What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-03-05 compared with 2025-03-07 · 782 added, 632 removed, 1225 unchanged (54% of the section changed)

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Cash Interest Paid $ 102,649 $ 106,342 $ 69,116

Cash Paid for Income Taxes 478 5,718 5,793

Cash Paid for Income Taxes, net of Refunds 3,717 303 5,693

Transfer from Loans to Other Real Estate Owned — 1,181 110

Loans Financed to Purchase Other Real Estate Owned 525 — —

Transfer from Fixed Assets to Other Real Estate Owned 1,829 348 1,854

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Stock Repurchase Excise Tax Settled in Subsequent Period ( 181 ) — ( 153 )

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

See accompanying notes to audited Consolidated Financial Statements.

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Carter Bankshare s, Inc.

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

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

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

The Bank is an insured, Virginia state-chartered commercial bank which operates branches in Virginia and North Carolina.

The Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and Bureau of Financial Institutions of the Virginia State Corporation Commission.

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

In October 2025, the Company elected to become a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”).

As a financial holding company of a Virginia state bank, the Company is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “FRB”) and the Bureau of Financial Institutions of the Virginia State Corporation Commission (the “Virginia BFI”).

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.

The Bank became a member of the Federal Reserve System on November 13, 2025.

The Bank is subject to regulation, supervision and examination by the FRB (through the Federal Reserve Bank of Richmond) and the Virginia BFI.

The Company provides a full range of commercial banking, consumer banking, mortgage and services through the Bank.

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

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

Our market coverage is primarily in Virginia, North Carolina and South Carolina, including Blacksburg, Charlottesville, Danville, Fredericksburg, Lynchburg, Martinsville, and Roanoke in Virginia, and Charlotte, Greensboro, Mooresville, Raleigh, and Winston-Salem in North Carolina, as well as Greenville, South Carolina.

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

Accounting Policies:

Our financial statements have been prepared in accordance with U.S.

Accounting Policies and Use of Estimates:

The Consolidated Financial Statements have been prepared in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”).

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods then ended.

Actual results could differ from those estimates.

Our significant accounting policies are described below.

In preparing these financial statements, management is required to make estimates and assumptions based on available information that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the dates of the balance sheets, and the reported amounts of revenues and expenses for the periods presented.

These estimates and assumptions are inherently subject to change and involve judgments regarding matters that are uncertain.

Factors that could affect management’s judgments include, but are not limited to, changes in interest rates, economic conditions, and the financial condition and performance of borrowers and counterparties.

Because of these uncertainties, actual results could differ materially from those estimates.

The Company’s significant accounting policies are described below.

Principles of Consolidation:

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Reclassifications had no material effect on prior year net income or shareholders’ equity.

Use of Estimates:

To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information.

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

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

Operating Segments:

The chief decision-makers of our operating segments monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis, and operating segments are aggregated into one as operating results for all segments are similar.

The chief operating decision-makers of our operating segments monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis, and operating segments are aggregated into one as operating results for all segments are similar.

Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Cash and Cash Equivalents:

The Company considers all cash on hand, amounts due from banks, federal funds sold, and FRB excess reserves as cash equivalents for the purposes of the Consolidated Statements of Cash Flows with all items having original maturities fewer than 90 days.

Federal funds are customarily sold for one-day periods.

The Company considers all cash on hand, amounts due from banks and FRB excess reserves as cash equivalents for the purposes of the Consolidated Statements of Cash Flows with all items having original maturities fewer than 90 days.

The FRB pays the target fed funds rate on the FRB excess reserves.

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Such financial instruments are recorded when they are funded.

Comprehensive Income (Loss):

Comprehensive income (loss) consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains (losses) on securities available-for-sale, net of tax.

The Company classifies securities into either the held-to-maturity or available-for-sale categories at the time of purchase.

All securities were classified as available-for-sale at December 31, 2024 and December 31, 2023.

Securities classified

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

Comprehensive Income:

Comprehensive income consists of net income and other comprehensive income.

Other comprehensive income includes unrealized gains on securities available-for-sale, net of tax.

The Company classifies securities into either the held-to-maturity or available-for-sale categories at the time of purchase.

All securities were classified as available-for-sale at December 31, 2025 and December 31, 2024.

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

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

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When an impairment occurs, the amount of impairment recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss.

If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.

If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the impairment shall be recognized in net income equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.

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

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

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

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

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Loans held-for-sale arise primarily from two sources.

First, we purchase mortgage loans on a short-term basis from a partner financial institution that have fully executed sales contracts to end investors.

Second, we originate and close mortgages with fully executed contracts with investors to purchase shortly after closing.

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

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

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

If a loan is transferred from the loan portfolio to the held-for-sale category, any write-down in the carrying amount of the loan at the date of transfer is recorded as a charge-off against the ACL.

Subsequent declines in fair value are recognized as a charge to noninterest income.

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

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

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

Interest income is accrued on the unpaid principal balance.

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

First, the Company purchases residential mortgage loans on a short-term basis from a partner financial institution that have fully executed sales commitments with end investors.

Second, the Company originates residential mortgage loans for which forward sales commitments have been obtained and the loans are expected to be sold shortly after closing.

Mortgage loans from both are typically held for approximately two weeks until settlement with the investor.

Loans held for sale are carried at the lower of cost or fair value.

Gains and losses on the sale of mortgage loans are determined using the specific identification method and are recognized in other noninterest income in the Consolidated Statements of Income.

From time to time, certain loans are transferred from the loan portfolio to loans held-for-sale.

Upon transfer, if the loan’s fair value is less than its carrying amount, the difference is recorded as a charge-off against the ACL.

Any subsequent declines in fair value are recognized through net income.

Unamortized deferred fees, costs, premiums, and discounts are included in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

Loans, including individually evaluated loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days based on contractual terms, unless such loans are well-secured and in the process of collection.

If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan is generally classified as nonaccrual.

Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual, if repayment in full of principal and/or interest is unlikely.

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

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

Payments collected on a nonaccrual loan are first applied to principal, secondly to any existing charge-offs, thirdly to interest, and lastly to any outstanding fees owed to the Company.

Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a period of a minimum of six months of satisfactory payment performance by the borrower in accordance with the contractual terms of interest and principal.

loan’s cost basis at the time of sale.

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

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, discounts or premiums, and the ACL.

Interest income is accrued on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment to interest income over the contractual life of the loan using the level-yield method without anticipating prepayments.

Loans are subject to individual evaluation when they are nonperforming, have been modified for borrowers experiencing financial difficulty, or otherwise meet established internal thresholds, including loans with commitments of $1.0 million or greater, as well as loans identified at management’s discretion based on credit risk characteristics.

Loans, including individually evaluated loans (“IELs”), are generally placed on nonaccrual status when they become past due 90 days or more as to principal or interest based on contractual terms, unless the loan is both well-secured and in the process of collection.

A loan is also generally placed on nonaccrual status if it is classified as doubtful or partially charged-off or when full repayment of principal or interest is not expected, regardless of delinquency status.

When a loan is placed on nonaccrual status, any accrued but uncollected interest is reversed against interest income.

Thereafter, interest income is recognized only to the extent cash payments are received and the collection of principal is not in doubt.

When collection of the recorded investment in the loan is doubtful, cash receipts are applied as a reduction of principal.

Payments received on nonaccrual loans are generally applied in the following order:

(i) principal, (ii) recoveries of previously charged-off amounts, (iii) interest, and (iv) any outstanding fees owed to the Company.

Loans may be returned to accrual status when all principal and interest contractually due are brought current, repayment of remaining contractual principal and interest is reasonably assured, and the borrower has demonstrated sustained repayment performance for a reasonable period, generally not less than six months.

Allowance for Credit Losses:

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

The ACL represents management’s estimate of expected credit losses over the life of the loan portfolio.

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

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

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

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

The ACL also includes an estimate of credit losses related to loans that are IELs.

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

Management reserves the right to utilize alternative methods for IELs.

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

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

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

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

The CECL model also estimates losses based on these default.

The CECL model also estimates losses based on default.

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

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

For more details, see Note 7 - Allowance for Credit Losses in the Notes to Consolidated Financial Statements, in Item 8.

of this Annual Report on Form 10-K.

Allowance for Credit Losses Policy

The Company’s methodology for estimating the ACL includes:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Segmentation.

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Specific Analysis.

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

A specific reserve analysis is applied to certain IELs.

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

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A charge-off is recognized when the loss is quantifiable and confirmed.

Individually evaluated loans not specifically analyzed receive a quantitative and qualitative analysis, as described below.

IELs not specifically analyzed receive a quantitative and qualitative analysis, as described below.

Quantitative Analysis.

The Company elected to use Discounted Cash Flow (“DCF”).

The Company elected to use DCF.

Economic forecasts include but are not limited to Unemployment, the Consumer Price Index, the Housing Price Index and Gross Domestic Product.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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Management reviews the model output for appropriateness and subjectively makes adjustments as needed.

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

Charge-off Policy

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Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments.

Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more.

We monitor delinquency on a monthly basis, including early stage delinquencies of 30 to 89 days past due for early identification of potential problem loans.

Refer to the “Credit Quality” and the “Allowance for Credit Losses” sections in the MD&A and Note 6, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for more details.

Loan Restructurings:

On April 1, 2022, the Company adopted the accounting guidance in ASU No.

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

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

Other multi-payment obligations with

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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 early stage delinquencies of 30 to 89 days past due for early identification of potential problem loans.

Refer to the “Credit Quality” and the “Allowance for Credit Losses” sections in the MD&A and Note 7, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for more details.

Loan Restructurings:

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

Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status, foreclosure or repossession of the collateral to minimize economic loss to the Company.

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

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

The concentrations of credit by loan classification are set forth in Note 6 - Loans and Loans Held-for-Sale, in the Notes to the Consolidated Financial Statements.

Advertising Costs:

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The Company has purchased life insurance policies on certain executive officers and associates.

We receive the cash surrender value of each policy upon its termination or benefits are payable to us upon the death of the insured.

The Company receives the cash surrender value of each policy upon its termination or benefits are payable to the Company upon the death of the insured.

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

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Bank premises and equipment acquired are stated at cost, less accumulated depreciation.

Depreciation is charged to operating expenses over the estimated useful life of the assets by the straight-line method.

Depreciation is charged to occupancy, net over the estimated useful life of the assets by the straight-line method.

Land is carried at cost.

Costs of maintenance or repairs are charged to expense as incurred and improvements are capitalized.

Upon retirement or disposal of an asset, the asset and related allowance account are eliminated.

Any gain or loss on such transactions is included in current operations.

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

Upon retirement or disposal of an asset, the asset and related depreciation are eliminated.

Any gain or loss on such transactions is included in noninterest expense.

Depreciation expense is included in the Consolidated Statements of Income totaling $ 7.9 million in 2025, $ 7.1 million in 2024, and $ 6.2 million in 2023.

The estimated useful life for bank premises ranges from 5 to 40 years and equipment depreciates over a 5 to 10-year period.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Federal Home Loan Bank (“FHLB”) Stock:

The Company is a member of the FHLB.

The Bank is a member of the FHLB.

Members are required to own a certain amount of stock based on the level of borrowings and other factors such as asset base.

FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.

FHLB stock is carried at cost, classified as a restricted stock and periodically evaluated for impairment based on ultimate recovery of par value.

Cash dividends are reported as dividend income in the Consolidated Statements of Income.

Federal Reserve Bank (“FRB”) Stock:

The Bank is a member of the Federal Reserve System.

Members are required to own a certain amount of stock in the applicable regional Federal Reserve Bank based on combined capital and surplus.

FRB stock is carried at cost, classified as a restricted stock and periodically evaluated for impairment based on ultimate recovery of par value.

Cash dividends are reported as dividend income in the Consolidated Statements of Income.

Earnings per Common Share:

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Other Real Estate Owned (“OREO”):

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After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell.

In addition, any retail branch locations closed for branch operations and marketed for sale are also moved to OREO from bank premises and equipment.

This real estate is initially valued based on recent comparative market values received from a real estate broker and any necessary write-downs are charged to operations.

In addition, any retail branch locations closed for branch operations and marketed for sale are also moved to OREO from bank premises and equipment, net.

This real estate is initially valued based on recent comparative market values received from a real estate broker and any necessary write-downs are charged to net income.

Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed.

Valuations are periodically performed by management, and any write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its carrying value or fair value less cost to sell.

Valuations are periodically performed by management, and any write-downs are recorded as a charge to net income, if necessary, to reduce the carrying value of a property to the lower of its carrying value or fair value less cost to sell.

OREO assets are revalued every 12 months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions.

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Income Taxes:

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

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

Deferred tax liabilities are recognized for taxable temporary differences.

Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Income tax expense represents the sum of current income taxes payable or refundable for the period and the change in deferred tax assets and liabilities, including change in any valuation allowance.

The Company accounts for income taxes using the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss and tax credit carryforwards.

Deferred tax assets are reduced by a valuation allowance when, in management’s judgment, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply in the periods in which the temporary differences are expected to reverse, and the effects of changes in tax laws or rates are recognized in income in the period of enactment.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

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

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

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

During 2023, the Company adopted the proportional amortization method of accounting for all qualifying equity investments within these limited partnerships.

These investments are included in other assets on the Consolidated Balance Sheets.

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

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

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

The Company recognizes the financial statement effects of uncertain tax positions when, based on all available evidence, management concludes that it is more likely than not that a tax position will be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes.

Tax positions are evaluated individually and are not offset or aggregated with other positions.

Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits that do not meet this measurement threshold is recorded as a liability for unrecognized tax benefits in the Consolidated Balance Sheets.

Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax provision in the Consolidated Statements of Income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Tax Credit Investments:

The Company is a limited partner in certain tax-advantaged limited partnerships formed to invest in approved new markets and historic rehabilitation projects.

These investments are included in other assets on the Consolidated Balance Sheets and generate returns primarily through the realization of federal income tax credits, as well as other tax benefits, including tax deductions and losses, over the life of the investment.

During 2023, the Company adopted the proportional amortization method of accounting for all qualifying tax credit investments.

Under this method, the cost of the investment is amortized in proportion to the income tax credits and other income tax benefits received, with the amortization and the associated tax benefits presented as a component of income tax expense in the Consolidated Statements of Income.

These investments continue to be evaluated for impairment at the end of each reporting period.

Goodwill and Other Intangible Assets:

Goodwill is the excess of the cost of an acquisition over the fair value of tangible and intangible assets acquired.

Goodwill is not amortized.

Intangible assets represent purchased assets that also lack physical substance, but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability.

Intangible assets with determinable useful lives, such as core deposits, are amortized on an accelerated basis over their estimated useful lives.

The Company performs an annual review for impairment in the recorded value of goodwill and indefinite lived intangible assets.

Goodwill is tested for impairment between the annual tests if an event occurs or circumstances change that more than likely reduce the fair value of a reporting unit below its carrying value.

An indefinite-lived intangible asset is tested for impairment between the annual tests if an event occurs or circumstances change indicating that the asset might be impaired.

Transfer of Financial Assets:

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity, or the ability to unilaterally cause the transferee to return specific assets.

Control is considered to be surrendered when all of the following conditions are met:

(1) the transferred assets have been isolated from the Company, including through bankruptcy or other receivership;

(2) the transferee has the right to pledge or exchange the transferred assets without conditions that constrain its ability to take advantage of that right;

and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase the assets before their maturity or through the ability to unilaterally cause the transferee to return specific assets.

Retirement Benefits:

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

The Company maintains an employee benefit plan, as described in Note 16 - Employee Benefit Plans, to the Consolidated Financial Statements.

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

Allowance for Unfunded Commitments:

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

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

In the normal course of business, the Company enters into off-balance sheet credit arrangements to meet the financing needs of its customers.

These arrangements include loan commitments and standby and performance letters of credit and expose the Company to credit and, to a lesser extent interest rate risk in excess of amounts recognized in the Consolidated Balance Sheets.

The Company’s exposure to credit risk in the event of nonperformance by the customer is generally limited to the contractual amount of the commitment, net of the value of any related collateral.

The Company applies the same credit underwriting and risk management policies to unfunded commitments and letters of credit as those used for portfolio loans.

Commitments generally have fixed expiration dates, annual renewal provisions, and other termination clauses, which may require the payment of a fee.

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

The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model.

The estimate incorporates the likelihood that funding will occur and utilizes methodologies consistent with those applied to portfolio loans.

The allowance for unfunded commitments is included in the Company’s Consolidated Balance Sheets.

Stock-Based Compensation:

The Company issues stock based compensation awards, including restricted stock to executive officers, associates, and non-employee directors, and performance units to executive officers.

Compensation expense for restricted stock awards is based on the fair value of the awards at the grant date and are recorded in salaries and employee benefits in the Consolidated Statements of Income.

For awards granted prior to September 1, 2023, fair value was determined based on the Company’s stock price on the grant date.

Beginning September 1, 2023, the Company

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

We apply the same credit policies in making commitments and standby and performance letters of credit that are used for the underwriting of loans to customers.

Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may require payment of a fee.

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

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

Stock-Based Compensation:

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

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

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

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

utilizes a 90-day trading look back period to estimate the average stock price used in determining grant date fair value in order to mitigate the effects of short-term stock price volatility.

Compensation cost is recognized over the requisite service period, which is generally the vesting period.

For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

The Company recognizes forfeitures as they occur.

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

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

For performance units, compensation expense, which are recorded in salaries and employee benefits in the Consolidated Statements of Income is based on the grant date fair value adjusted for the probability of achieving the specified performance conditions.

Management evaluates the probability of achieving performance goals on a quarterly basis and adjusts compensation expense accordingly.

Performance units vest on the third anniversary of the grant date, and any vested units are settled in shares of the Company's common stock.

Loss Contingencies:

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Securities available-for-sale, equity securities, loans and derivative financial instruments are recorded at fair value on a recurring basis.

Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held-for-sale, individually evaluated loans, OREO, and certain other assets.

Additionally, from time to time, the Company may be required to record other assets at fair value on a nonrecurring basis, such as loans held-for-sale, IELs, OREO, and certain other assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date.

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it is not a forced transaction.

In determining fair value, we use various valuation approaches, including market, income and cost approaches.

In determining fair value, the Company uses various valuation approaches, including market, income and cost approaches.

The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data we have obtained from independent sources.

Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data the Company has obtained from independent sources.

Unobservable inputs reflect the Company’s estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

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

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.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

We recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.

The Company recognizes transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.

The following are descriptions of the valuation methodologies that the Company uses for financial instruments recorded at fair value on either a recurring or nonrecurring basis.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Recurring Basis

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This valuation method is classified as Level 2 in the fair value hierarchy.

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using DCF or other market indicators.

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

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

As of December 31, 2024, Level 1 fair values are available for each of the Company’s equity securities.

As of December 31, 2025 and 2024, Level 1 fair values are available for each of the Company’s equity securities.

Derivative Financial Instruments and Hedging Activities:

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Interest rate swap contracts involve the risk of dealing with borrower and counterparties and their ability to meet contractual terms.

We calculate the fair value for derivatives using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative.

The Company calculates the fair value for derivatives using accepted valuation techniques, including DCF analysis on the expected cash flows of each derivative.

Each valuation considers the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, such as interest rate curves and implied volatilities.

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

The Pay-Fixed Swap Agreements were designated as fair value hedges in order to hedge the risk of changes in the fair value of the fixed rate loans included in the amortizing single family mortgages and CRE loans.

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

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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.

These hedges were determined to be effective during all periods presented.

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

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 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.

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

15 to 90 days.

Nonrecurring Basis

Individually Evaluated Loans:

Individually evaluated loans with commitments of $1.0 million or greater and/or based on management’s discretion are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell.

IELs with commitments of $1.0 million or greater and/or based on management’s discretion are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell.

Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent.

All loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

Fair value for individually evaluated loans is determined using several methods.

Fair value for IELs is determined using several methods.

Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers.

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Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Subsequent to the initial impairment date, existing individually evaluated loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate.

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.

Subsequent to the initial impairment date, existing IELs are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate.

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

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

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Also, it is our general practice and intent to hold our financial instruments to maturity and to not engage in trading or sales activities with respect to such financial instruments.

For fair value disclosure purposes, we substantially utilize the fair value measurement criteria as required and explained above.

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

For fair value disclosure purposes, the Company substantially utilizes the fair value measurement criteria as required and explained above.

In cases where quoted fair values are not available, it uses present value methods to determine the fair value of its financial instruments.

CARTER BANKSHARES, INC.

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Newly Adopted Pronouncements in 2025

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

Segment Reporting (Topic 280):

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which enhances the transparency and consistency of income tax disclosures.

The Company adopted the provisions of ASU 2023-09 using the retrospective method, and prior-period disclosures have been updated to conform to the new requirements.

The adoption of this guidance impacted disclosure requirements only and did not have a material effect on the Company’s Consolidated Financial Statements, Results of Operations, or Cash Flows.

See Note 18, Federal and State Income Taxes.

Accounting Statements Issued but Not Yet Adopted

ASU 2024-04 – Debt — Debt with Conversion and Other Options (Subtopic 470-20) Induced Conversions of Convertible Debt Instruments

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.

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

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

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

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

The Company will update its expense disclosures upon adoption.

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

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

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

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

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).” ASU 2025-01 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.

NOTE 2 – BUSINESS COMBINATIONS

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:

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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

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

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

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

(Dollars in Thousands) December 31, 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 DCFs, 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, with a carrying value of $ 0.9 million as of December 31, 2025.

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

The fair value was estimated based on a DCF 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 ten years on an accelerated basis.

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

Goodwill of $ 1.2 million was recorded in connection with the acquisition.

Because the transaction was structured as an asset acquisition for tax purposes, the goodwill recognized is deductible for federal income tax purposes and will be amortized over 15 years in accordance with applicable tax regulations.

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

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

Merger Related Costs

During the year ended December 31, 2025, the Company incurred $ 419 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 Statements of Income.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 3 – EARNINGS PER COMMON SHARE

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Tax Impact $ 10 $ 14 $ ( 319 )

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

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

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

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

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

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

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

The related net gains or losses reflect reclassification adjustments included in the calculation of Other Comprehensive Income.

Net realized gains (losses) are reported in noninterest income as gains (losses) on sales of securities, net, in the Consolidated Statements of Income, with the related tax impact included in income tax provision in the Consolidated Statements of Income.

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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

December 31, 2025

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Total $ 745,366 $ 691,612

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

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 $ 300.1 million at December 31, 2024 and $ 215.5 million at December 31, 2023.

At December 31, 2025 and December 31, 2024, the Company held no securities of any single issuer, other than securities issued by or collateralized by the U.S.

Government and its Agencies, in amounts exceeding 10% of shareholders’ equity.

The carrying value of securities pledged to meet various regulatory and legal requirements was $ 289.4 million at December 31, 2025, compared to $ 300.1 million at December 31, 2024.

Available-for-sale securities with unrealized losses at December 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:

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Securities Fair Value Unrealized

Treasury Securities — $ — $ — — $ — $ — — $ — $ —

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

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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 year ended December 31, 2024 or December 31, 2023 as the Company did no t have any related impairment.

The Company regularly reviews debt securities for expected credit loss using both qualitative and quantitative criteria, as necessary, based on the composition of the portfolio at period end.

As of December 31, 2024, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis.

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

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

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

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

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

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

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

During the year ended December 31, 2024 and December 31, 2023, the Company had no credit related net investment impairment losses.

The Company did no t record an ACL, on its investment securities during the years ended December 31, 2025 or December 31, 2024, as no credit related impairment was identified.

The Company regularly evaluates debt securities for expected credit losses using qualitative and quantitative factors, as appropriate, based on the composition of the portfolio at each reporting date.

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

Unrealized losses on debt securities were primarily attributable to changes in interest rates, credit spread fluctuations, general financial market uncertainty, and market volatility, rather than deterioration in credit quality.

These conditions are not expected to affect the Company’s ability to collect contractual principal and interest, and the fair value of the securities is expected to recover as the securities approach maturity or repricing dates.

While the Company may periodically sell securities to take advantage of market opportunities or as part of strategic initiatives, management concluded that the unrealized losses presented in the table above were not credit related and, accordingly, no ACL was recorded on investment securities.

If any impairment were to become credit related, the Company would recognize an ACL through (recovery) provision for credit losses in the period identified, with any non-credit related impairment recognized in accumulated other comprehensive loss, net of applicable taxes.

CARTER BANKSHARES, INC.

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Equity Securities

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

These securities are separately reported as “equity securities” on the Company’s Consolidated Balance Sheets.

The equity securities consist of our investment in a market-rate, NASDAQ listed mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States.

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

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

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

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

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

NOTE 5 – LOANS

During 2024, the Company purchased $ 10.0 million of equity securities, which are reported separately as “equity securities” on the Consolidated Balance Sheets.

These securities consist of an investment in a market-rate, NASDAQ listed mutual fund that invests primarily in high quality fixed income securities, principally government agency obligations, with proceeds intended to support community development initiatives throughout the United States.

The fund is designed to support community development initiatives throughout the United States, with a primary focus on expanding access to affordable housing for low and moderate income borrowers and renters, including those located in majority-minority census tracts.

Although the fund invests on a national basis, individual bond investments are designated to the Company and aligned with its geographic footprint.

The Company’s investment in this mutual fund qualifies for consideration under the Community Reinvestment Act (“CRA”) and supports the Company’s ongoing commitment to community development activities.

During the year ended December 31, 2025, the Company recognized an unrealized fair value gain of $ 0.3 million on these equity securities, compared to an unrealized fair value gain of $ 41 thousand during the year ended December 31, 2024.

Unrealized gains on equity securities are recorded in Other Noninterest Income in the Consolidated Statements of Income.

NOTE 6 – LOANS AND LOANS HELD-FOR-SALE

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

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Other 217,155 255,203

Total Portfolio Loans 3,879,560 3,624,826

Loans Held-for-Sale 339 —

Total Loans $ 3,879,899 $ 3,624,826

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 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.

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

Commercial unsecured loans are reserved for the best quality customers with well-established businesses that operate with low financial and operating leverage.

The repayment capacity of the borrower should exceed the policy and guidelines for secured loans.

The Company significantly increased the standards for consumer unsecured lending by adjusting upward the required qualifying Fair Isaac Corporation (“FICO”) scores and restricting loan amounts at lower FICO scores.

Deferred costs and fees included in the portfolio balances above were $ 8.8 million and $ 7.2 million at December 31, 2024 and December 31, 2023, respectively.

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

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

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

When concentrations exist in certain loan segments, management seeks to mitigate this risk through ongoing review of relevant economic indicators, portfolio performance metrics, and internal risk rating trends specific to those segments.

The Company has established transaction level, relationship level, and loan segment concentration limits within its loan policy.

Commercial real estate loans are subject to a limit of 300 % of total risk-based capital, with additional monitoring applied if growth exceeds 50 % over the prior 36 month period.

Construction loan balances are limited to 100 % of total risk-based capital.

In addition, individual investment real estate property types and purchase loan programs are subject to specific dollar limits based on management’s risk tolerance relative to capital levels.

The loan policy also establishes targets for key underwriting criteria, including debt service coverage ratios, loan-to-value ratios, loan terms, amortization periods, and loan-to-cost limits for construction projects.

While leverage is an important consideration, management places significant emphasis on cash flow generation and uses borrower stress testing to determine supportable loan amounts.

Unsecured loans present a higher level of risk due to the absence of a defined secondary source of repayment.

Accordingly, commercial unsecured lending is generally limited to high quality borrowers with well-established businesses, strong cash flow, and low financial and operating leverage.

Repayment capacity for unsecured borrowers is expected to exceed policy guidelines

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

applicable to secured loans.

In addition, the Company strengthened underwriting standards for consumer unsecured lending by increasing minimum qualifying Fair Isaac Corporation (“FICO”) score requirements and reducing approved loan amounts for borrowers with lower credit scores, which contributed to a significant reduction in loss rate.

Deferred loan costs, net of fees, included in loan portfolio balances totaled $ 14.5 million at December 31, 2025 and $ 8.8 million at December 31, 2024.

Discounts on purchased 1-4 family loans included in portfolio balances totaled $ 73.2 thousand and $ 104.1 thousand at December 31, 2025 and December 31, 2024, respectively.

As of December 31, 2025 the Company had $ 339 thousand in loans held-for-sale and none as of December 31, 2024.

Loan Restructurings

On April 1, 2022, the Company adopted the accounting guidance in ASU No.

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

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

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

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

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

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

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

For a discussion with respect to reserve calculations regarding IELs refer to the “Nonrecurring Basis” section in Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in Item 8.

of this Annual Report on Form 10-K.

For the three months ended December 31, 2025, the Company modified one construction loan to a borrower experiencing financial difficulty with a recorded investment of $ 0.7 million at the time of modification;

the modification consisted of an accelerated maturity date, requiring full repayment by August 31, 2026 compared to the original maturity date of October 1, 2054.

The loan was classified as accruing and had no reserve as of December 31, 2025.

The financial effect of the modification was to shorten the repayment period by 28.11 years.

For the three months ended December 31, 2024, the Company modified three loans to borrowers experiencing financial difficulty with a total recorded investment of $ 5.6 million at the time of the modifications.

The modifications consisted of a payment delay on an accruing CRE loan totaling $ 4.5 million, a payment delay on an accruing C&I loan totaling $ 1.1 million, and a term extension/payment delay on a nonperforming C&I loan in the amount of $ 19 thousand.

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

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Total Restructured Loans 12 $ 220,997 5.70 % 15 $ 260,042 7.17 %

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

CARTER BANKSHARES, INC.

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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 year ended December 31, 2024:

Payment Status (Amortized Cost Basis)

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

The following table depicts the performance of loans that have been modified during the years ended December 31:

As of December 31, 2025 As of December 31, 2024

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

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

Accruing Restructured Loans

4 unchanged sentences

Construction 6,062 — — 6,062 — — — —

Other — — — — — — — —

Total Accruing Restructured Loans $ 6,062 $ — $ — $ 6,062 $ 5,569 $ — $ — $ 5,569

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Total Restructured Loans (1)

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.

$ 220,997 $ — $ — $ 220,997 $ 260,042 $ — $ — $ 260,042

The following tables present the amortized cost of modified loans to borrowers experiencing financial difficulty by portfolio segment and type of modification during the periods presented:

Twelve Months Ended December 31, 2025

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

Commercial and Industrial — — 915 915 0.39 %

Construction 5,402 660 — 6,062 1.30 %

Other — — 214,020 214,020 98.56 %

Total $ 5,402 $ 660 $ 214,935 $ 220,997 5.70 %

Twelve Months Ended December 31, 2024

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

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

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

Twelve Months Ended December 31, 2025

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

Weighted-Average Payment Delay Weighted-Average Accelerated Maturity Date Weighted-Average Modified Rate Weighted-Average Short-term Extension Weighted-Average Interest Rate Reduction

Commercial and Industrial — — 2.29 % 0.59 years — %

Construction 0.32 years 28.11 years — % — — %

Other — — — % 0.33 years 0.08 %

Twelve Months Ended December 31, 2024

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

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

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Other — — — % 2.60 years 0.67 %

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

As of December 31, 2024 and December 31, 2023 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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

As of December 31, 2025 and December 31, 2024, the Bank had approximately $ 4.5 million of commitments to lend additional funds on accruing loans that had been restructured.

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

In addition, as of December 31, 2025 and December 31, 2024, the Bank had no loan commitments that defaulted during the period and had been modified prior to payment default while the borrower was experiencing financial difficulty at the time of modification.

For purposes of this disclosure, a default is defined as the occurrence, within 12 months of the original loan modification, of either a full or partial charge-off or the loan becoming 90 days or more past due.

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

Residential real estate included in OREO totaled zero at both December 31, 2025 and December 31, 2024, respectively.

Loans to principal officers, directors and their affiliates during 2025 were as follows:

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Beginning Balance $ 2,502

Loan no Longer Associated with Current Officer ( 120 )

Principal Additions 102

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Balance at End of Year $ 2,168

NOTE 7 - ALLOWANCE FOR CREDIT LOSSES

The Company maintains an ACL at a level management believes is adequate to absorb expected credit losses associated with the Company’s financial instruments over their contractual lives as of the balance sheet date.

The ACL is estimated using a systematic methodology that incorporates historical loss experience, current conditions, and reasonable and supportable forecasts.

The Company’s loan portfolio is segmented by homogeneous loan types that are expected to respond similarly to changes in economic conditions.

The portfolio segments used in developing the ACL are as follows:

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

Management evaluates credit risk and estimates expected credit losses for each portfolio segment based on the specific risk characteristics described below.

CRE loans are secured by income producing or owner occupied commercial properties, including hotels, retail centers, office buildings, and multifamily properties.

The primary sources of repayment are cash flows generated by the underlying properties

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 6 - ALLOWANCE FOR CREDIT LOSSES

The Company maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Company’s financial instruments over the life of those instruments as of the balance sheet date.

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

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

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

The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments.

Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans.

The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing.

Cash flow from the operations of the borrower is the primary source of repayment for these loans.

The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower.

Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

These loans are also made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment.

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.

and, where applicable, global cash flows of the borrower.

Credit risk in this segment is influenced by property specific factors, borrower financial strength, tenant concentration, and local and regional economic conditions affecting property values and demand.

C&I loans are extended to operating companies for working capital, equipment financing, inventory, and accounts receivable financing.

Repayment is primarily dependent on the cash flows generated from the borrower’s ongoing operations.

Credit risk in this segment is influenced by borrower profitability, leverage, liquidity, and industry specific risks, as well as broader economic conditions.

Collateral supporting these loans may have limited liquidation value in a stressed environment.

This segment also includes loans to local and state municipalities for purposes such as refinancing existing obligations, infrastructure improvements, and equipment purchases.

These loans may be supported by general obligation pledges or specific revenue streams.

Repayment is generally dependent on the taxing authority, or revenues of the municipal borrower, and credit risk is influenced by the financial condition and economic stability of the underlying jurisdiction.

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.

Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchased money mortgages.

The primary source of repayment for these loans is the income of the borrower.

The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment.

The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

Other Consumer loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured.

This segment includes auto loans and unsecured loans and lines.

The primary source of repayment for these loans is the income and assets of the borrower.

The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment.

Residential Mortgages are secured by first and second liens on 1-4 family residential properties, including home equity loans, home equity lines of credit and purchased money mortgages.

The primary source of repayment is the income and financial capacity of the borrower.

Credit risk in this segment is influenced by borrower employment levels, income stability, and housing market conditions, including changes in property values that may affect a borrower’s ability to refinance or sell the underlying collateral.

Other Consumer loans consist of loans to individuals that may be secured by collateral other than residential real estate or unsecured.

This segment includes automobile loans and unsecured consumer loans and lines of credit.

Repayment is primarily dependent on the income and financial condition of the borrower.

Credit risk is influenced by the condition of the local economy, including unemployment levels, borrower credit profiles, and where applicable, the value and liquidity of collateral.

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

Construction loans include both commercial and consumer.

Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes.

While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal.

Construction loans include both commercial and residential construction lending.

Commercial construction loans finance the development of income producing properties or the acquisition and development of land.

These loans are subject to risks related to project completion, cost overruns, contractor performance, and market demand upon stabilization.

The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction.

Residential construction loans to individuals generally provide for the payment of interest only during the construction phase.

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

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

The ACL reserve for the Other segment is based on a discounted cash flow methodology and reserves will fluctuate based on expected cash flow changes in the future.

Repayment may depend on the successful completion and leasing or sale of the project.

Residential construction loans are generally extended to finance the construction of owner occupied or presold residential properties and typically provide for interest only payments during the construction period.

Credit risk arises from construction delays, cost overruns, contractor performance, and economic conditions affecting housing demand.

The “ Other” loan segment consists primarily of the Company’s largest lending relationship with unique risk characteristics that differ from the Company’s current standard underwriting criteria.

Expected credit losses for this segment are estimated using a DCF methodology, and the related ACL may fluctuate based on changes in expected future cash flows.

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.

Current Expected Credit Losses (“CECL”) Model

The Company’s CECL model is based on management’s best estimates using information available as of the reporting date.

Certain components of the CECL model are inherently subjective, including, but not limited to, assumptions related to prepayment speeds and timing, loss given default, discount rates, and the timing of future cash flows.

Management utilizes widely published economic forecasts as inputs to the regression analysis used to estimate probabilities of default in the baseline CECL model.

The projected peaks and troughs within these forecasts serve as guardrails when evaluating

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

Current Expected Credit Losses (“CECL”) Model

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

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

prepayment speeds, the timing of prepayments, potential losses given default, discount rates and the timing of future cash flows.

Management utilizes widely published economic forecasts as the basis for the regression analysis used to estimate the probability of default in the baseline model.

The peaks and troughs of these forecasts serve as guardrails for potential subjective adjustments.

In addition to considering the outcomes based on the range of forecasts, management recognizes that the assumptions used in economic forecasts may not perfectly align with our market area, risk profile or unique attributes of our portfolio along with other important considerations.

Severe changes in forecasts can also create significant variability and management must assess not only the absolute balance of reserves but also consider the appropriateness of the velocity of change.

Therefore, management developed a framework to assess the tolerance and reasonableness of the CECL modeling process by challenging certain elements of the forecasts, when appropriate.

These outcomes, known as “challenger models,” provide opportunities to examine and subjectively adjust the CECL model output and are designed to be counter cyclical, thereby reducing variability.

potential qualitative management adjustments.

While management considers outcomes across a range of scenarios, it also recognizes that published forecasts may not fully reflect the Company’s specific market footprint, risk profile or unique portfolio characteristics.

Significant changes in economic forecasts may introduce volatility into modeled results.

Accordingly, management evaluates not only the absolute level of the ACL, but also the reasonableness of the magnitude and pace of changes in the allowance.

To address this, management has developed a framework to assess the tolerance and reasonableness of CECL outputs by challenging certain model assumptions when appropriate.

These alternative outcomes, referred to as “challenger models,” are designed to provide additional perspective, support management judgment, and reduce undue volatility in reserve levels through a countercyclical approach.

Credit Quality Indicators:

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

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

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

The Company has a loan review policy and annual scope report that details the level of loan review for loans in a given year.

The annual loan review provides the Credit Risk Committee with an independent analysis of the following:

1) credit quality of the loan portfolio, 2) compliance with the loan policy, 3) adequacy of documentation in credit files and 4) validity of risk ratings.

Since 2020 and continuing through 2024, the Company used a five step approach for loan review in the following categories:

• Individual reviews of the top twenty large loan relationships (“LLRs”), which are defined as any individual commercial loan or aggregate commercial relationship totaling $ 2.0 million or more;

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

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

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

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

Focus reviews are performed annually on a rotational basis.

The Company’s internally assigned grades are as follows:

Pass – The Company uses six grades of pass, including its watch rating.

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

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

The Company’s credit quality assessment is based on an internal loan grading system that evaluates the borrower’s capacity to repay contractual obligations in accordance with loan terms.

Risk ratings consider factors such as debt service coverage, collateral values, borrower financial condition, and other qualitative considerations.

Residential mortgage and consumer loans are generally assigned a pass rating unless a loan migrates to a past due or otherwise criticized status.

The Company maintains a formal loan review policy and annual loan review scope report that defines the level and focus of independent loan review activities for the year.

The annual loan review provides the Credit Risk Committee with an independent assessment of 1) overall credit quality of the loan portfolio, 2) compliance with lending policies, 3) adequacy of credit documentation, and 4) appropriateness of assigned risk ratings.

From 2020 through 2025, loan review activities followed a structured, multi-step approach that included:

• Individual reviews of the top 20 large loan relationships (“LLRs”), defined as any individual commercial loan or aggregate commercial relationship totaling $ 2.0 million or more;

• Sampling of other large loan relationships meeting the same exposure threshold but not included in the top 20 LLRs;

• Sample review of Executive Loan Committee approved modifications, including both new and existing loans, to evaluate consistency with established policies and procedures;

• Sample review of non-organic commercial loans and loans approved outside of the Executive Loan Committee process;

• Annual rotational focus reviews of specific portfolio segments to identify emerging risk rather than assess individual loan performance.

The Company assigns internal risk grades to all loans as follows:

Pass – The Company utilizes multiple pass grades, including a watch designation.

Loans rated pass are generally performing in accordance with contractual terms and are considered to be of high credit quality.

Special Mention – Loans with potential weaknesses that warrant management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects or the Company’s credit position.

Substandard – Loans that are inadequately protected by the borrower’s paying capacity or by the collateral pledged, if any.

These loans exhibit well-defined weaknesses that jeopardize repayment and present a distinct possibility of loss if deficiencies are not corrected.

Doubtful – Loans that possess all the weaknesses inherent in substandard loans, with the added characteristic that collection or liquidation in full is highly questionable and improbable based on currently known facts, conditions, and values.

Loss – Loans considered to be of such little value that continuation on the balance sheet is not warranted.

While partial recovery may occur in the future, the asset is deemed uncollectible and is charged off.

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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

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.

Loss – Assets considered of such little value that its continuance on the books is not warranted.

This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

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.

The repayment of commercial loans is dependent on the success of the borrower’s business and overall economic conditions.

Given the higher inherent risk within the commercial portfolio, these loans are monitored through ongoing risk grading and periodic review in accordance with internal policies.

Loans rated special mention or substandard require increased oversight and active management to mitigate potential credit losses.

CARTER BANKSHARES, INC.

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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 December 31:

The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments as of December 31, 2025 and 2024, respectively:

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

At both December 31, 2025 and December 31, 2024, the Bank’s largest credit relationship was classified as nonperforming and substandard, with aggregate principal balances of $ 214.0 million and $ 252.0 million, respectively.

The following tables present loan balances by year of origination and performing and nonperforming status for our portfolio segments as of December 31, 2025 and 2024, respectively:

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

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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 December 31, 2023:

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

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Loans past due 90 days or more and still accruing were zero at December 31, 2025 and 2024.

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

Loans past due 90 days automatically transfer to nonaccrual status.

There were no nonaccrual or past due loans related to loans held-for-sale as of December 31, 2025 and December 31, 2024, respectively.

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

The following table presents loans on nonaccrual status by portfolio segment of loan for the periods presented.

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

2 unchanged sentences

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

Loans Past Due

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

Loans Past Due

Still Accruing

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

Commercial Real Estate $ 8,002 $ 15,859 $ 23,861 $ — $ 1,176 $ 1,176

5 unchanged sentences

Total Portfolio Loans $ 10,020 $ 233,962 $ 243,982 $ 2,053 $ 257,296 $ 259,349

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

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

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

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

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

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.

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

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

During the years ended December 31, 2024 and December 31, 2023, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans.

A loan is generally placed on nonaccrual status when management determines that the collection of principal and interest is unlikely.

Upon placement on nonaccrual status, the Company discontinues the accrual of interest income and reverses any unpaid accrued interest.

Delinquency status is a key indicator used in evaluating collectability.

Accordingly, loans are generally transferred to nonaccrual status when they become 90 days or more past due.

Management, however, may exercise judgment at the individual loan level.

A loan may be placed on nonaccrual status prior to becoming 90 days past due if collectability of principal and interest is doubtful.

Conversely, a loan that is 90 days or more past due may remain on accrual status if management believes it is well secured and in the process of collection.

Nonaccrual loans, including loans that have been restructured, may be individually evaluated for expected credit losses when the outstanding loan balance is $ 1.0 million or greater or when management determines individual evaluation is appropriate.

Loans not individually evaluated are included in the applicable pooled segment of the ACL.

For the years ended December 31, 2025 and December 31, 2024, no material interest income was recognized on nonperforming loans (“NPLs”) subsequent to their classification as nonaccrual.

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

The following table presents the amortized cost basis of IELs as of the periods presented.

Changes in the fair value of the types of collateral and DCF modeling for IELs are reported in the (recovery) provision for credit losses on loans in the period of change.

December 31, 2025

Collateral Type Equipment Single Family Discounted Cash Flow Total

Collateral Type Equipment Single Family Warehouse Office Building Discounted Cash Flow Total

(Dollars in Thousands) Fair Value - Collateral

Commercial Real Estate $ — $ — $ 9,494 $ 14,321 $ — $ 23,815

Commercial and Industrial $ 915 $ — $ — $ — $ — $ 915

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

Construction — 661 — — — 661

Other — — — — 214,020 214,020

1 unchanged sentence

December 31, 2024

Collateral Type Office Single Family Land Discounted Cash Flow Total

Collateral Type Equipment Single Family Discounted Cash Flow Total

(Dollars in Thousands) Fair Value - Collateral

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

Commercial and Industrial 1,026 — — 1,026

Residential Mortgage — 2,053 — 2,053

Construction — 2,090 808 — 2,898

Other — — 251,982 251,982

8 unchanged sentences

Recoveries — 6 14 394 1 — 415

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

Net (Charge-offs) / Recoveries — ( 1 ) 14 ( 485 ) — — ( 472 )

Balance, End of Year $ 22,526 $ 2,790 $ 12,449 $ 638 $ 15,020 $ 18,068 $ 71,491

18 unchanged sentences

Recoveries — 88 110 475 — — 673

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

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

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

14 unchanged sentences

Equity Securities 10,291 10,291 — —

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

Derivatives 10,182 — 10,182 —

17 unchanged sentences

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

Equity Securities 10,041 10,041 — —

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

Derivatives 17,356 — 17,356 —

2 unchanged sentences

Total $ 17,710 $ — $ 17,710 $ —

We have invested in subordinated debt of other financial institutions.

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

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

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

The Company invests in subordinated debt securities issued by other financial institutions that are classified as Corporate Notes in the tables above.

At December 31, 2025, the Company held one such security with an aggregate fair value of $ 3.3 million, compared to two securities with an aggregate fair value of $ 7.8 million at December 31, 2024 that were classified within Level 3 of the fair value hierarchy due to the absence of observable market inputs and limited trading activity.

The decrease of $ 4.5 million in the fair value of Level 3 classified Corporate Notes in the tables above between December 31, 2024 and December 31, 2025 was primarily attributable to the issuer’s call and subsequent redemption of one subordinated debt security with a principal balance of $ 5.0 million during the fourth quarter of 2025.

The fair value of these Level 3 securities is estimated by benchmarking to similar instruments with observable market data classified as Level 2.

Valuation techniques incorporate comparable financial ratio analysis and qualitative assessments specific to the industry in which the underlying issuers operate.

Key factors considered include capital adequacy, asset quality trends, management effectiveness, core earnings capacity, liquidity profile, and on and off-balance sheet interest rate exposures.

Financial assets measured at fair value on a nonrecurring basis at December 31, 2025 and 2024 are summarized below:

7 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 December 31, 2024 and zero at December 31, 2023.

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

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

When evaluating the net carrying value of this credit relationship at December 31, 2024, the Company utilized discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.

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

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

The Company had three IELs totaling $ 22.8 million that were measured at fair value on a nonrecurring basis at December 31, 2025, compared to one totaling $ 0.6 million at December 31, 2024.

The Company’s largest credit relationship is classified as an IEL with a net carrying amount of $ 196.0 million at December 31, 2025, compared to $ 221.7 million at December 31, 2024.

In estimating fair value, management utilized DCF techniques incorporating various assumptions related to the timing and amount of expected recoveries under multiple collection scenarios.

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

These valuation techniques resulted in a valuation allowance of $ 18.0 million at December 31, 2025, compared to $ 30.3 million at December 31, 2024.

OREO, which is measured at the lower of carrying amount or fair value less costs to sell, had a net carrying amount of $ 0.1 million as of December 31, 2025, compared to $ 0.7 million at December 31, 2024.

The decrease was primarily attributable to property sales during 2025.

OREO write-downs of $ 0.5 million were recorded during the year ended December 31, 2025, compared to $ 0.2 million of write-downs recorded during the year ended December 31, 2024.

The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis as of December 31, 2025 and 2024:

3 unchanged sentences

Total Individually Evaluated Loans $ 22,809

OREO $ — Appraisals Estimated Selling Costs — % — %

OREO 143 Internal Valuations Estimated Selling Costs 5.0 % 5.0 %

OREO 516 Discounted Internal Valuations Management's Subject Discount 24.0 % 24.0 %

OREO 142 Discounted Internal Valuations Management's Subjective Discount 5.0 % 5.0 %

Total OREO $ 142

1 unchanged sentence

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

OREO $ 130 Appraisals Estimated Selling Costs 6.0 % 6.0 %

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

Total Individually Evaluated Loans $ 579

OREO $ 143 Internal Valuations Estimated Selling Costs 5.0 % 5.0 %

1 unchanged sentence

Total OREO $ 659

A baseline discount rate has been established for impairment measurement.

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

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

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

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

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

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

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.

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

A baseline discount rate has been established for use in impairment and fair value measurements.

This baseline rate was developed through back-testing against historical OREO sales and reflects an average recovery rate based on transaction size and asset type within the population analyzed.

Management considers the specific facts and circumstances of each IEL and may apply judgment to adjust the baseline discount rate when appropriate.

The carrying values and estimated fair values of the Company’s financial instruments at December 31, 2025 and December 31, 2024 are presented in the accompanying tables.

Fair values are estimated in accordance with the exit price notion under ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities .

In accordance with U.S.

GAAP, the Company is required to disclose the estimated fair value of financial instruments carried at amortized cost when quoted market prices are not readily available.

Estimated fair values are derived using present value techniques or other valuation methodologies and are significantly affected by the assumptions applied, including discount rates and expected future cash flows.

Because these estimates are based on models and assumptions rather than observable market transactions, they may not be realized upon immediate settlement.

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

CARTER BANKSHARES, INC.

7 unchanged sentences

Equity Securities 10,291 10,291 — — 10,291

Loans Held-for-Sale 339 — — 339 339

Portfolio Loans, net 3,808,069 — — 3,711,795 3,711,795

Federal Home Loan Bank Stock, at Cost 6,487 — — NA NA

Other Restricted Stock, at Cost 16,830 — — NA NA

Other Assets- Interest Rate Derivatives 10,182 — 10,182 — 10,182

10 unchanged sentences

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

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

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

11 unchanged sentences

NOTE 9 - RIGHT-OF-USE (“ROU”) ASSETS AND LEASE LIABILITIES

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

These leases are for our branch and loan production facilities.

There were two new lease agreements entered into in 2024.

The Company has 13 lease contracts, including seven finance leases and six operating leases at December 31, 2025.

These leases are for eight of our branches, three loan production facilities, one commercial banking office and one additional office housing various Bank functions.

There were four new lease agreements entered into in 2025.

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

49 unchanged sentences

Total $ 72,497 $ 74,329

At both December 31, 2024 and December 31, 2023, we had no bank premises and equipment held-for-sale.

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

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

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

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

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

At both December 31, 2025 and December 31, 2024, the Company had no bank premises and equipment classified as held-for-sale.

Depreciation expense, which is included within occupancy expense, net, in the Consolidated Statements of Income, totaled $ 7.9 million in 2025, $ 7.1 million in 2024, and $ 6.2 million in 2023.

Real estate associated with closed branches was evaluated based on recent comparative market values obtained from a real estate broker.

During 2025, the Company recorded write-downs of $ 0.5 million, and recognized write-downs of $ 0.2 million and $ 0.5 million during 2024 and 2023, respectively.

These write-downs related to closed branches and are included within other noninterest expense in the Consolidated Statements of Income.

The remaining net carrying values of $ 0.1 million and $ 0.7 million were classified as OREO in the Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024, respectively .

NOTE 11 - OTHER REAL ESTATE OWNED

4 unchanged sentences

Loans Transferred to OREO — 1,181 110

Loans to Finance the Sale of OREO ( 525 ) — —

Transfer of Closed Retail Offices to OREO 1,829 348 1,854

3 unchanged sentences

End of Year Balance $ 142 $ 659 $ 2,463

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

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

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

OREO consists of properties obtained through foreclosure or by deed in lieu of foreclosure when the Company takes physical possession of the collateral.

At both December 31, 2025 and 2024, the balance of OREO was zero and $ 0.2 million at December 31, 2023.

At both December 31, 2025 and 2024, the recorded investment in foreclosed residential real estate was zero .

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process totaled $ 2.0 million and $ 0.4 million at December 31, 2025 and 2024, respectively.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Income and expenses applicable to foreclosed assets include the following:

4 unchanged sentences

Net Gain on Sales ( 292 ) ( 1,026 ) ( 17 )

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

OREO Expense (Income) $ 250 $ ( 829 ) $ 1,278

NOTE 12 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents a roll forward of the Company's goodwill activity:

Year Ended December 31, 2025

(Dollars in Thousands)

Beginning Balance $ —

Goodwill acquired in Branch Purchase 1,193

Ending Balance $ 1,193

The Company believes that customer relationships associated with deposits acquired in business combinations represent identifiable intangible assets.

Accordingly, in connection with acquisitions, the Company recorded a core deposit intangible, which represents the value of the acquired entity’s relationships with its deposit customers.

The fair value of the core deposit intangible was estimated using a DCF methodology that considered the type of deposit, estimated deposit retention, the cost of maintaining the deposit base, and an alternate cost of funds.

The following tables present the details of the Company's core deposit intangible:

Year Ended December 31, 2025

(Dollars in Thousands)

Gross Carrying Amount $ 1,101

Accumulated Amortization ( 161 )

Ending Balance $ 940

Beginning Balance $ —

Core Deposit Intangible in Branch Purchase 1,101

Amortization Expense ( 161 )

Ending Balance $ 940

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

The estimated amortization expense for core deposit intangible assets for each of the next five years and thereafter is as follows:

(Dollars in Thousands)

Thereafter 199

The Company will complete an annual assessment of the carrying value of goodwill during 2026 to determine whether or not its carrying value is impaired.

Refer to Note 2, Business Combinations in the Notes to Consolidated Financial Statements in Item 8.

of the Annual Report on Form 10-K for additional information on the Branch Acquisition.

CARTER BANKSHARES, INC.

2 unchanged sentences

NOTE 13 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

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

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

Interest Rate Swap Arrangements with Customers

Interest rate swaps are contracts under which a series of fixed and variable interest rate payments are exchanged over a specified period.

The notional amounts on which the interest payments are based are not exchanged.

These derivative positions relate to transactions in which the Company enters into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution, or counterparty.

In connection with each transaction, the Company originates a floating rate loan to the customer at a notional amount.

In turn, the customer contracts with the counterparty to swap the stream of cash flows associated with the floating interest rate loan with the Company for a stream of fixed interest rate cash flows based on the same notional amount as the Company’s loan.

The transaction allows the customer to effectively convert a variable rate loan to a fixed rate loan with the Company receiving a variable rate.

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

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

The Pay-Fixed Swap Agreements were designated as fair value hedges in order to hedge the risk of changes in the fair value of the fixed rate loans included in amortizing single family mortgages and CRE loans.

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

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

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

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

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

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

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

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

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

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

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

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.

Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions.

Based upon current positions and related future collateral requirements relating to them, management believes any effect on our cash flow or liquidity position to be immaterial.

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.

The Company enters into interest rate swap transactions with commercial customers to facilitate customer risk management objectives.

In these transactions, the Company originates a floating rate loan to the customer at a notional amount and simultaneously enters into a corresponding offsetting interest rate swap with a third party financial institution or counterparty.

Under this structure, the customer enters into an interest rate swap with the Company to exchange the variable rate cash flows associated with the loan for fixed rate cash flows based on the same notional amount as the Company’s loan.

These transactions allow customers to effectively convert variable rate loans to fixed rate loans, while the Company receives variable rate payments.

Certain agreements may include contractual interest rate floors or caps.

Customer related interest rate swaps are considered derivatives, but are not designated as hedging instruments for accounting purposes.

Accordingly, changes in the estimated fair value of these derivatives are recognized in current earnings in the Consolidated Statements of Income.

Balance Sheet Hedging Activities

The Company also utilizes derivatives to hedge interest rate risk associated with on balance sheet assets.

On July 11, 2024, the Company entered into two related Pay-Fixed/Receive Floating Interest Rate Swap Agreements with a combined notional amount of $ 300.0 million.

These swaps were designated as fair value hedges to mitigate changes in the fair value of the fixed rate loans, including amortizing single-family residential mortgage loans and CRE loans.

The hedges were intended to synthetically convert the hedged fixed rate loans to floating rate loans indexed to SOFR.

On December 19, 2024, the Company terminated the first Pay-Fixed/Receive Floating Swap Agreement with an original notional amount of $ 175.0 million, which was scheduled to mature on July 11, 2029.

The termination resulted in a negative interest income adjustment of $ 154 thousand.

On January 13, 2025, the Company terminated the remaining Pay-Fixed/Receive Floating Swap Agreement with an original notional amount of $ 125.0 million, which was scheduled to mature on July 11, 2027, resulting in a negative interest income adjustment of $ 110 thousand.

While these Pay-Fixed/Receive Floating Swap Agreements were outstanding, the Company recognized $ 1.2 million of interest income related to these hedging instruments.

Hedge Accounting Treatment

As long as a hedging instrument is properly designated and effectiveness testing supports qualification for hedge accounting treatment, changes in fair value of the hedging instrument attributable to the hedged risk are recognized in net interest income.

The fair value of the derivative is recorded in other assets or other liabilities, as applicable, with a corresponding adjustment recorded to the carrying amount of the hedged loans.

Under this accounting treatment, there is no separate measurement or recognition of hedge ineffectiveness, and the full impact of hedge gains and losses is recognized in earnings in the period in which the hedged item affects earnings.

Collateral and Credit Risk

Pursuant to agreements with various financial institutions, the Company may be required to post collateral or may receive collateral based on the mark-to-market position of its derivative contracts.

Beyond unsecured threshold levels, collateral may be provided in the form of cash or securities.

Based on current derivative positions and related collateral requirements, management believes any impact on the Company’s liquidity or cash flows is immaterial.

Derivative instruments expose the Company to credit risk, representing the risk that a counterparty may fail to perform under the terms of a contract.

All derivative transactions with financial institutions are executed only with counterparties approved by

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

the Asset and Liability Committee (“ALCO”).

Derivative transactions with customers are subject to approval by members of senior management with appropriate training and experience in interest rate risk management.

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

5 unchanged sentences

Transactions Notional

Derivatives Designated as Hedging Instruments

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

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

Derivatives not Designated as Hedging Instruments

17 unchanged sentences

Total Derivatives 57 $ 353,512 $ 10,089 60 $ 494,716 $ 17,710

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

The following table indicates the net loss recognized within “other noninterest income or expense” for derivatives not designated as hedging instruments and the loss recognized within “interest income on taxable loans” for derivatives designated as hedging instruments in the Consolidated Statements of Income for the years ended December 31:

(Dollars in Thousands) 2025 2024 2023

6 unchanged sentences

Interest Rate Swap Contracts – Commercial Loans ( 107 ) ( 12 ) ( 219 )

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

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

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

For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

Total Derivative Loss not Designated as Hedging Instruments ( 107 ) ( 12 ) ( 219 )

Net Derivative Loss $ ( 247 ) $ ( 137 ) $ ( 219 )

The Company is permitted to offset derivatives assets and derivative liabilities that are subject to legally enforceable master netting arrangements with the same counterparty.

Accordingly, derivative positions with the same counterparty may be presented on a net basis in the Consolidated Balance Sheets when the Company has both a derivative asset and a derivative liability related to swap transactions with that counterparty.

CARTER BANKSHARES, INC.

22 unchanged sentences

Total $ 4,210,889 $ 4,153,421

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

The Dodd-Frank Act , signed into law on July 2 1 , 2010, makes permanent the $250,000 limit for federal deposit insurance and the coverage limit applies per depositor, per insured depository institution for each account ownership.

Certificates of deposits that exceed the FDIC Insurance limit of $250,000 at year-end 2024 and 2023 were $ 297.9 million and $ 305.0 million, respectively.

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

All deposit accounts are insured by the FDIC up to the maximum amount allowed by law.

The Dodd-Frank Act, made 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 deposit that exceed the FDIC Insurance limit of $250,000 at year-end 2025 and 2024 were $ 310.7 million and $ 297.9 million, respectively.

At December 31, 2025 and December 31, 2024, total brokered deposits (excluding the ICS two-way) were $ 191.2 million and $ 196.1 million, respectively, which are included within the “certificates of deposit” line item in the Consolidated Balance Sheets.

Certificates of Deposit maturing as of December 31:

10 unchanged sentences

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

The Company had $ 70.0 million FHLB borrowings at December 31, 2024 and $ 393.4 million at December 31, 2023.

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.

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

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

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

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

At December 31, 2024, funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25 % of the Company’s assets or approximately $ 1.2 billion, subject to the amount of eligible collateral pledged, of which the Company is eligible to borrow up to an additional $ 735.3 million.

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

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

The Company had the capacity to borrow up to an additional $ 480.3 million from the FHLB at December 31, 2023.

At December 31, 2025, the Company had $ 178.5 million of outstanding Federal Home Loan Bank (“FHLB”) borrowings, compared to $ 70.0 million at December 31, 2024.

The $ 108.5 million increase year over year was primarily to fund loan growth.

FHLB borrowings consist of fixed and variable rate advances with contractual maturities and are secured by a blanket lien on select residential mortgage loans, select multifamily loans, and select commercial real estate loans.

Variable rate FHLB borrowings represent 52 % and 0 % of total borrowings at December 31, 2025 and December 31, 2024, respectively.

The FHLB assesses prepayment fees on fixed rate advances that are repaid prior to maturity.

These fees are generally calculated as the net present value of the difference between current market rates and the contractual fixed rate on the applicable borrowing.

Loans pledged as collateral to the FHLB totaled $ 1.3 billion at December 31, 2025 and $ 1.6 billion at December 31, 2024.

No available-for-sale securities were pledged as collateral at December 31, 2025 or December 31, 2024.

At December 31, 2025, funding sources accessible to the Company included borrowing availability from the FHLB equal to 30 % of total assets, or approximately $ 1.5 billion, subject to the amount of eligible collateral pledged.

Based on eligible collateral at December 31, 2025, the Company had the capacity to borrow up to an additional $ 609.4 million from the FHLB, compared to additional borrowing capacity of $ 735.3 million at December 31, 2024 and the Company’s borrowing availability from the FHLB equated to 25 % of total assets at December 31, 2024.

In addition to FHLB funding, at December 31, 2025 and December 31, 2024, the Company maintained unsecured borrowing facilities with three correspondent financial institutions totaling $ 30.0 million, as well as a fully secured borrowing facility with one correspondent financial institution totaling $ 45.0 million.

No amounts were outstanding under these facilities as of December 31, 2025 or December 31, 2024.

The Company also had access to the institutional CD and the brokered deposit markets.

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

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(Dollars in Thousands) Balance Weighted Average Rate

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2027 20,000 3.83 %

2028 20,000 3.82 %

Thereafter — — %

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NOTE 16 - EMPLOYEE BENEFIT PLANS

The Company has adopted an integrated profit sharing plan, which allows for elective deferrals and non-elective profit sharing contributions.

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

Associates are eligible for the non-elective

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

The Company maintains an integrated profit-sharing plan that provides for both elective deferrals by eligible associates and non-elective profit-sharing contributions by the Company.

Associates become eligible to make elective deferrals at the beginning of the quarter following at least one month of employment and attainment of age 20 years and six months.

Eligibility for non-elective profit-sharing contributions begins at the start of the quarter following six months of employment, attainment of age 20 years and six months, and provided the associate is not participating in one of the Company’s annual incentive compensation programs.

Vesting of non-elective profit-sharing contribution is based on years of service, with a year of service defined as a plan year in which the associate completes at least 1,000 hours of service.

Participants become fully vested upon attaining age 62, regardless of years of service.

Participants who have not attained age 62 become 100 % vested after five years of service.

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

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5 Years of Service 100 % Vested

Any participant who has reached the age of 62 is fully vested regardless of length of service.

Each participant in the plan (who has not reached age 62) becomes 100 % vested after five ( 5 ) years of service.

The non-elective contribution to the plan is determined each year by the Company’s Board of Directors (the “Board”) and thus may fluctuate in amount from year to year.

The contribution by the Company, which includes contributions to the nonqualified plan discussed below, was $ 0.5 million in 2024, $ 0.4 million in 2023 and $ 1.0 million in 2022.

The amount of the non-elective profit-sharing contribution is determined annually by the Company’s Board of Directors (the “Board”) and may vary from year to year.

Total Company non-matching contributions to the integrated profit-sharing plan, including contributions to the nonqualified plan discussed below, were $ 0.6 million in 2025, $ 0.5 million in 2024 and $ 0.4 million in 2023.

These amounts are included in salaries and employee benefits in the Consolidated Statements of Income.

Beginning in 2019, our integrated profit sharing plan includes a Company match based upon an associate’s elective deferral.

This elective deferral is subject to dollar limits announced annually by the Internal Revenue Service (“IRS”).

Elective deferrals are matched equal to 100 % of the first 3 % deferred and 50 % of the next 2 %, producing a maximum 4 % match.

Expense for this deferral match was $ 1.4 million, $ 1.4 million and $ 1.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The Bank entered into a Nonqualified Profit Sharing Plan originally on December 30, 1996, which was subsequently amended and restated effective December 20, 2007.

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

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

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

In April 2017, a Distributable Event occurred, in which distributions will occur over 45 quarterly payments.

The value of the plan was $ 0.5 million as of December 31, 2024, and was solely comprised of cash.

The quarterly distributions began on January 1, 2018 and will continue to be paid out in equal quarterly installments approximating $ 30 thousand.

On December 15, 2020, the Bank adopted an unfunded, nonqualified deferred compensation plan, called the Nonqualified Deferred Compensation Plan, to provide (i) certain key executives of the Bank (beginning after the date of adoption) the opportunity to defer to a later year on a pre-tax basis certain compensation without being subject to the dollar limits that apply to these associates under the Bank’s tax-qualified integrated profit-sharing plan and (ii) the Bank’s non-employee directors (beginning in January 2022) the opportunity to defer to a later year on a pre-tax basis certain director fees.

The compensation and fees (and related earnings) deferred under this plan are held in a grantor trust until paid to the participants and remain subject to the claims of the creditors of the Bank and Company until paid to the participants.

The balance in the nonqualified deferred compensation plan at December 31, 2024 and December 31, 2023 was $ 596.3 thousand and $ 447.8 thousand, respectively.

NOTE 15 – INCENTIVE AND RESTRICTED STOCK PLAN

The Bank Board adopted the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan on March 29, 2018 based on the recommendation of the Bank’s Nominating and Compensation Committee (now, a committee of the Company, the “Committee”), which became effective on June 27, 2018.

In connection with the Reorganization, the Company adopted and assumed the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan as its own (now the Carter Bankshares, Inc.

Amended and Restated 2018 Omnibus Equity Incentive Plan, or, for purposes of this discussion, the “Plan”).

The Plan reserves a total 2,000,000 shares of common stock for issuance and provides for the grant to key associates and non-employee directors of the Company and its subsidiaries of awards that may include one or more of the following:

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

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

Our integrated profit-sharing plan also includes a Company safe harbor matching contribution based on an associate’s elective deferrals, subject to annual dollar limits established by the Internal Revenue Service.

The Company matches 100 % of the first 3 % deferred and 50 % of the next 2 % deferred, for a maximum matching contribution of 4 % of eligible compensation.

Participant elective deferrals are always fully vested.

This safe harbor match is also immediately 100 % vested.

Company matching contributions totaled $ 1.6 million, $ 1.4 million and $ 1.4 million for the years ended December 31, 2025, 2024 and 2023, respectively and are recognized in salaries and employee benefits in the Consolidated Statements of Income.

The Bank also maintains a Nonqualified Profit-Sharing Plan originally adopted on December 30, 1996, which was subsequently amended and restated effective December 20, 2007.

The amended plan was approved by the Bank’s Board of Directors on December 20, 2007.

The purpose of this plan is to provide additional benefits to an executive upon the occurrence of a “Distributable Event,” defined as termination of employment or death.

Since inception, the Bank’s former Chairman and Chief Executive Officer was the sole participant in the plan.

A Distributable Event occurred in April 2017, resulting in benefits payable over 45 equal quarterly installments.

Distributions began on January 1, 2018, and will continue through completion of the payment schedule, with quarterly payments approximating $ 30 thousand.

The value of the plan was $ 0.4 million at December 31, 2025 and consisted solely of cash.

On December 15, 2020, the Bank adopted an unfunded nonqualified deferred compensation plan (the “Nonqualified Deferred Compensation Plan”) to provide (i) certain key executives with the opportunity to defer, on a pre-tax basis, a portion of their

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

The Committee will determine the vesting period on the awards.

No awards may be granted under the Plan more than ten years from the effective date of the Plan.

As of December 31, 2024, 1,416,491 shares of common stock were available for issuance under the Plan.

For purposes of this Note 15, references to the “Company” mean the “Bank” with respect to actions prior to the Reorganization.

compensation beyond the limits applicable under the Company’s tax-qualified integrated profit-sharing plan, and (ii) non-employee directors, beginning in January 2022, the opportunity to defer certain director fees on a pre-tax basis.

Compensation, director fees, and related earnings deferred under this plan are held in a grantor trust until paid to participants and remain subject to the claims of the Bank’s and Company’s general creditors.

No non-employee directors participated in the plan during either the year ended December 31, 2025 or December 31, 2024.

The balance of the Nonqualified Deferred Compensation Plan was $ 0.8 million at December 31, 2025 and $ 0.6 million at December 31, 2024.

NOTE 17 – INCENTIVE AND RESTRICTED STOCK PLAN

2018 Omnibus Equity Incentive Plan

On March 29, 2018, the Bank’s Board of Directors adopted the Carter Bank & Trust 2018 Omnibus Equity Incentive Plan upon recommendation of the Bank’s Nominating and Compensation Committee (now, a joint committee of the Company and the Bank, the “Committee”).

The Plan became effective on June 27, 2018.

In connection with the Reorganization, the Company adopted and assumed the Plan as its own, as amended and restated, now known as the Carter Bankshares, Inc.

Amended and Restated 2018 Omnibus Equity Incentive Plan (the “Plan”).

The Plan provides for the grant of equity based awards to key associates and non-employee directors of the Company and its subsidiaries.

Awards authorized under the Plan may include stock options, restricted stock, restricted stock units, stock appreciation rights, stock awards, performance units, and performance cash awards (collectively, “Awards”).

Certain Awards may provide for accelerated vesting upon the occurrence of specified events.

The Plan reserves a total of 2,000,000 shares of the Company’s common stock for issuance.

No Awards may be granted more than ten years from the effective date of the Plan.

As of December 31, 2025, 1,264,322 shares of common stock remained available for future issuance under the Plan.

Awards subject to time-based vesting generally require a minimum vesting period of one year , and Awards subject to performance conditions require a minimum performance period of one year .

These minimum requirements do not apply to Awards granted as part of a retainer for service as a non-employee director.

The Committee, or its delegate, determines the terms and vesting conditions of all Awards.

For purposes of this note, references to the “Company” include the Bank for periods prior to the Reorganization.

Restricted Stock

The Company periodically issues restricted stock to non-employee directors and key associates pursuant to the Plan.

As of December 31, 2024, 607,084 shares of restricted stock had been granted under the Plan.

The Company granted 104,815 and 116,325 shares of restricted stock to key associates under the Plan during 2024 and 2023, respectively.

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

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

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

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

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

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

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

These grants were approved by the Committee as compensation for Board service.

The time-based shares of restricted stock granted in 2024 and 2023 fully vest one year after the grant date.

The fair value determination price for these grants is the same method as mentioned above.

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

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

The Company recognized compensation expense of $ 1.8 million, $ 1.6 million and $ 1.3 million for 2024, 2023, and 2022, respectively, related to restricted stock.

As of December 31, 2024 and 2023, there was $ 1.9 million and $ 2.1 million, respectively, of total unrecognized compensation cost related to restricted stock that will be recognized as compensation expense over a weighted average period of 2.00 years and 2.01 years, respectively.

The Company periodically grants shares of restricted stock to key associates and non-employee directors pursuant to the Plan.

Restricted stock awards generally vest over a stated service period and are subject to forfeiture if vesting conditions are not satisfied.

As of December 31, 2025, a total of 769,276 shares of restricted stock had been granted under the Plan.

During 2025 and 2024, the Company granted 142,095 shares and 104,815 shares, respectively, of restricted stock to key associates.

These grants were approved by the Committee in recognition of substantial contributions to the Company’s performance.

Time-based restricted stock awards granted to executives in 2025 vest on the third anniversary of the grant date under the long-term incentive plan.

Time-based restricted stock awards granted to executives in 2025 vest in one-third annual installments over three years under the short-term incentive plan.

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

Time-based restricted stock awards granted to non-executive associates vest in one-third annual installments over three years .

During 2025, the Company also granted 20,097 shares of restricted stock to non-employee directors under the Plan as compensation for Board service, compared to 23,300 shares during 2024.

These grants were approved by the Committee.

Restricted stock awards granted to non-employee directors in 2025 and 2024 vest fully one year after the grant date.

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Fair Value of Stock Awards

Prior to September 1, 2023, the fair value of stock-based awards was determined using the closing price of the Company’s common stock on the grant date.

Beginning September 1, 2023, the Company utilizes a 90-day trading look back period to estimate the average stock price used in determining grant date fair value in order to mitigate the effects of short-term stock price volatility.

Stock-Based Compensation Expense

Compensation expense related to restricted stock awards is recognized on a straight-line basis over the requisite service period, generally the vesting period, based on the grant date fair value of the awards.

Stock-based compensation expense related to restricted stock totaled $ 2.1 million, $ 1.8 million and $ 1.6 million for the years ended 2025, 2024, and 2023, respectively.

These amounts are included in salaries and employee benefits in the Consolidated Statements of Income.

As of December 31, 2025 and 2024, total unrecognized compensation cost related to restricted stock awards was $ 2.5 million and $ 1.9 million, respectively.

The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.02 years and approximately 2.00 years, respectively.

Forfeitures and Share Availability

If any Award granted under the Plan is forfeited, terminated, expires, or lapses for any reason other than through exercise or settlement, or if shares issued pursuant to an Award are forfeited, the shares subject to such Award become available for future issuance under the Plan.

The following table provides information about restricted stock granted under the Plan for the years ended December 31:

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

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

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

During 2025 and 2024, the Company granted an aggregate of 25,557 and 46,331 target amounts of performance units to executive officers under the Plan, respectively.

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

Performance units are eligible to be earned up to a maximum of 110 % of the target amount and are subject to a three-year performance period.

If the applicable performance and service requirements are satisfied, the performance units vest on the payment date, which occurs within 70 days following the end of the performance period, and are settled in shares of the Company’s common stock.

The payout for performance units is determined based on four equally weighted performance goals measured over the performance period, each relative to a selected peer group:

(1) return on average assets,

(2) core efficiency ratio

(3) total shareholder return, and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

the Company’s performance.

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

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

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

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

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

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

Compensation expense for performance units is based on fair value on the grant date.

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

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

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

(4) nonperforming assets ratio.

Performance criteria applicable to the performance units granted in 2022 were not achieved, and as a result, those units expired effective December 31, 2024, with no issuance of common stock.

No performance units were granted during 2023.

Compensation expense for performance units is recognized based on the grant date fair value and is adjusted for the probability of achieving the performance conditions and required service.

As of December 31, 2025 and December 31, 2024, management determined that the performance criteria for the 2025 and 2024 grants were probable of being achieved at the target level.

The Company recognized compensation expense of $ 0.1 million for 2025, $ 0.2 million for 2024 and reversed $ 0.3 million for 2023 related to performance units, which are included in salaries and employee benefits in the Consolidated Statements of Income.

NOTE 18 - FED E RAL AND ST AT E INCO M E T AX ES

The components of income tax provision were as follows:

The components of the income tax provision (benefit) were as follows:

(Dollars in Thousands) 2025 2024 2023

Current $ 3,657 $ 4,969 $ 7,969

Deferred 2,670 ( 516 ) 3,939

Change in Valuation Allowance 19 884 ( 309 )

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

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:

Federal $ 5,693 $ 3,159 $ 4,243

State 775 498 726

Total Current 6,468 3,657 4,969

Federal 2,047 2,396 531

State 124 293 ( 163 )

Total Deferred 2,171 2,689 368

Total Income Tax Provision $ 8,639 $ 6,346 $ 5,337

The Company does not have income from foreign sources and therefore does not have any foreign income tax.

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

2025 2024 2023

(Dollars in Thousands) Amount Percent Amount Percent Amount Percent

Federal Income Tax at Statutory Rate $ 6,482 21.0 $ 6,031 21.0 $ 12,961 21.0

State Income Tax, net of Federal Benefit 625 2.0 445 1.5 657 1.1

Tax-exempt Interest, net of Disallowance ( 513 ) ( 1.7 ) ( 708 ) ( 2.5 ) ( 873 ) ( 1.4 )

Federal Tax Credits, net of Basis Reduction ( 623 ) ( 2.0 ) ( 2,365 ) ( 8.2 ) ( 625 ) ( 1.0 )

Federal Statutory Rate $ 8,400 21.0 $ 6,482 21.0 $ 6,031 21.0

State and Local Income Taxes, Net of Federal Income Tax Effect 1

711 1.8 628 2.0 442 1.5

Rehabilitation Tax Credits, Net of Basis Reduction ( 624 ) ( 1.6 ) ( 485 ) ( 1.5 ) ( 2,366 ) ( 8.2 )

Tax Credit Investment Amortization, Net of Federal Benefit 513 1.3 408 1.3 1,660 5.8

Change in Valuation Allowance 7 — 36 0.1 780 2.7

Nontaxable or Nondeductible Items

Tax-Exempt Interest, Net of Disallowance ( 445 ) ( 1.1 ) ( 513 ) ( 1.7 ) ( 708 ) ( 2.5 )

Income From Bank Owned Life Insurance ( 687 ) ( 1.7 ) ( 309 ) ( 1.0 ) ( 290 ) ( 1.0 )

Tax Credit Amortization 408 1.3 1,660 5.8 — —

Other 7 — 97 0.4 35 0.1

Other Adjustments

Taxes and Penalty on Surrender of Bank Owned Life Insurance 757 1.9 — — — —

Other — — 2 — ( 247 ) ( 0.8 )

Income Tax Provision and Effective Income Tax Rate $ 8,639 21.6 $ 6,346 20.6 $ 5,337 18.6

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

The Company ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest, tax-exempt income from bank-owned life insurance, and tax benefits resulting from certain partnership investments.

1 For the years ended 2025 and 2023, North Carolina comprised the majority (greater than 50%) of the tax effect in this category, and for the year ended 2024, North Carolina and West Virginia comprised the majority of the tax effect.

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

The Company ordinarily generates an annual effective income tax rate, per the table above, 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,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

and tax benefits resulting from certain partnership investments.

For the period ended December 31, 2025, the annual effective tax rate was greater than the statutory rate of 21%, primarily due to the surrender of certain BOLI policies, which resulted in taxable gains of $ 2.4 million and $ 0.2 million in related Modified Endowment Contract (“MEC”) penalties, partially offset by the receipt of a $ 1.9 million tax-exempt BOLI death benefit.

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

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

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

As of December 31, 2025 and December 31, 2024, the Company recognized $ 0.5 million and $ 1.1 million, respectively, 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.

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

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

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

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

As of December 31, 2025 and December 31, 2024, the Company recognized $ 122.7 thousand and $ 38.5 thousand, respectively, in non-income-tax-related activity from its HTC investments.

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

Significant components of the Company’s deferred tax assets and liabilities are as follows:

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Net Deferred Tax Assets $ 20,818 $ 29,215

Management assesses all available positive and negative evidence to estimate whether sufficient future taxable income of the appropriate character will be generated to utilize existing deferred tax assets.

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

twelve months.

The following is a summary of income taxes paid, net of refunds received:

(Dollars in Thousands) 2025 2024 2023

Federal $ 3,000 $ ( 151 ) $ 4,725

State and Local

North Carolina 505 315 345

West Virginia 50 45 290

Maryland 20 28 43

South Carolina 70 26 165

Georgia 20 21 55

Other 52 19 70

Total Income Taxes Paid $ 3,717 $ 303 $ 5,693

Based on this evaluation, at both December 31, 2025 and December 31, 2024, a valuation allowance of $ 0.9 million was recorded on deferred tax assets related to capital loss carryforwards resulting from exits of equity investments in partnerships and sales of securities.

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

At December 31, 2025 and December 31, 2024, the Company had no ASC 740-10 unrecognized tax benefits or accrued interest and penalties recorded.

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

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

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The Company is generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2022.

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

The following table presents the change in components of other comprehensive income (loss) for the years ended December 31, net of tax effects:

NOTE 19 – TAX EFFECTS ON OTHER COMPREHENSIVE INCOME

The following table presents the change in components of other comprehensive income for the years ended December 31, net of tax effects:

(Dollars in Thousands) Pre-Tax

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

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

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

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

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

Other Comprehensive Income $ 17,891 $ ( 3,714 ) $ 14,177

Net Unrealized Losses Arising during the Period $ ( 111,542 ) $ 24,261 $ ( 87,281 )

Reclassification Adjustment for Gains included in Net Income ( 46 ) 9 ( 37 )

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

NOTE 20 – COMMITMENTS AND CONTINGENCIES

Commitments to extend credit, which amounted to $ 833.6 million at December 31, 2024 and $ 702.3 million at December 31, 2023, 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 $ 445.3 million, or 53.4 %, and $ 452.2 million, or 64.4 %, of the commitments to extend credit at December 31, 2024 and December 31, 2023, 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 $ 16.7 million at December 31, 2024 and $ 19.6 million at December 31, 2023.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and unconditional obligations as it does for on-balance sheet instruments.

Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.

Life-of-Loss Reserve on Unfunded Loan Commitments

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

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

Commitments to extend credit represent agreements to lend to customers that generally have fixed expiration dates or other termination clauses.

At December 31, 2025 and December 31, 2024, commitments to extend credit totaled $ 771.7 million and $ 833.6 million, respectively.

These commitments primarily consist of lines of credit provided to customers to finance the

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents activity in the life-of-loss reserve on unfunded loan commitments as of and for the years ended December 31:

completion of construction projects, as well as revolving lines of credit to operating companies to support working capital needs.

Construction related lines of credit represented $ 452.8 million, or 58.7 %, of total commitments to extend credit at December 31, 2025, compared to $ 445.3 million, or 53.4 %, at December 31, 2024.

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

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

Outstanding standby letters of credit totaled $ 16.5 million at December 31, 2025 and $ 16.7 million at December 31, 2024.

The Company’s exposure to credit loss for commitments to extend credit and standby letters of credit in the event of nonperformance by the counterparty is represented by the contractual amounts of these instruments.

The Company applies the same credit policies and underwriting standards to these commitments as it does to on-balance sheet credit exposures.

Unless noted otherwise, commitments that expose the Company to credit risk are supported by collateral or other security.

Life-of-Loss Reserve on Unfunded Loan Commitments

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

The reserve is calculated using a methodology similar to that used to determine the ACL on loans, adjusted to reflect the probability of drawdown on the unfunded commitment.

The reserve for unfunded loan commitments is included on the Consolidated Balance Sheets, with changes recognized through earnings in the (recovery) provision for unfunded commitments.

The reserve for unfunded commitments fluctuates primarily based on changes in construction related commitments between reporting periods.

A (recovery of) $( 0.2 ) million was recorded for the year ended December 31, 2025, reflecting a decrease of $ 187 thousand compared to the year ended December 31, 2024.

The following table presents activity in the life-of-loss reserve for unfunded loan commitments as of and for the years ended December 31:

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

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

(Recovery) Provision for Unfunded Commitments ( 7 ) 901

Recovery for Unfunded Commitments ( 194 ) ( 7 )

Balance at end of period $ 2,992 $ 3,186

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

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

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

Data processing expense was $ 4.9 million, $ 3.9 million and $ 4.1 million for 2024, 2023 and 2022, respectively.

The Company has a contractual commitment with a third party vendor for data processing services under a ten year agreement that is scheduled to expire at the end of 2028.

Data processing expense totaled $ 5.7 million, $ 4.9 million and $ 3.9 million for the years ended 2025, 2024 and 2023, respectively.

Legal Proceedings

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

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

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

Such matters are subject to inherent uncertainties and unfavorable outcomes could occur.

However, based on current information, management believes that the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial condition, results of operations, or cash flows.

NOTE 21 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities.

In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance.

Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions and return on investment.

However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606.

Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”), does not apply to revenue associated with financial instruments, including interest income and fees earned on loans and investment securities.

In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are outside the scope of Topic 606.

Topic 606 applies to certain noninterest revenue streams, including trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions and returns on investment.

The adoption of Topic 606 did not result in a significant change in the timing or measurement of revenue recognition for these in-scope revenue streams.

Substantially all of the Company’s revenue is generated from contracts with customers.

Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts:

Service charges on deposit accounts consist of overdraft fees, service charges on returned checks, stop payment fees, check chargeback fees, minimum balance fees, and other deposit account related fees.

Overdraft fees are recognized at the point in time that the overdraft occurs.

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

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

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

Service charges on deposits are withdrawn from the customer’s account balance.

Other Fees and Other Income:

Other fees and other income consists of safe deposit rents, money order fees, check cashing and cashiers’ check fees, wire transfer fees, letter of credit fees, check order income, and other miscellaneous fees.

These fees are largely transaction-based;

therefore, the Company’s performance obligation is satisfied and the resultant revenue is recognized at the point in time the service is rendered.

Payments for transaction-based fees are generally received immediately or in the following month by a direct charge to a customer’s account.

Debit Card Interchange Fees:

The Company earns interchange fees from debit cardholder transactions conducted through a card payment network.

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

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Commission income is earned based on customer transactions.

The commission income is recognized when the transaction is complete.

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

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

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

The rents are generally received monthly.

Gains/Losses on Sales of OREO:

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.

When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable.

Once these criteria are met, the OREO asset is disposed and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Service Charges on Deposit Accounts:

Service charges on deposit accounts include overdraft fees, fees on returned checks, stop payment fees, check chargeback fees, minimum balance fees, and other deposit account related fees.

Overdraft fees are recognized at the point in time the overdraft occurs.

Fees on returned checks are recognized when the check is returned.

Transaction-based fees, including stop payment fees, check chargeback fees, and other deposit account related fees, are recognized at the point in time the Company fulfills the customer’s request.

Minimum balance fees are system-assessed and recognized at the point in time the customer’s account balance falls below the required minimum.

Service charges on deposit accounts are generally withdrawn directly from the customer’s account balance.

Other Fees and Other Income:

Other fees and other income include safe deposit box rental fees, money order fees, check cashing and cashiers’ check fees, wire transfer fees, letter of credit fees, check order income, and other miscellaneous fees.

These fees are primarily transaction-based, and revenue is recognized at the point in time the related service is provided.

Payment for these services is generally received immediately or in the following month through a direct charge to a customer’s account.

Debit Card Interchange Fees:

The Company earns interchange fees from debit cardholder transactions processed through card payment networks.

Interchange fees represent a percentage of the underlying transaction value and are recognized daily as the related transaction processing services are performed.

Commission income is earned based on customer transactions and is recognized when the related transaction is completed.

The Company also receives a return on its investment in Bearing Insurance Group, LLC, which is recognized annually based on the investee’s results and the Company’s ownership interest.

The Company occasionally owns properties acquired through foreclosure that are classified as OREO on the Consolidated Balance Sheets.

Rental income earned on OREO properties is recognized over the rental period as earned, with payments generally received monthly.

Gain or losses on the sale of OREO are recognized when control of the property transfers to the buyer, which typically occurs upon execution and delivery of the deed.

When the Company finances the sale of OREO, it evaluates whether the buyer is committed to perform under the contract and whether collectability of the transaction price is probable.

Once these criteria are met, the OREO asset is disposed and the related gain or loss is recorded upon transfer of control.

If a significant financing component is present, the transaction price and related gain or loss are adjusted accordingly.

The following table summarizes the point of revenue recognition and the income recognized for each of the revenue streams for the years ended December 31:

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Other Real Estate Owned Income At a point in time — 46 75

Gains on Sales and Write-downs of Bank Premises, net At a point in time — — 73

Gains (Losses) on Sale of Other Real Estate Owned At a point in time *** *** ***

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Investment in Bank Subsidiary 397,632 377,395

Investment in Non-Subsidiary 19,949 —

Other Assets 952 6,564

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Total Expenses ( 3,437 ) ( 3,121 ) ( 3,011 )

Income Before Income Tax Benefit and Undistributed Net Income of Bank Subsidiary 819 11,436 42,681

Income Before Income Tax Benefit and Undistributed Net Income of Bank Subsidiary and Non-Subsidiary 13,265 819 11,436

Income Tax Benefit ( 72 ) ( 656 ) ( 534 )

Income Before Undistributed Net Income of Bank Subsidiary 1,475 11,970 43,258

Income Before Undistributed Net Income of Bank Subsidiary and Non-Subsidiary 13,337 1,475 11,970

Equity in Undistributed Net Income of Bank Subsidiary 17,630 23,048 11,414

Equity in Undistributed Net Income of Non-Subsidiary 395 — —

Net Income $ 31,362 $ 24,523 $ 23,384

Comprehensive Income (Loss) $ 31,441 $ 37,561 $ ( 37,200 )

Comprehensive Income $ 53,723 $ 31,441 $ 37,561

Statements of Cash Flows

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Equity in Undistributed Net Income of Bank Subsidiary ( 17,630 ) ( 23,048 ) ( 11,414 )

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

Operating Activities

Equity in Undistributed Net Income of Non-Subsidiary ( 395 ) — —

Adjustments to Reconcile Net Income to Net Cash Provided by (Used In) Operating Activities

Stock Compensation Expense 2,071 1,752 1,561

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

Decrease (Increase) in Other Assets 5,921 ( 3,111 ) 1,774

Decrease in Other Liabilities ( 229 ) ( 275 ) ( 47 )

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

Net Cash Provided by (Used In) Operating Activities 21,100 ( 159 ) 15,258

INVESTING ACTIVITIES

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Net Cash Used In Financing Activities ( 20,000 ) — ( 16,416 )

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

Net Increase (Decrease) in Cash 991 ( 275 ) ( 1,570 )

Cash at Beginning of Year 354 629 2,199

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NOTE 23 - CAPITAL ADEQUACY

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.

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

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

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

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

Failure to meet minimum capital requirements may result in mandatory and, in certain cases, discretionary actions by regulators that could have a direct material effect on the Company’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital standards that are based on quantitative measures of assets, liabilities and certain off-balance sheet items calculated in accordance with regulatory accounting practices.

Capital amounts and classifications are also subject to qualitative judgments by regulators regarding components, risk weightings and other factors.

Prompt corrective action provisions do not apply to bank holding companies.

Regulatory capital guidelines require the maintenance of minimum capital amounts and ratios.

Under Basel II capital rules, the Company and the Bank are required to maintain minimum ratios of common equity Tier 1 capital, Tier 1 capital and total capital, as well as a capital conservation buffer, which effectively increases the minimum capital levels required.

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

Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum, but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

The Basel III Capital Rules also provide for a 2.5% “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.

Management believes as of December 31, 2024, the Company and the Bank met all capital adequacy requirements to which the Company is subject and satisfied the applicable capital conservation buffer requirements.

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 year-end 2024 and 2023, 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.

Banking institutions that do not maintain capital ratios above the required minimums plus the applicable buffer are subject to restrictions on dividends, equity repurchases and discretionary compensation.

The Basel III capital framework also provides for a “countercyclical capital buffer” applicable to certain covered institutions.

This buffer is not currently applicable to the Company or the Bank.

Banking organizations with less than $15 billion in total assets are permitted to make a one-time election to exclude accumulated other comprehensive loss from regulatory capital.

The Company elected to retain this treatment, which reduces volatility in regulatory capital levels.

Management believes that, as of December 31, 2025, the Company and the Bank met all applicable capital adequacy requirements, including the capital conservation buffer.

Prompt corrective action regulations establish five capital categories:

well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.

These classifications are not intended to represent overall financial condition.

Institutions that are adequately capitalized require regulatory approval to accept brokered deposits, while undercapitalized institutions are subject to restrictions on capital distributions, asset growth, and expansion and are required to submit capital restoration plans.

As of December 31, 2025 and 2024, the most recent regulatory notification classified the Company and the Bank as well-capitalized under the prompt corrective action framework.

Management is not aware of any conditions or events since that notification that management believes would have changed the Company and the Bank’s capital category.

CARTER BANKSHARES, INC.

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Carter Bank & Trust 493,760 11.98 % 329,640 8.00 % $ 412,050 10.00 %

In December 2018, the Office of the Comptroller of the Currency, (the “OCC”), the FRB, and the FDIC, approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.

The final rule provides banking organizations the option to phase in over a three-year period the Day 1 adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

On March 27, 2020, the regulators issued interim final rule (“IFR”), “Regulatory Capital Rule:

Revised Transition of the Current Expected Credit Losses Methodology for Allowances” in response to the disrupted economic activity from the spread of COVID-19.

The IFR maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

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

NOTE 24 - 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 authorized 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.

During the year ended December 31, 2025, the Company repurchased 1,124,690 shares of its common stock at a total cost of $ 20.0 million at a weighted average cost per share of $ 17.78 .

The 2025 Program was fully utilized on October 30, 2025.

On February 2, 2026, the Company announced that the Board authorized a repurchase program to purchase up to $ 10.0 million of the Company’s common stock in the aggregate over a period of twelve months beginning February 11, 2026, the date of receipt of non-objection from the Federal Reserve Bank of Richmond.

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

CARTER BANKSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

NOTE 25 - SEGMENT REPORTING

Carter Bankshares, Inc.

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

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

The Company is a financial holding company and the parent company to the Bank and conducts its business solely through the Bank.

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

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

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

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

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

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

The results of operations for the Company’s single reporting segment are shown within the Consolidated Statements of Income and Consolidated Balance Sheets.

Independent Member Crowe Global

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We have audited the accompanying consolidated balance sheets of Carter Bankshares, Inc.

and Subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements").

and Subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework:

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

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

control based on the assessed risk.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing

the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

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

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

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

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

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

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

The qualitative analysis includes internal, external, and model risks.

Management reviews the peaks and troughs of the model’s calibration, taking into account economic forecasts to develop guardrails that serve as the basis for determining the reasonableness of the model’s output and makes adjustments as necessary.

This process challenges unexpected variability resulting from outputs beyond the model’s calibration that appear to be unreasonable.

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

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

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• The Company’s selection of adjustments to economic forecasts

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

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

Substantively testing management’s estimate, which included:

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

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

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

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

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

/s/ Crowe LLP

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), who serve as the Company’s Principal Executive Officer and Principal Financial Officer, respectively, management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2025.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating these disclosure controls and procedures, management recognizes that any system of controls, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and is subject to inherent limitations.

Based on this evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective in all material respects as of December 31, 2025.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as defined in Rule 13a-15(f) under the Exchange Act.

The Company’s ICFR is a process designed by, or under the supervision of, the Company’s CEO and CFO to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

generally accepted accounting principles (“GAAP”).

The Company’s ICFR includes policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are made only in accordance with authorizations of management and the Board of Directors;

Provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, ICFR may not prevent or detect misstatements.

Additionally, projections of any evaluation of the effectiveness of specific controls or internal control over financial reporting overall to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s ICFR as of December 31, 2025, using the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this assessment, management concluded that the Company’s ICFR was effective as of December 31, 2025.

The effectiveness of the Company’s ICFR as of December 31, 2025 has been audited by Crowe LLP, the Company’s independent registered public accounting firm, as stated in their report, which is included herein.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data