What changed in this filing

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Item 1. Financial Statements

2025-08-04 compared with 2025-05-08 · 1049 added, 173 removed, 943 unchanged (56% of the section changed)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in Thousands) 2025 2024

3 unchanged sentences

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

Transfer from Fixed Assets to Other Real Estate Owned 1,814 —

Right-of-use Asset Recorded in Exchange for Lease Liabilities 958 2,511

Stock Repurchase Excise Tax Settled in Subsequent Period ( 75 ) —

Stock Repurchases Settled in Subsequent Period ( 181 ) —

See accompanying notes to unaudited Consolidated Financial Statements.

26 unchanged sentences

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

ASU 2025-01 & 2024-03 – Income Statement — Reporting Comprehensive Income –Expense Disaggregation Disclosures (Subtopic 220-40)

In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” (“ASU 2024-03”).

The amendments in ASU 2024-03 improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to the financial statements at interim and annual reporting periods.

This information is generally not presented in the financial statements today.

In January 2025, the FASB issued ASU 2025-01, “Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40).” The amendment in this [Update][ASU] amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The adoption of this pronouncement is not expected to have a material impact on the Consolidated Financial Statements, but is expected to result in additional disclosures and potential changes to the line items on the Consolidated Statement of Income.

On May 23, 2025, Carter Bankshares, Inc.

the holding company for Carter Bank (“the Bank”) completed the acquisition of two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston-Salem, North Carolina from First Reliance Bankshares, Inc., the holding company for First Reliance Bank (the “Branch Purchase”).

The Branch Purchase included approximately $ 57 thousand in premises and equipment, $ 517 thousand in cash and other assets, as well as approximately $ 55.9 million in deposits.

The Branch Purchase did not include any loans.

This expansion is part of our strategy to expand our footprint in growth markets throughout North Carolina.

The following table summarizes the estimated fair value of the assets acquired, liabilities assumed and consideration transferred in connection with the acquisition (in thousands):

(Dollars in Thousands) June 30, 2025

Total Cash Received From Seller $ 53,077

Fair Value of Total Cash Received From Seller $ 53,077

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:

Cash and Cash Equivalents $ 496

Premises and Equipment 57

Core Deposit Intangible 1,101

Accrued Interest Receivable and Other Assets 21

Total Assets Acquired 1,675

Deposits 55,945

Total Liabilities Assumed 55,945

Net Identifiable Assets / (Liabilities) ( 54,270 )

Goodwill Recognized 1,193

Acquired Deposits

The fair values of core deposits, such as noninterest and interest-bearing transaction accounts, savings and money market accounts approximated their carrying value at the acquisition date.

For certificates of deposit, the fair values were estimated based on discounted cash flows, using interest rates that were being offered at the time of acquisition compared to the contractual interest rates.

Core Deposit Intangible

The Company believes that the customer relationships with the deposits acquired have an intangible value.

In connection with the acquisition, the Company recorded a core deposit intangible asset of $ 1.1 million.

The core deposit intangible asset

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

represents the value that the Bank’s core deposits had with their deposit customers.

The fair value was estimated based on a discounted cash flow methodology based on assumptions that considered the type of deposit, deposit retention and the cost of the deposit base.

The core deposit intangible is being amortized over 10 years on an accelerated basis.

Goodwill is the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed and is the result of the expected operation synergies and other factors.

Goodwill of $ 1.2 million has been recorded.

The Bank will monitor valuation inputs for up to one year after the acquisition date according to GAAP.

Adjustments will be made to provisional amounts if new information becomes available about facts and circumstances that existed as of the acquisition date.

Merger Related Costs

During the six months ended June 30, 2025, the Company incurred $ 386 thousand of merger-related costs in connection with the Branch Purchase, primarily for professional fees.

These expenses are recorded in professional and legal fees on the Consolidated Income Statement.

NOTE 2 – EARNINGS PER COMMON SHARE

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

Three Months Ended March 31,

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

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

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

March 31, 2025

June 30, 2025

(Dollars in Thousands) Amortized

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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.

The Company did no t have securities classified as held-to-maturity at June 30, 2025 or December 31, 2024.

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

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

(Dollars in Thousands) 2025 2024 2025 2024

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

Gross Realized Gains $ — $ 36 $ — $ 36

Gross Realized Losses — — — —

Net Realized Gains $ — $ 36 $ — $ 36

Tax Impact $ — $ 8 $ — $ 8

For the three and six months ended June 30, 2025, 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 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 net realized gains reflect reclassification adjustments in the calculation of Other Comprehensive Income.

The net realized gains 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.

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

March 31, 2025

June 30, 2025

(Dollars in Thousands) Amortized

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Total $ 821,906 $ 755,212

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.

At June 30, 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 $ 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

The carrying value of securities pledged for various regulatory and legal requirements was $ 316.4 million at June 30, 2025 and $ 300.1 million at December 31, 2024.

Available-for-sale securities with unrealized losses at June 30, 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:

June 30, 2025

Less Than 12 Months 12 Months or More Total

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

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 did no t record an allowance for credit losses, (“ACL”), on its investment securities during the three or six months ended June 30, 2025 or the year ended 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 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.

As of June 30, 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.

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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 (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.

During the three and six months ended June 30, 2025 and June 30, 2024, the Company had no credit related net investment impairment losses.

Equity Securities

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

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.

During the three and six months ended June 30, 2025, the Company recognized an unrealized fair value gain of $ 22 thousand and $ 159 thousand on these equity securities.

During the three and six months ended June 30, 2024 the Company purchased $ 5.0 million of equity securities with a carrying value totaling $ 5.1 million and recognized an unrealized fair value gain of

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 4 – LOANS

$ 63.3 thousand on these equity securities.

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

NOTE 4 – LOANS AND LOANS HELD-FOR-SALE

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

(Dollars in Thousands) June 30, 2025 December 31, 2024

Commercial Real Estate $ 2,000,766 $ 1,869,831

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Loan Restructurings

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

The following table shows the amortized cost basis as of June 30, 2025 and June 30, 2024 for the loans restructured during the three and six months ended June 30, 2025 and June 30, 2024 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

Restructured Loans

Three Months Ended June 30, 2025 Six Months Ended June 30, 2025

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

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Total Restructured Loans 6 $ 77,513 2.07 % 12 $ 241,062 6.43 %

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

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Restructured Loans

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

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

Accruing Restructured Loans

Commercial Real Estate — $ — — % — $ — — %

Commercial and Industrial — — — % — — — %

Residential Mortgages — — — % — — — %

Other Consumer — — — % — — — %

Construction — — — % — — — %

Other — — — % — — — %

Total Accruing Restructured Loans — $ — — % — $ — — %

Nonaccrual Restructured Loans

Commercial Real Estate 1 $ 449 0.02 % 1 $ 449 0.02 %

Commercial and Industrial — — — % — — — %

Residential Mortgages — — — % — — — %

Other Consumer — — — % — — — %

Construction — — — % — — — %

Other 11 294,140 98.90 % 11 294,140 98.90 %

Total Nonaccrual Restructured Loans 12 $ 294,589 98.75 % 12 $ 294,589 98.75 %

Total Restructured Loans 12 $ 294,589 98.75 % 12 $ 294,589 98.75 %

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

The following table shows the performance of loans that have been modified during the six months ended June 30, 2025 and 2024:

As of June 30, 2025 As of June 30, 2024

Payment Status (Amortized Cost Basis) Payment Status (Amortized Cost Basis)

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

Accruing Restructured Loans

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Construction — 4,516 — — — —

Other — — — — — —

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

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Total Restructured Loans $ 236,546 $ 4,516 $ — $ — $ — $ 294,589

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

Three Months Ended June 30, 2025

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

Commercial Real Estate $ — $ — $ — $ — $ — — %

Commercial and Industrial — — — 1,004 1,004 0.45 %

Residential Mortgages — — — — — — %

Other Consumer — — — — — — %

Construction — — — — — — %

Other — — — 76,509 76,509 32.05 %

Total $ — $ — $ — $ 77,513 $ 77,513 2.07 %

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

Six Months Ended June 30, 2025

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

Commercial Real Estate $ — $ — $ — $ — $ — — %

Commercial and Industrial — — — 1,004 1,004 0.45 %

Residential Mortgages — — — — — — %

Other Consumer — — — — — — %

Construction 4,516 — — — 4,516 1.02 %

Other — — — 235,542 235,542 98.67 %

Total $ 4,516 $ — $ — $ 236,546 $ 241,062 6.43 %

Three and Six Months Ended June 30, 2024

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

Commercial Real Estate $ 449 $ — $ 449 0.02 %

Commercial and Industrial — — — — %

Residential Mortgages — — — — %

Other Consumer — — — — %

Construction — — — — %

Other — 294,140 294,140 98.90 %

Total $ 449 $ 294,140 $ 294,589 98.75 %

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

Three Months Ended June 30, 2025

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

Commercial Real Estate 0.32 years —

Commercial and Industrial — 0.07 years

Other — 0.24 years

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 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.

Six Months Ended June 30, 2025

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

Commercial and Industrial — 0.07 years

Residential Mortgages — —

Other Consumer — 0

Construction 0.32 years 0

Other — 0.86 years

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Three and Six Months Ended June 30, 2024

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

Commercial Real Estate 4.93 years — %

Other 2.57 years 0.63 %

Commitments to lend additional funds on one restructured loan as of June 30, 2025 totaled $ 4.8 million.

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

As of June 30, 2025 and June 30, 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 June 30, 2025 and December 31, 2024, the Company had $ 2.0 million and $ 0.4 million, respectively, of residential real estate in the process of foreclosure.

We also had no residential real estate included in other real estate owned (“OREO”) at June 30, 2025 or at December 31, 2024, respectively.

NOTE 5 - ALLOWANCE FOR CREDIT LOSSES

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These loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Company.

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

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

The primary repayment sources 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 impact 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.

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The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Construction loans include both commercial and consumer.

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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 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.

The ACL reserve for the Other segment is based on 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.

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

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

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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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.

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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,:

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of June 30:

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

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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.

The Bank’s largest credit relationship was nonperforming and rated as substandard at June 30, 2025 and December 31, 2024 with an aggregate principal balance of $ 235.5 million and $ 252.0 million at June 30, 2025 and December 31, 2024, respectively.

CARTER BANKSHARES, INC.

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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,:

The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of June 30:

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

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

March 31, 2025

June 30, 2025

(Dollars in Thousands) Current Loans Loans 30-59

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

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.

Loans past due 90 days or more and still accruing are automatically transferred to nonaccrual status and were zero at June 30, 2025 and December 31, 2024, respectively.

There were no nonaccrual or past due loans related to loans held-for-sale as of June 30, 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

June 30, 2025 December 31, 2024

(Dollars in Thousands)

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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.

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 six months ended June 30, 2025 and June 30, 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

June 30, 2025

Collateral Type Warehouse Equipment Single Family Discounted Cash Flow Total

(Dollars in Thousands) Fair Value - Collateral

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

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

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

1 unchanged sentence

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

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

Provision (Recovery) for Credit Losses on Loans 579 45 298 144 ( 285 ) ( 3,111 ) ( 2,330 )

Charge-offs — — — ( 288 ) — — ( 288 )

Recoveries — 2 2 119 — — 123

Net Recoveries / (Charge-offs) — 2 2 ( 169 ) — — ( 165 )

Balance, End of Period $ 20,723 $ 2,722 $ 11,143 $ 668 $ 11,764 $ 24,003 $ 71,023

Six Months Ended June 30, 2025

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

Allowance for Credit Losses on Loans:

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

Provision (Recovery) for Credit Losses on Loans 577 ( 67 ) 744 216 467 ( 6,292 ) ( 4,355 )

Charge-offs — ( 7 ) — ( 459 ) ( 1 ) — ( 467 )

Recoveries — 5 10 229 1 — 245

Net (Charge-offs) / Recoveries — ( 2 ) 10 ( 230 ) — — ( 222 )

Balance, End of Period $ 20,723 $ 2,722 $ 11,143 $ 668 $ 11,764 $ 24,003 $ 71,023

Three Months Ended March 31, 2024

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Three Months Ended June 30, 2024

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

1 unchanged sentence

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

Provision (Recovery) for Credit Losses on Loans 655 133 ( 312 ) 336 1,078 ( 1,399 ) 491

Charge-offs — ( 1 ) ( 4 ) ( 488 ) — — ( 493 )

Recoveries — 1 22 129 — — 152

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

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

Six Months Ended June 30, 2024

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

Allowance for Credit Losses on Loans:

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

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

3 unchanged sentences

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 6 - FAIR VALUE MEASUREMENTS

13 unchanged sentences

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

6 unchanged sentences

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

For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

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

4 unchanged sentences

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

CARTER BANKSHARES, INC.

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

As of June 30, 2025, Level 1 fair values are available for each of the Company’s equity securities.

Derivative Financial Instruments and Hedging Activities:

13 unchanged sentences

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.

This was the case whether or not economic mismatches existed 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.

As of June 30, 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).

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

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

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

15 to 90 days.

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

12 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

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.

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.

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

6 unchanged sentences

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

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.

At June 30, 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

June 30, 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)

14 unchanged sentences

Total $ 11,822 $ — $ 11,822 $ —

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2024

16 unchanged sentences

Total $ 17,710 $ — $ 17,710 $ —

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

We have invested in subordinated debt of other financial institutions.

We have two securities totaling $ 7.7 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.

We have two securities totaling $ 7.9 million that are considered to be Level 3 securities at June 30, 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.

1 unchanged sentence

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

March 31, 2025

June 30, 2025

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

5 unchanged sentences

Individually Evaluated Loans $ — $ — $ 579 $ 579

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 Company had one C&I individually evaluated loan totaling $ 0.5 million and $ 0.6 million measured at fair value on a nonrecurring basis as of June 30, 2025 and at December 31, 2024, respectively.

The Company’s largest credit relationship is classified as an individually evaluated loan with a net carrying amount totaling $ 211.5 million at June 30, 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 $ 24.0 million at June 30, 2025 and $ 30.3 million at December 31, 2024.

When evaluating the net carrying value of this credit relationship at June 30, 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 $ 1.7 million as of June 30, 2025, compared with $ 0.7 million at December 31, 2024.

This increase was primarily due to three closed branches being transferred to OREO, partially offset by the sale of one of these closed branches during the second quarter of 2025.

The Company had $ 0.4 million and $ 0.5 million write-downs recorded on OREO for the three and six months ended June 30, 2025 and had zero write-downs recorded on OREO for the three and six months ended June 30, 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

June 30, 2025

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

4 unchanged sentences

Total OREO $ 1,657

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

December 31, 2024

8 unchanged sentences

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

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.”

The carrying values and estimated fair values of our financial instruments at June 30, 2025 and December 31, 2024 are presented in the following tables.

Fair values for June 30, 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.

3 unchanged sentences

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

Fair Value Measurements at March 31, 2025

Fair Value Measurements at June 30, 2025

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

3 unchanged sentences

Equity Securities 10,200 10,200 — — 10,200

Loans Held-for-Sale 246 — — 246 246

Portfolio Loans, net 3,676,098 — — 3,500,433 3,500,433

7 unchanged sentences

Accrued Interest Payable 6,675 — 3 6,672 6,675

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Fair Value Measurements at December 31, 2024

13 unchanged sentences

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

17 unchanged sentences

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

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

The fair value of the 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 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.

2 unchanged sentences

Derivatives contain an element of credit risk, the possibility that the Company will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations.

All derivative contracts with financial institutions may be executed only with counterparties approved by the Asset and Liability Committee (“ALCO”) and all derivatives with customers are approved by a team of members from senior management who have been trained to understand the risk associated with interest rate swaps and have past industry experience.

Interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

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

All derivative contracts with financial

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

institutions may be executed only with counterparties approved by the Asset and Liability Committee (“ALCO”) and all derivatives with customers are approved by a team of members from senior management who have been trained to understand the risk associated with interest rate swaps and have past industry experience.

Interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

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

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

1 unchanged sentence

Asset Derivatives (Included in Other Assets)

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

(Dollars in Thousands) Number of

9 unchanged sentences

Liability Derivatives (Included in Other Liabilities)

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

(Dollars in Thousands) Number of

11 unchanged sentences

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,

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

(Dollars in Thousands) 2025 2024 2025 2024

8 unchanged sentences

Net Derivative (Loss) Income $ ( 52 ) $ 2 $ ( 236 ) $ 16

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.

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

Asset Derivatives Liability Derivatives

(Included in Other Assets) (Included in Other Liabilities)

(Dollars in Thousands) June 30, 2025 December 31, 2024 June 30, 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) March 31, 2025 December 31, 2024

(Dollars in Thousands) June 30, 2025 December 31, 2024

Noninterest-Bearing Demand $ 635,192 $ 634,436

5 unchanged sentences

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 deposits that exceed the FDIC Insurance limit of $250,000 at June 30, 2025 and December 31, 2024 were $ 300.2 million and $ 297.9 million, respectively.

At June 30, 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, respectively, 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) March 31, 2025

(Dollars in Thousands) June 30, 2025

3 Months or Less $ 609,411

3 unchanged sentences

Total $ 1,893,611

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

Overdrafts reclassified to loans were $ 0.3 million at June 30, 2025 and December 31, 2024, respectively.

CARTER BANKSHARES, INC.

3 unchanged sentences

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

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.

The Company had $ 113.5 million of Federal Home Loan Bank (“FHLB”) borrowings at June 30, 2025 and $ 70.0 million at December 31, 2024.

The increase of $ 43.5 million is due to additional FHLB borrowings to fund loan growth.

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.

Variable rate FHLB borrowings were 60.4 % and 0.0 % of total borrowings at June 30, 2025 or December 31, 2024, respectively.

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

Total loans pledged as collateral were $ 1.6 billion at 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.

Total loans pledged as collateral were $ 1.6 billion at both June 30, 2025 and December 31, 2024.

There were no securities available-for-sale pledged as collateral at June 30, 2025 or December 31, 2024.

At June 30, 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 $ 732.0 million.

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

At June 30, 2025 and at December 31, 2024, the Company had $ 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 facilities as of June 30, 2025 or December 31, 2024.

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

(Dollars in Thousands) June 30, 2025 December 31, 2024

FHLB Borrowings $ 113,500 $ 70,000

2 unchanged sentences

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

(Dollars in Thousands) June 30, 2025 December 31, 2024

Federal Funds Purchased $ — $ —

1 unchanged sentence

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 March 31, 2025 and thereafter are as follows:

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to June 30, 2025 and thereafter are as follows:

(Dollars in Thousands) Balance Weighted Average Rate

6 unchanged sentences

Total FHLB Borrowings $ 113,500 4.33 %

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Commitments to extend credit, which amounted to $ 729.7 million at June 30, 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

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 10 – COMMITMENTS AND CONTINGENCIES

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 $ 435.6 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.

finance their working capital needs.

Lines of credit for construction projects represented $ 394.2 million, or 54.0 %, and $ 445.3 million, or 53.4 %, of the commitments to extend credit at June 30, 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 $ 16.8 million at March 31, 2025 and $ 16.7 million at December 31, 2024.

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

The Company had outstanding letters of credit totaling $ 15.3 million at June 30, 2025 and $ 16.7 million at December 31, 2024.

(Dollars in Thousands) June 30, 2025 December 31, 2024

Commitments to Extend Credit $ 729,681 $ 833,594

7 unchanged sentences

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:

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

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

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

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

(Dollars in Thousands) 2025 2024 2025 2024

Life-of-Loss Reserve on Unfunded Loan Commitments

3 unchanged sentences

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.

Recoveries of $ 335 thousand and $ 449 thousand were recorded for the three and six months ended June 30, 2025, respectively, for unfunded commitments, which were decreases of $ 99 thousand and $ 170 thousand, respectively, compared to the same periods in 2024.

Legal Proceedings

6 unchanged sentences

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

Three Months Ended June 30, 2025 Six Months Ended June 30, 2025

(Dollars in Thousands) Pre-Tax

Amount Tax Expense Net of Tax

Three Months Ended March 31, 2025

Amount Pre-Tax

Amount Tax Expense Net of Tax

Net Unrealized Gains Arising during the Period $ 5,264 $ ( 1,141 ) $ 4,123 $ 15,647 $ ( 3,376 ) $ 12,271

Other Comprehensive Income $ 5,264 $ ( 1,141 ) $ 4,123 $ 15,647 $ ( 3,376 ) $ 12,271

Three Months Ended March 31, 2024

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

(Dollars in Thousands) Pre-Tax

Amount Tax (Expense) Benefit Net of Tax

Amount Pre-Tax

Amount Tax (Expense) Benefit Net of Tax

Net Unrealized Gains Arising during the Period $ 250 $ ( 59 ) $ 191 $ 2,369 $ ( 535 ) $ 1,834

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

Other Comprehensive Income $ 214 $ ( 51 ) $ 163 $ 2,333 $ ( 527 ) $ 1,806

1 unchanged sentence

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

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

2025 2024 2025 2024

(Dollars in Thousands) Amount Percent Amount Percent Amount Percent Amount Percent

Federal Income Tax at Statutory Rate $ 2,232 21.0 $ 1,244 21.0 $ 4,571 21.0 $ 2,763 21.0

10 unchanged sentences

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.

During the six months ended June 30, 2025, tax-exempt bank owned life insurance income increased primarily due to a $ 1.9 million tax-free bank owned life insurance (“BOLI”) death benefit recorded in the first quarter of 2025.

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.

As of June 30, 2025 and December 31, 2024, the Company recognized $ 0.8 million and $ 1.1 million, respectively, in HTC equity investments recorded as a component of other assets on the Consolidated Balance Sheets.

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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

As of June 30, 2025 and June 30, 2024, the Company has not recognized any non-income-tax-related activity from its HTC investments.

On July 4, 2025, the President signed H.R.

1, the “One Big Beautiful Bill Act,” into law.

The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense.

The Company is current evaluating the impact on future periods.

NOTE 13 – STOCK REPURCHASE PLAN

On May 20, 2025, the Company announced that its Board authorized a repurchase program to purchase up to $ 20.0 million of the Company’s common stock in the aggregate through May 14, 2026.

The program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended.

The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion.

The actual means and timing of any shares purchased under the program, and the number of shares actually purchased under the program, will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements.

The repurchase program may be modified or terminated by the Board at any time.

The repurchase program does not obligate the Company to purchase any particular number of shares.

During the six months ended June 30, 2025, the Company repurchased 547,332 shares of its common stock at a total cost of $ 9.1 million and an weighted average cost per share of $ 16.70 .

NOTE 14 - SEGMENT REPORTING

11 unchanged sentences

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

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 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 and six month periods ended June 30, 2025 and June 30, 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.

14 unchanged sentences

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, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality and nonaccrual and nonperforming loans.

Forward-looking statements may include statements relating to our financial condition, market conditions, results of operations, plans, including our strategic plan, brand strategy, and guiding principles and the anticipated results of the foregoing, 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.

15 unchanged sentences

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

• 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;

• concentrations of loans secured by real estate, particularly CRE loans, 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 ongoing war between Russia and Ukraine) or public health events 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 geopolitical conflicts 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;

24 unchanged sentences

We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events are expressed in or implied by a forward-looking statement may, and often do, differ materially from actual results.

Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update, revise or clarify any forward-looking statement to reflect developments occurring after the statement is made.

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 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.

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 contains or 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 the Company’s underlying business, operational performance and performance trends as these measures facilitate 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 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 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.

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

Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.

Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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 June 30, 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 $4.8 billion at June 30, 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 64 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”.

At the close of business on May 23, 2025, the Company completed the acquisition of two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston-Salem, North Carolina, from First Reliance Bank (the “Branch Purchase”).

In the Branch Purchase, the Bank acquired $55.9 million of deposits, as well as cash, personal property and other fixed assets related to the branch locations purchased, and welcomed 10 new associates to its team.

The Branch Purchase did not include any loans.

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 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 was 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 the Bank 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 its 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’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 $235.5 million as of June 30, 2025.

Since placement of these loans, now reduced to judgements, on nonaccrual status during the second quarter of

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

2023, interest income has been negatively impacted by $6.7 million and $9.1 million during the three months ended June 30, 2025 and 2024, respectively, and by $13.5 million and $18.4 million during the six months ended June 30, 2025 and 2024, respectively, or by $78.6 million in the aggregate.

Results of Operations and Financial Condition

Earnings Summary

Highlights for the Three Months Ended June 30, 2025

• Net interest income increased $4.3 million, or 15.2%, to $32.4 million for the three months ended June 30, 2025 compared to $28.1 million for the same period in 2024;

• The (recovery) provision for credit losses was a recovery of $2.3 million for the three months ended June 30, 2025, compared to a provision for credit losses of $0.5 million during the same period in 2024;

• Total noninterest income decreased $0.6 million to $4.9 million for the three months ended June 30, 2025 compared to the same period in 2024;

• Total noninterest expense increased $1.9 million to $29.3 million for the three months ended June 30, 2025 compared to the same period in 2024;

• Provision for income taxes increased $1.0 million to $2.1 million for the three months ended June 30, 2025 compared to the same period in 2024.

Highlights for the Six Months Ended June 30, 2025

◦ Net interest income increased $6.0 million, or 10.6%, to $62.5 million for the six months ended June 30, 2025 compared to $56.5 million for the same period in 2024;

◦ The (recovery) provision for credit losses was a recovery of $4.4 million for the six months ended June 30, 2025, compared to a provision for credit losses of $0.5 million for the the same period in 2024;

◦ Total noninterest income increased $1.2 million to $11.8 million for the six months ended June 30, 2025 compared to the same period in 2024;

◦ Total noninterest expense increased $3.6 million to $57.3 million for the six months ended June 30, 2025 compared to the same period in 2024;

◦ Provision for income taxes increased $1.8 million to $4.3 million for the six months ended June 30, 2025 compared to the same period in 2024.

Balance Sheet Highlights (period-end balances, June 30, 2025 compared to December 31, 2024 )

• The available-for-sale securities portfolio increased $36.8 million and is currently 15.8% of total assets compared to 15.4% of total assets;

• Total portfolio loans increased $122.3 million, or 6.8%, on an annualized basis, due to loan growth during the six months ended June 30, 2025;

• The portfolio loans to deposit ratio was 88.7%, compared to 87.3%;

• At June 30, 2025, nonperforming loans decreased by $8.8 million to $250.6 million compared to December 31, 2024.

Nonperforming loans as a percentage of total portfolio loans were 6.69% compared to 7.15%.;

• The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 1.90% compared to 2.09%.

The ACL on portfolio loans totaled $71.0 million at June 30, 2025, compared to $75.6 million at December 31, 2024;

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

• Total deposits increased $68.8 million, or 3.3%, on an annualized basis, to $4.2 billion at June 30, 2025, compared to December 31, 2024;

• FHLB borrowings increased $43.5 million to $113.5 million at June 30, 2025 compared to $70.0 million at December 31, 2024.

The Company reported net income of $8.5 million , or $0.37 diluted earnings per share, and $17.5 million , or $0.76 diluted earnings per share for the three and six months ended June 30, 2025, respectively, compared to net income of $4.8 million , or $0.21 diluted earnings per share, and $10.6 million , or $0.46 diluted earnings per share, for the three and six months ended June 30, 2024, respectively .

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

PERFORMANCE RATIOS 2025 2024 2025 2024

Return on Average Assets 0.72 % 0.43 % 0.75 % 0.47 %

Return on Average Shareholders' Equity 8.45 % 5.40 % 8.85 % 5.99 %

Portfolio Loans to Deposit Ratio 88.75 % 91.45 % 88.75 % 91.45 %

Allowance for Credit Losses to Total Portfolio Loans 1.90 % 2.72 % 1.90 % 2.72 %

Nonperforming Loans to Total Portfolio Loans 6.69 % 8.46 % 6.69 % 8.46 %

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 balances of interest-earning assets and 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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 June 30, Six Months Ended June 30,

2025 2024 2025 2024

Interest and Dividend Income (GAAP) $ 57,747 $ 54,583 $ 113,754 $ 108,632

Tax Equivalent Adjustment 171 197 349 403

Interest and Dividend Income (FTE) (Non-GAAP) $ 57,918 $ 54,780 $ 114,103 $ 109,035

Average Earning Assets 4,634,635 4,437,077 4,594,591 4,433,049

Yield on Interest-earning Assets (GAAP) 5.00 % 4.95 % 4.99 % 4.93 %

Yield on Interest-earning Assets (FTE) (Non-GAAP) 5.01 % 4.97 % 5.01 % 4.95 %

Net Interest Income (GAAP) $ 32,359 $ 28,092 $ 62,497 $ 56,511

Tax Equivalent Adjustment 171 197 349 403

Net Interest Income (FTE) (Non-GAAP) $ 32,530 $ 28,289 $ 62,846 $ 56,914

Average Earning Assets 4,634,635 4,437,077 4,594,591 4,433,049

Net Interest Margin (GAAP) 2.80 % 2.55 % 2.74 % 2.56 %

Net Interest Margin (FTE) (Non-GAAP) 2.82 % 2.56 % 2.76 % 2.58 %

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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 June 30, 2025 Three Months Ended June 30, 2024

Balance Income/

Expense Yield/Rate Average

Balance Income/

Expense Yield/Rate

Interest-Bearing Deposits with Banks $ 58,006 $ 643 4.45 % $ 31,083 $ 420 5.43 %

Tax-Free Investment Securities 2

11,622 85 2.93 % 11,779 86 2.94 %

Taxable Investment Securities 818,588 6,796 3.33 % 841,787 7,721 3.69 %

Total Securities 830,210 6,881 3.32 % 853,566 7,807 3.68 %

Tax-Free Loans 1, 2

89,362 732 3.29 % 105,487 854 3.26 %

Taxable Loans 1

3,648,629 49,522 5.44 % 3,430,330 45,395 5.32 %

Total Loans 3,737,991 50,254 5.39 % 3,535,817 46,249 5.26 %

Federal Home Loan Bank Stock 8,428 140 6.66 % 16,611 304 7.36 %

Total Interest-Earning Assets 4,634,635 $ 57,918 5.01 % 4,437,077 $ 54,780 4.97 %

Noninterest Earning Assets 126,303 91,648

Total Assets $ 4,760,938 $ 4,528,725

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-Bearing Demand $ 805,749 $ 3,661 1.82 % $ 532,700 $ 1,689 1.28 %

Money Market 536,366 3,510 2.62 % 510,828 3,926 3.09 %

Savings 347,863 129 0.15 % 411,457 145 0.14 %

Certificates of Deposit 1,885,486 16,759 3.57 % 1,731,358 16,963 3.94 %

Total Interest-Bearing Deposits 3,575,464 24,059 2.70 % 3,186,343 22,723 2.87 %

FHLB Borrowings 108,753 1,186 4.37 % 283,154 3,675 5.22 %

Federal Funds Purchased — — — % — — — %

Other Borrowings 10,713 143 5.35 % 8,460 93 4.42 %

Total Borrowings 119,466 1,329 4.46 % 291,614 3,768 5.20 %

Total Interest-Bearing Liabilities 3,694,930 25,388 2.76 % 3,477,957 26,491 3.06 %

Noninterest-Bearing Liabilities 662,168 693,336

Shareholders' Equity 403,840 357,432

Total Liabilities and Shareholders' Equity $ 4,760,938 $ 4,528,725

Net Interest Income 2

$ 32,530 $ 28,289

Net Interest Margin 2

2.82 % 2.56 %

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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

(Dollars in Thousands) Six Months Ended June 30, 2025 Six Months Ended June 30, 2024

Balance Income/

Expense Rate Average

Balance Income/

Interest-Bearing Deposits with Banks $ 62,670 $ 1,391 4.48 % $ 27,606 $ 755 5.50 %

Tax-Free Investment Securities 2

11,642 169 2.93 % 11,799 171 2.91 %

Taxable Investment Securities 813,269 13,451 3.34 % 847,664 15,464 3.67 %

Total Securities 824,911 13,620 3.33 % 859,463 15,635 3.66 %

Tax-Free Loans 1, 2

91,410 1,493 3.29 % 108,479 1,751 3.25 %

Taxable Loans 1

3,608,131 97,347 5.44 % 3,418,994 90,212 5.31 %

Total Loans 3,699,541 98,840 5.39 % 3,527,473 91,963 5.24 %

Federal Home Loan Bank Stock 7,469 252 6.80 % 18,507 682 7.41 %

Total Interest-Earning Assets 4,594,591 $ 114,103 5.01 % 4,433,049 $ 109,035 4.95 %

Noninterest Earning Assets 124,048 91,409

Total Assets $ 4,718,639 $ 4,524,458

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-Bearing Demand $ 775,490 $ 7,047 1.83 % $ 514,376 $ 2,801 1.10 %

Money Market 530,944 6,829 2.59 % 517,862 7,922 3.08 %

Savings 351,473 242 0.14 % 425,616 282 0.13 %

Certificates of Deposit 1,901,751 34,964 3.71 % 1,683,589 32,435 3.87 %

Total Interest-Bearing Deposits 3,559,658 49,082 2.78 % 3,141,443 43,440 2.78 %

FHLB Borrowings 89,400 1,888 4.26 % 324,968 8,494 5.26 %

Federal Funds Purchased — — — % — — — %

Other Borrowings 10,566 287 5.48 % 8,081 187 4.65 %

Total Borrowings 99,966 2,175 4.39 % 333,049 8,681 5.24 %

Total Interest-Bearing Liabilities 3,659,624 51,257 2.82 % 3,474,492 52,121 3.02 %

Noninterest-Bearing Liabilities 661,308 693,814

Shareholders' Equity 397,707 356,152

Total Liabilities and Shareholders' Equity $ 4,718,639 $ 4,524,458

Net Interest Income 2

$ 62,846 $ 56,914

Net Interest Margin 2

2.76 % 2.58 %

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 (GAAP) increased $4.3 million, or 15.2% and $6.0 million, or 10.6% for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

Net interest income, on an FTE basis (non-GAAP), increased $4.2 million, or 15.0%, and $5.9 million, or 10.4% for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

Net interest margin (GAAP) increased 25 basis points and 18 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024.

Net interest margin, on an FTE basis (non-GAAP), also increased 26 basis points and 18 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024.

The increases resulted from higher yields on average earning assets of four and six basis points and funding costs that declined 30 and 20 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024.

During the six months ended June 30, 2025, $1.3 billion of CDs matured and repriced from an average rate of 4.29% to an average rate of 3.47%.

Interest and dividend income (GAAP) increased $3.2 million and $5.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024.

Interest and dividend income, on an FTE basis (non-GAAP), increased $3.1 million and $5.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024, primarily resulting from average loan growth of $202.2 million and $172.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

Average interest-earning assets increased primarily due to growth in average loans and increases of $26.9 million and $35.1 million in average interest-bearing deposits with banks during the three and six months ended June 30, 2025, respectively, partially offset by decreases of $23.4 million and $34.6 million in average investment securities and decreases of $8.2 million and $11.0 million in average FHLB stock for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

The change in average investment securities and average loans 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 June 30, 2025, the securities portfolio was comprised of 41.8% variable rate securities with approximately 89.4% 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 decreased $1.1 million and $0.9 million for the three and six months ended June 30, 2025 compared to the same periods in 2024.

Average interest-bearing deposits increased $389.1 million and $418.2 million, of which $196.1 million was brokered deposits, for the three and six months ended June 30, 2025, respectively.

compared to the same periods in 2024.

Average borrowings decreased $172.1 million and $233.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024, primarily due to increased deposit balances.

Overall, the cost of interest-bearing liabilities decreased 30 and 20 basis points for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024.

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

Specifically, 70.5% of our CD portfolio and 100.0% 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.

AND SUBSIDIARIES

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 June 30, 2025

Compared to Three Months Ended June 30, 2024 Six Months Ended June 30, 2025

Compared to Six Months Ended June 30, 2024

(Dollars in Thousands) Volume 3

Rate Increase/

(Decrease) Volume 3

Rate Increase/

Interest Earned on:

Interest-Bearing Deposits with Banks $ 310 $ (87) $ 223 $ 802 $ (166) $ 636

Tax-free Investment Securities 2

(1) — (1) (2) — (2)

Taxable Investment Securities (208) (717) (925) (609) (1,404) (2,013)

Total Securities (209) (717) (926) (611) (1,404) (2,015)

Tax-free Loans 1 2

(132) 10 (122) (279) 21 (258)

Taxable Loans 1

2,942 1,185 4,127 5,070 2,065 7,135

Total Loans 2,810 1,195 4,005 4,791 2,086 6,877

Federal Home Loan Bank Stock (138) (26) (164) (377) (53) (430)

Total Interest-Earning Assets $ 2,773 $ 365 $ 3,138 $ 4,605 $ 463 $ 5,068

Interest Paid on:

Interest-Bearing Demand $ 1,069 $ 903 $ 1,972 $ 1,832 $ 2,414 $ 4,246

Money Market 189 (605) (416) 196 (1,289) (1,093)

Savings (23) 7 (16) (51) 11 (40)

Certificates of Deposit 1,441 (1,645) (204) 4,061 (1,532) 2,529

Total Interest-Bearing Deposits 2,676 (1,340) 1,336 6,038 (396) 5,642

Federal Home Loan Bank Borrowings (1,977) (512) (2,489) (5,222) (1,384) (6,606)

Federal Funds Purchased — — — — — —

Other Borrowings 28 22 50 63 37 100

Total Borrowings (1,949) (490) (2,439) (5,159) (1,347) (6,506)

Total Interest-Bearing Liabilities $ 727 $ (1,830) $ (1,103) $ 879 $ (1,743) $ (864)

Change in Net Interest Margin $ 2,046 $ 2,195 $ 4,241 $ 3,726 $ 2,206 $ 5,932

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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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 June 30, Six Months Ended June 30,

2025 2024 $ Change 2025 2024 $ Change

(Recovery) Provision for Credit Losses $ (2,330) $ 491 $ (2,821) $ (4,355) $ 507 $ (4,862)

Recovery for Unfunded Commitments (335) (236) (99) (449) (279) (170)

Total Recovery for Credit Losses on Loans (2,665) 255 (2,920) (4,804) 228 (5,032)

Provision for Securities — — — — — —

Total Recovery for Credit Losses $ (2,665) $ 255 $ (2,920) $ (4,804) $ 228 $ (5,032)

Net Loan Charge-offs $ 165 $ 341 $ (176) $ 222 $ 873 $ (651)

Net Loan Charge-offs / Average Portfolio Loans 0.02 % 0.04 % 0.01 % 0.05 %

The (recovery) provision for credit losses was a recovery of 2.3 million and a recovery of 4.4 million for the three and six months ended June 30, 2025, respectively, compared to a provision for credit losses of $491 thousand and $507 thousand for the same periods in 2024, respectively.

The changes compared to the same periods in 2024 were primarily driven by a decline in the Other segment reserve rate, specifically the Company’s largest credit relationship, higher curtailment payments during the three and six months ended June 30, 2025 compared to the same periods in 2024, partially offset by loan growth during the three and six months ended June 30, 2025.

The recovery for unfunded commitments was a recovery of $335 thousand and a recovery of $449 thousand for the three and six months ended June 30, 2025, respectively, compared to recoveries of $236 thousand and $279 thousand for the same periods in 2024, respectively.

The changes compared to the same periods in 2024 were primarily due to decreased unfunded commitments in construction loans.

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

Noninterest Income

(Dollars in Thousands) Three Months Ended June 30, Six Months Ended June 30,

2025 2024 $ Change % Change 2025 2024 $ Change % Change

Gains on Sales of Securities, net $ — $ 36 $ (36) 100.0 % $ — $ 36 $ (36) (100.0) %

Service Charges, Commissions and Fees 1,765 1,852 (87) (4.7) % 3,639 3,727 (88) (2.4) %

Debit Card Interchange Fees 1,942 1,933 8 0.4 % 4,046 4,019 27 0.7 %

Insurance Commissions 714 934 (220) (23.6) % 1,058 1,548 (490) (31.7) %

Bank Owned Life Insurance Income 357 365 (8) (2.2) % 698 713 (15) (2.1) %

Other 130 413 (283) (68.5) % 2,368 535 1,833 342.6 %

Total Noninterest Income $ 4,908 $ 5,533 $ (625) (11.3) % $ 11,809 $ 10,578 $ 1,231 11.6 %

For the three months ended June 30, 2025 total noninterest income decreased $0.6 million, or 11.3% and, for the six months ended June 30, 2025, total noninterest income increased $1.2 million, or 11.6% compared to the same periods in 2024.

The most significant decreases compared to the three months ended June 30, 2024 were $0.3 million in other noninterest income and $0.2 million in insurance commissions due to lower activity during the three months ended June 30, 2025 .

The most significant increase during the six months ended June 30, 2025 was related to other noninterest income as a result of a $1.9 million gain on a bank owned life insurance (“BOLI”) death benefit recorded in the first quarter of 2025.

Partially o ffsetting the increase in other noninterest income compared to the six months ended June 30, 2024 was a decline of $0.5 million in insurance commissions due to lower activity in the six months ended June 30, 2025 .

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Noninterest Expense

(Dollars in Thousands) Three Months Ended June 30, Six Months Ended June 30,

2025 2024 $ Change % Change 2025 2024 $ Change % Change

Salaries and Employee Benefits $ 14,082 $ 14,216 $ (134) (0.9) % $ 27,739 $ 28,416 $ (677) (2.4) %

Occupancy Expense, net 4,230 3,793 437 11.5 % 8,702 7,541 1,161 15.4 %

FDIC Insurance Expense 1,436 1,566 (130) (8.3) % 2,866 3,253 (387) (11.9) %

Other Taxes 922 894 28 3.1 % 1,869 1,802 67 3.7 %

Advertising Expense 708 528 180 34.1 % 1,619 885 734 82.9 %

Telephone Expense 307 342 (35) (10.2) % 611 759 (148) (19.5) %

Professional and Legal Fees 1,921 1,542 379 24.6 % 3,151 3,055 96 3.1 %

Data Processing 1,395 1,234 161 13.0 % 2,839 2,125 714 33.6 %

Debit Card Expense 991 808 183 22.6 % 1,983 1,564 419 26.8 %

Other 3,312 2,523 789 31.3 % 5,967 4,303 1,664 38.7 %

Total Noninterest Expense $ 29,304 $ 27,446 $ 1,858 6.8 % $ 57,346 $ 53,703 $ 3,643 6.8 %

For the three and six months ended June 30, 2025, total noninterest expense increased $1.9 million and $3.6 million compared to the same periods in 2024.

During the three months ended June 30, 2025, other noninterest expenses increased $0.8 million, occupancy expenses increased $0.4 million and professional and legal fees increased $0.4 million.

The increase in other noninterest expense related to:

(1) losses on sales and write-downs of other real estate owned, net, due to a net loss of $0.3 million in the second quarter of 2025 which included $0.5 million in write-downs on OREO branches, partially offset by a $0.2 gain on the sale of an OREO branch property and (2) $0.3 million of 1035 exchange fees in the second quarter of 2025, as a direct result of the early surrender and transfer to new carriers of the Company’s BOLI policies.

Occupancy expense, net increased for the three months ended June 30, 2025 primarily due to additional software and maintenance expenses and higher depreciation expense.

For the three months ended June 30, 2025, professional and legal fees also increased $0.4 million due to costs related to the Branch Purchase that were expensed during the quarter.

During the six months ended June 30, 2025, other noninterest expenses increased $1.7 million, occupancy expenses increased $1.2 million, advertising expenses increased $0.7 million and data processing expenses increased $0.7 million, partially offset by decreases of $0.7 million in salaries and employee benefits and $0.4 million in FDIC insurance expense.

The primary increase in other noninterest expense was due to the above mentioned 1035 exchange fees, which increased $0.5 million year-to-date, as a result of the early surrender and transfer to new carriers of the Company’s BOLI policies.

As discussed above, the increase in occupancy expense, net, for the six months ended June 30, 2025 was primarily due to additional software and maintenance expenses and higher depreciation expense.

The increase in advertising expenses primarily related to contributions made during the first quarter of 2025, as well as additional expenses incurred during the six months of 2025 related to the launching of the new brand refresh that commenced 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 primarily resulted from higher deferred compensation costs due to increased loan volume and the effects of a new cost study in the third quarter of 2024.

This decrease was partially offset by higher medical expenses, annual merit increases and higher incentive costs during the six months ended June 30, 2025.

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 June 30, 2024 to $235.5 million at June 30, 2025, which is a component used to determine the assessment.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Provision for Income Taxes

The provision for income taxes increased $1.0 million and $1.8 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

Pre-tax income increased $4.7 million and $8.6 million for the three and six months ended June 30, 2025 compared to the same periods in 2024.

The increase for the three and six months ended June 30, 2025 compared to the same periods in 2024 primarily related to an increase of $4.3 million and $6.0 million, respectively in net interest income, recording recoveries of $2.3 million and $4.4 million, respectively to the (recovery) provision for credit losses, as well as, a tax-exempt gain of $1.9 million for a BOLI death benefit recorded in first quarter of 2025.

The effective tax rate was 19.9% and 19.8% for the three and six months ended June 30, 2025 compared to 18.9% and 19.3% for the same periods in 2024.

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”).

Financial Condition

June 30, 2025

Total assets increased $124.9 million, to $4.8 billion at June 30, 2025 compared to December 31, 2024.

Total portfolio loans increased $122.3 million, or 6.8%, on an annualized basis, at June 30, 2025 compared to December 31, 2024, primarily due to growth in the commercial real estate (“CRE”) and residential mortgage portfolios, partially offset by the aforementioned curtailment payments in the Other segment.

The available-for-sale securities portfolio increased $36.8 million and is currently 15.8% of total assets at June 30, 2025 compared to 15.4% of total assets at December 31, 2024.

The increase is due to new security purchases during the first six months of 2025.

During the six months ended June 30, 2025, the Company initiated a 1035 exchange of $20.7 million in BOLI in order to transfer the proceeds to new insurance carriers 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 $68.8 million to $4.2 billion at June 30, 2025 compared to December 31, 2024.

Total deposits included $55.9 million related to the Branch Purchase that the Company completed during the second quarter of 2025.

Deposits increased primarily due to growth in interest-bearing demand accounts and money market accounts, partially offset by decreases in CDs and savings accounts.

FHLB borrowings increased $43.5 million at June 30, 2025 compared to December 31, 2024.

The Company had no outstanding federal funds purchased at June 30, 2025 and December 31, 2024.

The following table presents the composition of available-for-sale securities at the dates presented:

(Dollars in Thousands) June 30, 2025 December 31, 2024 $ Change

Government Agency Securities $ 22,898 $ 26,950 $ (4,052)

Residential Mortgage-Backed Securities 97,265 96,153 1,112

Commercial Mortgage-Backed Securities 24,597 21,587 3,010

Other Commercial Mortgage-Backed Securities 29,578 21,970 7,608

Asset Backed Securities 115,106 118,521 (3,415)

Collateralized Mortgage Obligations 172,592 148,588 24,004

States and Political Subdivisions 229,168 221,181 7,987

Corporate Notes 64,008 63,450 558

Total $ 755,212 $ 718,400 $ 36,812

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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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 $36.8 million at June 30, 2025 compared to December 31, 2024, primarily due to purchases and changes in market values driven by fluctuations in intermediate treasury yields.

During the six months ended June 30, 2025, there were new security purchases totaling $53.3 million, partially offset by normal paydowns and maturities.

Securities comprise 15.8% of total assets at June 30, 2025 compared to 15.4% at December 31, 2024.

As of June 30, 2025, the securities portfolio was comprised of 41.8% variable rate securities with approximately 89.4% that will reprice at least once over the next 12 months.

At June 30, 2025, total gross unrealized gains in the available-for-sale portfolio were $0.3 million, offset by $67.0 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 45.1% of securities issued by United States government sponsored entities and carry an implicit government guarantee.

States and political subdivisions comprise 30.3% 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 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 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 June 30, 2025 the 5-year and 10-year U.S.

Treasury yields were 3.79% and 4.24%, respectively.

At December 31, 2024, those same bond yields were 4.38% and 4.58%, respectively.

Therefore, these decreases of 59 bps and 34 bps, respectively in the intermediate part of the yield curve largely caused the reduction in unrealized losses for the six months 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 changes.

At June 30, 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Loan Composition

The following table summarizes our loan portfolio at the dates presented:

(Dollars in Thousands) June 30, 2025 December 31, 2024

Commercial Real Estate $ 2,000,766 $ 1,869,831

Commercial and Industrial 221,880 230,483

Total Commercial Loans 2,222,646 2,100,314

Residential Mortgages 814,188 777,471

Other Consumer 27,991 28,908

Total Consumer Loans 842,179 806,379

Construction 443,573 462,930

Other 238,723 255,203

Total Portfolio Loans 3,747,121 3,624,826

Loans Held-for-Sale 246 —

Total Loans $ 3,747,367 $ 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 $122.3 million, or 6.8% on an annualized basis, at June 30, 2025 compared to December 31, 2024 with production primarily in our CRE and residential mortgage loan portfolios, partially offset by a decline in the Other segment due to $16.4 million curtailment payments made during the first half of 2025.

The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations.

At June 30, 2025, the loan portfolio was comprised of 25.3% floating rates which reprice monthly, 38.4% variable rates that reprice at least once during the life of the loan and the remaining 36.3% 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.

Total CRE represented 53.4% of total portfolio loans at June 30, 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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:

June 30, 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 $ 459,751 $ 118 $ 390 $ 61,744 $ — $ 522,003 $ 35 19.7 %

Warehouse 434,772 482 — 48,448 — 483,702 9,584 18.2 %

Hospitality 288,427 — — 27,052 51,552 367,031 51,552 13.8 %

Multifamily 341,541 — — 92,320 — 433,861 4,516 16.3 %

Office 219,939 — — 8,811 508 229,258 542 8.6 %

Land 630 — — 113,507 49,112 163,249 49,158 6.2 %

Single Family 21,444 — 60,360 26,502 13,367 121,673 13,478 4.6 %

Country Club 3,369 — — — 45,002 48,371 45,002 1.8 %

Long-term Care 54,439 — — 17,550 — 71,989 — 2.7 %

Other 180,660 276 1,993 32,283 — 215,212 — 8.1 %

Total $ 2,004,972 $ 876 $ 62,743 $ 428,217 $ 159,541 $ 2,656,349 $ 173,867 100.0 %

December 31, 2024

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 levels of these markets allows us to effectively manage concentration risk.

Our operating knowledge at the local and regional levels 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 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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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 $683.9 million, or 18.2% of gross loans, at June 30, 2025, compared to $685.9 million, or 18.9% of gross loans, at December 31, 2024.

The Other segment represents 34.4% of the top 10 credit relationships and the Company transferred its largest credit relationship with a current balance of $235.5 million as of June 30, 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 June 30, 2025 December 31, 2024 Change June 30, 2025 % of Gross Loans June 30, 2025 % of RBC

Hospitality, Agriculture & Energy $ 235,542 $ 251,982 $ (16,440) 6.29 % 46.34 %

Multifamily 58,741 58,871 (130) 1.57 % 11.56 %

Office & Retail 55,426 40,462 14,964 1.48 % 10.90 %

Multifamily 51,984 51,990 (6) 1.39 % 10.23 %

Retail & Office 51,163 52,913 (1,750) 1.37 % 10.07 %

Warehouse 48,832 49,661 (829) 1.30 % 9.60 %

Retail 48,087 44,511 3,576 1.28 % 9.46 %

Long-Term Care 46,199 46,199 — 1.23 % 9.09 %

Health Care Facility 44,779 44,779 — 1.19 % 8.81 %

Warehouse 43,121 44,577 (1,456) 1.15 % 8.48 %

Top Ten (10) Relationships $ 683,874 $ 685,945 $ (2,071) 18.25 % 134.54 %

Total Gross Loans $ 3,747,367 $ 3,624,826 $ 122,541

% of Total Gross Loans 18.25 % 18.92 % (0.67) %

Concentration (25% of Risk Based Capital ("RBC")) $ 127,075 $ 125,190

Unfunded commitments on lines of credit were $565.3 million at June 30, 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 57.0% at June 30, 2025 and 53.8% at December 31, 2024.

Unfunded commitments on commercial operating lines of credit was 57.8% at June 30, 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, which resulted in a significant decline in the loss rate.

Deferred costs and fees included in the portfolio balances above were $12.0 million and $8.8 million at June 30, 2025 and December 31, 2024, respectively.

Discounts on purchased 1-4 family loans included in the portfolio balances above were $91.5 thousand and $104.1 thousand at June 30, 2025 and December 31, 2024, respectively.

Refer to Note 4, Loans and Loans Held-for-Sale, 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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) June 30, 2025 December 31, 2024 Change

Nonaccrual Loans

Commercial Real Estate $ 9,613 $ 1,176 $ 8,437

Commercial and Industrial 1,048 1,078 (30)

Residential Mortgages 4,142 4,865 (723)

Other Consumer 29 20 9

Construction 207 228 (21)

Other 235,542 251,982 (16,440)

Total Nonperforming Loans 250,581 259,349 (8,768)

Other Real Estate Owned 1,657 659 998

Total Nonperforming Assets $ 252,238 $ 260,008 $ (7,770)

Nonperforming assets decreased $7.8 million to $252.2 million at June 30, 2025 compared to December 31, 2024.

The decrease of $8.8 million in nonperforming loans was primarily related to $16.4 million of curtailment payments made by the Bank’s largest nonperforming credit relationship, partially offset by the transfer of a $9.5 million CRE relationship, consisting of four loans, to NPL status during the first quarter of 2025.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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 $235.5 million at June 30, 2025, remained on nonaccrual status at June 30, 2025 and December 31, 2024.

These nonperforming loans are 94.0% of the Company's total nonperforming loans and 93.4% of the Company's total nonperforming assets at June 30, 2025.

During 2024 and the six months ended June 30, 2025, $66.4 million of curtailment payments made by the various entities in which James C.

Justice, II has an interest to the Bank decreased the aggregate nonperforming loan balance outstanding to the Bank from $301.9 million as of June 30, 2023 to $235.5 million as of June 30, 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, the timing of any credit credit administration or collection efforts, 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 $24.0 million at June 30, 2025, or 10.2% 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 second 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.

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:

June 30, 2025 December 31, 2024

(Dollars in Thousands) Amount % of NPLs Amount % of NPLs

Commercial Real Estate $ 9,613 3.8 % $ 1,176 0.4 %

Commercial and Industrial 1,048 0.4 % 1,078 0.4 %

Residential Mortgages 4,142 1.7 % 4,865 1.9 %

Other Consumer 29 — % 20 — %

Construction 207 0.1 % 228 0.1 %

Other 235,542 94.0 % 251,982 97.2 %

Balance End of Period $ 250,581 100.0 % $ 259,349 100.0 %

Closed retail bank offices had a book value of $1.7 million at June 30, 2025 and $0.7 million at December 31, 2024, and are recorded in OREO on the Consolidated Balance Sheets.

During the six months ended June 30, 2025, the Bank transferred three closed branches to OREO, which was partially offset by the sale of one of these closed branches in the second quarter of 2025.

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, and 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.

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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:

June 30, 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 $ 20,723 53.4 % $ 20,146 51.6 %

Commercial & Industrial 2,722 5.9 % 2,791 6.4 %

Residential Mortgages 11,143 21.7 % 10,389 21.4 %

Other Consumer 668 0.8 % 682 0.8 %

Construction 11,764 11.8 % 11,297 12.8 %

Other 24,003 6.4 % 30,295 7.0 %

Balance End of Period $ 71,023 100.0 % $ 75,600 100.0 %

The ACL was $71.0 million, or 1.90%, of total portfolio loans at June 30, 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) June 30, 2025 December 31, 2024

Allowance for Credit Losses to Total Portfolio Loans

Allowance for Credit Losses $ 71,023 $ 75,600

Total Portfolio Loans 3,747,121 3,624,826

Allowance for Credit Losses to Total Portfolio Loans 1.90 % 2.09 %

Nonperforming Loans to Total Portfolio Loans

Nonperforming Loans $ 250,581 $ 259,349

Total Portfolio Loans 3,747,121 3,624,826

Nonperforming Loans to Total Portfolio Loans 6.69 % 7.15 %

Allowance for Credit Losses to Nonperforming Loans

Allowance for Credit Losses $ 71,023 $ 75,600

Nonperforming Loans 250,581 259,349

Allowance for Credit Losses to Nonperforming Loans 28.34 % 29.15 %

Net Charge-offs to Average Portfolio Loans

Net Charge-offs (annualized) $ 447 $ 16,413

Average Total Portfolio Loans 3,699,267 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 credit losses was a recovery of 4.4 million for the six months ended June 30, 2025 compared to a provision for credit losses of $507 thousand for the same period in 2024, respectively.

The change compared to the same period in 2024 was primarily due to a decline in the Other segment reserve rate, specifically the Company’s largest credit relationship, from 12.01% at December 31, 2024 to 10.18% at June 30, 2025, and $16.4 million of curtailment payments made by the Bank’s largest nonperforming credit relationship, partially offset by loan growth during the six months ended June 30, 2025.

The recovery for unfunded commitments was a recovery of $449 thousand for the six months ended June 30, 2025 compared to a recovery of $279 thousand for the same period in 2024.

The change compared to the same period in 2024 was primarily due to decreased unfunded commitments in construction loans during the six months ended June 30, 2025.

The reserve for unfunded

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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, Summary of Significant Accounting Policies, in Item 8.

Financial Statements and Supplementary Data for our ACL Policy, contained in our Annual Report on Form 10-K for the year ended December 31, 2024 .

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 $0.2 million for the three and six months ended June 30, 2025 compared to $0.3 million and $0.9 million for the same periods in 2024, respectively.

As a percentage of average portfolio loans, net charge-offs were 0.02% and 0.01% for the three and six months ended June 30, 2025 compared to 0.04% and 0.05% for the same periods in 2024, respectively.

At June 30, 2025, NPLs decreased $8.8 million since December 31, 2024.

NPLs as a percentage of total portfolio loans were 6.69% and 7.15% as of June 30, 2025 and December 31, 2024, respectively.

The following table summarizes portfolio loans past due 30-89 days for the periods presented:

(Dollars in Thousands) June 30, 2025 December 31, 2024 $ Change

Loans 30 to 89 Days Past Due

Commercial Real Estate $ 8,047 $ 2,642 $ 5,405

Commercial & Industrial 216 180 36

Total Commercial Loans 8,263 2,822 5,441

Residential Mortgages 3,159 917 2,242

Other Consumer 228 306 (78)

Total Consumer Loans 3,387 1,223 2,164

Construction 4,598 783 3,815

Total Loans 30 to 89 Days Past Due $ 16,248 $ 4,828 $ 11,420

Portfolio loans past due 30 to 89 days or more and still accruing increased $11.4 million to $16.2 million at June 30, 2025 compared to $4.8 million at December 31, 2024.

The increase is primarily attributable to $8.2 million of performing CRE loans that had matured at June 30, 2025, but had not yet been extended or renewed.

Also contributing to the increase are several credits in residential mortgages with four loans totaling $2.4 million and an additional credit of $4.5 million in the construction segment.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

The following tables represent credit exposures by internally assigned risk ratings at the dates presented:

June 30, 2025

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

Pass $ 1,991,101 $ 218,914 $ 809,956 $ 27,962 $ 437,743 $ 3,181 $ 3,488,857

Special Mention 52 1,878 90 — 705 — 2,725

Substandard 9,613 1,088 4,142 29 5,125 235,542 255,539

Total Portfolio Loans $ 2,000,766 $ 221,880 $ 814,188 $ 27,991 $ 443,573 $ 238,723 $ 3,747,121

Performing Loans $ 1,991,153 $ 220,832 $ 810,046 $ 27,962 $ 443,366 $ 3,181 $ 3,496,540

Nonaccrual Loans 9,613 1,048 4,142 29 207 235,542 250,581

Total Portfolio Loans $ 2,000,766 $ 221,880 $ 814,188 $ 27,991 $ 443,573 $ 238,723 $ 3,747,121

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 June 30, 2025 and December 31, 2024, the Company had no loans that were risk rated as doubtful.

Special mention and substandard loans at June 30, 2025 decreased compared to December 31, 2024, with a decrease of $11.7 million in substandard and a decrease of $4.3 million in special mention.

The decrease of $11.7 million in substandard was primarily related to the previously mentioned $16.4 million curtailment payments received during the six months ended June 30, 2025 and a $1.4 million CRE relationship that paid off during the six months ended June 30, 2025, partially offset by a CRE relationship, consisting of four loans totaling $9.5 million that were downgraded during the six months ended June 30, 2025.

At June 30, 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.

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.

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

(Dollars in Thousands) June 30,

2025 December 31,

2024 $ Change % Change

Noninterest-Bearing Demand $ 635,192 $ 634,436 $ 756 0.12 %

Interest-Bearing Demand 805,013 726,947 78,066 10.74 %

Money Market 544,764 512,162 32,602 6.37 %

Savings 343,659 355,506 (11,847) (3.33) %

Certificates of Deposit 1,893,611 1,924,370 (30,759) (1.60) %

Total Deposits $ 4,222,239 $ 4,153,421 $ 68,818 1.66 %

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 June 30, 2025, i ncreased $68.8 million , primarily due to $55.9 million of deposits assumed in the Branch Purchase.

The decrease in savings

CARTER BANKSHARES, INC.

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

was primarily due to customers preferences shifting to higher-yielding deposit products or repositioning funds into transactional deposit accounts.

The decrease in certificates of deposit was primarily due to clients diversifying a portion of their deposits into more liquid, interest-bearing demand and money market products.

At June 30, 2025 , noninterest-bearing deposits comprised 15.0% of total deposits compared to 15.3% at December 31, 2024 .

CDs comprised 44.8% and 46.3% of total deposits at June 30, 2025 and December 31, 2024 , respectively.

As of June 30, 2025, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 81.5% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits, and approximately 18.5% 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 78.0% of retail deposits.

The following table presents additional information in relation to deposits at the dates presented:

(Dollars in Thousands) June 30, 2025 December 31, 2024

Deposits from the CDARS $ — $ —

Noninterest-Bearing Public Funds Deposits 41,896 55,385

Interest-Bearing Public Funds Deposits 125,429 125,342

Total Deposits not Covered by Deposit Insurance 1

782,490 762,937

Certificates of Deposits not Covered by Deposit Insurance 300,214 297,938

Deposits for Certain Directors, Executive Officers and their Affiliates 2,680 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 June 30, 2025 are summarized as follows:

(Dollars in Thousands) Amount Percent

Three Months or Less $ 118,886 39.6 %

Over Three Months Through Twelve Months 124,155 41.3 %

Over Twelve Months Through Three Years 55,440 18.5 %

Over Three Years 1,733 0.6 %

Total $ 300,214 100.0 %

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) June 30, 2025 December 31, 2024

Balance at Period End

Federal Home Loan Bank Borrowings $ 113,500 $ 70,000

Federal Funds Purchased — —

Average Balance during the Period

Federal Home Loan Bank Borrowings $ 89,400 $ 222,719

Federal Funds Purchased — —

Average Interest Rate during the Period

Federal Home Loan Bank Borrowings 4.26 % 5.11 %

Federal Funds Purchased — % — %

Maximum Month-end Balance during the Period

Federal Home Loan Bank Borrowings $ 113,500 $ 403,000

Federal Funds Purchased — —

Average Interest Rate at Period End

Federal Home Loan Bank Borrowings 4.33 % 4.02 %

Federal Funds Purchased — % — %

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