What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-05-08 compared with 2024-11-07 · 391 added, 860 removed, 725 unchanged (63% of the section changed)

ITEM 1 – FINANCIAL STATEMENTS (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

FINANCIAL STATEMENTS - (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

Three Months Ended March 31,

(Dollars in Thousands) 2025 2024

Net Income $ 16,243 $ 25,272

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

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

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

Proceeds From Loans Held-for-Sale 5,932 5,614

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

Provision for Deferred Taxes 1,377 256

Net Amortization of Securities 2,735 3,696

Unrealized Gain on Equity Securities ( 207 ) —

Tax Credit Amortization 354 1,438

Gains on Sales of Loans Held-for-Sale ( 89 ) ( 90 )

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

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

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

Balance Sheet Hedge Fair Value Adjustment ( 103 ) —

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

Decrease (Increase) in Other Assets 1,754 ( 826 )

(Decrease) Increase in Other Liabilities ( 1,791 ) 1,348

Net Cash Provided By Operating Activities 25,487 38,855

INVESTING ACTIVITIES

Securities Available-for-Sale:

Proceeds from Sales 10,617 15,054

Proceeds from Maturities, Redemptions, and Pay-downs 54,910 38,896

Purchases ( 8,615 ) ( 24,938 )

Purchase of Equity Securities ( 5,000 ) —

Purchase of Bank Premises and Equipment, Net ( 4,996 ) ( 7,979 )

Redemption (Purchase) of Federal Home Loan Bank Stock, net 14,189 ( 17,621 )

Loan Originations, net ( 98,866 ) ( 264,010 )

Payments Received on Other Real Estate Owned — 299

Proceeds from Sales and Payments of Other Real Estate Owned 2,984 4,818

Net Cash Used In Investing Activities ( 34,777 ) ( 255,481 )

FINANCING ACTIVITIES

Net Change in Demand, Money Markets and Savings Accounts 19,729 ( 324,172 )

Increase in Certificates of Deposits 343,424 250,028

(Repayments) Proceeds from Federal Home Loan Bank Borrowings, net ( 303,400 ) 333,585

Repayments from Federal Funds Purchased, net — ( 17,870 )

Repurchase of Common Stock — ( 16,416 )

Net Cash Provided By Financing Activities 59,753 225,155

Net Increase in Cash and Cash Equivalents 50,463 8,529

Cash and Cash Equivalents at Beginning of Period 54,529 46,869

Cash and Cash Equivalents at End of Period $ 104,992 $ 55,398

SUPPLEMENTARY DATA

2 unchanged sentences

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

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

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

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

See accompanying notes to unaudited Consolidated Financial Statements.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Principles of Consolidation:

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

(the “Company”) and its wholly owned subsidiary, Carter Bank & Trust (the “Bank”).

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

(the “Company”) and its wholly owned subsidiary, Carter Ban k & Trust (the “Bank”).

CB&T Investment Company (the “Investment Company”) is a subsidiary of the Bank.

11 unchanged sentences

These estimates and assumptions affect the amounts reported in the Consolidated Financial Statements and the disclosures provided, and actual results could differ from those estimates.

Accounting Standards Adopted in 2024

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 Standards Issued but Not Yet Adopted

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.

Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.

Accounting Standard Adopted in 2025

On March 29, 2024 the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update, (“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.

The adoption of this ASU 2024-02 was effective January 1, 2025 and did not have a material impact to the Company’s Consolidated Financial Statements.

Accounting Standards 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.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION – (continued)

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

2 unchanged sentences

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 ASU is effective in the annual period beginning on January 1, 2025, though early adoption is permitted.

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

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

Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which changes disclosures relating to reportable segments.

The ASU expands the disclosure requirements relating to reportable segments, including requiring entities to disclose information about a reportable segment’s significant expenses, among other changes.

The ASU does not change how an entity identifies reportable segments or the accounting for segments.

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

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

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

Recently Issued Disclosure Rules

In March 2024, the U.S.

Securities and Exchange Commission ("SEC") adopted final rules under SEC Release No.

33-11275, “The Enhancement and Standardization of Climate-Related Disclosures for Investors”.

This rule will require registrants to disclose certain climate-related information in registration statements and annual reports.

In April 2024, the SEC issued an order staying this rule pending the outcome of the federal court litigation challenging the rule.

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

NOTE 2 – EARNINGS PER COMMON SHARE

2 unchanged sentences

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

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

Three Months Ended March 31,

(Dollars in Thousands, except share and per share data) 2025 2024

9 unchanged sentences

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 3 - INVESTMENT SECURITIES

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

September 30, 2024

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

March 31, 2025

(Dollars in Thousands) Amortized

Unrealized Gains Gross

Losses Fair Value

7 unchanged sentences

Corporate Notes 70,750 — ( 6,977 ) 63,773

Total Debt Securities $ 810,935 $ 142 $ ( 68,442 ) $ 742,635

Total $ 817,348 $ 108 $ ( 72,066 ) $ 745,390

December 31, 2024

(Dollars in Thousands) Amortized

Unrealized Gains Gross

Losses Fair Value

7 unchanged sentences

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

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

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

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

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

(Dollars in Thousands) 2024 2023 2024 2023

Proceeds from Sales of Securities Available-for-Sale $ — $ — $ 10,617 $ 15,054

Gross Realized Gains $ — $ — $ 36 $ 129

Gross Realized Losses — ( 1 ) — ( 139 )

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

Tax Impact $ — $ — $ 8 $ ( 2 )

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

The Company did no t have securities classified as held-to-maturity at March 31, 2025 or December 31, 2024.

At March 31, 2025 and December 31, 2024 the Company had no gross or net realized gains and losses.

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) reflect reclassification adjustments in the calculation of Other Comprehensive Income.

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

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

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

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 at the date presented.

Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INVESTMENT SECURITIES (continued)

September 30, 2024

March 31, 2025

(Dollars in Thousands) Amortized

8 unchanged sentences

Asset Backed Securities 120,898 112,917

Total Debt Securities $ 810,935 $ 742,635

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

Total $ 817,348 $ 745,390

At March 31, 2025 and December 31, 2024, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S.

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

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

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

September 30, 2024

The carrying value of securities pledged for various regulatory and legal requirements was $ 298.2 million at March 31, 2025 and $ 300.1 million at December 31, 2024.

Available-for-sale securities with unrealized losses at March 31, 2025 and December 31, 2024, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

March 31, 2025

Less Than 12 Months 12 Months or More Total

(Dollars in Thousands) Number

Securities Fair

Value Unrealized

Losses Number

Securities Fair

Value Unrealized

Losses Number

Securities Fair

Value Unrealized

(Dollars in Thousands) Number of

Securities Fair Value Unrealized

Losses Number of

Securities Fair Value Unrealized

Losses Number of

Securities Fair Value Unrealized

Government Agency Securities 11 $ 6,322 $ ( 21 ) 22 $ 15,914 $ ( 604 ) 33 $ 22,236 $ ( 625 )

7 unchanged sentences

Total Debt Securities 36 $ 50,448 $ ( 150 ) 385 $ 643,895 $ ( 71,916 ) 421 $ 694,343 $ ( 72,066 )

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2024

Less Than 12 Months 12 Months or More Total

(Dollars in Thousands) Number

Securities Fair

Value Unrealized

Losses Number

Securities Fair

Value Unrealized

Losses Number

Securities Fair

Value Unrealized

(Dollars in Thousands) Number of

Securities Fair Value Unrealized

Losses Number of

Securities Fair Value Unrealized

Losses Number of

Securities Fair Value Unrealized

Government Agency Securities 12 6,574 ( 60 ) 18 14,558 ( 660 ) 30 21,132 ( 720 )

7 unchanged sentences

Total Debt Securities 26 $ 12,839 $ ( 75 ) 383 $ 639,500 $ ( 82,357 ) 409 $ 652,339 $ ( 82,432 )

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INVESTMENT SECURITIES (continued)

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

The Company did no t record an allowance for credit losses, (“ACL”), on its investment securities during the three months ended March 31, 2025 or at December 31, 2024 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 September 30, 2024, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis.

As of March 31, 2025, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis.

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

2 unchanged sentences

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

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

The Company determined the unrealized losses detailed in the table above are not related to credit;

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

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

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

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 income, net of applicable taxes.

During the three months ended March 31, 2025 and March 31, 2024, the Company had no credit related net investment impairment losses.

Equity Securities

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

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

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

During the three months ended March 31, 2025, the Company recognized an unrealized fair value gain of $ 137 thousand on these equity securities.

This unrealized fair value gain is recorded in other noninterest income on the Consolidated Statements of Income.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 4 – LOANS

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

(Dollars in Thousands)

September 30, 2024 December 31, 2023

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

(Dollars in Thousands) March 31, 2025 December 31, 2024

Commercial Real Estate $ 1,915,863 $ 1,869,831

$ 1,857,997 $ 1,670,631

Commercial and Industrial 234,024 230,483

241,474 271,511

Total Commercial Loans 2,149,887 2,100,314

2,099,471 1,942,142

Residential Mortgages 801,253 777,471

782,930 787,929

Other Consumer 28,804 28,908

29,813 34,277

Total Consumer Loans 830,057 806,379

812,743 822,206

Construction 459,285 462,930

3 unchanged sentences

Total Loans $ 3,687,495 $ 3,624,826

CARTER BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – LOANS (continued)

Loan Restructurings

The Company evaluates all loan restructurings in accordance with ASU 2022-02 for loan modifications to determine if the 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.

Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

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 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 6, Fair Value Measurements, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

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

Restructured Loans

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

The following table shows the amortized cost basis as of March 31, 2025 and March 31, 2024 for the loans restructured during the three months ended March 31, 2025 and March 31, 2024 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

Restructured Loans Restructured Loans

Three Months Ended March 31, 2025 Three Months Ended March 31, 2024

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

16 unchanged sentences

Total Restructured Loans 6 $ 159,705 4.33 % — $ — — %

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

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

The Company had no loans that were restructured during the three months ended March 31, 2024.

CARTER BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – LOANS (continued)

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

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

The following table depicts the performance of loans that have been modified during the three months ended March 31, 2025:

Payment Status (Amortized Cost Basis)

(Dollars in Thousands) Current 30-89 Days Past Due 90+ Days Past Due Total

(Dollars in Thousands) Current 30-89 Days Past Due 90+ Days Past Due

Accruing Restructured Loans

4 unchanged sentences

Construction — — —

Other — — — —

Total Accruing Restructured Loans $ 4,516 $ — $ —

8 unchanged sentences

Total Restructured Loans $ 159,705 $ — $ —

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

For the Three Months Ended September 30, 2024

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

Commercial Real Estate $ — $ — $ — — %

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

Residential Mortgages — 2,106 2,106 0.27 %

Other Consumer — — — — %

Construction — — — — %

Other — — — %

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

For the Nine Months Ended September 30, 2024

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

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

Three Months Ended March 31, 2025

(Dollars in Thousands) Payment Delay Short-term Extension Total % of Total Class of Financing Receivable

Commercial Real Estate $ 4,516 $ — $ 4,516 0.24 %

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

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

Other Consumer — — — — — — %

Construction — — — — — — %

Other — 155,189 155,189 62.51 %

Total $ 4,516 $ 155,189 $ 159,705 4.33 %

CARTER BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – LOANS (continued)

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

For the Three Months Ended September 30, 2024

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

Commercial Real Estate — — —

Commercial & Industrial 0.58 years — — %

Residential Mortgage — 19.26 years 4.63 %

Other — — — %

Total 0.58 years 19.26 years 4.63 %

For the Nine Months Ended September 30, 2024

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

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

Three Months Ended March 31, 2025

(Dollars in Thousands) Weighted-Average Payment Delay Weighted-Average Term Extension/Payment Delay

Commercial Real Estate 0.32 years —

Commercial & Industrial 0.58 years — — % — — %

Residential Mortgage — 19.26 years 4.63 % — — %

Other — 0.92 years

Total 0.58 years 19.26 years 4.63 % 7.49 years 0.66 %

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

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

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

As of March 31, 2025 and December 31, 2024, the Bank had no commitments to lend any additional funds on restructured loans.

As of March 31, 2025 and March 31, 2024 the Bank had no loans that defaulted during the period and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification.

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

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

As of March 31, 2025 and December 31, 2024, the Company had $ 0.2 million and $ 0.4 million, respectively, of residential real estate in the process of foreclosure.

We also had no residential real estate included in OREO at March 31, 2025 or at December 31, 2024, respectively.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 5 - ALLOWANCE FOR CREDIT LOSSES

14 unchanged sentences

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

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

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

risk for this segment.

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

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

16 unchanged sentences

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 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.

The ACL reserve for the Other segment is based on a models based on projected discounted cash flows and supportable loan amount and reserves will fluctuate based on expected cash flow changes and curtailments in the future.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

source of amortization, iv) loan structures on operating lines of credit dependent on the value of real estate rather than trading assets, and v) indirect liabilities of certain guarantees resulting from the nonpayment of financial obligations.

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

11 unchanged sentences

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

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

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

collateral values and other subjective factors.

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

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

5 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 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.

• A sampling review of commercial loans up to $ 10 million in commitment;

• Focus reviews of micro commercial loans defined as $ 2.0 million or less, to evaluate emerging risk rather than individual loan risk.

Focus reviews are performed annually on a rotational basis.

2 unchanged sentences

Generally, a pass rating indicates that the loan is currently performing and is of high quality.

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

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.

1 unchanged sentence

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

5 unchanged sentences

Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.

The loan portfolio has not yet been significantly impacted by tariffs or other actual or potential changes in trade policies, but potential supply chain disruption and commodity price volatility present addition risk to the loan portfolio.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

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

September 30, 2024

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of March 31,:

(Dollars in Thousands) 2025 2024 2023 2022 2021 2020 and Prior Revolving Total Portfolio Loans

41 unchanged sentences

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

December 31, 2023

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of December 31,:

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

40 unchanged sentences

YTD Gross Charge-offs $ 15,250 $ 120 $ 966 $ 399 $ 45 $ 208 $ — $ 16,988

The Bank’s largest credit relationship was nonperforming and rated as substandard at both March 31, 2025 and December 31, 2024 with an aggregate principal balance of $ 245.1 million and $ 252.0 million at March 31, 2025 and December 31, 2024, respectively.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

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

September 30, 2024

AND SUBSIDIARIES

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 March 31,:

(Dollars in Thousands) 2025 2024 2023 2022 2021 2020 and Prior Revolving Total Portfolio Loans

26 unchanged sentences

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

December 31, 2023

AND SUBSIDIARIES

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,:

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

25 unchanged sentences

Total Portfolio Loans $ 588,994 $ 570,221 $ 876,000 $ 423,428 $ 232,406 $ 797,026 $ 136,751 $ 3,624,826

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

September 30, 2024

(Dollars in Thousands) Current

Past Due Loans

Past Due Total

Past Due Nonaccrual

Loans Total Portfolio

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Age Analysis of Past-Due Loans by Class

The following tables include an aging analysis of the recorded investment of past-due portfolio loans at the dates presented:

March 31, 2025

(Dollars in Thousands) Current Loans Loans 30-59

Days Past Due Loans 60-89

Days Past Due Total 30-89 Days

Past Due Nonaccrual Loans Total Portfolio Loans

Commercial Real Estate $ 1,905,870 $ 260 $ — $ 260 $ 9,733 $ 1,915,863

Commercial and Industrial 240,380 — — — 1,094 241,474

Commercial & Industrial 232,169 5 780 785 1,070 234,024

Residential Mortgages 794,999 928 — 928 5,326 801,253

3 unchanged sentences

Total $ 3,423,827 $ 1,384 $ 840 $ 2,224 $ 261,444 $ 3,687,495

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

December 31, 2024

(Dollars in Thousands) Current

Past Due Loans

Past Due Total

Past Due Nonaccrual

Loans Total Portfolio

(Dollars in Thousands) Current Loans Loans 30-59

Days Past Due Loans 60-89

Days Past Due Total 30-89 Days

Past Due Nonaccrual Loans Total Portfolio Loans

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

Commercial and Industrial 271,420 5 34 39 52 271,511

Commercial & Industrial 229,225 180 — 180 1,078 230,483

Residential Mortgages 771,689 867 50 917 4,865 777,471

3 unchanged sentences

Total $ 3,360,649 $ 4,680 $ 148 $ 4,828 $ 259,349 $ 3,624,826

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

September 30, 2024

Loans past due 90 days or more and still accruing are automatically transferred to nonaccrual status and were zero at March 31, 2025 and December 31, 2024, respectively.

There were no nonaccrual or past due loans related to loans held-for-sale as of March 31, 2025 and December 31, 2024, 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 at the dates presented.

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

March 31, 2025 December 31, 2024

(Dollars in Thousands)

Nonaccrual without an Allowance for Credit Losses

Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Past Due

Still Accruing

Commercial Real Estate $ — $ 978 $ 978 $ —

Commercial and Industrial — 1,094 1,094 —

Residential Mortgages 2,106 2,376 4,482 —

Other Consumer — 20 20 —

Construction — 231 231 —

Other — 280,905 280,905 —

Total $ 2,106 $ 285,604 $ 287,710 $ —

December 31, 2023

(Dollars in Thousands) Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Past Due

Still Accruing

Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual

Loans Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual

Commercial Real Estate $ 9,504 $ 229 $ 9,733 $ — $ 1,176 $ 1,176

4 unchanged sentences

Other — 245,064 245,064 — 251,982 251,982

Total $ 4,493 $ 305,042 $ 309,535 $ —

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

Total Portfolio Loans $ 11,522 $ 249,922 $ 261,444 $ 2,053 $ 257,296 $ 259,349

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

5 unchanged sentences

We may also elect to retain a loan that is 90 or more days’ delinquent in accrual status if we believe the loan is well secured and in the process of collection.

Nonaccrual loans, and loans that have been characterized as Restructured Loans may be individually evaluated for credit losses in the Allowance for Credit Losses model if the loan commitment is $ 1.0 million or greater and/or based on management’s discretion;

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

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

Nonaccrual loans, and loans that have been characterized as restructured

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

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

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

September 30, 2024 December 31, 2023

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

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

loans may be individually evaluated for credit losses in the Allowance for Credit Losses model if the loan commitment is $ 1.0 million or greater and/or based on management’s discretion;

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

During the three months ended March 31, 2025 and March 31, 2024, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans.

The following table presents the amortized cost basis of individually evaluated loans at the dates presented.

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.

March 31, 2025

Collateral Type Warehouse Equipment Single Family Multi Family Discounted Cash Flow Total

(Dollars in Thousands) Fair Value - Collateral

Commercial Real Estate $ 9,504 $ — $ — $ 4,516 $ — $ 14,020

Commercial and Industrial — 1,023 — — — 1,023

Residential Mortgages 2,106 — 2,106 1,142 — 1,142

Other Consumer — — — — — —

Construction — — — 2,898 — 2,898

Residential Mortgage — — 2,018 — — 2,018

Other — — — — 245,064 245,064

Total $ 9,504 $ 1,023 $ 2,018 $ 4,516 $ 245,064 $ 262,125

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

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

Three Months Ended September 30, 2024

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

Allowance for Credit Losses on Loans:

Balance at Beginning of Period $ 19,817 $ 3,194 $ 10,744 $ 760 $ 9,217 $ 52,954 $ 96,686

Provision (Recovery) for Credit Losses on Loans 250 ( 238 ) ( 224 ) 288 526 ( 1,034 ) ( 432 )

Charge-offs — ( 21 ) ( 5 ) ( 421 ) ( 1 ) ( 15,000 ) ( 15,448 )

Recoveries — 1 5 97 — — 103

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

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

Nine Months Ended September 30, 2024

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

Allowance for Credit Losses on Loans:

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

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

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

Recoveries — 3 29 368 — — 400

Net Charge-offs — ( 37 ) ( 3 ) ( 1,021 ) ( 157 ) ( 15,000 ) ( 16,218 )

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

Three Months Ended September 30, 2023

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

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 Mortgage — 2,053 — 2,053

Other — — 251,982 251,982

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

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

Three Months Ended March 31, 2025

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

Allowance for Credit Losses on Loans:

Balance at Beginning of Period $ 19,144 $ 3,293 $ 10,386 $ 1,058 $ 6,603 $ 53,660 $ 94,144

Provision (Recovery) for Credit Losses on Loans 346 ( 256 ) 356 515 144 — 1,105

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

(Recovery) Provision for Credit Losses on Loans ( 2 ) ( 112 ) 446 72 752 ( 3,181 ) ( 2,025 )

Charge-offs — ( 7 ) — ( 171 ) ( 1 ) — ( 179 )

Recoveries — 3 8 110 1 — 122

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

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

Nine Months Ended September 30, 2023

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

Net (Charge-offs) Recoveries — ( 4 ) 8 ( 61 ) — — ( 57 )

Balance, End of Period $ 20,144 $ 2,675 $ 10,843 $ 693 $ 12,049 $ 27,114 $ 73,518

Three Months Ended March 31, 2024

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

Allowance for Credit Losses on Loans:

Balance at Beginning of Period $ 17,992 $ 3,980 $ 8,891 $ 1,329 $ 6,942 $ 54,718 $ 93,852

Provision (Recovery) for Credit Losses on Loans 1,498 ( 947 ) 1,919 1,346 ( 153 ) ( 1,058 ) 2,605

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

(Recovery) Provision for Credit Losses on Loans ( 711 ) ( 208 ) 180 253 503 ( 1 ) 16

Charge-offs — ( 18 ) ( 23 ) ( 480 ) ( 156 ) — ( 677 )

1 unchanged sentence

Net Charge-offs — ( 17 ) ( 21 ) ( 338 ) $ ( 156 ) — ( 532 )

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

Balance, End of Period $ 19,162 $ 3,061 $ 11,038 $ 783 $ 8,139 $ 54,353 $ 96,536

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 6 - FAIR VALUE MEASUREMENTS

29 unchanged sentences

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Equity Securities :

1 unchanged sentence

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

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

As of March 31, 2025, Level 1 fair values are available for each of the Company’s equity securities.

Derivative Financial Instruments and Hedging Activities:

8 unchanged sentences

Accordingly, interest rate swaps for commercial loans are classified as Level 2.

The Company previously used 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 was designated and the results of the effectiveness testing support that the instrument qualified for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument were accounted for in net interest income.

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

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

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

Rather, the full impact of hedge gains and losses was recognized in the period in which the hedged transactions had an impact to earnings.

As of March 31, 2025 the Company had since terminated all its Pay-Fixed Swap Agreements.

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).

15 unchanged sentences

For individually evaluated loans, the first stage of our impairment analysis involves inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date.

Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property.

Management also engages in conversations with local real estate professionals and

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

market participants to determine the likely marketing time and value range for the property.

The second stage involves an assessment of current trends in the regional market.

After thorough consideration of these factors, management will order a new appraisal.

For non-collateral dependent loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell.

1 unchanged sentence

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

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

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

Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us.

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

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

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

September 30, 2024

(Dollars in Thousands) Carrying

Value Quoted Prices in

Active Markets for

Identical Assets

(Level 1) Significant Other

Observable Inputs

(Level 2) Significant

Unobservable Inputs

At March 31, 2025 OREO assets were in compliance with the OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third-party real estate brokers.

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at the dates presented:

March 31, 2025

(Dollars in Thousands) Carrying Value Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

Securities Available-for-Sale:

9 unchanged sentences

Equity Securities 10,178 10,178 — —

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

Derivatives 13,879 — 13,879 —

2 unchanged sentences

Total $ 13,723 $ — $ 13,723 $ —

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2024

(Dollars in Thousands) Carrying

Value Quoted Prices in

Active Markets for

Identical Assets

(Level 1) Significant Other

Observable Inputs

(Level 2) Significant

Unobservable Inputs

(Dollars in Thousands) Carrying Value Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

Securities Available-for-Sale:

8 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 —

3 unchanged sentences

We have invested in subordinated debt of other financial institutions.

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

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

the calculated change in fair value of $ 0.3 million.

We have two securities totaling $ 7.7 million that are considered to be Level 3 securities at March 31, 2025 and two totaling $ 7.8 million at December 31, 2024, attributable to the calculated change in fair value of $ 0.1 million.

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

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

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

September 30, 2024

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

March 31, 2025

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

5 unchanged sentences

Individually Evaluated Loans $ — $ — $ 579 $ 579

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

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

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

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

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

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

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

September 30, 2024

(Dollars in Thousands) Fair

Value Valuation

Technique Unobservable

Inputs Weighted

Range Average

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

The Company had one C&I individually evaluated loan totaling $ 0.6 million measured at fair value on a nonrecurring basis as of March 31, 2025 and at December 31, 2024.

The Company’s largest credit relationship is classified as an individually evaluated loan with a net carrying amount totaling $ 218.0 million at March 31, 2025 and $ 221.7 million at December 31, 2024.

The Company utilized various cash flow and discounting assumptions in the alternative modeling, instead of fair value, which resulted in a valuation allowance of $ 27.1 million at March 31, 2025 and $ 30.3 million at December 31, 2024.

When evaluating the net carrying value of this credit relationship at March 31, 2025, 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 $ 0.6 million as of March 31, 2025, compared with $ 0.7 million at December 31, 2024, primarily due to an additional write-down on an OREO

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The Company had $ 0.1 million write-downs recorded on OREO for the three months ended March 31, 2025 and had zero write-downs recorded on OREO for the three months ended March 31, 2024.

The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis at the dates presented:

March 31, 2025

(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 $ 1,041 Appraisals Estimated Selling Costs 6.0 % 6.0 %

OREO 328 Discounted Internal Valuations Management's Subject Discount 24.0 % 24.0 %

OREO 389 Internal Valuations Estimated Selling Costs 5.0 % 5.0 %

OREO 188 Discounted Internal Valuations Management's Subject Discount 24.0 % 24.0 %

Total OREO $ 577

December 31, 2024

(Dollars in Thousands) Fair

Value Valuation

Technique Unobservable

Inputs Weighted

Range Average

OREO $ 130 Appraisals Estimated Selling Costs 6.0 % 6.0 %

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

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

Total Individually Evaluated Loans $ 579

OREO 143 Internal Valuations Estimated Selling Costs 5.0 % 5.0 %

1 unchanged sentence

Total OREO $ 659

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

A baseline discount rate has been established for impairment measurement.

This baseline discount rate was back tested against historical OREO sales, and;

therefore, represents an average recovery rate based on the transaction sizes and asset types in the population examined.

This baseline discount rate was back tested against historical OREO sales, and therefore, represents an average recovery rate based on the transaction sizes and asset types in the population examined.

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

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

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

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The carrying values and estimated fair values of our financial instruments at March 31, 2025 and December 31, 2024 are presented in the following tables.

Fair values for March 31, 2025 and December 31, 2024 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 Sheets.

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

2 unchanged sentences

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

Fair Value Measurements at September 30, 2024

Fair Value Measurements at March 31, 2025

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

17 unchanged sentences

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

8 unchanged sentences

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 7 – 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.

5 unchanged sentences

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

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

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

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

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

The Company also has the ability to execute on balance sheet hedges.

On July 11, 2024, the Company entered into two related 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 .

On January 13, 2025, the Company terminated the remaining Pay-Fixed Swap Agreement with an original notional value of $ 125.0 million that would have matured on July 11, 2027.

The negative interest income adjustment for the termination of this hedge was $ 110 thousand.

While these two Pay-Fixed Swap Agreements were effective, the Company recognized interest income of $ 1.2 million related to these agreements.

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

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

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.

1 unchanged sentence

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

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

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.

6 unchanged sentences

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 the dates presented:

Fair Value of Derivative Assets

(Included in Other Assets)

September 30, 2024 December 31, 2023

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

Derivatives Designated as Hedging Instruments

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

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

Fair Values of Derivative Instruments

Asset Derivatives (Included in Other Assets)

March 31, 2025 December 31, 2024

(Dollars in Thousands) Number of

Transactions Notional

Value Number of

Transactions Notional

Derivatives not Designated as Hedging Instruments

3 unchanged sentences

Total Derivatives 63 $ 369,006 $ 13,879 59 $ 369,716 $ 17,356

Fair Value of Derivative Liabilities

(Included in Other Liabilities)

September 30, 2024 December 31, 2023

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

Fair Values of Derivative Instruments

Liability Derivatives (Included in Other Liabilities)

March 31, 2025 December 31, 2024

(Dollars in Thousands) Number of

Transactions Notional

Value Number of

Transactions Notional

Derivatives Designated as Hedging Instruments

6 unchanged sentences

Total Derivatives 63 $ 369,006 $ 13,723 60 $ 494,716 $ 17,710

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

The following table indicates the (loss) income recognized within “other noninterest income” in the Consolidated Statements of Income for derivatives as of the periods presented:

Three Months Ended March 31,

(Dollars in Thousands) 2025 2024

1 unchanged sentence

Interest Rate Swaps - Balance Sheet Hedge $ ( 140 ) $ —

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

Total Derivative Loss Designated as Hedging Instruments ( 140 ) —

Derivatives not Designated as Hedging Instruments

3 unchanged sentences

Total Derivative (Loss) Income not Designated as Hedging Instruments ( 44 ) 14

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

Net Derivative (Loss) Income $ ( 184 ) $ 14

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 derivative assets and derivative liabilities designated as hedging instruments and not designated as hedging instruments, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:

Derivative Assets

(Included in Other Assets) Derivative Liabilities

(Included in Other Liabilities)

(Dollars in Thousands) September 30,

2024 December 31,

2023 September 30,

2024 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 the dates presented:

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

(Dollars in Thousands) March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024

Derivatives Designated as Hedging Instruments

9 unchanged sentences

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

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

(Dollars in Thousands) March 31, 2025 December 31, 2024

Noninterest-Bearing Demand $ 631,714 $ 634,436

4 unchanged sentences

Total $ 4,200,927 $ 4,153,421

All deposit accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum amount allowed by law.

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

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

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

All depos i t accounts are i nsured by the Federal Deposit Insurance Corporation (“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 depositor, per insured depository institution for each account ownership.

Certificates of deposits that exceed the FDIC Insurance limit of $250,000 at March 31, 2025 and December 31, 2024 were $ 295.0 million and $ 297.9 million, respectively.

At both March 31, 2025 and December 31, 2024, total brokered deposits (excluding the Certificate of Deposit Account Registry Services (“CDARS”) and ICS two-way) were $ 196.1 million, which are included within the “certificates of deposit” line item in the Consolidated Balance Sheet.

Certificates of Deposit maturing as of the date presented:

(Dollars in Thousands) September 30, 2024

(Dollars in Thousands) March 31, 2025

3 Months or Less $ 657,831

3 unchanged sentences

Total $ 1,893,379

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

Overdrafts reclassified to loans were $ 0.3 million at both March 31, 2025 and December 31, 2024, respectively.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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

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

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

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

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

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

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

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

The Company had $ 55.0 million of Federal Home Loan Bank (“FHLB”) borrowings at March 31, 2025 and $ 70.0 million at December 31, 2024.

The decrease of $ 15.0 million is due to one FHLB advance that matured on March 27, 2025.

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.

The Company had no variable rate FHLB borrowings outstanding at March 31, 2025 or December 31, 2024.

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 March 31, 2025 and at December 31, 2024.

There were no securities available-for-sale pledged as collateral at both March 31, 2025 and December 31, 2024, respectively.

At March 31, 2025, 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 $ 743.2 million.

At March 31, 2025 and at December 31, 2024, the Company has $ 30.0 million unsecured facilities with three other correspondent financial institutions, as well as, a $ 45.0 million fully secured facility with one other correspondent financial institution.

The Company also has 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 March 31, 2025 or December 31, 2024.

The Company had the capacity to borrow up to an additional $ 735.3 million from the FHLB at December 31, 2024.

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

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table represents the balance of FHLB borrowings, the weighted average interest rate and the borrowing availability at the dates presented:

(Dollars in Thousands) March 31, 2025 December 31, 2024

FHLB Borrowings $ 55,000 $ 70,000

1 unchanged sentence

FHLB Availability $ 743,209 $ 735,294

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

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

Federal Fund Purchased $ — $ —

The following table represents the balance of federal funds purchased, the weighted average interest rate and the borrowing availability at the dates presented:

(Dollars in Thousands) March 31, 2025 December 31, 2024

Federal Funds Purchased $ — $ —

Weighted Average Interest Rate — % — %

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

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

(Dollars in Thousands) Balance Weighted

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to March 31, 2025 and thereafter are as follows:

(Dollars in Thousands) Balance Weighted Average Rate

1 year $ 30,000 4.05 %

5 unchanged sentences

Total FHLB Borrowings $ 55,000 3.99 %

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 10 – COMMITMENTS AND CONTINGENCIES

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

Commitments to extend credit, which amounted to $ 764.7 million at March 31, 2025 and $ 833.6 million at December 31, 2024, represent agreements to lend to customers with fixed expiration dates or other termination clauses.

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

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

Lines of credit for construction projects represented $ 435.6 million, or 57.0 %, and $ 445.3 million, or 53.4 %, of the commitments to extend credit at March 31, 2025 and December 31, 2024, respectively.

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

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

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

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

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

The Company had outstanding letters of credit totaling $ 16.8 million at March 31, 2025 and $ 16.7 million at December 31, 2024.

(Dollars in Thousands) March 31, 2025 December 31, 2024

Commitments to Extend Credit $ 764,687 $ 833,594

Standby and Performance Letters of Credit 18,244 19,643

Standby and Performance Letter of Credit 16,796 16,657

Total $ 781,483 $ 850,251

4 unchanged sentences

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

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

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

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

The life-of-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.

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

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

(Dollars in Thousands) 2024 2023 2024 2023

(Dollars in Thousands) March 31, 2025 March 31, 2024

Life-of-Loss Reserve on Unfunded Loan Commitments

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

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

Recovery for Unfunded Commitments ( 114 ) ( 43 )

Balance at end of period $ 3,072 $ 3,150

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

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

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

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

A recovery of $ 114 thousand was recorded for the three months ended March 31, 2025 for the recovery for unfunded commitments, which resulted in a decrease of $ 71 thousand compared to the three months ended March 31, 2024.

Legal Proceedings

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.

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

GLAS Federal Court Litigation

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 and James C.

Justice, III.

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

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

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

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

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

Justice, II, Cathy L.

Justice and James C.

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

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.

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE 12 – STOCK REPURCHASE PLAN

The Company was active in share repurchase activity and repurchased 1,000,000 shares of its common stock at a total cost of $ 14.2 million, or an average price of $ 14.16 per share during the year ended December 31, 2023.

On March 29, 2023, the Company's Board of Directors authorized a new share repurchase program (the “2023 Program”) which took effect starting May 1, 2023, after the expiration of the previous repurchase program (the “2022 Program”), which was originally authorized through August 1, 2023, but was fully exhausted as of March 10, 2023.

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

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

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 11 – TAX EFFECTS ON OTHER COMPREHENSIVE INCOME

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

(Dollars in Thousands) Pre-Tax

Amount Tax Expense Net of Tax

Three Months Ended March 31, 2025

Net Unrealized Gains Arising during the Period $ 10,383 $ ( 2,235 ) $ 8,148

Other Comprehensive Income $ 10,383 $ ( 2,235 ) $ 8,148

Three Months Ended March 31, 2024

Net Unrealized Gains Arising during the Period $ 2,119 $ ( 476 ) $ 1,643

Other Comprehensive Income $ 2,119 $ ( 476 ) $ 1,643

NOTE 12 - PROVISION FOR INCO M E T AX ES

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 for the periods presented:

Three Months Ended March 31,

(Dollars in Thousands) Amount Percent Amount Percent

Federal Income Tax at Statutory Rate $ 2,339 21.0 $ 1,519 21.0

State Income Tax, net of Federal Benefit 261 2.3 210 2.9

Tax-exempt Interest, net of Disallowance ( 117 ) ( 1.1 ) ( 137 ) ( 1.9 )

Federal Tax Credits, net of Basis Reduction ( 152 ) ( 1.4 ) ( 155 ) ( 2.1 )

Tax Credit Investment Amortization, net of Federal Benefit 128 1.2 129 1.8

Change in Valuation Allowance 34 0.3 21 0.3

Income from Bank Owned Life Insurance ( 467 ) ( 4.2 ) ( 73 ) ( 1.0 )

Interim Period Effective Tax Rate Adjustment 181 1.6 ( 133 ) ( 1.8 )

Other ( 24 ) ( 0.1 ) 42 0.5

Income Tax Provision and Effective Income Tax Rate $ 2,183 19.6 $ 1,423 19.7

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.

During the three months ended March 31, 2025, tax-free bank owned life insurance increased primarily due to an $ 1.9 million BOLI death benefit.

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

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

As of March 31, 2025, the Company recognized $ 1.0 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 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 March 31, 2025, the Company has not recognized any non-income-tax-related activity from its HTC investments.

NOTE 13 - SEGMENT REPORTING

The Company is a holding company and the parent company to the Bank and 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 shown within the Consolidated Statements of Income and Consolidated Balance Sheets.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Carter Bankshares, Inc., its operations, and its present business environment, and its consolidated results of operations and financial condition and highlights material changes in its financial condition and results of operations as of and for the three month periods ended March 31, 2025 and March 31, 2024.

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

Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.

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◦ Liquidity and Capital Resources

◦ Regulatory Capital Requirements

◦ Contractual Obligations

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This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include statements that relate to our financial condition, market conditions, results of operations, plans, objectives, outlook for earnings, strategic initiatives and related earn-back periods, revenues, expenses, capital and liquidity levels and ratios, asset levels and asset quality, including but not limited to statements regarding the interest rate environment, the impact of future changes in interest rates, and the impacts of the Company placing its largest lending relationship on nonaccrual status.

Forward-looking statements include statements that relate to our financial condition, market conditions, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality and nonaccrual and nonperforming loans.

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

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The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements including, but not limited to the effects of:

• market interest rates and the impacts of market interest rates on economic conditions, customer behavior, and the Company’s loan and securities portfolios;

• market interest rates and the impacts of market interest rates on economic conditions, customer behavior, and the Company’s net interest margin, net interest income and its deposit, loan and securities portfolios;

• inflation, market and monetary fluctuations;

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

government and the related impacts on economic conditions and financial markets, and changes in policies of the Federal Reserve, FDIC and U.S.

Department of the Treasury;

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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

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

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

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• changes in the Company’s liquidity and capital positions;

• concentrations of loans secured by real estate, particularly commercial real estate, and the potential impacts of changes in market conditions on the value of real estate collateral;

• increased delinquency and foreclosure rates on commercial real estate loans;

• concentrations of loans secured by real estate, particularly CRE, and the potential impacts of changes in market conditions on the value of real estate collateral;

• increased delinquency and foreclosure rates on CRE loans;

• an insufficient allowance for credit losses;

• the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other military conflicts (such as the war between Israel and Hamas and the ongoing war between Russia and Ukraine) or public health events (such as the COVID-19 pandemic), and of any governmental and societal responses thereto;

• the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other military conflicts (such as the ongoing war between Russia and Ukraine) or public health events and of any governmental and societal responses thereto;

these potential adverse effects may include, without limitation, adverse effects on the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth;

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• material increases in costs and expenses;

• reliance on significant customer relationships;

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

• reliance on significant customer relationships;

• general economic or business conditions, including unemployment levels, supply chain disruptions and slowdowns in economic growth;

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• our failure to attract or retain key associates;

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

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

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

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

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

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

Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 4 , and any of the Company’s subsequent filings with the Securities and Exchange Commission (“SEC”).

Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made.

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Explanation of Use of Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), management uses, and this quarterly report references, interest and dividend income, yield on interest earnings assets, net interest income and net interest margin on a fully taxable equivalent, (“FTE”) basis, which are non-GAAP financial measures.

In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), management uses, and this quarterly report references, interest and dividend income, yield on interest earning assets, net interest income and net interest margin on a fully taxable equivalent, (“FTE”) basis, which are non-GAAP financial measures.

Management believes these measures provide information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry.

The Company believes the presentation of interest and dividend income, yield on interest earnings assets, net interest income and net interest margin on an FTE basis ensures the comparability of interest and dividend income, yield on interest earning assets, net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice.

The Company believes the presentation of interest and dividend income, yield on interest earning assets, net interest income and net interest margin on an FTE basis ensures the comparability of interest and dividend income, yield on interest earning assets, net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice.

Interest and dividend income (GAAP) per the Consolidated Statements of Income is reconciled to interest and dividend income adjusted on an FTE basis, yield on interest earning assets (GAAP) is reconciled to yield on interest earning assets adjusted on an FTE basis, net interest income (GAAP) is reconciled to net interest income adjusted on an FTE basis and net interest margin (GAAP) is reconciled to net interest margin adjusted on an FTE basis in the "Results of Operations and Financial Condition - Net Interest Income" section of this MD&A.

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

CARTER BANKSHARES, INC.

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

Critical Accounting Estimates

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

Overview and Strategy

Carter Bankshares, Inc.

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

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

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

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

Our common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE”.

The Company earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers.

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

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

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

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

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

The guiding principles include a new purpose statement:

To create opportunities for more people and businesses to prosper;

supported by our new set of core values:

Build Relationships, Earn Trust and Take Ownership.

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

The Company’s goal is to shift from restructuring the balance sheet to pursuing a prudent growth strategy when appropriate.

We believe this strategy will be primarily targeted at organic growth, but will also consider opportunistic acquisitions that fit this strategic vision.

We believe that the Bank’s strong capital and liquidity positions support this strategy.

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

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

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

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

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

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

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

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

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

CARTER BANKSHARES, INC.

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

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

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

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

Justice II, his wife Cathy L.

Justice, his son James C.

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

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

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

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

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

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

Results of Operations and Financial Condition

Earnings Summary

Highlights for the Three Months Ended September 30, 2024

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

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

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

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

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

CARTER BANKSHARES, INC.

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

Highlights for the Nine Months Ended September 30, 2024

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PERFORMANCE RATIOS 2024 2023 2024 2023

Return on Average Assets 0.49 % 0.33 % 0.48 % 0.78 %

Return on Average Shareholders’ Equity 5.99 % 4.19 % 5.99 % 9.71 %

Portfolio Loans to Deposit Ratio 88.02 % 95.82 % 88.02 % 95.82 %

Allowance for Credit Losses to Total Portfolio Loans 2.25 % 2.77 % 2.25 % 2.77 %

Nonperforming Loans to Portfolio Loans 8.00 % 9.04 % 8.00 % 9.04 %

CARTER BANKSHARES, INC.

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

Net Interest Income

Our principal source of revenue is net interest income.

Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities.

Net interest income is affected by changes in the average balance of interest-earning assets, interest-bearing liabilities, as well as changes in interest rates and spreads.

The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee (“ALCO”), in order to mitigate interest rate and liquidity risks of the balance sheet.

A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Company believes is an acceptable level of net interest income.

Net interest income and the net interest margin are presented on an FTE basis.

The FTE basis (non-GAAP) adjusts net interest income and net interest margin for the tax benefit of income on certain tax-exempt loans and securities using the applicable federal statutory tax rate for each period (which was 21% for the periods presented).

The Company believes this FTE basis presentation provides a relevant comparison between taxable and non-taxable sources of interest income.

Refer to the “Explanation of Use of Non-GAAP Financial Measures” above for additional discussion regarding the non-GAAP measures used in this Quarterly Report on Form 10-Q.

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

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

(Dollars in Thousands) 2024 2023 2024 2023

Interest Income (FTE)(Non-GAAP)

Interest and Dividend Income (GAAP) $ 56,595 $ 48,886 $ 165,227 $ 144,557

Tax Equivalent Adjustment 190 247 593 768

Interest and Dividend Income (FTE) (Non-GAAP) 56,785 49,133 165,820 145,325

Average Earning Assets $ 4,447,455 $ 4,320,390 $ 4,437,886 $ 4,256,560

Yield on Interest-earning Assets (GAAP) 5.06 % 4.49 % 4.97 % 4.54 %

Yield on Interest-earning Assets (FTE) (Non-GAAP) 5.08 % 4.51 % 4.99 % 4.56 %

Net Interest Income (GAAP) $ 28,798 $ 27,394 $ 85,309 $ 94,890

Tax Equivalent Adjustment 190 247 593 768

Net Interest Income (FTE) (Non-GAAP) 28,988 27,641 85,902 95,658

Average Earning Assets $ 4,447,455 $ 4,320,390 $ 4,437,886 $ 4,256,560

Net Interest Margin (GAAP) 2.58 % 2.52 % 2.57 % 2.98 %

Net Interest Margin (FTE) (Non-GAAP) 2.59 % 2.54 % 2.59 % 3.00 %

CARTER BANKSHARES, INC.

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

Average Balance Sheet and Net Interest Income Analysis (FTE)

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

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

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

Interest-Bearing Deposits with Banks $ 43,817 $ 597 5.42 % $ 12,652 $ 172 5.39 %

Tax-Free Investment Securities (2)

11,740 84 2.85 % 27,594 203 2.92 %

Taxable Investment Securities 815,885 7,266 3.54 % 893,386 7,793 3.46 %

Total Securities 827,625 7,350 3.53 % 920,980 7,996 3.44 %

Tax-Free Loans (1)(2)

99,810 815 3.25 % 120,670 972 3.20 %

Taxable Loans (1)(3)

3,464,899 47,813 5.49 % 3,243,663 39,578 4.84 %

Total Loans 3,564,709 48,628 5.43 % 3,364,333 40,550 4.78 %

Federal Home Loan Bank Stock 11,304 210 7.39 % 22,425 415 7.34 %

Total Interest-Earning Assets 4,447,455 $ 56,785 5.08 % 4,320,390 $ 49,133 4.51 %

Noninterest Earning Assets 108,760 88,805

Total Assets $ 4,556,215 $ 4,409,195

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-Bearing Demand $ 604,630 $ 2,838 1.87 % $ 475,939 $ 720 0.60 %

Money Market 502,008 4,012 3.18 % 430,954 2,495 2.30 %

Savings 386,698 153 0.16 % 504,697 140 0.11 %

Certificates of Deposit 1,835,329 18,515 4.01 % 1,486,165 11,973 3.20 %

Total Interest-Bearing Deposits 3,328,665 25,518 3.05 % 2,897,755 15,328 2.10 %

Federal Home Loan Bank Borrowings 171,424 2,143 4.97 % 447,287 5,986 5.31 %

Federal Funds Purchased — — — % 7,550 107 5.62 %

Other Borrowings 10,070 136 5.37 % 6,131 71 4.59 %

Total Borrowings 181,494 2,279 5.00 % 460,968 6,164 5.31 %

Total Interest-Bearing Liabilities 3,510,159 27,797 3.15 % 3,358,723 21,492 2.54 %

Noninterest-Bearing Liabilities 672,208 707,445

Shareholders' Equity 373,848 343,027

Total Liabilities and Shareholders' Equity $ 4,556,215 $ 4,409,195

Net Interest Income (2)

$ 28,988 $ 27,641

Net Interest Margin (2)

2.59 % 2.54 %

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

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

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

CARTER BANKSHARES, INC.

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

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

(Dollars in Thousands) Average

Balance Income/

Expense Rate Average

Balance Income/

Interest-Bearing Deposits with Banks $ 33,049 $ 1,352 5.46 % $ 15,550 $ 587 5.05 %

Tax-Free Investment Securities (2)

11,779 255 2.89 % 28,189 618 2.93 %

Taxable Investment Securities 836,993 22,730 3.63 % 908,670 22,874 3.37 %

Total Securities 848,772 22,985 3.62 % 936,859 23,492 3.35 %

Tax-Free Loans (1)(2)

105,569 2,566 3.25 % 126,578 3,041 3.21 %

Taxable Loans (1)(3)

3,434,407 138,025 5.37 % 3,158,888 117,235 4.96 %

Total Loans 3,539,976 140,591 5.31 % 3,285,466 120,276 4.89 %

Federal Home Loan Bank Stock 16,089 892 7.41 % 18,685 970 6.94 %

Total Interest-Earning Assets 4,437,886 $ 165,820 4.99 % 4,256,560 $ 145,325 4.56 %

Noninterest Earning Assets 97,235 92,613

Total Assets $ 4,535,121 $ 4,349,173

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-Bearing Demand $ 544,680 $ 5,639 1.38 % $ 485,605 $ 1,876 0.52 %

Money Market 512,539 11,934 3.11 % 440,700 5,607 1.70 %

Savings 412,549 435 0.14 % 570,538 456 0.11 %

Certificates of Deposit 1,734,538 50,950 3.92 % 1,388,773 26,690 2.57 %

Total Interest-Bearing Deposits 3,204,306 68,958 2.87 % 2,885,616 34,629 1.60 %

Federal Home Loan Bank Borrowings 273,413 10,637 5.20 % 380,023 14,461 5.09 %

Federal Funds Purchased — — — % 9,062 354 5.22 %

Other Borrowings 8,749 323 4.93 % 6,247 223 4.77 %

Total Borrowings 282,162 10,960 5.19 % 395,332 15,038 5.09 %

Total Interest-Bearing Liabilities 3,486,468 79,918 3.06 % 3,280,948 49,667 2.02 %

Noninterest-Bearing Liabilities 686,560 720,181

Shareholders' Equity 362,093 348,044

Total Liabilities and Shareholders' Equity $ 4,535,121 $ 4,349,173

Net Interest Income (2)

$ 85,902 $ 95,658

Net Interest Margin (2)

2.59 % 3.00 %

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CARTER BANKSHARES, INC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CARTER BANKSHARES, INC.

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

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

Three Months Ended September 30, 2024

Compared to September 30, 2023

Nine Months Ended September 30, 2024

Compared to September 30, 2023

(Dollars in Thousands) Volume (3)

(Decrease) Volume (3)

Interest Earned on:

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

Tax-free Investment Securities (2)

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

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

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

Tax-free Loans (1)(2)

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

Taxable Loans (1)

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

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

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

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

Interest Paid on:

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

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

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

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

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

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

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

Other Borrowings 52 13 65 92 8 100

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

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

Change in Net Interest Margin (2)

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

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

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

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

(Recovery) Provision for Credit Losses

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

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

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

2024 2023 $ Change 2024 2023 $ Change

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

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

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

Provision for Securities — — — — — —

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

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

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

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

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

CARTER BANKSHARES, INC.

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

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

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

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

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

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

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

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

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

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

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

Noninterest Income

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

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

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

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

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

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

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

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

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

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

N/M Not Meaningful

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

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

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

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

CARTER BANKSHARES, INC.

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

Noninterest Expense

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Provision for Income Taxes

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

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

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

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

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

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

What changed 10-Q

Item 1. Financial Statements