan growth and higher loan and securities yields;

• The (recovery) provision for credit losses decreased $2.5 million to $0.1 million for the nine months ended September 30, 2024 compared to the same period in 2023;

• Total noninterest income increased $1.0 million to $16.0 million for the nine months ended September 30, 2024 compared to the same period in 2023;

• Total noninterest expense increased $4.7 million to $81.1 million for the nine months ended September 30, 2024 compared to the same period in 2023;

• Provision for income taxes decreased $1.4 million to $3.9 million for the nine months ended September 30, 2024 compared to the same period in 2023.

Balance Sheet Highlights (period-end balances, September 30, 2024 compared to December 31, 2023)

• The securities portfolio decreased $36.4 million and is currently 16.1% of total assets compared to 17.3% of total assets;

• Total portfolio loans increased $43.6 million, or 2.5%, on an annualized basis, primarily due to loan growth in the commercial real estate (“CRE”) segment during the six months ended June 30, 2024 and was muted by $80.0 million in loan payoffs of two large commercial real estate loans;

• Total portfolio loans increased $90.0 million, or 3.4%, on an annualized basis, primarily due to loan growth in the commercial real estate (“CRE”) segment during the nine months ended September 30, 2024 and was muted by $80.0 million in loan payoffs of two large commercial real estate loans;

• The portfolio loans to deposit ratio was 88.0%, compared to 94.2%;

• At June 30, 2024, nonperforming loans declined by $9.3 million to $300.2 million since December 31, 2023.

• At September 30, 2024, nonperforming loans declined by $21.8 million to $287.7 million since December 31, 2023.

Nonperforming loans as a percentage of total portfolio loans were 8.00% compared to 8.83%.

The decline is due to $21.0 million of curtailment payments made by the Banks’s largest nonperforming lending relationship that was placed on nonaccrual status during the second quarter of 2023.

These loans are contained in the Other segment with an aggregate principal balance of $294.1 million as of June 30, 2024 and comprise 98.0% of nonperforming loans at June 30, 2024;

These loans are contained in the Other segment with an aggregate principal balance of $280.9 million as of September 30, 2024 and comprise 97.6% of nonperforming loans at September 30, 2024;

• The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 2.25% compared to 2.77%.

The ACL on portfolio loans totaled $96.7 million at June 30, 2024, compared to $97.1 million at December 31, 2023.

The ACL on portfolio loans totaled $80.9 million at September 30, 2024, compared to $97.1 million at December 31, 2023.

• Total deposits increased $363.2 million, or 13.0% on an annualized basis, compared to December 31, 2023;

• Federal Home Loan Bank (“FHLB”) borrowings decreased $155.4 million to $238.0 million at June 30, 2024 compared to $393.4 million at December 31, 2023 primarily due to liquidity provided by deposit growth.

The Company reported net income of $4.8 million or $0.21 diluted earnings per common share (“EPS”) for the three months ended June 30, 2024 compared to net income of $5.7 million, or $0.24 diluted EPS for the same period in 2023.

The Company’s financial results continue to be significantly impacted by the Bank’s largest NPL relationship that was placed on nonaccrual status during the second quarter of 2023, which has an aggregate principal balance of $294.1 million as of June 30, 2024.

As a result, interest income was negatively impacted by $9.1 million and $11.3 million during the second quarter of 2024 and 2023, respectively.

Interest income has been negatively impacted by $48.4 million in the aggregate since placement of these loans on nonaccrual status during the second quarter of 2023.

Three Months Ended June 30, Six Months Ended June 30,

• Federal Home Loan Bank (“FHLB”) borrowings decreased $303.4 million to $90.0 million at September 30, 2024 compared to $393.4 million at December 31, 2023 primarily due to scheduled maturities, repayment of overnight funds and liquidity provided by deposit growth.

The Company reported net income of $5.6 million or $0.24 diluted earnings per common share (“EPS”) for the three months ended September 30, 2024 compared to net income of $3.6 million, or $0.16 diluted EPS for the same period in 2023.

Three Months Ended September 30, Nine Months Ended September 30,

PERFORMANCE RATIOS 2024 2023 2024 2023

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The following table reconciles interest and dividend income (GAAP), yield on interest-earning assets (GAAP), net interest margin (GAAP) and net interest income per the Consolidated Statements of Income to interest and dividend income on an FTE basis (non-GAAP), yield on interest-earning assets on an FTE basis (non-GAAP), net interest margin on an FTE basis (non-GAAP) and net interest income on an FTE basis (non-GAAP), respectively, for the periods presented:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in Thousands) 2024 2023 2024 2023

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The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented:

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 Three Months Ended September 30, 2023

(Dollars in Thousands) Average Balance Income/ Expense Yield/Rate Average Balance Income/ Expense Yield/Rate

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

Six Months Ended June 30, 2024 Six Months Ended June 30, 2023

Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

(Dollars in Thousands) Average

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(3) Average loan balances include loans held-for-sale.

Net interest income increased to $28.1 million for the three months ended June 30, 2024 from $26.7 million for the same period in 2023.

Net interest income, on an FTE basis (non-GAAP), increased $1.3 million, or 4.9%, to $28.3 million for the three months ended June 30, 2024 compared to $27.0 million for the same period in 2023.

The increase is primarily a result of an increase in average interest-earning assets of $175.4 million with the yield on average interest-earning assets increasing 83 basis points as well as a decline in the negative impact of the Bank’s largest NPL of $2.2 million in the second quarter of 2024, offset by an increase of 98 basis points in funding costs.

Net interest income decreased to $56.5 million for the six months ended June 30, 2024 from $67.5 million for the same period in 2023.

Net interest income, on an FTE basis (non-GAAP), decreased $11.1 million, or 16.3%, to $56.9 million for the six months ended June 30, 2024 compared to $68.0 million for the same period in 2023.

The decline in net interest income and net interest margin were significantly driven by the aforementioned large NPL relationship, which negatively impacted interest income by $18.4 million for the six months ended June 30, 2024 as compared to $11.3 million for the same period in 2023.

Funding costs increased 127 basis points, partially offset by an increase of 36 basis points on the yield on earning assets for the six months ended June 30, 2024 compared to the same period in 2023.

During the six months ended June 30, 2024, $760.6 million of CDs matured and repriced from an average rate of 4.30% to an average rate of 4.41%.

Interest income increased to $54.6 million for the three months ended June 30, 2024 from $43.7 million compared to the same period in 2023.

Interest income, on an FTE basis (non-GAAP), increased $10.8 million, or 24.6%, to $54.8 million for the three months ended June 30, 2024 compared to $44.0 million for the same period in 2023, resulting from an increase in average interest-earning assets of $175.4 million, while the yield on average interest-earning assets increased 83 basis points.

Average interest-earning assets increased primarily due to average loan growth of $272.6 million in taxable loans and an increase of $13.2 million in interest-bearing deposits with banks during the second quarter of 2024, and was partially offset by a decrease

Net interest income increased to $28.8 million for the three months ended September 30, 2024 from $27.4 million for the same period in 2023.

Net interest income, on an FTE basis (non-GAAP), increased $1.3 million, or 4.9%, to $29.0 million for the three months ended September 30, 2024 compared to the same period in 2023.

The net interest margin increased 6 basis points to 2.58% for the three months ended September 30, 2024 compared to 2.52% for the same period in 2023.

Net interest margin, on an FTE basis, increased 5 basis points to 2.59% for the three months ended September 30, 2024 compared to 2.54% for the same period in 2023.

The increase was primarily a result of higher average interest-earning assets of $127.1 million with the yield on average interest-earning assets increasing 57 basis points.

The most significant increase in interest-earning assets was a 65 basis point increase in the yield on average loans from 4.78% in the third quarter of 2023 to 5.43% in the third quarter of 2024, as well as a higher average loan balance.

Net interest income decreased to $85.3 million for the nine months ended September 30, 2024 from $94.9 million for the same period in 2023.

Net interest income, on an FTE basis (non-GAAP), decreased $9.8 million, or 10.2%, to $85.9 million for the nine months ended September 30, 2024 compared to $95.7 million for the same period in 2023.

The net interest margin decreased 41 basis points to 2.57% for the nine months ended September 30, 2024 compared to 2.98% for the same period in 2023.

Net interest margin, on an FTE basis, decreased 41 basis points to 2.59% for the nine months ended September 30, 2024 compared to 3.00% for the same period in 2023.

The decline in net interest income and net interest margin were significantly driven by the Bank’s largest nonperforming lending relationship that was placed on nonaccrual status during the second quarter of 2023, which negatively impacted interest income by $27.2 million for the nine months ended September 30, 2024 and by $20.7 million for the same period in 2023.

Funding costs increased 104 basis points, offset by an increase of 43 basis points on the yield on earning assets for the nine months ended September 30, 2024 compared to the same period in 2023.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

nine months ended September 30, 2024, $1.2 billion of CDs matured and repriced from an average rate of 4.33% to an average rate of 4.40%.

Interest income increased to $56.6 million for the three months ended September 30, 2024 from $48.9 million compared to the same period in 2023.

Interest income, on an FTE basis (non-GAAP), increased $7.7 million, or 15.6%, to $56.8 million for the three months ended September 30, 2024 compared to $49.1 million for the same period in 2023, primarily from growth in earning assets and higher earning asset yields.

Average interest-earning assets increased primarily due to average loan growth of $200.4 million in loans and an increase of $31.2 million in interest-bearing deposits with banks during the third quarter of 2024, and was partially offset by a decrease of $93.4 million in average investment securities and a decrease of $11.1 million in FHLB stock.

The Bank’s largest nonperforming lending relationship negatively impacted interest income by $8.8 million in the third quarter of 2024 and was negatively impacted by $9.3 million in the third quarter of 2023.

Interest income increased to $165.2 million for the nine months ended September 30, 2024 from $144.6 million compared to the same period in 2023.

Interest income, on an FTE basis (non-GAAP), increased $20.5 million, or 14.1%, to $165.8 million for the nine months ended September 30, 2024 compared to $145.3 million for the same period in 2023, resulting from average loan growth of $275.5 million in taxable loans.

The change in average investment securities is the result of active balance sheet management to deploy the proceeds from securities maturities and principal curtailments into higher yielding loans, rather than reinvesting those proceeds back into the securities portfolio.

The portfolio has been diversified as to bond types, maturities, and interest rate structures.

As of September 30, 2024, the securities portfolio was comprised of 43.7% variable rate securities with approximately 96.9% that will reprice at least once over the next 12 months.

We believe having a significant percentage of variable rate securities is an important strategy during times of rising interest rates because fixed-rate bond prices generally fall when interest rates increase, which can result in unrealized losses.

However, variable rate securities do not carry as much interest rate risk so there is much less price volatility.

This variable rate strategy has limited the impact of rising rates on the Company’s unrealized losses on debt securities.

With the Federal Reserve on a likely path of reducing short-term interest rates, the Bank may alter this interest rate mix strategy going forward.

Interest expense of $27.8 million for the three months ended September 30, 2024 increased $6.3 million, or 29.3% compared to the same period in 2023, primarily due to an increase in average interest-bearing deposits of $430.9 million.

The increase in average-bearing deposits reflected solid growth in average CDs of $349.2 million, an increase of $128.7 million in interest-bearing demand accounts and an increase of $71.0 million in average money market accounts, offset by a decrease of $118.0 million in savings accounts as customer preferences shifted from lower cost non-maturing deposits to higher-yielding interest-bearing demand, money market and CD products.

Interest expense of $79.9 million for the nine months ended September 30, 2024 increased $30.3 million, or 60.9% compared to the same period in 2023, primarily due to an average increase in CDs of $345.8 million.

Our balance sheet is currently exhibiting characteristics of a slightly liability sensitive position due to the short-term nature of our deposit portfolio and FHLB borrowings.

Specifically, 93.0% of our CD portfolio and 50.0% of our outstanding FHLB borrowings will mature and reprice over the next twelve months.

This strategy gives us flexibility to manage the structure and pricing of our deposit and borrowing portfolios to reduce future funding costs should the Federal Open Market Committee (“FOMC”) continue cutting short-term rates in the future.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:

Three Months Ended September 30, 2024

Compared to September 30, 2023

Nine Months Ended September 30, 2024

Compared to September 30, 2023

(Dollars in Thousands) Volume (3)

(Decrease) Volume (3)

Interest Earned on:

Interest-Bearing Deposits with Banks $ 425 $ — $ 425 $ 712 $ 53 $ 765

Tax-free Investment Securities (2)

(114) (5) (119) (356) (7) (363)

Taxable Investment Securities (687) 160 (527) (1,875) 1,731 (144)

Total Securities (801) 155 (646) (2,231) 1,724 (507)

Tax-free Loans (1)(2)

(170) 13 (157) (511) 36 (475)

Taxable Loans (1)

2,820 5,415 8,235 10,660 10,130 20,790

Total Loans 2,650 5,428 8,078 10,149 10,166 20,315

Federal Home Loan Bank Stock (207) 2 (205) (141) 63 (78)

Total Interest-Earning Assets $ 2,067 $ 5,585 $ 7,652 $ 8,489 $ 12,006 $ 20,495

Interest Paid on:

Interest-Bearing Demand $ 242 $ 1,876 $ 2,118 $ 254 $ 3,509 $ 3,763

Money Market 458 1,059 1,517 1,039 5,288 6,327

Savings (38) 51 13 (145) 124 (21)

Certificates of Deposit 3,155 3,387 6,542 7,770 16,490 24,260

Total Interest-Bearing Deposits 3,817 6,373 10,190 8,918 25,411 34,329

Federal Home Loan Bank Borrowings (3,472) (371) (3,843) (4,141) 317 (3,824)

Federal Funds Purchased (54) (53) (107) (177) (177) (354)

Other Borrowings 52 13 65 92 8 100

Total Borrowings (3,474) (411) (3,885) (4,226) 148 (4,078)

Total Interest-Bearing Liabilities 343 5,962 6,305 4,692 25,559 30,251

Change in Net Interest Margin (2)

$ 1,724 $ (377) $ 1,347 $ 3,797 $ (13,553) $ (9,756)

(1) Nonaccruing loans are included in the daily average loan amounts outstanding.

(2) Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

(3) Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.

(Recovery) Provision for Credit Losses

(Recovery) provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb expected life-of-loan losses in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period.

The following table presents information regarding the (recovery) provision for credit losses and net charge-offs:

(Dollars in Thousands) Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 $ Change 2024 2023 $ Change

(Recovery) Provision for Credit Losses $ (432) $ 1,105 $ (1,537) $ 75 $ 2,605 $ (2,530)

Provision (Recovery) for Unfunded Commitments 191 (130) 321 (88) 314 (402)

Total (Recovery) Provision for Credit Losses on Loans (241) 975 (1,216) (13) 2,919 (2,932)

Provision for Securities — — — — — —

Total (Recovery) Provision for Credit Losses $ (241) $ 975 $ (1,216) $ (13) $ 2,919 $ (2,932)

Net Loan Charge-offs $ 15,345 $ 775 $ 14,570 $ 16,218 $ 1,983 $ 14,235

Net Loan Charge-offs (annualized) / Average Portfolio Loans 1.71 % 0.09 % 0.61 % 0.08 %

The (recovery) provision for credit losses decreased $1.5 million and $2.5 million for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

The decrease for the three and nine months ended September 30, 2024 in the (recovery) provision for credit losses as compared to the same periods in 2023 was primarily driven by updated analysis of the individually evaluated loans within the Other loan segment and $1.7 million of other segment

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

reserves released during the third quarter of 2024 related to $13.2 million of curtailment payments made during the third quarter by the Bank’s largest nonperforming lending relationship, offset by loan growth in the third quarter of 2024.

The provision (recovery) for unfunded commitments for the three and nine months ended September 30, 2024 was a provision of $0.2 million and a recovery $(0.1) million, respectively, compared to a recovery of $(0.1) million and a provision of $0.3 million in the same periods in 2023, respectively.

The decrease and the increase in the three and nine months ended September 30, 2024, respectively were due to changes in commitments in construction loans during the periods.

Net charge-offs were $15.3 million and $16.2 million for the three and nine months ended September 30, 2024 compared to $0.8 million and $2.0 million for the same periods in 2023.

During the three and nine months ended September 30, 2024 and September 30, 2023, net charge-offs were significantly impacted by a $15.0 million principal charge-off related to the Other segment of the loan portfolio.

As a percentage of average portfolio loans, on an annualized basis, net charge-offs were 1.71% and 0.61% for the three and nine months ended 2024 and 0.09% and 0.08% for the three and nine months ended September 30, 2023, respectively.

The $15.0 million principal charge-off related to the Other segment of the loan portfolio.

Certain Justice Entities executed a promissory note related to the Settlement Payment (as defined in Note 10).

This promissory note was recognized as a principal charge-off due to the nonperforming status of the Bank’s loans with the Justice Entities and because the settled claims related to allegedly preferential payments made on those nonperforming loans.

See the “Allowance for Credit Losses” section of this MD&A for additional details regarding our charge-offs and for additional information related to our ACL.

Noninterest Income

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in Thousands) 2024 2023 $ Change % Change 2024 2023 $ Change % Change

Gains (Losses) on Sales of Securities, net $ — $ (1) $ 1 N/M $ 36 $ (10) $ 46 N/M

Service Charges, Commissions and Fees 1,820 1,783 37 2.1 % 5,547 5,380 167 3.1 %

Debit Card Interchange Fees 1,907 1,902 5 0.3 % 5,926 5,941 (15) (0.3) %

Insurance Commissions 1,063 868 195 22.5 % 2,611 1,550 1,061 68.5 %

Bank Owned Life Insurance Income 375 348 27 7.8 % 1,088 1,028 60 5.8 %

Commercial Loan Swap Fee Income — — — — % — 114 (114) (100.0) %

Other 257 370 (113) (30.5) % 792 1,030 (238) (23.1) %

Total Noninterest Income $ 5,422 $ 5,270 $ 152 2.9 % $ 16,000 $ 15,033 $ 967 6.4 %

N/M Not Meaningful

Total noninterest income increased $0.2 million, or 2.9%, to $5.4 million for the three months ended September 30, 2024 and increased $1.0 million, or 6.4%, to $16.0 million for the nine months ended September 30, 2024 when compared to the same periods in 2023.

The increase for the three months ended September 30, 2024 was primarily due to higher insurance commissions of $0.2 million, offset by a decrease of $0.1 million in other noninterest income related to lower fair value adjustment of our interest rate swap contracts with commercial customers.

The most significant increase during the nine months ended September 30, 2024 was higher insurance commissions of $1.1 million.

Also impacting the increase for the nine months ended September 30, 2024 was a $0.2 million increase in service charges, commissions and fees, offset by a decrease of $0.2 million in other noninterest income similar to the decrease mentioned above and a decline of $0.1 million in commercial loan swap fee income as activity has declined due to the interest rate environment.

CARTER BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

Noninterest Expense

Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in Thousands) 2024 2023 $ Change % Change 2024 2023 $ Change % Change

Salaries and Employee Benefits $ 14,603 $ 13,956 $ 647 4.6 % $ 43,019 $ 41,257 $ 1,762 4.3 %

Occupancy Expense, net 3,944 3,547 397 11.2 % 11,485 10,548 937 8.9 %

FDIC Insurance Expense 1,529 1,368 161 11.8 % 4,782 2,711 2,071 76.4 %

Other Taxes 878 856 22 2.6 % 2,680 2,446 234 9.6 %

Advertising Expense 585 363 222 61.2 % 1,470 1,133 337 29.7 %

Telephone Expense 324 500 (176) (35.2) % 1,083 1,339 (256) (19.1) %

Professional and Legal Fees 1,193 1,512 (319) (21.1) % 4,248 4,005 243 6.1 %

Data Processing 1,337 1,076 261 24.3 % 3,462 2,854 608 21.3 %

Debit Card Expense 889 816 73 8.9 % 2,453 2,066 387 18.7 %

Other 2,151 3,288 (1,137) (34.6) % 6,454 8,035 (1,581) (19.7) %

Total Noninterest Expense $ 27,433 $ 27,282 $ 151 0.6 % $ 81,136 $ 76,394 $ 4,742 6.2 %

Total noninterest expense increased $0.2 million to $27.4 million for the three months ended September 30, 2024 compared to the same period in 2023.

The most significant variance for the comparable period related to a $0.6 million increase in salaries and employee benefits, an increase of $0.4 million in occupancy expenses, an increase of $0.3 million in data processing expenses and a $0.2 million increase in FDIC insurance expense, offset by a decrease of $1.1 million in other noninterest expense and a decrease of $0.3 million in professional and legal fees.

The increases in salaries and employee benefits resulted from higher salary expenses due to fewer open positions in retail, job grade assessment increases and normal merit increases.

The increase in occupancy expenses, net of $0.4 million was due to new software license and depreciation expense in the third quarter of 2024 and the increase in data processing expenses of $0.3 million relates primarily to general inflationary cost increases for existing and new service agreements.

The increase in advertising expenses relates to costs incurred for the Company’s new brand roll-out.

The higher FDIC insurance expense was due to the deterioration in asset quality as a direct result of the large nonperforming lending relationship that was placed into nonaccrual status in the second quarter of 2023, which is a component used to determine the assessment.

The decrease in other noninterest expense related to a gain of $0.5 million on a closed office that was sold in the third quarter of 2024, write-downs of $0.6 million on three legacy other real estate owned (“OREO”) properties and write-downs of $0.3 million on two additional closed offices in the third quarter of 2023.

Total noninterest expense increased $4.7 million or 6.2% to $81.1 million for the nine months ended September 30, 2024 compared to the same period in 2023.

The most significant variances were similar to those mentioned for the three months ended September 30, 2024 compared to the same period in 2023.

However, the year-to-date variance was also impacted by an increase of $0.4 million in debit card expense related to discounts received in March of 2023, as well as, a decrease of $0.3 million in telephone expenses due to the lower ongoing cost of a new phone system that was replaced in 2023.

Provision for Income Taxes

The provision for income taxes increased $0.6 million and decreased $1.4 million to $1.4 million and $3.9 million for the three and nine months ended September 30, 2024, respectively when compared to the same periods in 2023.

Pre-tax income increased $2.6 million and decreased $10.4 million for the three and nine months ended September 30, 2024, respectively when compared to the same periods in 2023.

The effective tax rate was 19.9% and 19.5% for the three and nine months ended September 30, 2024, respectively, compared to 17.7% and 17.4% for the same periods in 2023.

The increase in the effective tax rate for the three and nine months ended September 30, 2024 compared to the same periods in 2023 was primarily related to changes in pre-tax income, partially offset by higher levels of tax credits in 2023.

The Company ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest income, tax credit projects and bank owned life insurance (“BOLI”).

CARTER BANKSHARES, INC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements