What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-07 compared with 2024-03-08 · 420 added, 427 removed, 1437 unchanged (37% of the section changed)

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

Stock Repurchases Settled in Subsequent Period — — ( 306 )

Loans Transferred to Held-for-Sale — — 1,513

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Nature of Operations and Principles of Consolidation:

Carter Bankshares, Inc.

Carter Bankshare s, Inc.

(the “Company”) is a holding company headquartered in Martinsville, Virginia.

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

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

The holding company is regulated by the Federal Reserve Bank (“FRB”).

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The Bank has one wholly owned subsidiary, CB&T Investment Company (the “Investment Company”).

Our market coverage is primarily in Virginia and North Carolina, including Fredericksburg, Charlottesville, Lynchburg, Roanoke, Christiansburg, Martinsville, Danville, Greensboro, Fayetteville, and Charlotte.

Our market coverage is primarily in Virginia and North Carolina, including Fredericksburg, Charlottesville, Lynchburg, Roanoke, Blacksburg, Martinsville, and Danville in Virginia, and Greensboro, Charlotte, Raleigh and Mooresville in North Carolina.

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

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Principles of Consolidation:

The Consolidated Financial Statements include the accounts of Carter Bankshares, Inc.

The Consolidated Financial Statements include the accounts of Carter Banks hares, Inc.

and its wholly owned subsidiary.

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as available-for-sale include securities which can be sold for liquidity, investment management, or similar reasons even if there is not a present intention of such a sale.

Available-for-sale securities are reported at fair value, with unrealized gains (losses), net of tax included in other comprehensive income (loss).

Available-for-sale securities are reported at fair value, with unrealized gains (losses), net of tax included in accumulated other comprehensive loss, net of applicable taxes.

Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

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If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the impairment shall be separated into the amount representing the credit loss and the amount related to all other factors.

Credit-related impairment is recognized as an allowance for credit losses (“ACL”) on the balance sheet with a corresponding adjustment to provision for credit losses in the Consolidated Statements of Net Income.

Credit-related impairment is recognized as an allowance for credit losses (“ACL”) on the balance sheet with a corresponding adjustment to (recovery) provision for credit losses in the Consolidated Statements of Income.

Both the allowance and the adjustment to net income can be reversed if conditions change.

Equity Securities:

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.

Equity securities are carried at fair value, with changes in fair value reported within other noninterest income in the Consolidated Statements of Income.

Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment.

Loans Held-for-Sale:

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We then hold these mortgage loans from both sources until funded by the investor, typically a two-week period.

Gains and losses on sales of mortgage loans held-for-sale are determined using the specific identification method and are included in other noninterest income in the Consolidated Statements of Net Income.

From time to time, certain loans are transferred from the loan portfolio to loans held-for-sale, which are carried at the lower of cost or fair value.

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The remaining unamortized fees and costs are recognized as part of the cost basis of the loan at the time it is sold.

Gains and losses on sales of loans held-for-sale are included in other noninterest income in the Consolidated Statements of Net Income.

Gains and losses on sales of loans held-for-sale are included in other noninterest income in the Consolidated Statements of Income.

Loans that management have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, discounts, and an allowance for credit losses.

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Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

An individually evaluated loan analysis is conducted for loans that are either or both nonperforming or a restructured loan with a commitment of $1.0 million or greater and/or based on management’s discretion.

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Any interest that is accrued, but not collected is reversed against interest income when a loan is placed on nonaccrual status, which typically occurs prior to charging off all, or a portion, of a loan.

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While a loan is classified as nonaccrual and the probability of collecting the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding.

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Allowance for Credit Losses:

The allowance for credit losses represents management’s estimate of expected credit losses inherent in the loan portfolio, and consists of an allowance for credit losses for pooled loans.

Management estimates the allowance for credit losses for pooled loans utilizing a Discounted Cash Flow (“DCF”) method.

The ACL related to loans individually evaluated is primarily based on the excess of the loan's current outstanding principal balance compared to the estimated fair value of the related collateral, less cost to sell.

For a loan that is not collateral-dependent, the allowance is recorded at the amount by which the outstanding principal balance exceeds the current estimate of the present value of future cash flows on the loan discounted at the loan's original effective interest rate.

Our CECL methodology introduced a modified discounted cash flow methodology based on expected cash flow changes in the future for the Other segment.

A significant population of the Other segment was not impaired under the probable incurred loss model and therefore not subject to a collateral dependent specific reserve analysis.

The allowance for credit losses (“ACL”) represents management’s estimate of expected credit losses over the life of the loan portfolio.

The ACL includes an estimate of credit losses for pooled loans utilizing a Discounted Cash Flow (“DCF”) method.

Reserves for pooled loans are estimated by calculating the amount by which the outstanding principal balance exceeds the current estimate of the present value of future cash flows discounted at the loan’s original effective interest rate.

The ACL also includes an estimate of credit losses related to loans that are individually evaluated, known as Individually Evaluated Loans, or IELs.

Generally, an IEL reserve is calculated as the excess of the loan's current outstanding principal balance, or general ledger balance if the loan is non-accrual, compared to the estimated fair value of the related collateral, less cost to sell, if any.

Management reserves the right to utilize alternative methods for IELs.

Our CECL model introduced a modified discounted cash flow methodology based on expected cash flow changes in the future for the Other segment.

A population of the Other segment was not impaired under the probable incurred loss model and therefore not subject to a collateral dependent specific reserve analysis.

For the population of the Other segment that was impaired under the incurred loss model, based on collateral values, the specific reserves totaled zero.

The CECL model was developed with subjective assumptions that is driven by the following key factors:

prepayment speeds, timing of prepayments, loss given defaults as well as other factors including the discount rate based upon the cost of capital and ultimately the timing of future cash flows.

The CECL model estimates default probabilities driven by economic metrics identified below that form the basis of the prepayment speeds and prepayment timing estimated in the DCF method.

The CECL model also estimates losses based on these default.

The product of the probability of default and losses given default is the estimated expected loss.

For more details, see Note 6 - Allowance for Credit Losses, in Item 8 of this Annual Report on Form 10-K.

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Specific Analysis.

A specific reserve analysis is applied to certain individually evaluated loans.

A specific reserve analysis is applied to certain individually evaluated loans (IELs).

These loans are evaluated quarterly generally based on collateral value, observable market value or the present value of expected future cash flows.

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Model assumptions include, but are not limited to the discount rate, prepayments and curtailments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The product of the probability of default and the loss given default is the estimated loss rate, which varies over time.

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Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

“Other” Segmented Pool

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The loans included in the Other segment of the model were underwritten and approved based on standards that are inconsistent with our current underwriting standards.

The model for the Other segment was developed with subjective assumptions that may cause volatility driven by the following key factors:

prepayment speeds, timing of contractual payments, discount rate, as well as other factors.

The discount rate is reflective of the inherent risk in the Other segment.

As these loans are not collateral dependent, management elected to use a modified DCF method.

The modifications to DCF include assumptions with respect to the timing of cash flows and the utilization of a discount rate reflective of the inherent risk of the loans in the Other segment.

A substantial change in these assumptions could cause a significant impact to the model causing volatility.

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The analysis applied to this pool resulted in an allowance of $ 51.3 million at adoption on January 1, 2021 and is disclosed in the Other segment line item.

Charge-off Policy

Our charge-off policy for loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes probable, regardless of the delinquency status of the loan.

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2022-02, effective as of January 1, 2022, which eliminates the recognition and measurement of a TDR.

Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan.

Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

restructuring results in a new loan or a continuation of the existing loan.

Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications.

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The majority of the Company's loans, commitments and lines of credit have been granted to customers in the Company's market area.

The concentrations of credit by loan classification are set forth in Note 5.

The concentrations of credit by loan classification are set forth in Note 5 - Loans, in the Notes to the Consolidated Financial Statements.

Advertising Costs:

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Changes in net cash surrender value are recognized in noninterest income in the Consolidated Statements of Income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Bank Premises and Equipment:

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ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded primarily in other expense in the Consolidated Statements of Income.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded primarily in occupancy, net in the Consolidated Statements of Income.

Finance lease expense is comprised of interest expense and amortization of the ROU asset, which are recorded in interest on other borrowings and other expense, respectively, in the Consolidated Statements of Income.

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Earnings per Common Share:

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

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

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

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.

Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to

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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.

Other Real Estate Owned (“OREO”):

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Income Taxes:

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for

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deductible temporary differences, operating losses, and tax credit carryforwards.

Income tax provision is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities including change in valuation allowance.

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, operating losses, and tax credit carryforwards.

Deferred tax liabilities are recognized for taxable temporary differences.

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The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets, along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the Consolidated Statements of Income.

Interest and penalties associated with unrecognized tax benefits are classified as additional income tax provision in the Consolidated Statements of Income.

The Company is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved new market and historic rehabilitation projects.

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These partnership investments generate a return through the realization of federal income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time.

The investments are accounted for under the equity method, with the expense included within provision for income taxes on the Consolidated Statements of Income.

The investments are accounted for under the equity method, with the expense included within income tax provision on the Consolidated Statements of Income.

All of the Company's tax credit investments are evaluated for impairment at the end of each reporting period.

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Retirement Benefits:

The Company has established an employee benefit plan as described in Note 14.

The Company has established an employee benefit plan as described in Note 14 - Employee Benefit Plans to the Consolidated Financial Statements.

The Company does not provide any other post-retirement benefits.

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In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives.

These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.

These instruments involve, to varying degrees, elements of credit and

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interest rate risk in excess of the amount recognized in the financial statements.

Our exposure to credit loss, in the event the customer does not satisfy the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral.

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Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in other liabilities on the Company’s Consolidated Balance Sheets.

Stock-Based Compensation:

The Company has issued both restricted stock to executive officers, associates and non-associate directors and performance based stock units to its executive officers.

Compensation expense for restricted stock awards is based on the fair value of these awards at the date of the grant.

The market price of the Company’s common stock at the date of the grant is the fair value of the award.

Compensation expense for restricted stock awards is based on the fair value of these awards at the date of the grant prior to September 1, 2023.

Beginning September 1, 2023 the Company utilizes a trading 90-day look back period to estimate the average stock price to resolve issues of rapid stock price fluctuations.

Compensation cost is recognized over the required service period, generally defined as the vesting period.

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The Company recognizes forfeitures as they occur.

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For the performance stock units (“PSUs”), management evaluates the criteria quarterly to determine the probability of the performance goals being met and recognizes compensation based upon the evaluation.

The PSUs vest on the third anniversary of the grant date.

The PSUs vest on the third anniversary of the grant date and any vested performance units will be paid in shares of the Company's common stock.

Loss Contingencies:

As disclosed in Note 18 to the Consolidated Financial Statements, the Company and its subsidiaries are involved in various legal proceedings incidental to their business in the ordinary course, and the disclosure set forth in Note 18 relating to certain legal matters is incorporated by reference.

As disclosed in Note 18 - Commitments and Contingencies to the Consolidated Financial Statements, the Company and its subsidiaries are involved in various legal proceedings incidental to their business in the ordinary course, and the disclosure set forth in Note 18 relating to certain legal matters is incorporated by reference.

Fair Value Measurements

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

Securities available-for-sale 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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Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

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Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities.

Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades,

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broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events.

Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events.

In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants.

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This valuation method is classified as Level 3 in the fair value hierarchy.

Equity Securities :

The fair values of equity securities are determined by obtaining quoted prices on nationally recognized or foreign securities exchanges, if available.

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

As of December 31, 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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Accordingly, interest rate swaps for commercial loans are classified as Level 2.

The Company also uses pay-fixed/receive-floating interest rate swaps (the “Pay-Fixed Swap Agreements”).

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 were utilized to convert the hedged loans from a fixed rate to a synthetic floating Secured Overnight Financing Rate (“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 the remaining hedge 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 remaining hedge was determined to be effective during all periods presented and the Company expects them to remain effective during the remaining terms.

The Company also enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments).

Rate lock commitments on mortgage loans to be held-for-sale are considered to be derivatives.

The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 15 to 90 days.

The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from

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15 to 90 days.

The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on rate lock commitments due to changes in interest rates.

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After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions.

For smaller OREO assets with existing

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carrying values less than $ 0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure.

For smaller OREO assets with existing carrying values less than $ 0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure.

Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers.

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In cases where quoted fair values are not available, we use present value methods to determine the fair value of our financial instruments.

Recent Accounting Pronouncements and Developments

Newly Adopted Pronouncements in 2023

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards (“ASU”) No.

2023-02, Investments Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.

The amendments in this ASU expands the use of the proportional amortization method of accounting, previously only allowable for Low Income Tax Housing Credits, (“LITHC”) investments, to equity investments in other tax credit structures that meet certain criteria.

This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted in any interim period.

The Company reviewed its existing tax equity investment portfolios and evaluated the impact of the updated guidance on its Consolidated Financial Statements and elected to early adopt the amendments in this ASU as of June 30, 2023 on a modified retrospective basis, effective dated as of January 1, 2023.

As a result, the Company recorded a transitional adjustment of $ 0.1 million to retained earnings.

The Company makes equity investments as a limited partner in various partnerships that sponsor historic tax credits (“HTC”) as a strategic tax initiative designed to receive tax credits and other tax benefits, such as deductible flow-through losses.

The Company has evaluated all of the proportional amortization method qualifying criteria and has elected to apply the proportional amortization method at the HTC program level.

The Company records the investment in the HTC as a component of other assets and uses the proportional amortization method to account for the investments in the HTC partnerships.

Amortization related to these HTC investments is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income.

Prior to the ASU adoption, amortization was recorded as a component of noninterest expense on the Consolidated Statements of Income.

The amendments in this ASU did not materially impact our Consolidated Financial Statements.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of reference rate reform on financial reporting.

The ASU also provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from the London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks.

Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in GAAP.

The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

The amendments in this ASU are effective for all entities between March 12, 2020 and December 31, 2022.

In December 2022, the FASB issued ASU No 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

The amendments in this ASU defer the sunset date for applying the reference rate reform relief by two years to December 31, 2024, and can be adopted at any time during this period.

The Company ceased originating new LIBOR based variable rate loans as of December 31, 2021 per the ARRC’s guidance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Company created an internal team in 2021 to identify and modify loans and other financial instruments with attributes that were either directly or indirectly influenced by LIBOR.

The Company has selected one-month term Secured Overnight Financing Rate, (“SOFR”), (published by the CME Group) as the replacement benchmark for LIBOR based loans.

The financial impact regarding pricing, valuation and operations of the transition have been evaluated and were not material in nature.

The transition team was fully committed to working within the guidelines established by the United Kingdom’s Financial Conduct Authority and the Federal Reserve System of New York’s Alternative Reference Rate Committee to complete a smooth transition away from LIBOR.

For LIBOR-based loans, remediation efforts were completed by September 30, 2023.

Accounting Statements Issued but Not Yet Adopted

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which enhances the required disclosures primarily related to the income tax rate reconciliation and income taxes paid.

The ASU requires an entity’s income tax rate reconciliation to provide additional information for reconciling items meeting a quantitative threshold, and to disclose certain selected categories within the income tax rate reconciliation.

The ASU also requires entities to disclose the amount of income taxes paid, disaggregated by federal, state and foreign taxes.

The ASU is effective for annual periods beginning after December 15, 2024, though early adoption is permitted.

We are currently evaluating the impact of this guidance on our Consolidated Financial Statements.

Recent Accounting Pronouncements and Developments

Newly Adopted Pronouncements in 2024

On November 27, 2023, the FASB issued ASU 2023-07.

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

The adoption of this ASU 2023-07 was effective for the Company on December 31, 2024 and did not have an impact to our Consolidated Financial Statements, See Note 22 - Segment Reporting to our Consolidated Financial Statements.

On June 30, 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

The FASB issued this ASU to (1) clarify the guidance in Topic 820, Fair Value Measurement , when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) amend a related illustrative example, and (3) introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.

The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.

The amendments in this ASU also require the following disclosures for equity securities subject to contractual sale restrictions:

(1) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet;

(2) the nature and remaining duration of the restriction(s);

and (3) the circumstances that could cause a lapse in the restriction(s).

For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

The adoption of this ASU was effective for the Company on March 31, 2024, but was first applied on June 30, 2024, concurrent with the purchase of equity securities, and did not have a significant impact to our Consolidated Financial Statements.

Accounting Statements Issued but Not Yet Adopted

Accounting Standards Update 2024-04 “Debt - Debt with Conversion and Other Options (Subtopic 470-20)” (“ASU 2024-04”) clarifies wither the settlement of convertible debt, including debt containing cash conversion features at terms that are different from the terms included in the existing debt instrument, should be accounted for as an induced conversion or a debt extinguishment.

Updates permit an entity to apply the new guidance on either a prospective or a retrospective basis.

ASU 2024-04 is effective for public business entities January 1, 2026 and is not expected to have a significant impact on the Company’s financial statements.

In November 2024, the FASB issued Accounting Standards Update 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)" ("ASU 2024-03").

ASU 2024-03 requires public entities to provide disaggregated disclosures, in the notes to the financial statements, of certain categories of expenses that are included in expense line items on the face of the income statement.

ASU 2024-03 is effective for the Company for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company will update its expense disclosures upon adoption.

On March 29, 2024 the FASB issued ASU 2024-02, Codification Improvements— Amendments to Remove References to the Concepts Statements, which amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification.

The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance.

Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities.

The ASU is effective January 1, 2025 and is not expected to have a significant impact on the Company’s financial statements.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which enhances the required disclosures primarily related to the income tax rate reconciliation and income taxes paid.

The ASU also requires entities to disclose the amount of income taxes paid, disaggregated by federal, state and foreign taxes.

The ASU is effective for annual periods beginning after December 15, 2024, though early adoption is permitted.

The Company is currently evaluating the impact of this guidance on its Consolidated Financial Statements.

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 during the period.

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.

11 unchanged sentences

Earnings per Common Share – Diluted $ 1.06 $ 1.00 $ 2.03

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

2 unchanged sentences

The Company had no required reserves for 2024, 2023 and 2022.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 4 - INVESTMENT SECURITIES

12 unchanged sentences

Corporate Notes 70,750 — ( 7,300 ) 63,450

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

Total $ 800,741 $ 91 $ ( 82,432 ) $ 718,400

December 31, 2023

2 unchanged sentences

Losses Fair Value

Treasury Securities $ 19,318 $ — $ ( 1,452 ) $ 17,866

Government Agency Securities 44,185 398 ( 756 ) 43,827

6 unchanged sentences

Corporate Notes 70,750 — ( 11,390 ) 59,360

Total Debt Securities $ 945,707 $ 300 $ ( 109,734 ) $ 836,273

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

The Company did no t have securities classified as held-to-maturity at December 31, 2024 or December 31, 2023.

5 unchanged sentences

Gross Realized Losses — ( 1,650 ) ( 162 )

Net Realized (Losses) Gains $ ( 1,521 ) $ 46 $ 6,869

Net Realized Gains (Losses) $ 68 $ ( 1,521 ) $ 46

Tax Impact $ 14 $ ( 319 ) $ 10

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

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity as of the date presented.

1 unchanged sentence

Securities not due at a single maturity date are shown separately.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2024

9 unchanged sentences

Asset Backed Securities 127,978 118,521

Total Securities $ 870,546 $ 779,003

Total $ 800,741 $ 718,400

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

40 unchanged sentences

Total Debt Securities 12 $ 10,170 $ ( 154 ) 428 $ 736,023 $ ( 92,123 ) 440 $ 746,193 $ ( 92,277 )

The Company adopted Topic 326, Financial Instruments—Credit Losses (Topic 326) on January 1, 2021 and did no t record an allowance for credit losses, (“ACL”), on its investment securities during the year ended December 31, 2023 or December 31, 2022 as the Company did no t have any related impairment.

The Company did no t record an allowance for credit losses, (“ACL”), on its investment securities during the year ended December 31, 2024 or December 31, 2023 as the Company did no t have any 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 December 31, 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 on agency-issued mortgage-related securities, general financial market uncertainty and market volatility.

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

These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities.

The fair value is expected to recover as the securities approach their maturity date or repricing date.

As of December 31, 2023, management believes the unrealized losses detailed in the table above are not related to credit;

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

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.

Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through (recovery) 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 year ended December 31, 2024 and December 31, 2023, the Company had no credit related net investment impairment losses.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 5 – LOANS AND LOANS HELD-FOR-SALE

Equity Securities

During 2024, the Company purchased $ 10.0 million of equity securities.

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, NASDAQ listed 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 mainly focuses on providing affordable housing to low-income and moderate-income borrowers and renters, including those in Majority Minority Census Tracts.

The fund invests nationally, but individual bonds are designated to our bank that align with our current footprint.

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

During the year ended December 31, 2024, the Company recognized an unrealized fair value gain of $ 41.0 thousand on these equity securities.

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

NOTE 5 – LOANS

The composition of the loan portfolio by dollar amount is shown in the table below:

8 unchanged sentences

Other 255,203 305,213

Total Portfolio Loans 3,505,910 3,148,913

Loans Held-for-Sale — —

Total Loans $ 3,624,826 $ 3,505,910

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry while actively managing concentrations.

When concentrations exist in certain segments, this risk is mitigated by reviewing the relevant economic indicators and internal risk rating trends of the loans in these segments.

When concentrations exist in certain segments, we seek to mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends of the loans in these segments.

The Company established transaction, relationship and specific loan segment limits in its loan policy.

3 unchanged sentences

We also have policy limits on loan-to-cost for construction projects.

Although leverage is important, the Company is also focused on cash flow generation and employs stress testing to calculate a supportable loan amount.

Supportable loan amounts have generally been more challenging given the increases in commodities pricing and the average loan to cost has decreased over time.

Although leverage is important, the Company also focuses on cash flow generation and employs stress testing to calculate a supportable loan amount.

Unsecured loans pose higher risk for the Company due to the lack of a well-defined secondary source of repayment.

4 unchanged sentences

Discounts on purchased 1-4 family loans included in the portfolio balances above were $ 104.1 thousand and $ 133.4 thousand at December 31, 2024 and December 31, 2023, respectively.

The Company had no mortgage loans held-for-sale as of December 31, 2023 and December 31, 2022, respectively.

The Company had no loans held-for-sale as of December 31, 2024 and December 31, 2023, respectively.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Loan Restructurings

5 unchanged sentences

A loan that is considered a restructured loan may be subject to the individually evaluated loan analysis if the commitment is $ 1.0 million or greater and/or based on management’s discretion;

otherwise, the restructured loan remains in the appropriate

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

segment in the ACL model.

otherwise, the restructured loan remains in the appropriate segment in the ACL model.

For a discussion with respect to reserve calculations regarding individually evaluated loans refer to the “Nonrecurring Basis” section in Note 7, Fair Value Measurements, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

2 unchanged sentences

Twelve Months Ended December 31, 2024 Twelve Months Ended December 31, 2023

(Dollars in Thousands) Number of Contracts Amortized Cost Basis (1)

% of Total Class of Financing Receivable Number of Contracts Amortized Cost Basis (1)

% of Total Class of Financing Receivable

(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

Accruing Restructured Loans

15 unchanged sentences

Total Restructured Loans 15 $ 260,042 7.17 % — $ — — %

(1) Excludes accrued interest receivable of $ 1.5 thousand on restructured loans for the year ended 2022.

The Company had no loans that were restructured during the three and twelve months ended December 31, 2023.

During the third quarter of 2022 the Bank modified a construction loan and considered it a restructured loan as a result of financial difficulty.

The borrower is a single family home builder.

The purpose of the loan was to finance the construction of a speculative home.

The loan matured and was incomplete.

The Bank extended the maturity and completion date for five ( 5 ) months in order to provide time to complete and sell the home.

However, the Bank became aware of a mechanic’s lien filed by one of the borrower’s subcontractors.

This issue was resolved and the loan was restored to accrual status on September 30, 2022.

Subsequently, the home was sold and the Bank was paid in full on December 9, 2022.

This loan was not considered significant and remained in the general pool of the Bank’s ACL model for reserve purposes until it was paid in full.

These loans are not considered significant and are included in the Bank’s ACL model in the general pool of the construction and commercial real estate (“CRE”) segments for reserve purposes.

The Company had no loans that were restructured during the twelve months ended December 31, 2023.

CARTER BANKSHARES, INC.

18 unchanged sentences

Construction — — —

Other 251,982 — —

Total Nonaccrual Restructured Loans $ 254,473 $ — $ —

Total Restructured Loans $ 260,042 $ — $ —

$ 324 $ — $ —

(1) Excludes accrued interest receivable of $ 1.5 thousand at December 31, 2022.

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.

Twelve Months Ended December 31, 2024

(Dollars in Thousands) Payment Delay Accelerated Maturity Date/Modified Rate Term Extension/Payment Delay Term Extension/Payment Delay/Interest Rate Reduction Total % of Total Class of Financing Receivable

Commercial Real Estate $ 4,516 $ — $ 419 $ — $ 4,935 0.26 %

Commercial and Industrial 1,053 — 19 — 1,072 0.47 %

Residential Mortgages — 2,053 — — 2,053 0.26 %

Other — — — 251,982 251,982 98.74 %

Total $ 5,569 $ 2,053 $ 438 $ 251,982 $ 260,042 7.17 %

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

Twelve Months Ended December 31, 2024

(Dollars in Thousands) Weighted-Average Payment Delay Weighted-Average Accelerated Maturity Date Weighted-Average Modified Rate Weighted-Average Term Extension/Payment Delay Weighted-Average Interest Rate Reduction

Commercial Real Estate 0.17 years — — % 4.91 years — %

Commercial and Industrial 21.83 years — — % 8.03 years — %

Residential Mortgages — 19.26 years 4.63 % — — %

Other — — — % 2.60 years 0.67 %

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

1 unchanged sentence

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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

As of December 31, 2024 and December 31, 2023, the Company had $ 0.4 million and $ 2.0 million, respectively, of residential real estate in the process of foreclosure.

We also had $ 62 thousand at December 31, 2023 and $ 133 thousand at December 31, 2022 in residential real estate included in OREO.

We also had zero and $ 62 thousand in residential real estate included in OREO at December 31, 2024 and December 31, 2023, respectively.

Loans to principal officers, directors and their affiliates during 2024 were as follows:

10 unchanged sentences

The Company develops and documents a systematic ACL methodology based on the following portfolio segments:

1) CRE, 2) Commercial and Industrial, (“C&I”), 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other.

1) Commercial Real Estate (“CRE”), 2) Commercial and Industrial, (“C&I”), 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other.

The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles.

28 unchanged sentences

Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed.

Other loans include unique risk attributes considered inconsistent with our current underwriting standards.

Other loans, which includes the Company’s largest lending relationship, has unique risk attributes considered inconsistent with our current underwriting standards.

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.

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

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

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.

Our model is based on our best estimate of facts known with the most current information.

Current Expected Credit Losses (“CECL”) Model

The CECL model is based on our best estimate of facts known with the most current information.

Certain portions of the CECL model are inherently subjective and include, but are not limited to estimates with respect to:

16 unchanged sentences

• A sampling of small LLRs, which are defined as individual commercial loans or relationships with aggregate exposure of $ 2.0 million or more but not included in the top twenty LLRs;

• A sampling review of Credit Risk Committee modifications, including new and existing loans to provide perspective on the appropriateness of the modification in relation to established policies and procedures;

• A sampling review of non-organic commercial loans and those commercial loans approved outside of the Credit Risk Committee;

• Focus reviews of office and land development to evaluate segment risk rather than individual loan risk.

• A sampling review of Executive Loan Committee modifications, including new and existing loans to provide perspective on the appropriateness of the modification in relation to established policies and procedures;

• A sampling review of non-organic commercial loans and those commercial loans approved outside of the Executive Loan Committee;

• Focus reviews of various segments to evaluate emerging risk rather than individual loan risk.

Focus reviews are performed annually on a rotational basis.

3 unchanged sentences

Special Mention – 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.

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

Assets so classified have a well-defined weakness, or weaknesses that jeopardize the

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

liquidation of the debt.

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

Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt.

Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

15 unchanged sentences

Substandard — — 6,182 109 — 615 152 7,058

Doubtful — — — — — — — —

Total Commercial Real Estate $ 186,628 $ 279,983 $ 430,377 $ 241,342 $ 131,479 $ 553,964 $ 46,058 $ 1,869,831

4 unchanged sentences

Substandard 19 — 666 1,026 33 — 1,327 3,071

Doubtful — — — — — — — —

Total Commercial and Industrial $ 1,149 $ 23,676 $ 14,934 $ 23,805 $ 19,735 $ 116,868 $ 30,316 $ 230,483

4 unchanged sentences

Substandard — — 527 — 2,053 1,597 688 4,865

Doubtful — — — — — — — —

Total Residential Mortgages $ 28,491 $ 67,171 $ 252,299 $ 182,510 $ 70,235 $ 122,810 $ 53,955 $ 777,471

4 unchanged sentences

Substandard — 1 8 11 — — — 20

Doubtful — — — — — — — —

Total Other Consumer $ 17,896 $ 5,043 $ 2,464 $ 916 $ 2,433 $ 124 $ 32 $ 28,908

3 unchanged sentences

Substandard — — — 185 43 — — 228

Doubtful — — — — — — — —

Total Construction $ 97,922 $ 194,263 $ 138,982 $ 11,664 $ 6,880 $ 6,829 $ 6,390 $ 462,930

3 unchanged sentences

Substandard 251,982 — — — — — — 251,982

Doubtful — — — — — — — —

Total Other Loans $ 251,982 $ — $ — $ — $ — $ 3,221 $ — $ 255,203

4 unchanged sentences

Substandard 252,001 1 7,383 1,331 2,129 2,212 2,167 267,224

Doubtful — — — — — — — —

Total Portfolio Loans $ 584,068 $ 570,136 $ 839,056 $ 460,237 $ 230,762 $ 803,816 $ 136,751 $ 3,624,826

46 unchanged sentences

YTD Gross Charge-offs $ 232 $ 1,451 $ 925 $ 83 $ 142 $ 140 $ — $ 2,973

At December 31, 2023 and December 31, 2022, the Company had no loans that were risk rated as doubtful.

Special mention and substandard loans at December 31, 2023 increased $ 156.5 million to $ 313.3 million compared to December 31, 2022, with an increase of $ 167.5 million in substandard and a decrease of $ 11.0 million in special mention.

The increase of $ 167.5 million in substandard loans is primarily related to the above mentioned large nonaccrual lending relationship in the other loan category.

The $ 301.9 million of loans related to the Bank’s largest lending relationship were nonperforming and rated as substandard at December 31, 2023.

At December 31, 2022 the largest lending relationship in the other segment loans were all accruing and totaled $ 309.1 million of which, $ 177.3 million of those loans were pass-rated and $ 131.8 million of those loans were substandard-rated.

The decrease of $ 11.0 million in special mention is primarily due to the upgrade of a CRE credit totaling $ 9.9 million to a pass rating.

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The Bank’s largest credit relationship was nonperforming and rated as substandard at both December 31, 2024 and December 31, 2023 with an aggregate principal balance of $ 252.0 million and $ 301.9 million at December 31, 2024 and December 31, 2023, respectively.

The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of December 31, 2024:

29 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of December 31, 2023:

(Dollars in Thousands) 2023 2022 2021 2020 2019 2018 and Prior Revolving Total Portfolio Loans

31 unchanged sentences

Days Past Due Total 30-89 Days

Past Due Past Due 90+ Days Still Accruing Nonaccrual Loans Total Portfolio Loans

Past Due Nonaccrual Loans Total Portfolio Loans

Commercial Real Estate $ 1,866,013 $ 2,642 $ — $ 2,642 $ 1,176 $ 1,869,831

22 unchanged sentences

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

Loans past due 30 to 89 days or more and still accruing increased $ 1.2 million to $ 6.0 million at December 31, 2023 compared to $ 4.8 million at December 31, 2022, primarily in the residential mortgage segment due to two relationships with an aggregate principal balance of $ 2.9 million.

There were no nonaccrual or past due loans related to loans held-for-sale as of December 31, 2024 and December 31, 2023, respectively.

The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment of loan as of December 31, 2023.

There were no loans at December 31, 2023 that were past due more than 90 days and still accruing.

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

There were no loans for the periods presented that were past due more than 90 days and still accruing.

As of and for the year ended December 31, 2024 As of and for the year ended December 31, 2023

14 unchanged sentences

Nonaccrual status recognizes that the collection in full of both principal and interest is unlikely.

Without applying additional scrutiny at a granular level, we believe delinquency to be a leading indicator with respect to the likelihood of collection in full of both principal and interest.

Accordingly, we automatically transfer loans to nonaccrual status if they are 90 or more days’ delinquent.

Without applying additional scrutiny at a granular level, management believes delinquency to be a leading indicator with respect to the likelihood of collection in full of both principal and interest.

Accordingly, management automatically transfers loans to nonaccrual status if they are 90 or more days’ delinquent.

Management reserves the right to exercise discretion at the individual loan level.

8 unchanged sentences

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, as applicable, are reported as provision for credit loss on loans in the period of change.

December 31, 2023 December 31, 2022

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

Commercial Real Estate $ 453 $ — $ 453 2,106

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

December 31, 2024

Collateral Type Equipment Single Family Discounted Cash Flow Total

(Dollars in Thousands) Fair Value - Collateral

Commercial and Industrial $ 1,026 $ — $ — $ 1,026

Residential Mortgages 1,142 — 1,142 1,212

Other Consumer — — — —

Residential Mortgage — 2,053 — 2,053

Other — — 251,982 251,982

Total $ 1,026 $ 2,053 $ 251,982 $ 255,061

December 31, 2023

Collateral Type Office Single Family Land Discounted Cash Flow Total

(Dollars in Thousands) Fair Value - Collateral

Commercial Real Estate $ 453 $ — $ — $ — $ 453

Residential Mortgage — 1,142 — — 1,142

Construction — 2,090 808 — 2,898

9 unchanged sentences

Recoveries — 49 31 495 — — 575

Net (Charge-offs) / Recoveries — 25 ( 93 ) ( 2,190 ) ( 42 ) — ( 2,300 )

Net Recoveries / (Charge-offs) — 9 ( 1 ) ( 1,264 ) ( 157 ) ( 15,000 ) ( 16,413 )

Balance, End of Year $ 20,146 $ 2,791 $ 10,389 $ 682 $ 11,297 $ 30,295 $ 75,600

6 unchanged sentences

Recoveries — 88 110 475 — — 673

Net (Charge-offs) / Recoveries — ( 3,435 ) 53 ( 1,273 ) $ 149 — ( 4,506 )

Net Recoveries / (Charge-offs) — 25 ( 93 ) ( 2,190 ) $ ( 42 ) — ( 2,300 )

Balance, End of Year $ 19,873 $ 3,286 $ 10,879 $ 868 $ 7,792 $ 54,354 $ 97,052

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2022

(Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other (1)

(Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total

Allowance for Credit Losses on Loans:

Balance, Beginning of Year $ 17,297 $ 4,111 $ 4,368 $ 1,493 $ 6,939 $ 61,731 $ 95,939

Impact of CECL Adoption 6,587 1,379 3,356 ( 877 ) ( 80 ) 51,277 61,642

(Recovery) Provision for Credit Losses on Loans ( 6,215 ) ( 2,249 ) ( 982 ) 1,561 781 10,454 3,350

Provision (Recovery) for Credit Losses on Loans 695 3,304 4,470 1,109 ( 146 ) ( 7,013 ) 2,419

Charge-offs — ( 3,436 ) ( 46 ) ( 1,677 ) — — ( 5,159 )

2 unchanged sentences

Balance, End of Year $ 17,992 $ 3,980 $ 8,891 $ 1,329 $ 6,942 $ 54,718 $ 93,852

(1) In connection with our adoption of Topic 326, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL.

Our new segmentation breaks out Other loans from our original loan segments:

CRE, C&I, residential mortgages and construction.

The allowance balance at the beginning of period was reclassified to Other from their original loan segments:

CRE, C&I, residential mortgages and construction to conform to current presentation.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 7 - FAIR VALUE MEASUREMENTS

12 unchanged sentences

Total Securities Available-for-Sale 718,400 — 710,642 7,758

Equity Securities 10,041 10,041 — —

Portfolio Loan Pool Subject to Fair Value Hedge 622 — 622 —

Derivatives 17,356 — 17,356 —

2 unchanged sentences

Total $ 17,710 $ — $ 17,710 $ —

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2023

1 unchanged sentence

Securities Available-for-Sale:

Treasury Securities $ 17,866 $ 17,866 $ — $ —

Government Agency Securities $ 43,827 $ — $ 43,827 $ —

11 unchanged sentences

Total $ 17,228 $ — $ 17,228 $ —

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

We have invested in subordinated debt of other financial institutions.

We have two securities totaling $ 7.3 million that are considered to be Level 3 securities at December 31, 2023 and two totaling $ 7.5 million at December 31, 2022.

The change in the fair value of Level 3 securities available-for-sale from $ 7.5 million at December 31, 2022 to $ 7.3 million at December 31, 2023 is attributable to the calculated change in fair value of $ 0.2 million.

We have two securities totaling $ 7.8 million that are considered to be Level 3 securities at December 31, 2024 and two totaling $ 7.3 million at December 31, 2023, attributable to the calculated change in fair value of $ 0.5 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.

9 unchanged sentences

Individually Evaluated Loans $ — $ — $ — $ —

The Company had no individually evaluated loans measured at fair value on a nonrecurring basis as of December 31, 2023.

Individually evaluated loans had a net carrying amount of $ 2.6 million at December 31, 2022, including a valuation allowance of $ 0.7 million.

The Company’s largest lending relationship is classified at December 31, 2023 as an individually evaluated loan with a net carrying amount totaling $ 247.6 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 $ 54.3 million at December 31, 2023.

The Company had one C&I individually evaluated loan totaling $ 0.6 million measured at fair value on a nonrecurring basis as of December 31, 2024 and zero at December 31, 2023.

The Company’s largest credit relationship is classified as an individually evaluated loan with a net carrying amount totaling $ 221.7 million at December 31, 2024 and $ 247.6 million at December 31, 2023.

The Company utilized various cash flow and discounting assumptions in the alternative modeling, instead of fair value, which resulted in a valuation allowance of $ 30.7 million at December 31, 2024 and $ 54.3 million at December 31, 2023.

When evaluating the net carrying value of this credit relationship at December 31, 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 December 31, 2023, compared with $ 8.4 million at December 31, 2022, primarily due to sales, write-downs on OREO and payments, offset by $ 1.4 million in fair value of closed retail offices transferred to OREO.

Write-downs of $ 1.1 million were recorded on OREO for the year ended December 31, 2023 compared to $ 0.7 million for the year ended December 31, 2022.

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $ 0.7 million as of December 31, 2024, compared with $ 2.5 million at December 31, 2023, primarily due to sales offset by transfers to OREO for loans.

The Company had $ 0.2 million write-downs recorded on OREO for the year ended December 31, 2024 and had $ 1.1 million write-downs recorded on OREO for the year ended December 31, 2023.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis as of December 31, 2024 and 2023:

1 unchanged sentence

(Dollars in Thousands) Fair Value Valuation Technique Unobservable Inputs Weighted Range Average

Individually Evaluated Loans $ 579 Appraisals Estimated Selling Costs 3.5 % 3.5 %

Total Individually Evaluated Loans $ 579

OREO $ — Appraisals Estimated Selling Costs — % — %

2 unchanged sentences

Total OREO $ 659

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2023

(Dollars in Thousands) Fair Value Valuation Technique Unobservable Inputs Weighted Range Average

Individually Evaluated Loans $ 858 Discounted Internal Valuations Management's Discount & Estimated Selling Costs 14.2 % 14.2 %

Individually Evaluated Loans 1,791 Discounted Appraisals Estimated Selling Costs 6.0 % 6.0 %

Total Individually Evaluated Loans $ 2,649

OREO $ 130 Appraisals Estimated Selling Costs 6.0 % 6.0 %

OREO 142 Internal Valuations Estimated Selling Costs 5.0 % 5.0 %

OREO 927 Discounted Internal Valuations Management’s Discount & Estimated Selling Costs 0.0 % — 5.0 % 0.7 %

OREO 2,191 Discounted Internal Valuations Management’s Subject Discount 0.0 % — 24.0 % 15.6 %

Total OREO $ 2,463

4 unchanged sentences

Fair values for December 31, 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.

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

In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

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

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Fair Value Measurements at December 31, 2024

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Securities Available-for-Sale 718,400 — 710,642 7,758 718,400

Equity Securities 10,041 10,041 — — 10,041

Portfolio Loans, net 3,549,226 — — 3,379,192 3,379,192

6 unchanged sentences

FHLB Borrowings 70,000 — — 69,604 69,604

Federal Funds Purchased — — — — —

Accrued Interest Payable 8,218 — 5 8,213 8,218

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Fair Value Measurements at December 31, 2023

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FHLB Borrowings 393,400 — — 392,696 392,696

Federal Funds Purchased 17,870 17,870 17,870

Accrued Interest Payable 7,288 — — 7,288 7,288

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 8 - RIGHT-OF-USE (“ROU”) ASSETS AND LEASE LIABILITIES

The Company has seven lease contracts, including five finance leases and two operating leases at December 31, 2023.

The Company has nine lease contracts, including seven finance leases and two operating leases at December 31, 2024.

These leases are for our branch and loan production facilities.

There was one new lease agreement entered into in 2023.

There were two new lease agreements entered into in 2024.

The following table presents our lease expense for finance and operating leases for the periods presented:

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Weighted Average Lease Term - Years

Operating leases 3.3 years —

Operating leases 2.8 years 3.3 years

Finance leases 16.2 years 17.9 years

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Finance leases $ 2,995 $ 1,464

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Lease liabilities are included in other liabilities in the Consolidated Balance Sheets.

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Lease Liabilities $ 10,103 $ 299 $ 10,402

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 9 - PREMISES AND EQUIPMENT

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Depreciation expense is included under occupancy expense, net in the Consolidated Statements of Income totaling $ 7.1 million in 2024, $ 6.2 million in 2023, and $ 6.1 million in 2022.

Real estate on closed branches were valued based on recent comparative market values received from a real estate broker.

Real estate on closed branches was valued based on recent comparative market values received from a real estate broker.

The Company had $ 0.2 million in write-downs in 2024 and write-downs in the amount of $ 0.5 million and $ 0.6 million were recognized during 2023 and 2022, respectively.

These write-downs on closed branches are included in losses and write-downs on OREO, net in the Consolidated Statements of Income.

The net remaining carrying value of $ 2.3 million and $ 1.1 million is classified as held-for-sale in OREO in the Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively.

These write-downs on closed branches are included in other expense in the Consolidated Statements of Income.

The net remaining carrying value of $ 0.7 million and $ 2.3 million is classified as OREO in the Consolidated Balance Sheets as of December 31, 2024 and 2023, respectively.

NOTE 10 - OTHER REAL ESTATE OWNED

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Transfer of Closed Retail Offices to OREO 348 1,854 2,675

Capitalized Expenditures — — —

Direct Write-Downs ( 160 ) ( 1,117 ) ( 741 )

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End of Year Balance $ 659 $ 2,463 $ 8,393

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

At December 31, 2023, 2022, and 2021, the balance of OREO includes $ 0.2 million, $ 7.3 million, and $ 9.9 million, respectively, of foreclosed properties recorded as a result of obtaining physical possession of the asset.

At December 31, 2023 and 2022, the recorded investment of foreclosed residential real estate was $ 62 thousand and $ 133 thousand, respectively.

At December 31, 2024, 2023, and 2022, the balance of OREO was zero , $ 0.2 million, and $ 7.3 million, respectively, of foreclosed properties recorded as a result of obtaining physical possession of the asset.

At December 31, 2024 and 2023, the recorded investment of foreclosed residential real estate was zero and $ 62 thousand, respectively.

At December 31, 2024 and 2023, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds are in process is $ 0.4 million and $ 2.0 million, respectively.

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Operating Expenses, net of Rental Income 37 178 293

Net (Gain) Loss on Sales ( 17 ) ( 309 ) 150

OREO Expense $ 1,278 $ 725 $ 3,939

Net Gain on Sales ( 1,026 ) ( 17 ) ( 309 )

OREO (Income) Expense $ ( 829 ) $ 1,278 $ 725

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 11 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the Consolidated Balance Sheet at fair value.

In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the Consolidated Balance Sheets at fair value.

Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period.

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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.

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 amortizing single family mortgages and CRE loans.

These fair value hedges were utilized to convert the hedged loans from a fixed rate to a synthetic floating SOFR.

On December 19, 2024, the Company terminated the first Pay-Fixed Swap Agreement with an original notional value of $ 175.0 million that would have matured on July 11, 2029.

Negative interest income adjustments related to the termination of this hedge was $ 154 thousand.

As of December 31, 2024, the Company had one remaining Pay-Fixed Swap Agreement in place with an original notional value of $ 125.0 million, contractual maturity date of July 11, 2027 and a fair value of $ 0.6 million.

Under the remaining Pay-Fixed Swap Agreement the Company will pay a fixed coupon rate of 4.188 % while receiving the overnight SOFR.

The fair value of the remaining hedge 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 remaining hedge was 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.

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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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table indicates the amounts representing the fair value of derivative assets and derivative liabilities at December 31:

1 unchanged sentence

Asset Derivatives (Included in Other Assets)

(Dollars in Thousands) 2023 2022

(Dollars in Thousands) Number of

Transactions Notional

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Transactions Notional

Derivatives Designated as Hedging Instruments

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

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

Derivatives not Designated as Hedging Instruments

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Total Derivatives not Designated as Hedging Instruments 59 $ 369,716 $ 17,356 61 $ 387,764 $ 17,440

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Total Derivatives 59 $ 369,716 $ 17,356 61 $ 387,764 $ 17,440

Fair Values of Derivative Instruments

Liability Derivatives (Included in Other Liabilities)

(Dollars in Thousands) 2023 2022

(Dollars in Thousands) Number of

Transactions Notional

1 unchanged sentence

Transactions Notional

Derivatives Designated as Hedging Instruments

Interest Rate Swaps - Balance Sheet Hedge 1 $ 125,000 $ 554 — $ — $ —

Total Derivatives Designated as Hedging Instruments 1 $ 125,000 $ 554 — $ — $ —

Derivatives not Designated as Hedging Instruments

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Total Derivatives not Designated as Hedging Instruments 59 $ 369,716 $ 17,156 61 $ 387,764 $ 17,228

The following table indicates the (loss) income recognized in the Consolidated Statements of Income for derivatives for the years ended December 31:

Total Derivatives 60 $ 494,716 $ 17,710 61 $ 387,764 $ 17,228

The following table indicates the (loss) income recognized within “other noninterest income” in the Consolidated Statements of Income for derivatives for the years ended December 31:

(Dollars in Thousands) 2024 2023 2022

Derivatives Designated as Hedging Instruments

Interest Rate Swaps - Balance Sheet Hedge $ ( 125 ) $ — $ —

Total Derivative Loss Designated as Hedging Instruments ( 125 ) — —

Derivatives not Designated as Hedging Instruments

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Interest Rate Swap Contracts – Commercial Loans ( 12 ) ( 219 ) 605

Total Derivative (Loss) Income $ ( 219 ) $ 605 $ 89

Total Derivative (Loss) Income not Designated as Hedging Instruments ( 12 ) ( 219 ) 605

Net Derivative (Loss) Income $ ( 137 ) $ ( 219 ) $ 605

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 included in the Consolidated Balance Sheets at December 31:

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 included in the Consolidated Balance Sheets at December 31:

Asset Derivatives (Included in Other Assets) Liability Derivatives (Included in Other Liabilities)

(Dollars in Thousands) 2024 2023 2024 2023

Derivatives Designated as Hedging Instruments

Gross Amounts Recognized $ — $ — $ 592 $ —

Gross Amounts Offset — — 38 —

Net Amounts Presented in the Consolidated Balance Sheets — — 554 —

Derivatives not Designated as Hedging Instruments

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Net Amounts Presented in the Consolidated Balance Sheets 17,356 17,440 17,156 17,228

Gross Amounts Not Offset (1)

Net Amount $ 17,356 $ 17,440 $ 17,710 $ 17,228

(1) Amounts represent collateral posted for the periods presented.

NOTE 12 – DEPOSITS

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All depos i t accounts are i nsured by the FDIC u p to the maximum amount allowed by l aw.

The Dodd-Frank Act , signed into law on July 2 1 , 2010, makes permanent the $250,000 limit for federal deposit insurance and the coverage limit applies per

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

depositor, per insured depository institution for each account ownership.

The Dodd-Frank Act , signed into law on July 2 1 , 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 year-end 2024 and 2023 were $ 297.9 million and $ 305.0 million, respectively.

At December 31, 2023 and December 31, 2022, total brokered deposits (excluding the CDARS and ICS two-way) were $ 70.0 million and zero , respectively.

At December 31, 2024 and December 31, 2023, total brokered deposits (excluding the CDARS and ICS two-way) were $ 196.1 million and $ 70.0 million, respectively, which are included within the “certificates of deposit” line item in the Consolidated Balance Sheet.

Certificates of Deposit maturing as of December 31:

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Total deposit dollars from executive officers, directors, and their related interests at December 31, 2024 and 2023, respectively, were $ 2.3 million and $ 1.8 million.

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 13 – FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED

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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.

Total loans pledged as collateral were $ 1.5 billion at both December 31, 2023 and December 31, 2022, respectively.

There were no securities available-for-sale pledged as collateral at both December 31, 2023 and December 31, 2022.

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

The FHLB charges prepayment fees for advances that are repaid before maturity, which is the net present value between current market rates and the fixed rate on each borrowing.

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

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

At December 31, 2024, funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25 % 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 $ 735.3 million.

The Company has unsecured facilities with three other correspondent financial institutions totaling $ 50.0 million and access to the institutional CD and brokered deposit markets.

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

The Company has unsecured facilities with three other correspondent financial institutions totaling $ 30.0 million at December 31, 2024 and $ 50.0 million at December 31, 2023, respectively, a fully secured facility with one other correspondent financial institution totaling $ 45.0 million at December 31, 2024 and zero at December 31, 2023, 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 December 31, 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 Company had no overnight federal funds purchased at December 31, 2023.

There were $ 17.9 million outstanding overnight federal funds purchased at December 31, 2022.

The following table represents the balance of FHLB borrowings, the weighted average interest rate, the interest expense and the borrowing availability for the years ended December 31:

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FHLB Availability $ 735,294 $ 480,266 $ 676,746

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table represents the balance of federal funds purchased, the weighted average interest rate, the interest expense and the borrowing availability for the years ended December 31:

5 unchanged sentences

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to December 31, 2024 and thereafter are as follows:

(Dollars in Thousands) Balance Weighted

2024 $ 323,400 5.46 %

(Dollars in Thousands) Balance Weighted Average Rate

2025 $ 25,000 4.13 %

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Associates become eligible for the elective deferrals at the beginning of the quarter after they have been employed at least a month and have reached the age of twenty years and six months.

Associates are eligible for the non-elective profit sharing contributions at the beginning of the quarter after they have been employed six months and have reached the age of twenty years and six months.

Vesting for the non-elective profit sharing contribution is based on years of service to the Company, with a year being any year an employee works a minimum of 1,000 hours.

Associates are eligible for the non-elective

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

profit sharing contributions at the beginning of the quarter after they have been employed six months , have reached the age of twenty years and six months, and are not participating in one of the Company’s annual incentive programs.

Vesting for the non-elective profit sharing contribution is based on years of service to the Company, with a year being any year an associate works a minimum of 1,000 hours.

The following table details the vesting schedule based on years of service for participants:

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The purpose of the Nonqualified Profit Sharing Plan was to provide additional benefits to be paid to the executive upon the occurrence of a “Distributable Event,” which is either termination or death.

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

board of directors of the Bank (the “Bank Board”) approved the amended plan on December 20, 2007.

The Board of Directors of the Bank (the “Bank Board”) approved the amended plan on December 20, 2007.

Since its inception, the Bank’s former Chairman and Chief Executive Officer was the only executive who participated in the Nonqualified Profit Sharing Plan.

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stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units and performance cash awards (collectively, the “awards”).

Subject to accelerated vesting under certain circumstances, the Plan requires a minimum vesting period of one year for awards subject to time-based conditions and a minimum performance period of one year for awards subject to achievement or satisfaction of performance goals.

Subject to accelerated vesting under certain circumstances, the Plan requires a minimum vesting period of one year

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

for awards subject to time-based conditions and a minimum performance period of one year for awards subject to achievement or satisfaction of performance goals.

These minimums are applicable to awards other than those granted as part of a retainer for the service of non-employee directors.

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These grants were approved by the Committee as compensation for substantial contributions to the Company’s performance.

The time-based shares of restricted stock granted in 2023 to executives vest in one-third annual installments over three years under the short-term incentive plan.

The time-based shares of restricted stock granted in 2024 to executives vest on the fifth anniversary of the grant date under the long-term incentive plan.

The time-based shares of restricted stock granted in 2023 to executives vest in one-third annual installments over three years under the short-term incentive plan.

The time-based shares of restricted stock to non-executives vest in one-third annual installments over three years .

The closing price of our stock was used to determine the fair value on the date of the grant prior to September 1, 2023.

Beginning September 1, 2023 the Company utilizes a 90-day look back period to estimate the average stock price to resolve issues of rapid stock price fluctuations.

Beginning September 1, 2023 the Company utilizes a trading 90-day look back period to estimate the average stock price to resolve issues of rapid stock price fluctuations.

The Company granted 23,300 and 20,772 shares of restricted stock to non-employee directors under the Plan during 2024 and 2023, respectively.

3 unchanged sentences

If any award granted under the Plan terminates, expires, or lapses for any reason other than by virtue of exercise or settlement of the award, or if shares issued pursuant to awards are forfeited, any stock subject to such award again shall be available for future awards under the Plan.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Compensation expense for restricted stock is recognized ratably over the period of service, generally the entire vesting period, based on fair value on the grant date.

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The Company periodically grants performance units to executive officers pursuant to the Plan.

The Company did not grant performance units during 2023 but granted 27,848 target amounts of performance units in aggregate to executive officers under the Plan during 2022.

The closing price of $ 15.81 was used during 2022 to determine the fair value on the date of the grant.

These grants are approved by the Committee as compensation for substantial contributions to the Company’s performance.

The Company granted 46,331 target amounts of performance units in aggregate to executive officers under the Plan during 2024, but did not grant performance units during 2023.

These grants are approved by the Committee as compensation for substantial contributions to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

the Company’s performance.

Performance criteria for the performance units granted in 2022 were not met and those units expired effective December 31, 2024, with no issuance of the Company’s common stock.

The performance units can be earned up to a maximum of 110 % of the target amount.

They are subject to a three-year performance period and, if the performance criteria are met, will vest on the payment date which is within 70 days following the end of the performance period.

The payout for the performance units will be determined based on three weighted performance based goals:

(1) the Company's return on average assets (“ROAA”) performance during the performance period compared to its selected peer group, (2) the Company's core efficiency ratio during the performance period compared to its selected peer group, and (3) the Company’s nonperforming assets ratio performance during the performance period compared to its selected peer group.

The payout for the performance units will be determined based on four weighted performance based goals:

(1) the Company's return on average assets (“ROAA”) performance during the performance period compared to its selected peer group, (2) the Company's core efficiency ratio during the performance period compared to its selected peer group, (3) the Company’s Total Shareholder Return (“TSR”) during the performance period compared to its selected peer group and (4) the Company’s nonperforming assets ratio performance during the performance period compared to its selected peer group.

If the performance criteria are met, the Company will pay the performance units that have vested in shares of the Company’s common stock.

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The performance units are subject to the probability of attainment of meeting the above-referenced performance criteria and service requirement.

Management has evaluated the performance-based criteria and has determined that, as of December 31, 2023 the criteria was not probable of being met at target, and at December 31, 2022, the criteria were probable of being met at target.

The Company reversed compensation expense of $ 0.3 million for 2023 and recognized compensation expense $ 0.3 million for 2022 related to performance units.

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Management has evaluated the performance-based criteria and has determined that the criteria was probable to be met at target, as of December 31, 2024 for the 2024 grants and at December 31, 2023, the criteria was not probable of being met at target for the 2022 grants.

The Company recognized compensation expense of $ 0.2 million for 2024 and reversed compensation expense of $ 0.3 million for 2023 related to performance units.

NOTE 16 - FED E RAL AND ST AT E INCO M E T AX ES

The components of the provision for income tax expense were as follows:

The components of income tax provision were as follows:

(Dollars in Thousands) 2024 2023 2022

3 unchanged sentences

Income Tax Provision $ 6,346 $ 5,337 $ 11,599

The following is a reconciliation of the differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before taxes:

The following is a reconciliation of the differences between income tax provision and the amount computed by applying the statutory federal income tax rate to income before taxes:

2024 2023 2022

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Income Tax Provision and Effective Income Tax Rate $ 6,346 20.6 $ 5,337 18.6 $ 11,599 18.8

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before taxes.

The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before taxes.

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, tax-exempt income from bank-owned life insurance, and tax benefits resulting from certain partnership investments.

The Company elected to adopt the proportional amortization method of accounting for all qualifying equity investments within the HTC program.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The Company elected to adopt the proportional amortization method of accounting for all qualifying equity investments within the historic tax credits (“HTC”) program.

The Company makes equity investments as a limited partner in various partnerships that sponsor HTC as a strategic tax initiative designed to receive income tax credits and other income tax benefits, such as deductible flow-through losses.

As of December 31, 2024, the Company recognized $ 1.1 million in HTC equity investments recorded as a component of other assets on the Consolidated Balance Sheets.

The Company records income tax credits and other income tax benefits received from its HTC investments as a component of the provision for income taxes on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows.

Investments accounted for using the proportional amortization method are amortized and recorded as a component of the provision for income taxes on the Consolidated Statements of Income.

The Company records income tax credits and other income tax benefits received from its HTC investments as a component of the income tax provision on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows.

Investments accounted for using the proportional amortization method are amortized and recorded as a component of the income tax provision on the Consolidated Statements of Income.

The Company records non-income-tax-related activity and other returns received from its HTC investments as a component of other noninterest income on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows.

As of December 31, 2024, the Company has not recognized any non-income-tax-related activity from its HTC investments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

4 unchanged sentences

Net Unrealized Loss on Available-for-sale Securities 17,820 20,104

Valuation Adjustments on Other Real Estate Owned — 649

Capital Loss Carryforward 1,151 1,143

Accrued Interest on Nonaccrual Loans 1,717 132

Operating Lease Liabilities 2,293 1,718

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Based on this evaluation, as of December 31, 2024, a valuation allowance of $ 0.9 million has been recorded on deferred tax assets related to capital loss carryforwards resulting from exits of equity investments in partnerships and sales of securities.

The Company has not identified prudent and feasible strategies to generate future capital gains to offset the entirety of the capital loss carryforward prior to their expiration in 2028.

The Company has not identified prudent and feasible strategies to generate future capital gains to offset the entirety of the capital loss carryforward prior to its expiration.

At December 31, 2024 and 2023, the Company had no ASC 740-10 unrecognized tax benefits or accrued interest and penalties recorded.

The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months.

The Company recognizes interest and penalties on unrecognized tax benefits in noninterest expense.

The Company is subject to U.S.

federal income tax as well as various other state and local jurisdictions.

The Company is generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2020.

The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

twelve months.

The Company recognizes interest and penalties on unrecognized tax benefits as a component of income tax provision.

The Company is subject to U.S.

federal income tax as well as various other state and local jurisdictions.

The Company is generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2021.

NOTE 17 – TAX EFFECTS ON OTHER COMPREHENSIVE INCOME (LOSS)

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Net Unrealized Gains Arising during the Period $ 9,270 $ ( 2,299 ) $ 6,971

Reclassification Adjustment for Gains included in Net Income ( 68 ) 15 ( 53 )

Other Comprehensive Income $ 9,202 $ ( 2,284 ) $ 6,918

Net Unrealized Gains Arising during the Period $ 16,370 $ ( 3,398 ) $ 12,972

Reclassification Adjustment for Losses included in Net Income 1,521 ( 316 ) 1,205

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Other Comprehensive Loss $ ( 111,588 ) $ 24,270 $ ( 87,318 )

Net Unrealized Losses Arising during the Period $ ( 10,877 ) $ 2,284 $ ( 8,593 )

Reclassification Adjustment for Gains included in Net Income ( 6,869 ) 1,443 ( 5,426 )

Other Comprehensive Loss $ ( 17,746 ) $ 3,727 $ ( 14,019 )

NOTE 18 – COMMITMENTS AND CONTINGENCIES

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

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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 in other liabilities 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 years ended December 31:

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Balance at beginning of period $ 3,193 $ 2,292

Provision for Unfunded Commitments 901 509

(Recovery) Provision for Unfunded Commitments ( 7 ) 901

Balance at end of period $ 3,186 $ 3,193

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

An expense of $ 0.9 million was recorded for the year ended December 31, 2023 for the provision for unfunded commitments, which resulted in an increase of $ 0.4 million compared to the provision of $ 0.5 million for the year ended December 31, 2022.

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

A recovery of $ 7 thousand was recorded for the year ended December 31, 2024 for the (recovery) provision for unfunded commitments, which resulted in a decrease of $ 0.9 million compared to the year ended December 31, 2023.

We have a future commitment with a third party vendor for data processing charges, which is a ten year contract that will expire at the end of 2028.

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In the normal course of business, the Company is subject to various legal and administrative proceedings and claims.

Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty.

Further, estimating an amount or range of possible losses that may result from legal or administrative proceedings and claims is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve awards that are discretionary in amount, present novel legal theories or policies, are in the early stages of the proceedings, or are subject to appeal.

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 December 31, 2023, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business.

Justice Collection Actions

The Bank is engaged in a variety of collection proceedings (the “Collection Actions”) against various related entities that are owned and/or controlled by James C.

Justice, II, Cathy L.

Justice and James C.

Justice, III (such entities, the “Justice Entities” and collectively with the individuals, 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 million.

On May 12, 2023 and June 7, 2023, the Collection Defendants filed motions to set aside the confessions of judgment on the basis that the Bank allegedly (i) violated anti-tying provisions of the Bank Holding Company Act of 1956, as amended, (ii) breached contractual obligations and fiduciary duties to the Collection Defendants and (iii) tortiously interfered with the Collection Defendants’ business expectancies and relationships, among other allegations.

On December 11, 2023, the Martinsville Circuit Court heard oral arguments on the motions to set aside the confessions of judgment filed by the Collection Defendants.

On January 22, 2024, the Martinsville Circuit Court issued a letter opinion denying such motions.

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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Pursuant to the confessions of judgment that were upheld by the Martinsville Circuit Court, the Bank has initiated collection processes against the Collection Defendants (see “—Justice Foreclosure Litigation”).

The Company and the Bank intend to pursue vigorously the Collection Actions and enforce the confessions of judgment and related agreements, including but not limited to release and affirmation agreements and indemnification agreements.

The Company and the Bank vigorously deny the allegations contained in the Collection Defendants’ motions to set aside the confessions of judgment and, based on consultation with legal counsel, the Company believes that the Bank has meritorious defenses to all allegations that it understands may be asserted on appeal.

However, the Company cannot reasonably estimate the ultimate outcome or timing of, or possible losses resulting from, the Collection Actions 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 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 relate to the matured promissory notes made or guaranteed by the Collection Defendants that are the subject of the Collection Actions.

In the Justice Federal Court Litigation, as plaintiffs the Collection Defendants allege 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 allege that the individual directors aided and abetted the same.

As plaintiffs in the Justice Federal Court Litigation, the Collection Defendants seek 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.

The Company and the Bank deny the allegations contained in the Justice Federal Court Litigation and intend to vigorously defend the matter and the validity and enforceability of the confessions of judgment and of each of the Bank’s loan documents, including the guarantees.

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

Because the Justice Federal Court Litigation is in its early stages, the Company cannot reasonably estimate the ultimate outcome or timing of, or possible losses resulting from, the Justice 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 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 Greenbrier Sporting Club Development Co., Inc.

and The Greenbrier Sporting Club, Inc.

(collectively, “Sporting Club”).

The Justice Foreclosure Litigation relates 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 requests the Greenbrier Circuit Court to issue declaratory judgments that the Trust Deed is invalid and unenforceable, the Notice of Sale (defined below) is invalid and of no effect, and that the trustee and the Bank may not sell the property described in the Notice of Sale.

Sporting Club also requests the Greenbrier Circuit Court to issue a declaratory judgment that the debts secured by the Trust Deed are not payable and therefore no trustee sale is permitted, or alternatively that Sporting Club is entitled to final adjudication of the Justice Federal Court Litigation before any sale of property by the trustee under the Trust Deed may 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.

The debts secured by the Trust Deed matured on April 15, 2023 and the Bank filed confessions of judgment with respect to such debts in the Martinsville Circuit Court.

See the description of the Justice Collection Litigation above.

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

The Bank disputes all allegations contained in the Justice Foreclosure Litigation and intends to defend vigorously the matter and the validity and enforceability of the Trust Deed, the validity and collectability of the debts owed to the Bank by the Sporting Club.

The Bank intends to oppose vigorously the injunctive relief requested by Sporting Club in the Justice

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Foreclosure 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 Justice Foreclosure Litigation.

Because the Justice Foreclosure Litigation is in its early stages, the Company cannot reasonably estimate the ultimate outcome or timing of, or possible losses resulting from, the Justice Foreclosure 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.

GLAS Federal Court Litigation

On February 12, 2024, the Bank was named as a defendant in a lawsuit (the “GLAS Federal Court Litigation”) filed in the United States District Court for the Western District of Virginia by GLAS Trust Company LLC (“GLAS”).

The allegations contained in the GLAS Federal Court Litigation relate to a series of financing transactions that occurred in 2018 between Bluestone Resources, Inc.

(“Bluestone Resources”), its subsidiary Bluestone Coal Sales Corporation (“Bluestone Sales”, and together with Bluestone Resources and their respective affiliates, the “Bluestone Entities”), and Greensill (UK) Limited, Ltd.

(“Greensill”).

The Bluestone Entities are owned and controlled by James C.

Justice, II, Cathy L.

Justice and James C.

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.

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.

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.

Justice, II, Cathy L.

Justice and James C.

Justice, III and certain Justice Entities 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 afforded to the Bank under the Justice Indemnity Agreement.

Because the GLAS Federal Court Litigation is in its early stages, 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.

Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and although the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty, the Company believes, based on current knowledge, that the resolution of any such matters will not have a material adverse effect on the Company.

The material legal proceedings previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, were no longer pending as of December 31, 2024.

NOTE 19 – REVENUE FROM CONTRACTS WITH CUSTOMERS

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Service charges on returned checks are recognized at the point in time that a check is returned.

Transaction-based fees, which include services such as stop payment fees, check chargeback fees, and other deposit account related fees are recognized at the point in time the Company fulfills the customer’s

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Minimum balance fees are system-assessed at the point in time that a customer’s balance is below the required minimum for the product.

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Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Commission income is earned based on customer transactions.

The commission income is recognized when the transaction is complete.

The Company also receives a return on its investment in Bankers Insurance, LLC on an annual basis based on the equity insurance company and percentage of ownership.

The Company owns properties acquired through foreclosure that are included in other real estate owned, net on the Consolidated Balance Sheet.

The Company also receives a return on its investment in Bearing Insurance Group, LLC on an annual basis based on the equity insurance company and percentage of ownership.

The Company occasionally owns properties acquired through foreclosure that are included in other real estate owned, net on the Consolidated Balance Sheets.

If the Company rents any of those properties, the resultant income is recognized at the point of receipt since the performance obligation has been satisfied.

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Out of Scope Revenue Streams

(Losses) Gain on Sales of Securities, net ( 1,521 ) 46 6,869

Gains (Losses) on Sales of Securities, net 68 ( 1,521 ) 46

Bank Owned Life Insurance Income 1,473 1,381 1,357

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Equity in Undistributed Net Income of Bank Subsidiary ( 23,048 ) ( 11,414 ) ( 6,860 )

Adjustments to Reconcile Net Income to Net Cash Provided by

Adjustments to Reconcile Net Income to Net Cash (Used in) Provided by

Operating Activities

Stock Compensation Expense 1,752 1,561 1,314

Decrease (Increase) in Other Assets 1,774 ( 3,778 ) ( 571 )

(Increase) Decrease in Other Assets ( 3,111 ) 1,774 ( 3,778 )

Decrease in Other Liabilities ( 275 ) ( 47 ) ( 460 )

Decrease in Intercompany Liability — — ( 17 )

Net Cash Provided by Operating Activities 15,258 40,334 4,660

Net Cash (Used in) Provided by Operating Activities ( 159 ) 15,258 40,334

INVESTING ACTIVITIES

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Net Cash Used In Financing Activities — ( 16,416 ) ( 42,927 )

Net (Decrease) Increase in Cash ( 1,570 ) ( 2,943 ) 4,503

Net Decrease in Cash ( 275 ) ( 1,570 ) ( 2,943 )

Cash at Beginning of Year 629 2,199 5,142

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The Company and the Bank are subject to various capital requirements administered by the federal banking regulators.

Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulations to ensure capital adequacy require the Company to maintain minimum amounts and ratios.

The Basel rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital.

Quantitative measures established by regulations to ensure capital adequacy require us to maintain minimum amounts and ratios.

The Basel rules permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital.

The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.

The Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios (which are shown in the table below).

The capital conservation buffer is designed to absorb losses during periods of economic stress.

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We adopted CECL effective January 1, 2021 and elected to implement the capital transition relief over the permissible three-year period.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 22 - SEGMENT REPORTING

Carter Bankshares, Inc.

(the “Company”) is a holding company and the parent company to its wholly-owned subsidiary Carter Bank and Trust (the “Bank”) that conducts its business solely through the Bank.

As a state-chartered commercial bank, the Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to customers.

The Company operates through a single operating and reporting segment, Community Banking that offers services which include accepting a full range of deposit products and originating commercial and consumer loans.

All financial information is reported on a consolidated basis and is evaluated regularly by the Chief Executive Officer, the Company’s Chief Operating Decision Maker (“CODM”) in allocating resources and assessing performance.

The CODM uses the consolidated net income to benchmark the Company against it competitors.

The benchmarking analysis in conjunction with monitoring of actual to budget results are used in assessment of performance and in establishing compensation.

Loans, investments and deposits provide the revenues, net in the community bank’s operation.

Interest expense, (recovery) provision for credit losses and salaries and benefits provide the significant expenses in the community bank’s operation.

The results of operations for the Company’s single reporting segment are incorporated by reference to the Consolidated Statements of Income and Consolidated Balance Sheets.

Independent Member Crowe Global

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Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses – Individually Evaluated Other Pool Loans

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The loans included in the Other pool of the model were underwritten and approved based on standards that are inconsistent with the Company’s current underwriting standards.

During 2023, $302 million of the $305 million, or 98.9%, of the Other pool loans were transferred to individually evaluated.

The allowance for credit losses as of December 31, 2023 was $97.1 million.

The reserves associated with these individually evaluated loans are $54.4 million and represent 56% of the overall allowance for credit losses.

The reserves for the individually evaluated loans within the Other pool are based upon discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.

The techniques were developed with subjective assumptions, including the timing and magnitude of collections, discount rate, as well as other factors.

The discount rate is reflective of the inherent risk in the Other pool.

As of December 31, 2024, $252 million of the Other pool loans were considered individually evaluated with an allowance for credit losses of $30.2 million.

This represents 40% of the overall allowance for credit losses.

The reserves for the individually evaluated loans within the Other pool are based upon a modified discounted cash flow method.

The modifications to the discounted cash flow method include assumptions with respect to the expected amount and timing of cash flows and the utilization of a discount rate reflective of the inherent risk of the loans.

A substantial change in these assumptions could cause a significant impact to the model causing volatility.

3 unchanged sentences

Testing the effectiveness of internal controls over:

• The Company’s affirmation of the key assumptions used in the model, including the discount rate, timing and magnitude of collections, and other adjustments

• The Company’s affirmation of the key assumptions used in the model, including the discount rate, expected amount and timing of cash flows, and other adjustments

• The completeness and accuracy of data used in the model

Substantively testing management’s estimate, which included:

• Assessing the reasonableness of management’s selection of discount rate, timing and magnitude of collections, and other adjustments

• Assessing the reasonableness of management’s selection of discount rate, expected amount and timing of cash flows, and other adjustments

• Evaluating the mathematical accuracy of the discounted cash flow model used for the Other pool, including evaluating the completeness and accuracy of loan data used in the model

Allowance for Credit Losses – Adjustments to Economic Forecasts

The Company’s methodology for estimating the allowance for credit losses includes segmentation, quantitative analysis, qualitative analysis, and individually evaluated loans.

The Company’s quantitative analysis uses a discounted cash flow with economic forecasts to estimate a loss rate.

The qualitative analysis includes adjustments based on the composition of the loan portfolio, changes in current and forecasted economic conditions and changes in the interest rate environment.

Management will periodically assess the appropriateness of qualitatively adjusting the allowance for credit losses based on their assessment of current expected credit losses and other economic factors.

Principally, these adjustments are centered on potential variances to current economic indices.

We identified the allowance for credit losses – adjustments to economic forecasts as a critical audit matter because of the auditor judgment applied and audit effort to evaluate the subjective judgments made by management in the development of the economic forecast adjustments.

The primary procedures performed to address this critical audit matter include:

Testing the effectiveness of internal controls over:

• The Company’s selection of adjustments to economic forecasts

• The relevance and reliability of data used in determining the economic forecast adjustments

Substantively testing management’s estimate, which included:

• Assessing the reasonableness of management’s judgments related to the need for and selection of adjustments to economic forecasts

• Evaluating the relevance and reliability of data used in determining the economic forecast adjustments

• Evaluating the mathematical accuracy of the application of the economic forecast adjustments within the discounted cash flow model calculation

/s/ Crowe LLP

4 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data