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Item 2. Management’s Discussion and Analysis

2025-11-03 compared with 2025-08-04 · 10 added, 112 removed, 20 unchanged (86% of the section changed)

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

Borrowings are an additional source of liquidity for the Company.

FHLB borrowings increased $43.5 million to $113.5 million at June 30, 2025 from $70.0 million at December 31, 2024 primarily due to additional FHLB advances to fund loan growth.

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

The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan growth, investment securities, deposit growth and capital considerations.

We manage our borrowed funds to provide a reliable source of liquidity.

The Company held FHLB of Atlanta stock of $8.7 million and $6.5 million at June 30, 2025 and December 31, 2024, respectively.

The increase in FHLB stock was due to a higher required level of stock holdings due to a higher level of FHLB borrowings.

Dividends recorded on restricted stock were $0.1 million and $0.3 million for the three and six months ended June 30, 2025, respectively, compared to $0.3 million and $0.7 million for the same periods in 2024, respectively.

The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

We hold FHLB stock because we are a member of the FHLB of Atlanta.

The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered.

Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB.

Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise.

Rather, members purchase stock to obtain access to the products and services offered by the FHLB.

Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.

Refer to Note 9, Federal Home Loan Bank Borrowings and Federal Funds Purchased, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s borrowings.

Liquidity and Capital Resources

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost.

This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers needing to access funds to meet their credit needs.

In order to manage liquidity risk the Company’s Board has delegated authority to ALCO for formulation, implementation and oversight of liquidity risk management for the Company.

The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events.

The ALCO closely monitors and manages liquidity by reviewing cash flow projections, performing balance sheet stress tests and by maintaining a detailed contingency funding plan that includes specific liquidity measures that are reviewed by the ALCO monthly.

Our liquidity policy and contingency funding plan provide graduated risk tolerance levels for multiple liquidity measures and potential liquidity environments.

If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

The Company’s primary funding and liquidity source is a stable customer deposit base.

Management believes that we have the ability to retain existing deposits and attract new deposits, mitigating any potential funding dependency on other more volatile sources.

Although deposits are the primary source of funds, the Company has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified.

Additional funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0% of the Company’s assets or approximating $1.2 billion, subject to the amount of eligible collateral pledged, of which the Company is eligible to borrow up to an additional $732.0 million at June 30, 2025.

The Company has unsecured facilities with three other correspondent financial institutions totaling $30.0 million, a fully secured facility with one other correspondent financial institution totaling $45.0 million, and access to the institutional CD market, and the brokered deposit market.

The Company did not have outstanding borrowings on these facilities as of June 30, 2025.

In addition to the above funding resources, the Company also has $438.8 million of unpledged available-for-sale investment securities, at fair value, at June 30, 2025 as an additional source of liquidity.

Please refer to the Liquidity Sources table below for available funding with the FHLB and our secured and unsecured lines of credit with correspondent banks.

As of June 30, 2025, 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity and will use other borrowing means or other liquidity and funding strategies and sources to fund its liquidity needs as needed.

The Company is also closely tracking the potential impacts on the Company’s liquidity of declines in the fair value of the Company’s securities portfolio due to fluctuations in interest rates and developments in the financial markets, and in light of developments in the banking industry that may change the availability of traditional sources of liquidity or market expectations with respect to available sources and amounts of additional liquidity.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets or assets that can be converted to cash quickly, with little or no loss in value, to meet financial obligations.

ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high.

At June 30, 2025, the Bank had $491.0 million in highly liquid assets, which consisted of Federal Reserve Board Excess Reserves and interest-bearing deposits in other financial institutions of $51.9 million, loans held-for-sale of $0.3 million and $438.8 million in unpledged securities.

This resulted in highly liquid assets to total assets ratio of 10.3% at June 30, 2025.

Total available liquidity to uninsured deposits was 179.6% at June 30, 2025.

If an extended recession, or significant industry or market volatility, caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

The following table provides detail of liquidity sources at the dates presented:

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

Cash and Due From Banks, including Interest-bearing Deposits $ 99,905 $ 131,171

Unpledged Investment Securities 438,823 418,350

Excess Pledged Securities 59,839 33,022

FHLB Borrowing Availability 731,967 735,294

Collateralized Lines of Credit 45,000 45,000

Unsecured Lines of Credit Availability 30,000 30,000

Total Liquidity Sources $ 1,405,534 $ 1,392,837

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

The following table provides total liquidity sources and ratios at the dates presented:

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

Total Liquidity Sources $ 1,405,534 $ 1,392,837

Highly Liquid Assets 1 to Total Assets

10.3 % 10.9 %

Highly Liquid Assets 1 to Uninsured Deposits

62.7 % 66.8 %

Total Available Liquidity to Uninsured Deposits 179.6 % 182.6 %

1 Highly liquid assets consist of $51.9 million in Federal Reserve Board excess reserves and interest-bearing deposits in other financial institutions, $0.3 million in loans held-for-sale and $438.8 million in unpledged securities.

Capital Resources

The Company reviews, on an ongoing basis, its and the Bank’s capital levels and opportunities to effectively deploy the Company’s capital or return capital to shareholders through stock repurchases or potential dividends.

The following table summarizes the actual risk-based capital amounts and ratios for the Company and the Bank at the dates presented:

(Dollars in Thousands) Minimum Required

Basel III Well

Capitalized 1

June 30, 2025 December 31, 2024

Amount Ratio Amount Ratio

Carter Bankshares, Inc.

Leverage Ratio 4.00 % NA $ 455,619 9.46 % $ 448,834 9.56 %

Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % NA 455,619 10.87 % 448,834 10.88 %

Tier 1 Capital (to Risk-weighted Assets) 8.50 % NA 455,619 10.87 % 448,834 10.88 %

Total Capital (to Risk-weighted Assets) 10.50 % NA 508,298 12.12 % 500,759 12.13 %

Carter Bank & Trust

Leverage Ratio 4.00 % 5.00 % $ 444,729 9.25 % $ 441,916 9.42 %

Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % 6.50 % 444,729 10.62 % 441,916 10.72 %

Tier 1 Capital (to Risk-weighted Assets) 8.50 % 8.00 % 444,729 10.62 % 441,916 10.72 %

Total Capital (to Risk-weighted Assets) 10.50 % 10.00 % 497,360 11.87 % 493,760 11.98 %

1 To be “well capitalized” under the prompt corrective action framework applies to the Bank only.

Total capital of $405.6 million at June 30, 2025, reflects an increase of $21.3 million compared to December 31, 2024.

The increase in total capital from December 31, 2024 is primarily due to net income of $17.5 million, an increase of $12.3 million in other comprehensive income due to positive changes in fair value of investment securities, partially offset by $9.2 million related to the repurchase of common stock that includes a 1% excise tax.

The remaining difference of $0.7 million related to restricted stock activity during the six months ended June 30, 2025.

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

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

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

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

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

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

Prompt corrective action regulations provide five classifications:

well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition.

If adequately capitalized, regulatory approval is required to accept brokered deposits.

If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

At June 30, 2025 and December 31, 2024, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification that management believes have changed the institution’s category.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

The Company remains well capitalized.

The Tier 1 capital ratio was 10.87% at June 30, 2025 compared to 10.88% at December 31, 2024.

The leverage ratio was 9.46% at June 30, 2025, compared to 9.56% at December 31, 2024 and the total risk-based capital ratio was 12.12% at June 30, 2025 compared to 12.13% at December 31, 2024.

The Bank also remained well capitalized as of June 30, 2025.

The Bank’s Tier 1 capital ratio was 10.62% at June 30, 2025 compared to 10.72% at December 31, 2024.

The Bank’s leverage ratio was 9.25% at June 30, 2025 compared to 9.42% at December 31, 2024.

The Bank’s total risk-based capital ratio was 11.87% at June 30, 2025 compared to 11.98% at December 31, 2024.

At June 30, 2025, the Bank continues to maintain its capital position with a leverage ratio of 9.25% compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 7.00% compared to the regulatory guideline of 6.50% to be well-capitalized.

The Tier 1 capital ratio was 10.66% at September 30, 2025 compared to 10.88% at December 31, 2024.

The leverage ratio was 9.41% at September 30, 2025, compared to 9.56% at December 31, 2024 and the total risk-based capital ratio was 11.91% at September 30, 2025 compared to 12.13% at December 31, 2024.

The Bank also remained well capitalized as of September 30, 2025.

The Bank’s Tier 1 capital ratio was 10.46% at September 30, 2025 compared to 10.72% at December 31, 2024.

The Bank’s leverage ratio was 9.24% at September 30, 2025 compared to 9.42% at December 31, 2024.

The Bank’s total risk-based capital ratio was 11.72% at September 30, 2025 compared to 11.98% at December 31, 2024.

At September 30, 2025, the Bank continues to maintain its capital position with a leverage ratio of 9.24% compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 10.46% compared to the regulatory guideline of 6.50% to be well-capitalized.

The Company’s risk-based Tier 1 and Total Capital ratios place them above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00% and 10.00%, respectively.

12 unchanged sentences

The 2025 Program does not obligate the Company to purchase any particular number of shares and may be modified of terminated by the Board at any time.

As of 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.

During the three and nine months ended September 30, 2025, the Company repurchased 262,269 and 809,601 shares of its common stock at a total cost of $4.9 million and $14.0 million, respectively, and at a weighted average cost per share of $18.70 and $17.35, respectively.

Contractual Obligations

As of June 30, 2025 , there have been no material changes to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 ( the “2024 Annual Report”).

As of September 30, 2025 , there have been no material changes to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 ( the “2024 Annual Report”).

Off-Balance Sheet Arrangements

As of June 30, 2025, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Off-Balance Sheet Arrangements" in the Company’s 2024 Annual Report.

As of September 30, 2025, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Off-Balance Sheet Arrangements" in the Company’s 2024 Annual Report.

CARTER BANKSHARES, INC.

1 unchanged sentence

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 2. Management’s Discussion and Analysis