CARE filing — read by section

Item 2. Management’s Discussion and Analysis

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 Critical Accounting Estimates 
 The Company’s critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2025 have remained unchanged from the disclosures presented under the heading “Critical Accounting Estimates” in its Annual Report on Form 10-K for the year ended December 31, 2024 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 $4.7 billion at March 31, 2025. The Company is the parent company of its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). The Bank is a Federal Deposit Insurance Corporation (“FDIC”) insured, Virginia state-chartered bank, which operates 65 branches in Virginia and North Carolina. The Company provides a full range of financial services with retail, and commercial banking products and insurance. The Company’s common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE”. 
 The Company has entered into a definitive purchase and assumption agreement to acquire two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston Salem, North Carolina, from First Reliance Bank. The Company expects this transaction to close during the second quarter of 2025. 
 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, borrowings, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, FDIC expense, 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 create a brand tailored to the needs of its 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. On October 30, 2024 the Company unveiled the new brand identity centered entirely around the people who matter most: customers and associates of Carter Bank and Trust and the communities it serves to help deliver on its promise of helping people experience a life lived full. 
 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 its business in our current markets as well as any new markets it may enter. As part of executing this strategy, the Company continues to dedicate significant resources to the resolution of the Company’s nonaccrual loans, the significant majority of which are related to a single large credit 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. 
 The Company’s financial results continue to be significantly impacted by the single large credit relationship that the Company placed on nonaccrual status during the second quarter of 2023, which has an aggregate principal balance of $245.1 million as of March 31, 2025. Since placement of these loans, now reduced to judgements, on nonaccrual status during the second quarter of 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 2023, interest income has been negatively impacted by $6.8 million and $9.3 million during the three months ended March 31, 2025 and 2024, respectively, or by $71.9 million in the aggregate. 
 
 
 
 Results of Operations and Financial Condition 
 Earnings Summary 
 Highlights for the Three Months Ended March 31, 2025 
 • Net interest income increased $1.7 million, or 6.0%, to $30.1 million for the three months ended March 31, 2025 compared to $28.4 million for the same period in 2024, positively impacted by the recent short-term interest rate cuts by the Federal Reserve from September through December 2024; 
 • The (recovery) provision for credit losses decreased $2.0 million to a recovery of $2.0 million for the three months ended March 31, 2025, compared to the same period in 2024 primarily driven by a decline in the Other segment reserve rate related to the Company’s largest credit relationship from 12.01% to 11.05% and Other segment reserves released of $0.8 million due to $6.9 million of curtailment payments during the three months ended March 31, 2025, partially offset by loan growth; 
 • Total noninterest income increased $1.9 million to $6.9 million for the three months ended March 31, 2025 compared to the same period in 2024; 
 • Total noninterest expense increased $1.8 million to $28.0 million for the three months ended March 31, 2025 compared to the same period in 2024; and 
 • Provision for income taxes increased $0.8 million to $2.2 million for the three months ended March 31, 2025 compared to the same period in 2024. 
 Balance Sheet Highlights (period-end balances, March 31, 2025 compared to December 31, 2024 ) 
 • The available-for-sale securities portfolio increased $27.0 million and is currently 15.9% of total assets compared to 15.4% of total assets; 
 • Total portfolio loans increased $62.7 million, or 7.0%, on an annualized basis, due to loan growth during the three months ended March 31, 2025; 
 • The portfolio loans to deposit ratio was 87.8%, compared to 87.3%; 
 • At March 31, 2025, nonperforming loans increased by $2.1 million to $261.4 million compared to December 31, 2024. Nonperforming loans as a percentage of total portfolio loans were 7.09% compared to 7.15%. The increase during the quarter was primarily due to a CRE relationship, consisting of four loans, that transferred to nonperforming loan (“NPL”) status totaling $9.4 million offset by $6.9 million of curtailment payments during the first quarter of 2025 made by the Bank’s largest nonperforming credit relationship that was initially placed on nonaccrual status during the second quarter of 2023; 
 • The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 1.99% compared to 2.09%. The ACL on portfolio loans totaled $73.5 million at March 31, 2025, compared to $75.6 million at December 31, 2024; 
 • Total deposits increased $47.5 million, or 4.6%, on an annualized basis, to $4.2 billion at March 31, 2025, compared to December 31, 2024; and 
 • FHLB borrowings decreased $15.0 million to $55.0 million at March 31, 2025 compared to $70.0 million at December 31, 2024. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 The Company reported net income of $9.0 million , or $0.39 diluted earnings per share for the three months ended March 31, 2025 compared to net income of $5.8 million , or $0.25 diluted earnings per share, for the three months ended March 31, 2024 . 
 
 Three Months Ended March 31, 
 PERFORMANCE RATIOS 2025 2024 
 Return on Average Assets 0.78 % 0.52 % 
 Return on Average Shareholders' Equity 9.27 % 6.59 % 
 Portfolio Loans to Deposit Ratio 87.78 % 91.61 % 
 Allowance for Credit Losses to Total Portfolio Loans 1.99 % 2.75 % 
 Nonperforming Loans to Total Portfolio Loans 7.09 % 8.76 % 

 
 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) and the dividend-received deduction for equity securities. 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 (GAAP) 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: 
 
 (Dollars in Thousands) Three Months Ended March 31, 
 2025 2024 
 Interest and Dividend Income (GAAP) $ 56,007 $ 54,049 
 Tax Equivalent Adjustment 178 206 
 Interest and Dividend Income (FTE) (Non-GAAP) 56,185 54,255 
 Average Earning Assets 4,554,103 4,429,020 
 Yield on Interest-earning Assets (GAAP) 4.99 % 4.91 % 
 Yield on Interest-earning Assets (FTE) (Non-GAAP) 5.00 % 4.93 % 
 
 Net Interest Income (GAAP) 30,138 28,419 
 Tax Equivalent Adjustment 178 206 
 Net Interest Income (FTE) (Non-GAAP) $ 30,316 $ 28,625 
 Average Earning Assets 4,554,103 4,429,020 
 Net Interest Margin (GAAP) 2.68 % 2.58 % 
 Net Interest Margin (FTE) (Non-GAAP) 2.70 % 2.60 % 

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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. 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: 
 
 (Dollars in Thousands) Three Months Ended March 31, 2025 Three Months Ended March 31, 2024 
 Average
Balance Income/
Expense Yield/Rate Average
Balance Income/
Expense Yield/Rate 
 ASSETS 
 Interest-Bearing Deposits with Banks $ 67,387 $ 748 4.50 % $ 24,129 $ 335 5.58 % 
 Tax-Free Investment Securities 2 
 11,662 84 2.92 % 11,818 85 2.89 % 
 Taxable Investment Securities 807,891 6,655 3.34 % 853,540 7,743 3.65 % 
 Total Securities 819,553 6,739 3.33 % 865,358 7,828 3.64 % 
 Tax-Free Loans 1, 2 
 93,480 761 3.30 % 111,471 897 3.24 % 
 Taxable Loans 1 
 3,567,184 47,825 5.44 % 3,407,659 44,817 5.29 % 
 Total Loans 3,660,664 48,586 5.38 % 3,519,130 45,714 5.22 % 
 Federal Home Loan Bank Stock 6,499 112 6.99 % 20,403 378 7.45 % 
 Total Interest-Earning Assets 4,554,103 $ 56,185 5.00 % 4,429,020 $ 54,255 4.93 % 
 Noninterest Earning Assets 121,766 91,171 
 Total Assets $ 4,675,869 $ 4,520,191 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY 
 Interest-Bearing Demand $ 744,895 $ 3,386 1.84 % $ 496,052 $ 1,112 0.90 % 
 Money Market 525,463 3,319 2.56 % 524,896 3,996 3.06 % 
 Savings 355,123 113 0.13 % 439,775 137 0.13 % 
 Certificates of Deposit 1,918,195 18,205 3.85 % 1,635,819 15,472 3.80 % 
 Total Interest-Bearing Deposits 3,543,676 25,023 2.86 % 3,096,542 20,717 2.69 % 
 FHLB Borrowings 69,833 702 4.08 % 366,782 4,819 5.28 % 
 Federal Funds Purchased — — — % — — — % 
 Other Borrowings 10,417 144 5.61 % 7,703 94 4.91 % 
 Total Borrowings 80,250 846 4.28 % 374,485 4,913 5.28 % 
 Total Interest-Bearing Liabilities 3,623,926 25,869 2.90 % 3,471,027 25,630 2.97 % 
 Noninterest-Bearing Liabilities 660,437 694,293 
 Shareholders' Equity 391,506 354,871 
 Total Liabilities and Shareholders' Equity $ 4,675,869 $ 4,520,191 
 Net Interest Income 2 
 $ 30,316 $ 28,625 
 Net Interest Margin 2 
 2.70 % 2.60 % 

 1 Nonaccruing loans are included in the daily average loan amounts outstanding. 
 2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent. 
 Net interest income increased $1.7 million, or 6.0% to $30.1 million for the three months ended March 31, 2025 compared to the same period in 2024. Net interest income, on an FTE basis (non-GAAP), increased $1.7 million, or 5.9%, to $30.3 million for the three months ended March 31, 2025 compared to $28.6 million for the same period in 2024. Net interest margin increased 10 basis points to 2.68% for the three months ended March 31, 2025 compared to 2.58% for the same period in 2024. Net interest margin, on an FTE basis (non-GAAP), also increased 10 basis points to 2.70% for the three months ended March 31, 2025 compared to 2.60% for the same period in 2024. 
 The increases resulted from higher yields on average earning assets of seven basis points and funding costs that declined seven basis points for the three months ended March 31, 2025 compared to the same period in 2024. During the three months ended March 31, 2025, $754.0 million of CDs matured and repriced from an average rate of 4.36% to an average rate of 3.38%. Average interest-earning assets increased by $125.1 million with the yield on average interest-earning assets increasing seven basis points. The most significant increase in interest-earning assets was a 16 basis point increase in the yield on average loans from 5.22% for the three months ended March 31, 2024 to 5.38% for the three months ended March 31, 2025. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 Interest income increased to $56.0 million for the three months ended March 31, 2025 from $54.0 million compared to the same period in 2024. Interest income, on an FTE basis (non-GAAP), increased $1.9 million, or 3.6%, to $56.2 million for the three months ended March 31, 2025 compared to $54.3 million for the same period in 2024, resulting from average loan growth of $159.5 million, primarily due to growth in taxable loans. Average interest-earning assets increased primarily due to growth in average loans of $141.5 million and an increase of $43.3 million in average interest-bearing deposits with banks during the three months ended March 31, 2025, and was partially offset by a decrease of $45.8 million in average investment securities and a decrease of $13.9 million in average FHLB stock. 
 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 March 31, 2025, the securities portfolio was comprised of 42.5% variable rate securities with approximately 85.5% that will reprice at least once over the next 12 months. We believe having a balanced mix of variable and fixed rate securities is an important strategy, especially 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 as fixed rate securities, so there is much less price volatility. This variable rate strategy has limited the impact of past upward shifts in the yield curve on the Company’s unrealized losses on debt securities. If the Federal Reserve continues reducing short-term interest rates, the Bank may consider changes to this interest rate mix strategy going forward. 
 Interest expense for the three months ended March 31, 2025 increased $0.2 million, or 0.9%, to $25.9 million compared to the same period in 2024. The increase of $447.1 million in average interest-bearing deposits reflected solid growth in average CDs of $282.4 million, an increase of $248.8 million in average interest-bearing demand accounts and an increase of $0.6 million in average money market accounts, offset by a decrease of $84.7 million in average savings accounts as customer preferences shifted from lower cost non-maturing deposits to higher-yielding interest-bearing demand, money market and short-term CD products. 
 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, 73.5% of our CD portfolio and 54.5% 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. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. 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 March 31, 2025
Compared to Three Months Ended March 31, 2024 
 (Dollars in Thousands) Volume 3 
 Rate 3 
 Increase/
(Decrease) 
 Interest Earned on: 
 Interest-Bearing Deposits with Banks $ 493 $ (80) $ 413 
 Tax-free Investment Securities 2 
 (1) — (1) 
 Taxable Investment Securities (400) (688) (1,088) 
 Total Securities (401) (688) (1,089) 
 Tax-free Loans 1, 2 
 (147) 11 (136) 
 Taxable Loans 1 
 2,127 881 3,008 
 Total Loans 1,980 892 2,872 
 Federal Home Loan Bank Stock (242) (24) (266) 
 Total Interest-Earning Assets $ 1,830 $ 100 $ 1,930 
 
 Interest Paid on: 
 Interest-Bearing Demand $ 746 $ 1,528 $ 2,274 
 Money Market 4 (681) (677) 
 Savings (27) 3 (24) 
 Certificates of Deposit 2,680 53 2,733 
 Total Interest-Bearing Deposits 3,403 903 4,306 
 Federal Home Loan Bank Borrowings (3,191) (926) (4,117) 
 Federal Funds Purchased — — — 
 Other Borrowings 36 14 50 
 Total Borrowings (3,155) (912) (4,067) 
 Total Interest-Bearing Liabilities $ 248 $ (9) $ 239 
 Change in Net Interest Margin $ 1,582 $ 109 $ 1,691 

 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 
 The Company recognizes (recovery) provision for credit losses based on the difference between the existing balance of ACL reserves and the ACL reserve balance necessary to adequately absorb expected credit losses associated with the Company’s financial instruments. Similarly, the Company recognizes (recovery) provision for unfunded commitments based on the difference between the existing balance of reserves for unfunded commitments and the reserve balance for unfunded commitments necessary to adequately absorb expected credit losses associated with those commitments. (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 portfolio, after giving consideration to charge-offs and recoveries for the period. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 The following table presents information regarding the (recovery) provision for credit losses and net charge-offs for the periods presented: 
 
 (Dollars in Thousands) Three Months Ended March 31, 
 2025 2024 $ Change $ Change 
 (Recovery) Provision for Credit Losses $ (2,025) $ 16 $ (2,041) NM 
 Recovery for Unfunded Commitments (114) (43) (71) (165.1) % 
 Total Recovery for Credit Losses on Loans (2,139) (27) (2,112) NM 
 Provision for Securities — — — — % 
 Total Recovery for Credit Losses $ (2,139) $ (27) $ (2,112) NM 
 
 Net Loan Charge-offs $ 57 $ 532 $ (475) (89.3) % 
 Net Loan Charge-offs / Average Portfolio Loans 0.01 % 0.06 % 
 NM- Not Meaningful 

 The (recovery) provision for credit losses decreased $2.0 million for the three months ended March 31, 2025 compared to the same period in 2024. The decrease was primarily driven by a decline in the Other loan segment reserve rate, specifically the Company’s largest credit relationship, from 12.01% to 11.05% and $6.9 million of curtailment payments during the three months ended March 31, 2025 and loan growth. 
 The (recovery) provision for unfunded commitments for the three months ended March 31, 2025 was a recovery of $114 thousand compared to the same period in 2024, a decrease of $0.1 million primarily due to changes in construction commitments. 
 Net loan charge-offs were $0.1 million for the three months ended March 31, 2025 compared to $0.5 million for the same period in 2024. As a percentage of average portfolio loans, net loan charge-offs were 0.01% and 0.06% for the three months ended March 31, 2025 and 2024, respectively. 
 See the “Allowance for Credit Losses” section of this MD&A for additional details regarding our charge-offs. 
 
 Noninterest Income 
 
 Three Months Ended March 31, 
 (Dollars in Thousands) 2025 2024 $ Change % Change 
 
 Service Charges, Commissions and Fees 1,874 1,875 (1) (0.1) % 
 Debit Card Interchange Fees 2,104 2,086 18 0.9 % 
 Insurance Commissions 344 614 (270) (44.0) % 
 Bank Owned Life Insurance Income 341 348 (7) (2.0) % 
 
 
 
 Other 2,238 122 2,116 NM 
 Total Noninterest Income $ 6,901 $ 5,045 $ 1,856 36.8 % 
 NM - Not meaningful 

 For the three months ended March 31, 2025, total noninterest income was $6.9 million, an increase of $1.9 million, or 36.8%, from the same period in 2024. The most significant increase was primarily related to other noninterest income as a result of a $1.9 million gain on a BOLI death benefit. Also impacting other noninterest income, was an increase of $0.1 million on the community development fund due to higher market values during the three months ended March 31, 2025. Offsetting other noninterest income compared to the three months ended March 31, 2024 was a decline of $0.3 million in insurance commissions due lower activity in the three months ended March 31, 2025 . 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 Noninterest Expense 
 
 (Dollars in Thousands) Three Months Ended March 31, 
 2025 2024 $ Change % Change 
 Salaries and Employee Benefits $ 13,657 $ 14,200 $ (543) (3.8) % 
 Occupancy Expense, net 4,472 3,748 724 19.3 % 
 FDIC Insurance Expense 1,430 1,687 (257) (15.2) % 
 Other Taxes 947 906 41 4.5 % 
 Advertising Expense 911 357 554 155.2 % 
 Telephone Expense 304 417 (113) (27.1) % 
 Professional and Legal Fees 1,230 1,513 (283) (18.7) % 
 Data Processing 1,444 891 553 62.1 % 
 
 
 Debit Card Expense 992 756 236 31.2 % 
 
 
 
 
 Other 2,655 1,782 873 49.0 % 
 Total Noninterest Expense $ 28,042 $ 26,257 $ 1,785 6.8 % 

 For the three months ended March 31, 2025, total noninterest expense was $28.0 million, an increase of $1.8 million, or 6.8%, from the same period in 2024. The most significant variances for the comparable period related to increases of $0.9 million in other noninterest expense, $0.7 million in occupancy expenses, $0.6 million in advertising expenses and $0.6 million in data processing expenses, offset by decreases of $0.5 million in salaries and employee benefits, $0.3 million in professional and legal fees and $0.3 million in FDIC insurance expense. 
 The significant increases in other noninterest expense are related to a $0.3 million 1035 exchange fee recorded in the first quarter of 2025 as a direct result of the early surrender and transfer to a new carrier of one of the Company’s BOLI policies and a gain of $0.3 million on two closed offices sold in the first quarter of 2024. The increase in occupancy expense was due to new software licenses and additional maintenance contracts during the three months ended March 31, 2025. The increase in advertising expenses primarily related to contributions made during the first quarter of 2025, as well as, additional expenses in the current quarter related to the launching of the new brand refresh that occurred in the fourth quarter of 2024. The increase in data processing expenses relates primarily to general inflationary cost increases for existing and new service agreements in the beginning of the year. 
 The decreases in salaries and employee benefits resulted from higher deferred compensation costs, offset by higher medical expenses, annual merit increases and higher incentive costs during the three months ended March 31, 2025. The decrease in professional and legal fees is the result of higher expenses incurred during the three months ended March 31, 2024 related to the large nonperforming credit relationship that the Company initially placed on nonaccrual status during the second quarter of 2023. The decrease in FDIC insurance expense was primarily due to the aforementioned curtailment payments which have reduced the outstanding balance of the aforementioned large nonperforming credit relationship from $301.9 million at March 31, 2024 to $245.1 million at March 31, 2025, which is a component used to determine the assessment. 
 
 Provision for Income Taxes 
 The provision for income taxes increased $0.8 million to $2.2 million for the three months ended March 31, 2025 compared to $1.4 million for three months ended March 31, 2024. Pre-tax income increased $3.9 million for the three months ended March 31, 2025 compared to the same period in 2024, primarily due to recording a $2.0 million recovery to the (recovery) provision for credit losses in the first quarter of 2025, as well as, a gain of $1.9 million for a BOLI death benefit in first quarter of 2025. The effective tax rate was 19.6% for the three months ended March 31, 2025 compared to 19.7% for the same period in 2024. The slight decrease in the effective tax rate for the three months ended March 31, 2025 compared to the same period in 2024 was primarily related to BOLI tax-free income related to the $1.9 million death benefit received in the first quarter of 2025, offset by the increase in pre-tax income. 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”). 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 Financial Condition 
 March 31, 2025 
 Total assets increased $41.1 million, to $4.7 billion at March 31, 2025 compared to December 31, 2024. Cash and due from banks decreased $42.2 million to $89.0 million at March 31, 2025 compared to $131.2 million at December 31, 2024, primarily due to excess liquidity being redeployed to fund loan growth and to retire FHLB borrowings. The available-for-sale securities portfolio increased $27.0 million and is currently 15.9% of total assets at March 31, 2025 compared to 15.4% of total assets at December 31, 2024. The increase is due to redeploying excess cash into higher yielding securities. 
 During the three months ended March 31, 2025 there were new security purchases totaling $33.7 million, partially offset by normal paydowns and maturities. As of March 31, 2025, the securities portfolio was comprised of 42.5% variable rate securities with approximately 85.5% that will reprice at least once over the next 12 months. At March 31, 2025, total gross unrealized gains in the available-for-sale portfolio were $0.1 million, offset by $72.1 million of gross unrealized losses. Refer to the “Securities” section below for further discussion of unrealized losses in the available-for-sale securities portfolio. 
 Total portfolio loans increased $62.7 million, or 7.0%, on an annualized basis, to $3.7 billion at March 31, 2025 compared to December 31, 2024. The increase in loans primarily related to growth of $46.0 million in commercial real estate loans, $23.8 million in residential mortgages and $3.5 million in C&I loans, offset by a decrease of $6.9 million in the Other segment due to the aforementioned curtailment payments, as well as a decrease of $3.6 million in construction loans and a slight decrease in other consumer of $0.1 million compared to December 31, 2024. 
 The ACL was 1.99% of total portfolio loans at March 31, 2025 compared to 2.09% as of December 31, 2024. Management believes the ACL is adequate to absorb expected losses inherent in the loan portfolio. See the sections of this MD&A titled “Provision for Credit Losses,” “Credit Quality” and “Allowance for Credit Losses” for information about the factors that impacted the ACL and the provision for credit losses. 
 FHLB stock, at cost decreased $0.6 million to $5.9 million at March 31, 2025 compared to December 31, 2024. The decrease is due to a lower level of FHLB borrowings due to deposit growth that funded paydowns of FHLB borrowings. Closed retail bank offices had a book value of $0.6 million at March 31, 2025 and $0.7 million at December 31, 2024, and are included in OREO on the Consolidated Balance Sheets. 
 During the first quarter of 2025, the Company initiated a 1035 exchange of $10.5 million in BOLI in order to transfer the proceeds to a new insurance carrier and take advantage of enhanced credit ratings and better yields due to improving BOLI markets. The exchange was an opportunity to retire below market yielding BOLI assets and reinvest the proceeds from the exchange into higher yielding BOLI related assets on the balance sheet. 
 Total deposits increased $47.5 million to $4.2 billion at March 31, 2025 compared to December 31, 2024. Deposits increased primarily due to growth in interest-bearing demand accounts of $67.1 million, and an increase of $16.2 million in money market accounts, partially offset by decreases of $31.0 million in CDs, $2.7 million in noninterest-bearing demand accounts and $2.1 million in savings accounts. As of March 31, 2025, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 81.6% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits, and approximately 18.4% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit. The Company’s deposit base is diversified and granular and is comprised of approximately 78.8% of retail deposits. 
 FHLB borrowings decreased $15.0 million to $55.0 million at March 31, 2025 compared to $70.0 million at December 31, 2024. The Company had no outstanding federal funds purchased at March 31, 2025 and December 31, 2024. 
 Total capital of $401.8 million at March 31, 2025, reflects an increase of $17.5 million compared to $384.3 million at December 31, 2024. The increase in total capital from March 31, 2024 is primarily due to net income of $9.0 million for the three months ended March 31, 2025, other comprehensive income of $8.1 million for the three months ended March 31, 2025 due to positive changes in fair value of investment securities, and $0.4 million related to restricted stock activity all during the three months ended March 31, 2025. 
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 The Company remains well capitalized. The Tier 1 capital ratio was 11.01% at March 31, 2025 compared to 10.88% at December 31, 2024. The leverage ratio was 9.67% at March 31, 2025, compared to 9.56% at December 31, 2024 and the total risk-based capital ratio was 12.27% at March 31, 2025 compared to 12.13% at December 31, 2024. 
 The Bank also remained well capitalized as of March 31, 2025. The Bank’s Tier 1 capital ratio was 10.85% at March 31, 2025 compared to 10.72% at December 31, 2024. The Bank’s leverage ratio was 9.53% at March 31, 2025 compared to 9.42% at December 31, 2024. The Bank’s total risk-based capital ratio was 12.11% at March 31, 2025 compared to 11.98% at December 31, 2024. 
 
 Securities 
 The following table presents the composition of available-for-sale securities at the dates presented: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 $ Change 
 
 U.S. Government Agency Securities 24,624 26,950 (2,326) 
 Residential Mortgage-Backed Securities 98,473 96,153 2,320 
 Commercial Mortgage-Backed Securities 20,472 21,587 (1,115) 
 Other Commercial Mortgage-Backed Securities 29,760 21,970 7,790 
 Asset Backed Securities 112,917 118,521 (5,604) 
 Collateralized Mortgage Obligations 168,551 148,588 19,963 
 States and Political Subdivisions 226,820 221,181 5,639 
 Corporate Notes 63,773 63,450 323 
 Total $ 745,390 $ 718,400 $ 26,990 

 The Company invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the ALCO to diversify and reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security purchases are subject to our investment policy that is approved annually by our Board and administered through ALCO and our treasury function. 
 The securities portfolio increased $27.0 million to $745.4 million at March 31, 2025 compared to $718.4 million at December 31, 2024. Securities comprise 15.9% of total assets at March 31, 2025 compared to 15.4% at December 31, 2024. The increase is due to ongoing maturities, principal curtailments, purchases and sales of available-for-sale securities and changes in market values driven by fluctuations in intermediate treasury yields. During the three months ended March 31, 2025, there were new security purchases totaling $33.7 million, partially offset by normal paydowns and maturities. Liquidity generated by the securities portfolio was primarily deployed into higher yielding loans. As of March 31, 2025, the securities portfolio was comprised of 42.5% variable rate securities with approximately 85.5% that will reprice at least once over the next 12 months. 
 At March 31, 2025, total gross unrealized gains in the available-for-sale portfolio were $0.1 million offset by $72.1 million of gross unrealized losses. At December 31, 2024, total gross unrealized gains in the available-for-sale portfolio were $0.1 million, offset by $82.4 million of gross unrealized losses. 
 The unrealized losses on debt securities are believed to be temporary primarily because these unrealized losses are due to reductions in market value caused by upward movement in interest rates since the securities purchase (as applicable), and not related to the credit quality of these securities. Our portfolio consists of 45.3% of securities issued by United States government sponsored entities and carry an implicit government guarantee. States and political subdivisions comprise 30.4% of the portfolio and are largely general obligations or essential purpose revenue bonds, which have performed very well historically over all business cycles, and are rated AA and AAA. We have the ability to hold these securities to maturity and expect full recovery of the amortized cost. We may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative. 
 The Company’s investment securities with intermediate and long-term maturities were the largest driver of these gross unrealized losses, as the market values of these securities are significantly impacted by the Treasury yield curve for similar 
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 durations (i.e., 5- and 10-year Treasury securities). This portion of the Treasury yield curve has moved lower over the past three months, driving unrealized losses on outstanding securities lower. Changes in short-term interest rates can affect the yield on floating rate securities. Yields on floating rate securities will fall as the Federal Reserve Board (“FRB”) lowers short-term rates. Changes in intermediate and long-term interest rates, which are market driven, affect the market value of fixed rate securities with similar maturities. The Company expects that market values on the Bank’s intermediate and long-term maturity holdings will continue to fluctuate in large part driven by treasury yield changes. 
 At March 31, 2025 the 5-year and 10-year U.S. Treasury yields were 3.96% and 4.23%, respectively. At December 31, 2024, those same bond yields were 4.38% and 4.58%, respectively. Therefore, these decreases of 42 bps and 35 bps, respectively in the intermediate part of the yield curve largely caused the reduction in unrealized losses for the first quarter of 2025. The effects were generally greater for longer maturity bonds, such as municipal bonds. On the other hand, floating rate bonds largely held consistent values, as those interest rates adjust in line with Federal Reserve interest rate hikes. 
 Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through (recovery) provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes. At March 31, 2025 and December 31, 2024, the Company had no credit related impairment. 
 The Basel rules permit most banking organizations to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels. 
 
 Loan Composition 
 The following table summarizes our loan portfolio at the dates presented: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 
 Commercial 
 Commercial Real Estate $ 1,915,863 $ 1,869,831 
 Commercial and Industrial 234,024 230,483 
 Total Commercial Loans 2,149,887 2,100,314 
 Consumer 
 Residential Mortgages 801,253 777,471 
 Other Consumer 28,804 28,908 
 Total Consumer Loans 830,057 806,379 
 Construction 459,285 462,930 
 Other 248,266 255,203 
 Total Portfolio Loans 3,687,495 3,624,826 
 Loans Held-for-Sale — — 
 
 Total Loans $ 3,687,495 $ 3,624,826 

 Our loan portfolio represents our most significant source of interest income. The risk that borrowers are unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay. For a discussion of the risk factors relevant to our business and operations, please refer to Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2024 . 
 Total portfolio loans increased $62.7 million, or 7.0%, on an annualized basis, to $3.7 billion at March 31, 2025 compared to December 31, 2024 with production primarily in our CRE, Commercial and Industrial and residential mortgage loan portfolios. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations. At March 31, 2025, the loan portfolio was comprised of 25.0% floating rates which reprice monthly, 39.1%, variable rates that reprice at least once during the life of the loan and the remaining 35.9% are fixed rate loans. The Company continues to carefully monitor the loan portfolio during 2025, including in light of market conditions that impact our borrowers and the interest rate environment. 
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 Total CRE represented 52.0% of total portfolio loans at March 31, 2025 compared to 51.6% at December 31, 2024. The collateral for the Company’s CRE loans are geographically concentrated predominantly in North Carolina, Virginia, South Carolina, West Virginia and Georgia and within the retail/restaurant, warehouse, hospitality, multifamily, and office industries. 
 The following table presents the Company's CRE loan portfolio breakout by collateral type, loan amounts for each collateral type included in special mention and substandard and the related percentages by segment to the collateral types at the dates presented: 
 
 March 31, 2025 
 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgage Construction Other Total CRE Collateral Type in Special Mention and Substandard Risk Rating % of Each Segment to Total CRE Collateral Type 
 Retail/Restaurant $ 434,123 $ 120 $ — $ 58,990 $ 3,201 $ 496,434 $ 144 19.1 % 
 Warehouse 421,018 488 — 39,850 — 461,356 9,598 17.8 % 
 Hospitality 293,010 — — 17,466 51,552 362,028 51,552 14.0 % 
 Multifamily 286,210 — — 117,695 — 403,905 4,516 15.6 % 
 Office 218,809 — — 7,591 508 226,908 544 8.8 % 
 Land 690 — — 115,637 57,925 174,252 57,972 6.7 % 
 Single Family 25,837 — 56,015 22,543 13,367 117,762 13,441 4.5 % 
 Country Club 3,380 — — — 45,002 48,382 45,002 1.9 % 
 Long-term Care 36,992 — — 25,405 — 62,397 — 2.4 % 
 Other 197,540 382 188 39,354 711 238,175 5,140 9.2 % 
 Total $ 1,917,609 $ 990 $ 56,203 $ 444,531 $ 172,266 $ 2,591,599 $ 187,909 100.0 % 

 
 December 31, 2024 
 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgage Construction Other Total CRE Collateral Type in Special Mention and Substandard Risk Rating % of Each Segment to Total CRE Collateral Type 
 Retail/Restaurant $ 415,624 $ 122 $ — $ 55,093 $ — $ 470,839 $ 451 18.5 % 
 Warehouse 405,333 493 — 53,990 — 459,816 3,865 18.1 % 
 Hospitality 288,505 — — 14,647 51,552 354,704 51,552 13.9 % 
 Multifamily 286,203 — — 105,677 — 391,880 4,516 15.4 % 
 Office 221,445 — — 7,468 508 229,421 1,080 9.0 % 
 Land 771 — — 114,344 57,925 173,040 57,975 6.8 % 
 Single Family 25,630 — 50,334 37,622 13,367 126,953 13,445 5.0 % 
 Country Club 3,393 — — — 45,002 48,395 45,002 1.9 % 
 Long-term Care 30,474 — — 17,492 — 47,966 — 1.9 % 
 Other 197,655 389 — 36,964 7,628 242,636 12,159 9.5 % 
 Total $ 1,875,033 $ 1,004 $ 50,334 $ 443,297 $ 175,982 $ 2,545,650 $ 190,045 100.0 % 

 CRE loans represent a portfolio concentration risk. The majority of our CRE loans are made in the above noted geographies and granted to experienced developers and sponsors with loan guaranty structures that provide recourse to individuals with access to financial resources. We believe our knowledge of CRE and our operating knowledge at the local and regional level of these markets allows us to effectively manage concentration risk. Our operating knowledge at the local and regional level is derived from our front-line connection to the customer and our understanding of their business model. We also have access to research tools that inform us about market statistics such as occupancy, lease growth rates and new construction starts. This data is reviewed frequently by our credit officers and disseminated to our lenders. The Bank’s underwriting process includes multiple shock scenarios primarily focused on cash flow and leverage in order to determine a supportable loan amount. 
 We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry while actively managing concentrations. When concentrations exist in certain segments, we seek to mitigate this risk by 
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 reviewing the relevant economic indicators and internal risk rating trends of the loans in these segments. The Company established transaction, relationship and specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk-based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk-based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio and are based on management’s risk tolerance relative to capital. In addition, there are specific targets for various categories of real estate loans with respect to debt service coverage ratios, loan-to-value ratios, loan terms, and amortization periods. We also have policy limits on loan-to-cost for construction projects. Although leverage is important, the Company also focuses on cash flow generation and employs stress testing to calculate a supportable loan amount. 
 Aggregate commitments to our top 10 credit relationships were $688.8 million, or 18.7% of gross loans, at March 31, 2025, compared to $698.3 million, or 19.3% of gross loans, at December 31, 2024. The Other segment represents 35.6% of the top 10 credit relationships and the Company transferred its largest credit relationship with a balance of $245.1 million as of March 31, 2025 to nonaccrual during the second quarter of 2023, as described in more detail below under “Credit Quality” in this MD&A. 
 The following table summarizes our top 10 relationships and a description of industries represented at the dates presented: 
 
 For the Periods Ending 
 Dollars in Thousands March 31, 2025 December 31, 2024 Change March 31, 2025 % of Gross Loans March 31, 2025 % of RBC 
 1. Hospitality, Agriculture & Energy $ 245,064 $ 251,982 $ (6,918) 6.65 % 48.01 % 
 2. Multifamily 58,804 58,871 (67) 1.59 % 11.52 % 
 3. Health Care Facility / Long-Term Care 52,565 52,855 (290) 1.43 % 10.30 % 
 4. Multifamily 51,990 51,990 — 1.41 % 10.19 % 
 5. Retail & Office 51,516 52,913 (1,397) 1.40 % 10.09 % 
 6. Warehouse 49,228 49,661 (433) 1.34 % 9.64 % 
 7. Long-Term Care 46,199 46,199 — 1.25 % 9.05 % 
 8. Health Care Facility 44,779 44,779 — 1.21 % 8.77 % 
 9. Warehouse 44,349 44,577 (228) 1.20 % 8.69 % 
 10. Retail 44,334 44,511 (177) 1.20 % 8.69 % 
 Top Ten (10) Relationships 688,828 698,338 (9,510) 18.68 % 134.95 % 
 Total Gross Loans 3,687,495 3,624,826 62,669 
 % of Total Gross Loans 18.68 % 19.27 % (0.59) % 
 Concentration (25% of RBC) $ 127,611 $ 125,190 

 Unfunded commitments on lines of credit were $582.6 million at March 31, 2025 as compared to $620.8 million at December 31, 2024. The majority of unused commitments are for construction projects that will be drawn as the construction progresses toward completion. Total utilization was 55.8% at March 31, 2025 and 53.8% at December 31, 2024. Unfunded commitments on commercial operating lines of credit was 56.3% at March 31, 2025 and 53.8% at December 31, 2024. 
 Unsecured loans pose higher risk for the Company due to the lack of a well-defined secondary source of repayment. Commercial unsecured loans are reserved for the best quality customers with well-established businesses that operate with low financial and operating leverage. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. The Company significantly increased the standards for consumer unsecured lending by adjusting upward the required qualifying Fair Isaac Corporation (“FICO”) scores and restricting loan amounts at lower FICO scores. 
 Deferred costs and fees included in the portfolio balances above were $10.6 million and $8.8 million at March 31, 2025 and December 31, 2024, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $97.6 thousand and $104.1 thousand at March 31, 2025 and December 31, 2024, respectively. 
 Refer to Note 4, Loans, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our loans. 
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 Credit Quality 
 On a monthly basis, a Criticized Asset Committee meets to review certain watch, special mention and substandard risk rated loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to the Company. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral. 
 On a quarterly basis, the Credit Risk Committee of the Board meets to review our loan portfolio metrics, approve segment limits, approve the adequacy of ACL, and review the findings from Loan Review identified in the previous quarter. Annually, this same committee approves credit related policy changes and policy enhancements as they become available. 
 Additional credit risk management practices include continuous reviews of trends in our lending footprint and our lending policies and procedures to support sound underwriting practices, concentrations, delinquencies and annual portfolio stress testing. Our Loan Review department serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as determining the appropriateness of risk ratings for those loans reviewed and providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms. Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Loans past due 90 days are automatically transferred to nonaccrual status. Management reserves the right to exercise discretion at the individual loan level. For example, we may elect to transfer a loan to nonaccrual regardless of the delinquency status if we believe the collection in full of both principal and interest to be unlikely. 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. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell. 
 The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. 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. 
 Nonperforming assets consist of nonaccrual loans and OREO. The following table summarizes nonperforming assets at the dates presented: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 Change 
 Nonaccrual Loans 
 Commercial Real Estate $ 9,733 $ 1,176 $ 8,557 
 Commercial and Industrial 1,070 1,078 (8) 
 Residential Mortgages 5,326 4,865 461 
 Other Consumer 38 20 18 
 Construction 213 228 (15) 
 Other 245,064 251,982 (6,918) 
 Total Nonperforming Loans 261,444 259,349 2,095 
 Other Real Estate Owned 577 659 (82) 
 Total Nonperforming Assets $ 262,021 $ 260,008 $ 2,013 

 Nonperforming assets increased $2.0 million to $262.0 million at March 31, 2025 compared to December 31, 2024. The increase of $2.1 million in nonperforming loans was primarily related to the transfer of a $9.5 million CRE relationship, consisting of four loans, to NPL status, offset by $6.9 million of curtailment payments made by the Bank’s largest nonperforming credit relationship. 
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 During the second quarter of 2023, the Company placed $301.9 million of commercial loans that reside in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest credit relationship, on nonaccrual status due to loan maturities and failure to pay in full. These loans with a current outstanding principal balance of $245.1 million at March 31, 2025, remained on nonaccrual status at both March 31, 2025 and December 31, 2024. These nonperforming loans are 93.7% of the Company's total nonperforming loans and 93.5% of the Company's total nonperforming assets at March 31, 2025. 
 As discussed in more detail in the Company’s 2024 Annual Report on Form 10-K under “—Our Business and Strategy,” we have agreed upon a pathway of curtailment and payoff of the Bank’s credit relationship with various entities in which James C. Justice, II has an interest (collectively, the “Justice Entities”). During 2024 and the three months ended March 31, 2025, $56.8 million of curtailment payments made by the Justice Entities to the Bank decreased the aggregate nonperforming loan balance outstanding to the Bank from $301.9 million as of December 31, 2023 to $245.1 million as of March 31, 2025. The Company believes it is well secured based on the net carrying value of the credit relationship and it has appropriately reserved for expected credit losses with respect to all such loans based on information currently available. However, the Company cannot give any assurance as to the timing or amount of future payments or collections on such loans or that the Company will ultimately collect all amounts contractually due. 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. 
 Based on analyses of the credit relationship and various discounted cash flow valuation techniques utilized in the alternative modeling, which resulted in specific reserves with respect to these loans of $27.1 million at March 31, 2025, or 11.0%, of these loans aggregate principal amount as compared to $30.3 million or 12.0% of these loans aggregate principal amount at December 31, 2024. This decline was driven by the aforementioned curtailments, updated analysis of the credit relationship during the first quarter of 2025 using the discounted cash flow model with updated assumptions and inputs regarding the credit relationship, legal risk and related risks. 
 As the borrowers on these loans operate in the hospitality, agriculture, and energy sectors, this credit relationship is secured by, among other collateral, commercial real estate properties in these sectors including but not limited to top-tier hospitality properties. 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. 
 The following is an analysis of nonperforming loans by loan portfolio segment at the dates presented, and each segment’s relative contribution to total nonperforming loans: 
 
 March 31, 2025 December 31, 2024 
 (Dollars in Thousands) Amount % of NPLs Amount % of NPLs 
 Commercial Real Estate $ 9,733 3.7 % $ 1,176 0.4 % 
 Commercial and Industrial 1,070 0.4 % 1,078 0.4 % 
 Residential Mortgages 5,326 2.1 % 4,865 1.9 % 
 Other Consumer 38 — % 20 — % 
 Construction 213 0.1 % 228 0.1 % 
 Other 245,064 93.7 % 251,982 97.2 % 
 Balance End of Period $ 261,444 100.0 % $ 259,349 100.0 % 

 Closed retail bank offices had a book value of $0.6 million at March 31, 2025 and $0.7 million at December 31, 2024, and are recorded in OREO on the Consolidated Balance Sheets. During the three months ended March 31, 2025, the Bank had an additional write-down on one OREO property, which is currently being marketed for sale. 
 Past Company legacy underwriting standards relied heavily on loan to value and did not necessarily consider the income characteristics of the borrower or the repayment capacity of collateral with respect to speculative land financing. An overreliance on value as a primary repayment source can become compromised during real estate cycles. As a result, management has worked through these legacy credits and has installed a number of underwriting guardrails that consider the global cash flows and repayment capability of borrowers and/or guarantors, the proportion of speculation, transaction limits and introduced sensitivity analysis in order to determine supportable loan amounts. While these guardrails do not insulate the Company from credit cycles, management believes it should reduce the experience of defaults. 
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 Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments. Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including loans that are at risk for becoming delinquent and early stage delinquencies in order to identify emerging patterns and potential problem loans. 
 
 Allowance for Credit Losses 
 The following is the allocation of the ACL balance by segment at the dates presented: 
 
 March 31, 2025 December 31, 2024 
 (Dollars in Thousands) Amount % of Loans in each Category to Total Portfolio Loans Amount % of Loans in each Category to Total Portfolio Loans 
 Commercial Real Estate $ 20,144 52.0 % $ 20,146 51.6 % 
 Commercial & Industrial 2,675 6.3 % 2,791 6.4 % 
 Residential Mortgages 10,843 21.7 % 10,389 21.4 % 
 Other Consumer 693 0.8 % 682 0.8 % 
 Construction 12,049 12.5 % 11,297 12.8 % 
 Other 27,114 6.7 % 30,295 7.0 % 
 Balance End of Period $ 73,518 100.0 % $ 75,600 100.0 % 

 The ACL was $73.5 million, or 1.99%, of total portfolio loans at March 31, 2025 compared to $75.6 million, or 2.09%, of total portfolio loans at December 31, 2024. 
 The following table summarizes the credit quality ratios and their components at the dates presented: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 
 Allowance for Credit Losses to Total Portfolio Loans 
 Allowance for Credit Losses $ 73,518 $ 75,600 
 Total Portfolio Loans 3,687,495 3,624,826 
 Allowance for Credit Losses to Total Portfolio Loans 1.99 % 2.09 % 
 
 Nonperforming Loans to Total Portfolio Loans 
 Nonperforming Loans $ 261,444 $ 259,349 
 Total Portfolio Loans 3,687,495 3,624,826 
 Nonperforming Loans to Total Portfolio Loans 7.09 % 7.15 % 
 
 Allowance for Credit Losses to Nonperforming Loans 
 Allowance for Credit Losses $ 73,518 $ 75,600 
 Nonperforming Loans 261,444 259,349 
 Allowance for Credit Losses to Nonperforming Loans 28.12 % 29.15 % 
 
 Net Charge-offs to Average Portfolio Loans 
 Net Charge-offs (annualized) $ 230 $ 16,413 
 Average Total Portfolio Loans 3,660,484 3,560,297 
 Net Charge-offs to Average Portfolio Loans 0.01 % 0.46 % 

 The (recovery) provision for credit losses, which includes a (recovery) provision for losses on loans and a (recovery) provision on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date. The (recovery) provision for credit losses decreased $2.0 million for the three months ended March 31, 2025 compared to the same period in 2024. The decrease in the (recovery) provision for credit losses was primarily due to a decline in the Other segment reserve rate, specifically the Company’s largest credit relationship, from 12.01% to 11.05%, and $6.9 million of curtailment payments made by the Bank’s largest nonperforming credit relationship, offset by loan growth during the three months ended March 31, 2025. 
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 The (recovery) provision for unfunded commitments decreased $0.1 million for the three months ended March 31, 2025 compared to the same period in 2024. The decrease was due to decreased commitments in construction loans during the three months ended March 31, 2025. The reserve for unfunded commitments is largely comprised of unfunded commitments related to real estate construction loans and pressure on the reserve rates. There are three basic factors that influence the reserve rates associated with unfunded commitments for real estate construction loans. First, the reserve rate is extrapolated from the reserve rates calculated for certain commercial real estate funded loans within the ACL model. These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts, average portfolio life, etc. Refer to Note 1, Basis of Presentation, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the ACL Policy and the discussion of these factors. Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain CRE loans. The proportion of these segments affect the weighting. Third, volume changes impact the total reserve calculation. 
 Net charge-offs were $0.1 million and $0.5 million for the three months ended March 31, 2025 compared to the same period in 2024, respectively. As a percentage of average portfolio loans, net charge-offs were 0.01% and 0.06% for the three months ended March 31, 2025 compared to the same period in 2024, respectively. 
 At March 31, 2025 NPLs increased $2.1 million since December 31, 2024. NPLs as a percentage of total portfolio loans were 7.09% and 7.15% as of March 31, 2025 and December 31, 2024, respectively. 
 The following tables represent credit exposures by internally assigned risk ratings at the dates presented: 
 
 March 31, 2025 
 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total 
 Pass $ 1,901,558 $ 231,018 $ 795,836 $ 28,766 $ 454,595 $ 3,202 $ 3,414,975 
 Special Mention 56 1,936 91 — 4,477 — 6,560 
 Substandard 14,249 1,070 5,326 38 213 245,064 265,960 
 
 
 Total Portfolio Loans $ 1,915,863 $ 234,024 $ 801,253 $ 28,804 $ 459,285 $ 248,266 $ 3,687,495 
 
 Performing Loans $ 1,906,130 $ 232,954 $ 795,927 $ 28,766 $ 459,072 $ 3,202 $ 3,426,051 
 Nonaccrual Loans 9,733 1,070 5,326 38 213 245,064 261,444 
 Total Portfolio Loans $ 1,915,863 $ 234,024 $ 801,253 $ 28,804 $ 459,285 $ 248,266 $ 3,687,495 

 
 December 31, 2024 
 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total 
 Pass $ 1,860,313 $ 227,412 $ 772,514 $ 28,888 $ 458,223 $ 3,221 $ 3,350,571 
 Special Mention 2,460 — 92 — 4,479 — 7,031 
 Substandard 7,058 3,071 4,865 20 228 251,982 267,224 
 
 
 Total Portfolio Loans $ 1,869,831 $ 230,483 $ 777,471 $ 28,908 $ 462,930 $ 255,203 $ 3,624,826 
 
 Performing Loans $ 1,868,655 $ 229,405 $ 772,606 $ 28,888 $ 462,702 $ 3,221 $ 3,365,477 
 Nonaccrual Loans 1,176 1,078 4,865 20 228 251,982 259,349 
 Total Portfolio Loans $ 1,869,831 $ 230,483 $ 777,471 $ 28,908 $ 462,930 $ 255,203 $ 3,624,826 

 At March 31, 2025 and December 31, 2024, the Company had no loans that were risk rated as doubtful. Special mention and substandard loans at March 31, 2025 decreased compared to December 31, 2024, with a decrease of $1.3 million in substandard and a decrease of $0.5 million in special mention. The decrease of $1.3 million in substandard was primarily related to the previously mentioned $6.9 million curtailment payments received during the three months ended March 31, 2025 and a $1.4 million CRE relationship that paid off during the three months ended March 31, 2025, partially offset by a CRE relationship, consisting of four loans totaling $9.5 million that were downgraded during the three months ended March 31, 2025. At March 31, 2025 and December 31, 2024 substandard loans were impacted by the above mentioned large nonaccrual credit relationship in the Other loan category, which was placed on nonaccrual status during the second quarter of 2023. 
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 Refer to Note 5, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s ACL. 
 
 Deposits 
 The following table presents the composition of deposits at the dates presented: 
 
 (Dollars in Thousands) March 31,
2025 December 31,
2024 $ Change % Change 
 Noninterest-Bearing Demand $ 631,714 $ 634,436 $ (2,722) (0.43) % 
 Interest-Bearing Demand 794,059 726,947 67,112 9.23 % 
 Money Market 528,381 512,162 16,219 3.17 % 
 Savings 353,394 355,506 (2,112) (0.59) % 
 Certificate of Deposits 1,893,379 1,924,370 (30,991) (1.61) % 
 Total Deposits $ 4,200,927 $ 4,153,421 $ 47,506 1.14 % 

 Deposits are the Company’s primary source of funds. The Company believes that the deposit base is stable and that the Company has the ability to attract new depositors while diversifying the deposit composition. Total deposits at March 31, 2025, i ncreased $47.5 million , which included increases in interest-bearing demand deposits of $67.1 million and money market accounts of $16.2 million, offset by decreases in CDs of $31.0 million , $2.7 million in noninterest-bearing demand deposits and $2.1 million in savings accounts. The decreases in savings and noninterest-bearing demand deposits was primarily due customers preferences shifting to higher-yielding deposit products as short-term interest rates increased. 
 At March 31, 2025 , noninterest-bearing deposits comprised 15.0% of total deposits compared to 15.3% at December 31, 2024 . CDs comprised 45.1% and 46.3% of total deposits at March 31, 2025 and December 31, 2024 , respectively. As of March 31, 2025, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 81.6% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits, and approximately 18.4% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit. The Company’s deposit base is diversified and granular and is comprised of approximately 78.7% of retail deposits. 
 The following table presents additional information in relation to deposits at the dates presented: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 
 Deposits from the CDARS $ — $ — 
 Noninterest-Bearing Public Funds Deposits 27,140 55,385 
 Interest-Bearing Public Funds Deposits 126,315 125,342 
 Total Deposits not Covered by Deposit Insurance 1 
 773,365 762,937 
 Certificates of Deposits not Covered by Deposit Insurance 295,048 297,938 
 Deposits for Certain Directors, Executive Officers and their Affiliates 2,086 2,305 

 1 These deposits are presented on an estimated basis. This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements. 
 Maturities of CDs over $250,000 or more, excluding brokered deposits, not covered by deposit insurance at March 31, 2025 are summarized as follows: 
 
 (Dollars in Thousands) Amount Percent 
 Three Months or Less $ 134,898 45.7 % 
 Over Three Months Through Twelve Months 113,760 38.6 % 
 Over Twelve Months Through Three Years 44,096 14.9 % 
 Over Three Years 2,294 0.8 % 
 Total $ 295,048 100.0 % 

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 FHLB Borrowings and Federal Funds Purchased 
 Information pertaining to FHLB borrowings and federal funds purchased at the dates presented are summarized in the table below: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 
 Balance at Period End 
 Federal Home Loan Bank Borrowings $ 55,000 $ 70,000 
 Federal Funds Purchased — — 
 Average Balance during the Period 
 Federal Home Loan Bank Borrowings $ 69,833 $ 222,719 
 Federal Funds Purchased — — 
 Average Interest Rate during the Period 
 Federal Home Loan Bank Borrowings 4.08 % 5.11 % 
 Federal Funds Purchased — % — % 
 Maximum Month-end Balance during the Period 
 Federal Home Loan Bank Borrowings $ 70,000 $ 403,000 
 Federal Funds Purchased — — 
 Average Interest Rate at Period End 
 Federal Home Loan Bank Borrowings 3.99 % 4.02 % 
 Federal Funds Purchased — % — % 

 Borrowings are an additional source of liquidity for the Company. FHLB borrowings decreased $15.0 million to $55.0 million at March 31, 2025 from $70.0 million at December 31, 2024 primarily due to a maturity on one FHLB advance on March 27, 2025. The Company used liquidity provided by deposit growth to reduce outstanding short-term FHLB borrowings during the three months ended March 31, 2025. The Company had no overnight federal funds purchased at March 31, 2025 or at December 31, 2024. The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan growth, investment securities, deposit growth and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity. 
 The Company held FHLB of Atlanta stock of $5.9 million and $6.5 million at March 31, 2025 and December 31, 2024, respectively. The decrease in FHLB stock was due to a lower required level of stock holdings due to a lower level of FHLB borrowings. Dividends recorded on restricted stock were $0.1 million for the three months ended March 31, 2025 compared to $0.4 million for the same period in 2024. The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Atlanta. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. 
 Refer to Note 9, Federal Home Loan Bank Borrowings and Federal Funds Purchased, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s borrowings. 
 
 Liquidity and Capital Resources 
 Liquidity 
 Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk the Company’s Board has delegated authority to ALCO for formulation, implementation and oversight of liquidity risk management for the Company. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO closely monitors and manages liquidity by reviewing cash flow projections, performing 
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 balance sheet stress tests and by maintaining a detailed contingency funding plan that includes specific liquidity measures that are reviewed by the ALCO monthly. Our liquidity policy and contingency funding plan provide graduated risk tolerance levels for multiple liquidity measures and potential liquidity environments. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position. 
 The Company’s primary funding and liquidity source is a stable customer deposit base. Management believes that we have the ability to retain existing deposits and attract new deposits, mitigating any potential funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Company has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0% of the Company’s assets or approximating $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. The Company has unsecured facilities with three other correspondent financial institutions totaling $30.0 million, a fully secured facility with one other correspondent financial institution totaling $45.0 million, and access to the institutional CD market, and the brokered deposit market. The Company did not have outstanding borrowings on these fed funds lines as of March 31, 2025. In addition to the above funding resources, the Company also has $447.2 million of unpledged available-for-sale investment securities, at fair value, as an additional source of liquidity. Please refer to the Liquidity Sources table below for available funding with the FHLB and our secured and unsecured lines of credit with correspondent banks. As of March 31, 2025, approximately 81.6% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits, and approximately 18.4% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit. 
 The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity and will use other borrowing means or other liquidity and funding strategies sources to fund its liquidity needs as needed. The Company is also closely tracking the potential impacts on the Company’s liquidity of declines in the fair value of the Company’s securities portfolio due to fluctuations in interest rates and developments in the financial markets, and in light of developments in the banking industry that may change the availability of traditional sources of liquidity or market expectations with respect to available sources and amounts of additional liquidity. 
 An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets or assets that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. At March 31, 2025, the Bank had $493.7 million in highly liquid assets, which consisted of Federal Reserve Board Excess Reserves and interest-bearing deposits in other financial institutions of $46.5 million and $447.2 million in unpledged securities. This resulted in highly liquid assets to total assets ratio of 10.5% at March 31, 2025. Total available liquidity to uninsured deposits was 182.1% at March 31, 2025. 
 If an extended recession, or significant industry or market volatility, caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding. 
 The following table provides detail of liquidity sources at the dates presented: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 
 Cash and Due From Banks, including Interest-bearing Deposits $ 88,999 $ 131,171 
 
 
 Unpledged Investment Securities 447,178 418,350 
 Excess Pledged Securities 54,294 33,022 
 FHLB Borrowing Availability 743,209 735,294 
 Collateralized Lines of Credit 45,000 45,000 
 Unsecured Lines of Credit Availability 30,000 30,000 
 Total Liquidity Sources $ 1,408,680 $ 1,392,837 

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 The following table provides total liquidity sources and ratios at the dates presented: 
 
 (Dollars in Thousands) March 31, 2025 December 31, 2024 
 Total Liquidity Sources $ 1,408,680 $ 1,392,837 
 Highly Liquid Assets 1 to Total Assets 
 10.5 % 10.9 % 
 Highly Liquid Assets 1 to Uninsured Deposits 
 63.8 % 66.8 % 
 Total Available Liquidity to Uninsured Deposits 182.1 % 182.6 % 

 1 Highly liquid assets consist of $46.5 million in Federal Reserve Board excess reserves and interest-bearing deposits in other financial institutions and $447.2 million in unpledged securities. 
 Capital Resources 
 The Company reviews, on an ongoing basis, its and the Bank’s capital levels and opportunities to effectively deploy the Company’s capital or return capital to shareholders through stock repurchases or potential dividends. The following table summarizes the actual risk-based capital amounts and ratios for the Company and the Bank at the dates presented: 
 
 (Dollars in Thousands) Minimum Required
Basel III Well 
 Capitalized 1 
 March 31, 2025 December 31, 2024 
 Amount Ratio Amount Ratio 
 Carter Bankshares, Inc. 
 Leverage Ratio 4.00 % NA 458,139 9.67 % 448,834 9.56 % 
 Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % NA 458,139 11.01 % 448,834 10.88 % 
 Tier 1 Capital (to Risk-weighted Assets) 8.50 % NA 458,139 11.01 % 448,834 10.88 % 
 Total Capital (to Risk-weighted Assets) 10.50 % NA 510,442 12.27 % 500,759 12.13 % 
 
 Carter Bank & Trust 
 Leverage Ratio 4.00 % 5.00 % 450,713 9.53 % 441,916 9.42 % 
 Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % 6.50 % 450,713 10.85 % 441,916 10.72 % 
 Tier 1 Capital (to Risk-weighted Assets) 8.50 % 8.00 % 450,713 10.85 % 441,916 10.72 % 
 Total Capital (to Risk-weighted Assets) 10.50 % 10.00 % 502,932 12.11 % 493,760 11.98 % 

 1 To be “well capitalized” under the prompt corrective action framework applies to the Bank only. 
 Total capital of $401.8 million at March 31, 2025, reflects an increase of $17.5 million compared to December 31, 2024. The increase in total capital from December 31, 2024 is primarily due to net income of $9.0 million, an increase of $8.1 million in other comprehensive income due to positive changes in fair value of investment securities, as well as an increase of $0.4 million related to restricted stock activity all during the three months ended March 31, 2025. 
 The Company and the Bank are subject to various capital requirements administered by the federal banking regulators. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulations to ensure capital adequacy require us to maintain minimum amounts and ratios. 
 Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2025 and December 31, 2024, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category. 
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 At March 31, 2025, the Bank continues to maintain its capital position with a leverage ratio of 9.53% as compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 10.85% compared to the regulatory guideline of 6.50% to be well-capitalized. Our risk-based Tier 1 and Total Capital ratios were 10.85% and 12.11%, respectively, which places the Company above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00% and 10.00%, respectively. We believe that we have the ability to raise additional capital, if necessary. 
 The Basel rules permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels. 
 The Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum, but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank. 
 
 Contractual Obligations 
 As of March 31, 2025 , there have been no material changes outside the ordinary course of business to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 202 4 ( the “2024 Annual Report”). 
 
 Off-Balance Sheet Arrangements 
 As of March 31, 2025, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Off-Balance Sheet Arrangements" in the Company’s 2024 Annual Report. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Carter Bankshares, Inc. 10-Q

Item 2. Management’s Discussion and Analysis
