Carter Bankshares, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued) Years Ended December 31, (Dollars in Thousands) 2025 2024 2023 SUPPLEMENTARY DATA Cash Interest Paid $ 102,649 $ 106,342 $ 69,116 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 Right-of-use Asset Recorded in Exchange for Lease Liabilities 1,041 2,995 1,464 Stock Repurchase Excise Tax Settled in Subsequent Period ( 181 ) — ( 153 ) See accompanying notes to audited Consolidated Financial Statements. 85 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Principles of Consolidation: Carter Bankshare s, Inc. (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, 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 and Use of Estimates: The Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). 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: The Consolidated Financial Statements include the accounts of Carter Banks hares, Inc. and its wholly owned subsidiary. The Investment Company is a subsidiary of the Bank. All significant intercompany transactions have been eliminated in consolidation. Reclassification: Amounts in prior years' financial statements and footnotes are reclassified whenever necessary to conform to the current year’s presentation. Reclassifications had no material effect on prior year net income or shareholders’ equity. Operating Segments: 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 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. Restrictions on Cash: Cash on hand or on deposit with the FRB is required to meet regulatory reserve and clearing requirements. Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and financial standby and performance letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. 86 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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. Securities: 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. Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses are recognized upon the sale of specific identified securities on the completed trade date. Management evaluates debt securities for impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In determining impairment, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an impairment decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. 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 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 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. Equity Securities: Equity securities consist of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund focuses exclusively on providing affordable housing to low and moderate income borrowers and renters, including those in Majority Minority Census Tracts. The Company’s investment in the mutual fund is eligible for investment credit under the Community Reinvestment Act. Equity securities are carried at fair value, with changes in fair value reported within other noninterest income in the Consolidated Statements of Income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment. Loans Held-for-Sale: Loans held-for-sale arise primarily from two sources. 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 87 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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: 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 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 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 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. For the population of the Other segment that was impaired under the incurred loss model, based on collateral values, the specific reserves totaled zero. 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 default. The product of the probability of default and losses given default is the estimated expected loss. 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: 88 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Segmentation. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. Specific Analysis. 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. A specific reserve is established if the fair value is less than the loan balance. A charge-off is recognized when the loss is quantifiable and confirmed. IELs not specifically analyzed receive a quantitative and qualitative analysis, as described below. Quantitative Analysis. 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. These forecasts are assumed to revert to the long-term average and are utilized in the model to estimate the probability of default and loss given default through regression. Model assumptions include, but are not limited to the discount rate, prepayments and curtailments. The product of the probability of default and the loss given default is the estimated loss rate, which varies over time. The estimated loss rate is applied within the appropriate periods in the cash flow model to determine the net present value. Net present value is also impacted by assumptions related to the duration between default and recovery. The reserve is based on the difference between the summation of the principal balances taking amortized costs into consideration and the summation of the net present values. Qualitative Analysis. Based on management’s review and analysis of internal, external and model risks, management may adjust the model output. 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. “Other” Segmented Pool CECL provides for the flexibility to model loans differently compared to the prior model. With the adoption of CECL, management elected to evaluate certain loans based on shared but unique risk attributes. The loans included in the Other segment of the model were underwritten and approved based on standards that are inconsistent with our current underwriting standards. As these loans are not collateral dependent, management elected to use a modified DCF method. The modifications to DCF include assumptions with respect to the timing of cash flows and the utilization of a discount rate reflective of the inherent risk of the loans in the Other segment. A substantial change in these assumptions could cause a significant impact to the model causing volatility. Management reviews the model output for appropriateness and subjectively makes adjustments as needed. Charge-off Policy Our charge-off policy for loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes probable, regardless of the delinquency status of the loan. The Company may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to: • The status of a bankruptcy proceeding • The value of collateral and probability of successful liquidation; and/or • The status of adverse proceedings or litigation that may result in collection Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell. 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 89 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including 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. 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, accelerated maturity date, and combinations of the listed modifications. 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. Concentration of Credit Risk: 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 6 - Loans and Loans Held-for-Sale, in the Notes to the Consolidated Financial Statements. Advertising Costs: We expense all marketing-related costs, including advertising costs, as incurred. Advertising expense was $ 3.2 million, $ 2.5 million, and $ 1.7 million for the years ended 2025, 2024, and 2023, respectively. Bank Owned Life Insurance: The Company has purchased life insurance policies on certain executive officers and associates. 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. Bank Premises and Equipment: Bank premises and equipment acquired are stated at cost, less accumulated depreciation. 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 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. Land and Land Improvements Non-depreciating assets Buildings 25 years - 40 years Furniture and Fixtures 5 years Computer Equipment and Software 5 years or term of license Other Equipment 5 years Vehicles 5 years Leasehold Improvements Lesser of estimated useful life of the asset (generally 15 years unless established otherwise) or the remaining term of the lease, including renewal options in the lease that are reasonably assured of exercise Leases: Operating and finance leases are recorded as a right of use (“ROU”) asset and operating lease liability, included in other assets and other liabilities, respectively. Operating and finance lease ROU assets represent the right to use an underlying asset during the lease term and operating and finance lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded primarily in occupancy, net in the Consolidated Statements of Income. 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. 90 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Federal Home Loan Bank (“FHLB”) Stock: 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 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: Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding less average participating shares during the period. 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 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”): Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at fair value less estimated selling cost at the date of foreclosure, which establishes a new cost basis. Any write-downs based on the asset's fair value at the date of acquisition are charged to the ACL. 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, 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 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. For smaller OREO assets with existing carrying values less than $ 0.5 million, management may elect to re-value the assets, at minimum, once every 24 months based on the size of the exposure. Operating costs after acquisition are expensed. Income Taxes: 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 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. 91 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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 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 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, 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 92 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 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: As disclosed in Note 20 - Commitments and Contingencies to the Consolidated Financial Statements, the Company and its subsidiaries are involved in various legal proceedings incidental to their business in the ordinary course, and the disclosure set forth in Note 20 relating to certain legal matters is incorporated by reference. Fair Value Measurements The Company uses fair value measurements when recording and disclosing certain financial assets and liabilities. 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, 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. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. 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 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). There are three levels of inputs that may be used to measure fair values: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs. Level 2: 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. Level 3: 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. 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. 93 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Recurring Basis Securities Available-for-Sale: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. 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 DCF or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy. Equity Securities : The fair values of equity securities are determined by obtaining quoted prices on nationally recognized or foreign securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. 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: The Company uses derivative instruments such as interest rate swaps for commercial loans with our customers. Upon entering into swaps with the borrower, the Company entered into offsetting positions with counterparties to minimize risk to the Company. The back-to-back swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with borrower and counterparties and their ability to meet contractual terms. 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. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty, and, therefore, has no risk. Accordingly, interest rate swaps for commercial loans are classified as Level 2. 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 commercial real estate (“CRE”) loans. These fair value hedges were utilized to convert the hedged loans from a fixed rate to a synthetic floating Secured Overnight Financing Rate (“SOFR”). As long as a hedging instrument 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. 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 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. 94 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Nonrecurring Basis Individually Evaluated Loans: 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 IELs is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. 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 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. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will order a new appraisal. For non-individually evaluated loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan. OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $ 0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets marked to fair value are classified as Level 3. At December 31, 2025, OREO assets were in compliance with the OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third-party real estate brokers. Financial Instruments In addition to financial instruments recorded at fair value in our financial statements, fair value accounting guidance requires disclosure of the fair value of all of an entity’s assets and liabilities that are considered financial instruments. The majority of our assets and liabilities are considered financial instruments. Many of these instruments lack an available trading market as characterized by a willing buyer and willing seller engaged in an exchange transaction. 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, 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. 95 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Recent Accounting Pronouncements and Developments Newly Adopted Pronouncements in 2025 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. Updates permit an entity to apply the new guidance on either a prospective or a retrospective basis. ASU 2024-04 is effective for public business entities January 1, 2026 and is not expected to have a significant impact on the Company’s financial statements. 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 Acquisitions 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: 96 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (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 $ ( 53,077 ) 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 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. 97 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) NOTE 3 – EARNINGS PER COMMON SHARE Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of shares of common stock outstanding, less average participating shares during the period. 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. The following table reconciles the numerators and denominators of basic and diluted earnings per common share calculations for the periods presented: Years ended December 31, (Dollars in Thousands, except share and per share data) 2025 2024 2023 Numerator for Earnings per Common Share – Basic and Diluted Net Income $ 31,362 $ 24,523 $ 23,384 Less: Income allocated to participating shares 361 248 197 Net Income Allocated to Common Shareholders - Basic & Diluted $ 31,001 $ 24,275 $ 23,187 Denominator: Weighted Average Shares Outstanding, including Shares Considered Participating Securities 22,718,202 23,050,444 23,438,413 Less: Average Participating Securities 261,497 233,295 197,870 Weighted Average Common Shares Outstanding - Basic & Diluted 22,456,705 22,817,149 23,240,543 Earnings per Common Share – Basic $ 1.38 $ 1.06 $ 1.00 Earnings per Common Share – Diluted $ 1.38 $ 1.06 $ 1.00 NOTE 4 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS The Board of Governors of the FRB imposes certain reserve requirements on all depository institutions. These reserves are maintained in the form of vault cash or as an interest-bearing balance with the FRB. The Company had no required reserves for 2025, 2024 and 2023. 98 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) NOTE 5 - INVESTMENT SECURITIES The following tables present the amortized cost and fair value of available-for-sale securities as of the dates presented: December 31, 2025 (Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Government Agency Securities $ 19,796 $ 17 $ ( 438 ) $ 19,375 Residential Mortgage-Backed Securities 83,918 49 ( 7,194 ) 76,773 Commercial Mortgage-Backed Securities 25,438 105 ( 421 ) 25,122 Other Commercial Mortgage-Backed Securities 25,297 88 ( 1,131 ) 24,254 Asset Backed Securities 100,643 10 ( 5,856 ) 94,797 Collateralized Mortgage Obligations 168,749 176 ( 7,105 ) 161,820 States and Political Subdivisions 262,275 — ( 28,051 ) 234,224 Corporate Notes 59,250 — ( 4,003 ) 55,247 Total $ 745,366 $ 445 $ ( 54,199 ) $ 691,612 December 31, 2024 (Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Government Agency Securities 27,634 36 ( 720 ) 26,950 Residential Mortgage-Backed Securities 106,593 3 ( 10,443 ) 96,153 Commercial Mortgage-Backed Securities 22,233 30 ( 676 ) 21,587 Other Commercial Mortgage-Backed Securities 24,064 — ( 2,094 ) 21,970 Asset Backed Securities 127,978 14 ( 9,471 ) 118,521 Collateralized Mortgage Obligations 158,610 8 ( 10,030 ) 148,588 States and Political Subdivisions 262,879 — ( 41,698 ) 221,181 Corporate Notes 70,750 — ( 7,300 ) 63,450 Total $ 800,741 $ 91 $ ( 82,432 ) $ 718,400 The Company did no t have securities classified as held-to-maturity at December 31, 2025 or December 31, 2024. The following table shows the composition of gross and net realized gains and losses for the periods presented: Years ended December 31, (Dollars in Thousands) 2025 2024 2023 Proceeds from Sales of Securities Available-for-Sale $ 19,010 $ 17,953 $ 43,323 Gross Realized Gains $ 64 $ 68 $ 129 Gross Realized Losses ( 18 ) — ( 1,650 ) Net Realized Gains (Losses) $ 46 $ 68 $ ( 1,521 ) Tax Impact $ 10 $ 14 $ ( 319 ) 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. 99 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity at the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. December 31, 2025 (Dollars in Thousands) Amortized Cost Fair Value Due in One Year or Less $ 750 $ 742 Due after One Year through Five Years 62,621 59,392 Due after Five Years through Ten Years 266,071 238,176 Due after Ten Years 11,879 10,536 Residential Mortgage-Backed Securities 83,918 76,773 Commercial Mortgage-Backed Securities 25,438 25,122 Other Commercial Mortgage-Backed Securities 25,297 24,254 Collateralized Mortgage Obligations 168,749 161,820 Asset Backed Securities 100,643 94,797 Total $ 745,366 $ 691,612 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: December 31, 2025 Less Than 12 Months 12 Months or More Total (Dollars in Thousands) Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses U.S. Government Agency Securities 4 $ 2,593 $ ( 4 ) 27 $ 14,222 $ ( 434 ) 31 $ 16,815 $ ( 438 ) Residential Mortgage-Backed Securities 1 2,866 ( 1 ) 28 61,655 ( 7,193 ) 29 64,521 ( 7,194 ) Commercial Mortgage-Backed Securities 9 5,101 ( 22 ) 36 10,410 ( 399 ) 45 15,511 ( 421 ) Other Commercial Mortgage-Backed Securities — — — 7 17,363 ( 1,131 ) 7 17,363 ( 1,131 ) Asset Backed Securities 1 1,048 ( 8 ) 27 77,739 ( 5,848 ) 28 78,787 ( 5,856 ) Collateralized Mortgage Obligations 11 13,021 ( 24 ) 65 119,595 ( 7,081 ) 76 132,616 ( 7,105 ) States and Political Subdivisions 6 6,643 ( 672 ) 150 227,581 ( 27,379 ) 156 234,224 ( 28,051 ) Corporate Notes — — — 17 55,247 ( 4,003 ) 17 55,247 ( 4,003 ) Total Debt Securities 32 $ 31,272 $ ( 731 ) 357 $ 583,812 $ ( 53,468 ) 389 $ 615,084 $ ( 54,199 ) 100 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) December 31, 2024 Less Than 12 Months 12 Months or More Total (Dollars in Thousands) Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses U.S. Government Agency Securities 12 6,574 ( 60 ) 18 14,558 ( 660 ) 30 21,132 ( 720 ) Residential Mortgage-Backed Securities 1 7 — 40 95,326 ( 10,443 ) 41 95,333 ( 10,443 ) Commercial Mortgage-Backed Securities 10 2,743 ( 8 ) 42 13,780 ( 668 ) 52 16,523 ( 676 ) Other Commercial Mortgage-Backed Securities — — — 8 21,970 ( 2,094 ) 8 21,970 ( 2,094 ) Asset Backed Securities 1 1,176 ( 5 ) 27 76,333 ( 9,466 ) 28 77,509 ( 9,471 ) Collateralized Mortgage Obligations 2 2,339 ( 2 ) 74 132,902 ( 10,028 ) 76 135,241 ( 10,030 ) States and Political Subdivisions — — — 153 221,181 ( 41,698 ) 153 221,181 ( 41,698 ) Corporate Notes — — — 21 63,450 ( 7,300 ) 21 63,450 ( 7,300 ) Total Debt Securities 26 $ 12,839 $ ( 75 ) 383 $ 639,500 $ ( 82,357 ) 409 $ 652,339 $ ( 82,432 ) 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. 101 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Equity Securities 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: December 31, (Dollars in Thousands) 2025 2024 Commercial Commercial Real Estate $ 2,114,314 $ 1,869,831 Commercial and Industrial 231,921 230,483 Total Commercial Loans 2,346,235 2,100,314 Consumer Residential Mortgages 822,141 777,471 Other Consumer 28,416 28,908 Total Consumer Loans 850,557 806,379 Construction 465,613 462,930 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 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 102 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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 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 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: Restructured Loans Restructured Loans Twelve Months Ended December 31, 2025 Twelve Months Ended December 31, 2024 (Dollars in Thousands) Number of Contracts Amortized Cost Basis % of Total Class of Financing Receivable Number of Contracts Amortized Cost Basis % of Total Class of Financing Receivable Accruing Restructured Loans Commercial Real Estate — $ — — % 1 $ 4,516 0.24 % Commercial and Industrial — — — % 1 1,053 0.46 % Residential Mortgages — — — % — — — % Other Consumer — — — % — — — % Construction 2 6,062 1.30 % — — — % Other — — — % — — — % Total Accruing Restructured Loans 2 $ 6,062 0.16 % 2 $ 5,569 0.15 % Nonaccrual Restructured Loans Commercial Real Estate — $ — — % 1 $ 419 0.02 % Commercial and Industrial 2 915 0.39 % 1 19 0.01 % Residential Mortgages — — — % 1 2,053 0.26 % Other Consumer — — — % — — — % Construction — — — % — — — % Other 8 214,020 98.56 % 10 251,982 98.74 % Total Nonaccrual Restructured Loans 10 $ 214,935 5.54 % 13 $ 254,473 7.02 % Total Restructured Loans 12 $ 220,997 5.70 % 15 $ 260,042 7.17 % 103 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The Bank closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified during the 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 Commercial Real Estate $ — $ — $ — $ — $ 4,516 $ — $ — $ 4,516 Commercial and Industrial — — — — 1,053 — — 1,053 Residential Mortgages — — — — — — — — Other Consumer — — — — — — — — Construction 6,062 — — 6,062 — — — — Other — — — — — — — — Total Accruing Restructured Loans $ 6,062 $ — $ — $ 6,062 $ 5,569 $ — $ — $ 5,569 Nonaccrual Restructured Loans Commercial Real Estate $ — $ — $ — $ — $ 419 $ — $ — $ 419 Commercial and Industrial 915 — — 915 19 — — 19 Residential Mortgages — — — — 2,053 — — 2,053 Other Consumer — — — — — — — — Construction — — — — — — — — Other 214,020 — — 214,020 251,982 — — 251,982 Total Nonaccrual Restructured Loans $ 214,935 $ — $ — $ 214,935 $ 254,473 $ — $ — $ 254,473 Total Restructured Loans (1) $ 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 Commercial Real Estate $ 4,516 $ — $ 419 $ — $ 4,935 0.26 % Commercial and Industrial 1,053 — 19 — 1,072 0.47 % Residential Mortgages — 2,053 — — 2,053 0.26 % Other — — — 251,982 251,982 98.74 % Total $ 5,569 $ 2,053 $ 438 $ 251,982 $ 260,042 7.17 % 104 Table of Contents 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 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 — % Commercial and Industrial 21.83 years — — % 8.03 years — % Residential Mortgages — 19.26 years 4.63 % — — % Other — — — % 2.60 years 0.67 % 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: (Dollars in Thousands) 2025 Beginning Balance $ 2,502 Loan no Longer Associated with Current Officer ( 120 ) Principal Additions 102 Repayments ( 316 ) 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 105 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 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 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. 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 106 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 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; and • 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. 107 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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. 108 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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: Risk Rating (Dollars in Thousands) 2025 2024 2023 2022 2021 2020 and Prior Revolving Total Portfolio Loans Commercial Real Estate Pass $ 314,624 $ 189,311 $ 335,491 $ 424,445 $ 232,130 $ 536,023 $ 47,555 $ 2,079,579 Special Mention 10,829 — — — — 45 — 10,874 Substandard — 9,494 — 14,321 — 46 — 23,861 Total Commercial Real Estate $ 325,453 $ 198,805 $ 335,491 $ 438,766 $ 232,130 $ 536,114 $ 47,555 $ 2,114,314 YTD Gross Charge-offs — — — — — — — — Commercial and Industrial Pass $ 24,207 $ 786 $ 28,939 $ 9,166 $ 19,213 $ 106,808 $ 41,780 $ 230,899 Special Mention 9 — — — — — — 9 Substandard — — — 13 915 21 64 1,013 Total Commercial and Industrial $ 24,216 $ 786 $ 28,939 $ 9,179 $ 20,128 $ 106,829 $ 41,844 $ 231,921 YTD Gross Charge-offs — — — 7 — — — 7 Residential Mortgages Pass $ 89,897 $ 28,273 $ 54,482 $ 237,118 $ 173,624 $ 168,791 $ 64,130 $ 816,315 Special Mention — — — — — 89 — 89 Substandard — — — 1,014 826 3,289 608 5,737 Total Residential Mortgages $ 89,897 $ 28,273 $ 54,482 $ 238,132 $ 174,450 $ 172,169 $ 64,738 $ 822,141 YTD Gross Charge-offs — — — — — — — — Other Consumer Pass $ 15,907 $ 6,096 $ 2,380 $ 1,142 $ 244 $ 2,622 $ — $ 28,391 Special Mention — — — — — — — — Substandard 2 18 — 1 4 — — 25 Total Other Consumer $ 15,909 $ 6,114 $ 2,380 $ 1,143 $ 248 $ 2,622 $ — $ 28,416 YTD Gross Charge-offs 202 181 71 334 80 11 — 879 Construction Pass $ 90,343 $ 192,733 $ 103,325 $ 47,124 $ 2,015 $ 7,768 $ 15,763 $ 459,071 Special Mention — — 660 — — 40 — 700 Substandard — — 403 5,402 — 37 — 5,842 Total Construction $ 90,343 $ 192,733 $ 104,388 $ 52,526 $ 2,015 $ 7,845 $ 15,763 $ 465,613 YTD Gross Charge-offs — — — 1 — — — 1 Other Pass $ — $ — $ — $ — $ — $ 3,135 $ — $ 3,135 Special Mention — — — — — — — — Substandard 214,020 — — — — — — 214,020 Total Other Loans $ 214,020 $ — $ — $ — $ — $ 3,135 $ — $ 217,155 YTD Gross Charge-offs — — — — — — — — Total Portfolio Loans Pass $ 534,978 $ 417,199 $ 524,617 $ 718,995 $ 427,226 $ 825,147 $ 169,228 $ 3,617,390 Special Mention 10,838 — 660 — — 174 — 11,672 Substandard 214,022 9,512 403 20,751 1,745 3,393 672 250,498 Total Portfolio Loans $ 759,838 $ 426,711 $ 525,680 $ 739,746 $ 428,971 $ 828,714 $ 169,900 $ 3,879,560 Current YTD Period: YTD Gross Charge-offs $ 202 $ 181 $ 71 $ 342 $ 80 $ 11 $ — $ 887 109 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Risk Rating (Dollars in Thousands) 2024 2023 2022 2021 2020 2019 and Prior Revolving Total Portfolio Loans Commercial Real Estate Pass $ 184,228 $ 279,983 $ 424,195 $ 241,233 $ 132,329 $ 552,439 $ 45,906 $ 1,860,313 Special Mention 2,400 — — — — 60 — 2,460 Substandard — — 6,182 109 — 615 152 7,058 Total Commercial Real Estate $ 186,628 $ 279,983 $ 430,377 $ 241,342 $ 132,329 $ 553,114 $ 46,058 $ 1,869,831 YTD Gross Charge-offs — — — — — — — — Commercial and Industrial Pass $ 1,130 $ 23,676 $ 24,645 $ 12,843 $ 19,261 $ 116,868 $ 28,989 $ 227,412 Special Mention — — — — — — — — Substandard — — 685 1,026 33 — 1,327 3,071 Total Commercial and Industrial $ 1,130 $ 23,676 $ 25,330 $ 13,869 $ 19,294 $ 116,868 $ 30,316 $ 230,483 YTD Gross Charge-offs — — — 21 18 1 — 40 Residential Mortgages Pass $ 31,766 $ 68,926 $ 278,320 $ 155,637 $ 69,417 $ 115,181 $ 53,267 $ 772,514 Special Mention — — — — — 92 — 92 Substandard — — 527 — 2,053 1,597 688 4,865 Total Residential Mortgages $ 31,766 $ 68,926 $ 278,847 $ 155,637 $ 71,470 $ 116,870 $ 53,955 $ 777,471 YTD Gross Charge-offs — 1 — — — 31 — 32 Other Consumer Pass $ 17,896 $ 5,042 $ 2,456 $ 905 $ 2,433 $ 124 $ 32 $ 28,888 Special Mention — — — — — — — — Substandard — 1 8 11 — — — 20 Total Other Consumer $ 17,896 $ 5,043 $ 2,464 $ 916 $ 2,433 $ 124 $ 32 $ 28,908 YTD Gross Charge-offs 250 119 965 378 27 20 — 1,759 Construction Pass $ 99,592 $ 192,593 $ 138,982 $ 11,479 $ 2,408 $ 6,779 $ 6,390 $ 458,223 Special Mention — — — — 4,429 50 — 4,479 Substandard — — — 185 43 — — 228 Total Construction $ 99,592 $ 192,593 $ 138,982 $ 11,664 $ 6,880 $ 6,829 $ 6,390 $ 462,930 YTD Gross Charge-offs — — 1 — — 156 — 157 Other Pass $ — $ — $ — $ — $ — $ 3,221 $ — $ 3,221 Special Mention — — — — — — — — Substandard 251,982 — — — — — — 251,982 Total Other Loans $ 251,982 $ — $ — $ — $ — $ 3,221 $ — $ 255,203 YTD Gross Charge-offs 15,000 — — — — — — 15,000 Total Portfolio Loans Pass $ 334,612 $ 570,220 $ 868,598 $ 422,097 $ 225,848 $ 794,612 $ 134,584 $ 3,350,571 Special Mention 2,400 — — — 4,429 202 — 7,031 Substandard 251,982 1 7,402 1,331 2,129 2,212 2,167 267,224 Total Portfolio Loans $ 588,994 $ 570,221 $ 876,000 $ 423,428 $ 232,406 $ 797,026 $ 136,751 $ 3,624,826 Current YTD Period: YTD Gross Charge-offs $ 15,250 $ 120 $ 966 $ 399 $ 45 $ 208 $ — $ 16,988 110 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 Commercial Real Estate Performing $ 325,453 $ 189,311 $ 335,491 $ 424,445 $ 232,130 $ 536,068 $ 47,555 $ 2,090,453 Nonperforming — 9,494 — 14,321 — 46 — 23,861 Total Commercial Real Estate $ 325,453 $ 198,805 $ 335,491 $ 438,766 $ 232,130 $ 536,114 $ 47,555 $ 2,114,314 Commercial and Industrial Performing $ 24,216 $ 786 $ 28,939 $ 9,166 $ 19,213 $ 106,808 $ 41,780 $ 230,908 Nonperforming — — — 13 915 21 64 1,013 Total Commercial and Industrial $ 24,216 $ 786 $ 28,939 $ 9,179 $ 20,128 $ 106,829 $ 41,844 $ 231,921 Residential Mortgages Performing $ 89,897 $ 28,273 $ 54,482 $ 238,132 $ 173,624 $ 168,880 $ 64,230 $ 817,518 Nonperforming — — — — 826 3,289 508 4,623 Total Residential Mortgages $ 89,897 $ 28,273 $ 54,482 $ 238,132 $ 174,450 $ 172,169 $ 64,738 $ 822,141 Other Consumer Performing $ 15,907 $ 6,096 $ 2,380 $ 1,142 $ 244 $ 2,622 $ — $ 28,391 Nonperforming 2 18 — 1 4 — — 25 Total Other Consumer $ 15,909 $ 6,114 $ 2,380 $ 1,143 $ 248 $ 2,622 $ — $ 28,416 Construction Performing $ 90,343 $ 192,733 $ 103,985 $ 52,526 $ 2,015 $ 7,808 $ 15,763 $ 465,173 Nonperforming — — 403 — — 37 — 440 Total Construction $ 90,343 $ 192,733 $ 104,388 $ 52,526 $ 2,015 $ 7,845 $ 15,763 $ 465,613 Other Performing $ — $ — $ — $ — $ — $ 3,135 $ — $ 3,135 Nonperforming 214,020 — — — — — — 214,020 Total Other Loans $ 214,020 $ — $ — $ — $ — $ 3,135 $ — $ 217,155 Total Portfolio Loans Performing $ 545,816 $ 417,199 $ 525,277 $ 725,411 $ 427,226 $ 825,321 $ 169,328 $ 3,635,578 Nonperforming 214,022 9,512 403 14,335 1,745 3,393 572 243,982 Total Portfolio Loans $ 759,838 $ 426,711 $ 525,680 $ 739,746 $ 428,971 $ 828,714 $ 169,900 $ 3,879,560 111 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (Dollars in Thousands) 2024 2023 2022 2021 2020 2019 and Prior Revolving Total Portfolio Loans Commercial Real Estate Performing $ 186,628 $ 279,983 $ 430,076 $ 241,233 $ 132,329 $ 552,500 $ 45,906 $ 1,868,655 Nonperforming — — 301 109 — 614 152 1,176 Total Commercial Real Estate $ 186,628 $ 279,983 $ 430,377 $ 241,342 $ 132,329 $ 553,114 $ 46,058 $ 1,869,831 Commercial and Industrial Performing $ 1,130 $ 23,676 $ 25,311 $ 12,843 $ 19,261 $ 116,868 $ 30,316 $ 229,405 Nonperforming — — 19 1,026 33 — — 1,078 Total Commercial and Industrial $ 1,130 $ 23,676 $ 25,330 $ 13,869 $ 19,294 $ 116,868 $ 30,316 $ 230,483 Residential Mortgages Performing $ 31,766 $ 68,926 $ 278,320 $ 155,637 $ 69,417 $ 115,273 $ 53,267 $ 772,606 Nonperforming — — 527 — 2,053 1,597 688 4,865 Total Residential Mortgages $ 31,766 $ 68,926 $ 278,847 $ 155,637 $ 71,470 $ 116,870 $ 53,955 $ 777,471 Other Consumer Performing $ 17,896 $ 5,043 $ 2,455 $ 905 $ 2,433 $ 124 $ 32 $ 28,888 Nonperforming — — 9 11 — — — 20 Total Other Consumer $ 17,896 $ 5,043 $ 2,464 $ 916 $ 2,433 $ 124 $ 32 $ 28,908 Construction Performing $ 99,592 $ 192,593 $ 138,982 $ 11,479 $ 6,837 $ 6,829 $ 6,390 $ 462,702 Nonperforming — — — 185 43 — — 228 Total Construction $ 99,592 $ 192,593 $ 138,982 $ 11,664 $ 6,880 $ 6,829 $ 6,390 $ 462,930 Other Performing $ — $ — $ — $ — $ — $ 3,221 $ — $ 3,221 Nonperforming 251,982 — — — — — — 251,982 Total Other Loans $ 251,982 $ — $ — $ — $ — $ 3,221 $ — $ 255,203 Total Portfolio Loans Performing $ 337,012 $ 570,221 $ 875,144 $ 422,097 $ 230,277 $ 794,815 $ 135,911 $ 3,365,477 Nonperforming 251,982 — 856 1,331 2,129 2,211 840 259,349 Total Portfolio Loans $ 588,994 $ 570,221 $ 876,000 $ 423,428 $ 232,406 $ 797,026 $ 136,751 $ 3,624,826 Age Analysis of Past-Due Loans by Class The following tables include an aging analysis of the recorded investment of past-due portfolio loans as the periods presented: December 31, 2025 (Dollars in Thousands) Current Loans Loans 30-59 Days Past Due Loans 60-89 Days Past Due Total 30-89 Days Past Due Nonaccrual Loans Total Portfolio Loans Commercial Real Estate $ 2,090,450 $ 3 $ — $ 3 $ 23,861 $ 2,114,314 Commercial & Industrial 230,749 159 — 159 1,013 231,921 Residential Mortgages 815,619 1,899 — 1,899 4,623 822,141 Other Consumer 28,124 159 108 267 25 28,416 Construction 464,265 40 868 908 440 465,613 Other 3,135 — — — 214,020 217,155 Total $ 3,632,342 $ 2,260 $ 976 $ 3,236 $ 243,982 $ 3,879,560 112 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) December 31, 2024 (Dollars in Thousands) Current Loans Loans 30-59 Days Past Due Loans 60-89 Days Past Due Total 30-89 Days Past Due Nonaccrual Loans Total Portfolio Loans Commercial Real Estate $ 1,866,013 $ 2,642 $ — $ 2,642 $ 1,176 $ 1,869,831 Commercial & Industrial 229,225 180 — 180 1,078 230,483 Residential Mortgages 771,689 867 50 917 4,865 777,471 Other Consumer 28,582 208 98 306 20 28,908 Construction 461,919 783 — 783 228 462,930 Other 3,221 — — — 251,982 255,203 Total $ 3,360,649 $ 4,680 $ 148 $ 4,828 $ 259,349 $ 3,624,826 Loans past due 90 days or more and still accruing were zero at December 31, 2025 and 2024. 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 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. As of and for the year ended December 31, 2025 As of and for the year ended December 31, 2024 (Dollars in Thousands) Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Commercial Real Estate $ 8,002 $ 15,859 $ 23,861 $ — $ 1,176 $ 1,176 Commercial and Industrial — 1,013 1,013 — 1,078 1,078 Residential Mortgages 2,018 2,605 4,623 2,053 2,812 4,865 Other Consumer — 25 25 — 20 20 Construction — 440 440 — 228 228 Other — 214,020 214,020 — 251,982 251,982 Total Portfolio Loans $ 10,020 $ 233,962 $ 243,982 $ 2,053 $ 257,296 $ 259,349 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. 113 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 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 Total $ 915 $ 2,679 $ 9,494 $ 14,321 $ 214,020 $ 241,429 December 31, 2024 Collateral Type Equipment Single Family Discounted Cash Flow Total (Dollars in Thousands) Fair Value - Collateral Commercial and Industrial 1,026 — — 1,026 Residential Mortgage — 2,053 — 2,053 Other — — 251,982 251,982 Total $ 1,026 $ 2,053 $ 251,982 $ 255,061 The following tables presents activity in the ACL for the periods presented: December 31, 2025 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total Allowance for Credit Losses on Loans: Balance, Beginning of Year $ 20,146 $ 2,791 $ 10,389 $ 682 $ 11,297 $ 30,295 $ 75,600 Provision (Recovery) for Credit Losses on Loans 2,380 — 2,046 441 3,723 ( 12,227 ) ( 3,637 ) Charge-offs — ( 7 ) — ( 879 ) ( 1 ) — ( 887 ) Recoveries — 6 14 394 1 — 415 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 December 31, 2024 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total Allowance for Credit Losses on Loans: Balance, Beginning of Year $ 19,873 $ 3,286 $ 10,879 $ 868 $ 7,792 $ 54,354 $ 97,052 Provision (Recovery) for Credit Losses on Loans 273 ( 504 ) ( 489 ) 1,078 3,662 ( 9,059 ) ( 5,039 ) Charge-offs — ( 40 ) ( 32 ) ( 1,759 ) ( 157 ) ( 15,000 ) ( 16,988 ) Recoveries — 49 31 495 — — 575 Net Recoveries / (Charge-offs) — 9 ( 1 ) ( 1,264 ) $ ( 157 ) ( 15,000 ) ( 16,413 ) Balance, End of Year $ 20,146 $ 2,791 $ 10,389 $ 682 $ 11,297 $ 30,295 $ 75,600 114 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) December 31, 2023 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total Allowance for Credit Losses on Loans: Balance, Beginning of Year $ 17,992 $ 3,980 $ 8,891 $ 1,329 $ 6,942 $ 54,718 $ 93,852 Provision (Recovery) for Credit Losses on Loans 1,881 ( 719 ) 2,081 1,729 892 ( 364 ) 5,500 Charge-offs — ( 63 ) ( 203 ) ( 2,665 ) ( 42 ) — ( 2,973 ) Recoveries — 88 110 475 — — 673 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 ` NOTE 8 - FAIR VALUE MEASUREMENTS The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at the dates presented: December 31, 2025 (Dollars in Thousands) Carrying Value Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Securities Available-for-Sale: U.S. Government Agency Securities $ 19,375 $ — $ 19,375 $ — Residential Mortgage-Backed Securities 76,773 — 76,773 — Commercial Mortgage-Backed Securities 25,122 — 25,122 — Other Commercial Mortgage-Backed Securities 24,254 — 24,254 — Asset Backed Securities 94,797 — 94,797 — Collateralized Mortgage Obligations 161,820 — 161,820 — States and Political Subdivisions 234,224 — 234,224 — Corporate Notes 55,247 — 51,967 3,280 Total Securities Available-for-Sale 691,612 — 688,332 3,280 Equity Securities 10,291 10,291 — — Derivatives 10,182 — 10,182 — Total $ 712,085 $ 10,291 $ 698,514 $ 3,280 Liabilities Derivatives $ 10,089 $ — $ 10,089 $ — Total $ 10,089 $ — $ 10,089 $ — 115 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) December 31, 2024 (Dollars in Thousands) Carrying Value Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Securities Available-for-Sale: U.S. Government Agency Securities $ 26,950 $ — $ 26,950 $ — Residential Mortgage-Backed Securities 96,153 — 96,153 — Commercial Mortgage-Backed Securities 21,587 — 21,587 — Other Commercial Mortgage-Backed Securities 21,970 — 21,970 — Asset Backed Securities 118,521 — 118,521 — Collateralized Mortgage Obligations 148,588 — 148,588 — States and Political Subdivisions 221,181 — 221,181 — Corporate Notes 63,450 — 55,692 7,758 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 — Total $ 746,419 $ 10,041 $ 728,620 $ 7,758 Liabilities Derivatives $ 17,710 $ — $ 17,710 $ — Total $ 17,710 $ — $ 17,710 $ — 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: December 31, 2025 (Dollars in Thousands) Level 1 Level 2 Level 3 Fair Value OREO $ — $ — $ 142 $ 142 Individually Evaluated Loans $ — $ — $ 22,809 $ 22,809 December 31, 2024 (Dollars in Thousands) Level 1 Level 2 Level 3 Fair Value OREO $ — $ — $ 659 $ 659 Individually Evaluated Loans $ — $ — $ 579 $ 579 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. 116 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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: December 31, 2025 (Dollars in Thousands) Fair Value Valuation Technique Unobservable Inputs Weighted Range Average Assets Individually Evaluated Loans $ 22,809 Appraisals Estimated Selling Costs 3.5 % —% 6.0 % 5.9 % Total Individually Evaluated Loans $ 22,809 OREO 142 Discounted Internal Valuations Management's Subjective Discount 5.0 % 5.0 % Total OREO $ 142 December 31, 2024 (Dollars in Thousands) Fair Value Valuation Technique Unobservable Inputs Weighted Range Average Assets 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 % OREO 516 Discounted Internal Valuations Management’s Subject Discount 0.0 % — 24.0 % 24.0 % Total OREO $ 659 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. 117 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Fair Value Measurements at December 31, 2025 (Dollars in Thousands) Carrying Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and Cash Equivalents $ 105,163 $ 36,936 $ 68,227 $ — $ 105,163 Securities Available-for-Sale 691,612 — 688,332 3,280 691,612 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 Other Restricted Stock, at Cost 16,830 — — NA NA Other Assets- Interest Rate Derivatives 10,182 — 10,182 — 10,182 Accrued Interest Receivable 17,797 — 3,683 14,114 17,797 Financial Liabilities: Deposits $ 4,210,889 $ 620,473 $ 1,688,317 $ 1,917,786 $ 4,226,576 Other Liabilities- Interest Rate Derivatives 10,089 — 10,089 — 10,089 FHLB Borrowings 178,500 — — 178,552 178,552 Accrued Interest Payable 6,971 — — 6,971 6,971 Fair Value Measurements at December 31, 2024 (Dollars in Thousands) Carrying Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and Cash Equivalents $ 131,171 $ 39,608 $ 91,563 $ — $ 131,171 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 Federal Home Loan Bank Stock, at Cost 6,487 — — NA NA Other Assets- Interest Rate Derivatives 17,356 — 17,356 — 17,356 Accrued Interest Receivable 17,842 — 4,406 13,436 17,842 Financial Liabilities: Deposits $ 4,153,421 $ 634,436 $ 1,594,615 $ 1,937,914 $ 4,166,965 Other Liabilities- Interest Rate Derivatives 17,710 — 17,710 — 17,710 FHLB Borrowings 70,000 — — 69,604 69,604 Accrued Interest Payable 8,218 — 5 8,213 8,218 118 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) NOTE 9 - RIGHT-OF-USE (“ROU”) ASSETS AND LEASE LIABILITIES 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: December 31, (Dollars in Thousands) 2025 2024 2023 Operating Lease Expense $ 252 $ 124 $ 48 Amortization of ROU Assets - finance leases 608 490 365 Interest on lease liabilities - finance leases 570 462 292 Total Lease Expense $ 1,430 $ 1,076 $ 706 ROU assets are included in other assets in the Consolidated Balance Sheets. The following table presents our ROU assets, cash flows, weighted average lease terms, discount rates for finance and operating leases and ROU assets obtained in exchange for lease liabilities for the periods presented: December 31, (Dollars in Thousands) 2025 2024 Operating Leases ROU assets $ 1,083 $ 294 Operating cash flows $ 334 $ 167 Finance Leases ROU assets $ 8,952 $ 9,560 Operating cash flows $ 570 $ 462 Financing cash flows $ 232 $ 179 Weighted Average Lease Term - Years Operating leases 2.9 years 2.8 years Finance leases 15.2 years 16.2 years Weighted Average Discount Rate Operating leases 6.40 % 6.60 % Finance leases 5.70 % 5.70 % ROU Assets obtained in exchange for Lease Liabilities Operating leases $ 1,041 $ — Finance leases $ — $ 2,995 Lease liabilities are included in other liabilities in the Consolidated Balance Sheets. The following table presents the maturity analysis of lease liabilities for finance and operating leases as of December 31, 2025: (Dollars in Thousands) Finance Operating Total Maturity Analysis 2026 $ 862 $ 444 $ 1,306 2027 884 384 1,268 2028 903 235 1,138 2029 923 98 1,021 2030 943 — 943 Thereafter 10,514 — 10,514 Total 15,029 1,161 16,190 Less: Present value discount ( 5,158 ) ( 105 ) ( 5,263 ) Lease Liabilities $ 9,871 $ 1,056 $ 10,927 119 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) NOTE 10 - PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation as follows: December 31, (Dollars in Thousands) 2025 2024 Land $ 17,783 $ 18,610 Bank Premises 60,458 59,857 Furniture and Equipment 39,389 40,361 Leasehold Improvements 3,156 3,023 Total Premises and Equipment 120,786 121,851 Accumulated Depreciation ( 48,289 ) ( 47,522 ) Total $ 72,497 $ 74,329 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 The following table presents OREO activity as of the dates presented: Year Ended December 31, (Dollars in Thousands) 2025 2024 2023 Beginning of Year Balance $ 659 $ 2,463 $ 8,393 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 Direct Write-Downs ( 495 ) ( 160 ) ( 1,117 ) Cash Proceeds from Pay-downs — — ( 397 ) Sales of OREO ( 1,326 ) ( 3,173 ) ( 6,380 ) End of Year Balance $ 142 $ 659 $ 2,463 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. 120 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Income and expenses applicable to foreclosed assets include the following: Year Ended December 31, (Dollars in Thousands) 2025 2024 2023 Provision for Losses $ 495 $ 160 $ 1,117 Operating Expenses, net of Rental Income 47 37 178 Net Gain on Sales ( 292 ) ( 1,026 ) ( 17 ) 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) 2026 $ 232 2027 180 2028 139 2029 107 2030 83 Thereafter 199 $ 940 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. 121 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 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. 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 122 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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: Fair Values of Derivative Instruments Asset Derivatives (Included in Other Assets) 2025 2024 (Dollars in Thousands) Number of Transactions Notional Amount Fair Value Number of Transactions Notional Amount Fair Value Derivatives not Designated as Hedging Instruments Interest Rate Lock Commitments – Mortgage Loans 3 $ 1,328 $ — 3 $ 866 $ 2 Interest Rate Swap Contracts – Commercial Loans 54 352,184 10,182 56 368,850 17,354 Total Derivatives not Designated as Hedging Instruments 57 $ 353,512 $ 10,182 59 $ 369,716 $ 17,356 Total Derivatives 57 $ 353,512 $ 10,182 59 $ 369,716 $ 17,356 Fair Values of Derivative Instruments Liability Derivatives (Included in Other Liabilities) 2025 2024 (Dollars in Thousands) Number of Transactions Notional Amount Fair Value Number of Transactions Notional Amount Fair Value Derivatives Designated as Hedging Instruments Interest Rate Swaps - Balance Sheet Hedge — $ — $ — 1 $ 125,000 $ 554 Total Derivatives Designated as Hedging Instruments — $ — $ — 1 $ 125,000 $ 554 Derivatives not Designated as Hedging Instruments Forward Sale Contracts – Mortgage Loans 3 $ 1,328 $ — 3 $ 866 $ 2 Interest Rate Swap Contracts – Commercial Loans 54 352,184 10,089 56 368,850 17,154 Total Derivatives not Designated as Hedging Instruments 57 $ 353,512 $ 10,089 59 $ 369,716 $ 17,156 Total Derivatives 57 $ 353,512 $ 10,089 60 $ 494,716 $ 17,710 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 Derivatives Designated as Hedging Instruments Interest Rate Swaps - Balance Sheet Hedge $ ( 140 ) $ ( 125 ) $ — Total Derivative Loss Designated as Hedging Instruments ( 140 ) ( 125 ) — Derivatives not Designated as Hedging Instruments Interest Rate Lock Commitments – Mortgage Loans ( 2 ) ( 1 ) 2 Forward Sale Contracts – Mortgage Loans 2 1 ( 2 ) Interest Rate Swap Contracts – Commercial Loans ( 107 ) ( 12 ) ( 219 ) 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. 123 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The following table indicates the gross amounts of derivative assets and derivative liabilities designated as hedging instruments and not designated as hedging instruments, the amounts offset and the carrying values included in the Consolidated Balance Sheets at December 31: Asset Derivatives (Included in Other Assets) Liability Derivatives (Included in Other Liabilities) (Dollars in Thousands) 2025 2024 2025 2024 Derivatives Designated as Hedging Instruments Gross Amounts Recognized $ — $ — $ — $ 592 Gross Amounts Offset — — — 38 Net Amounts Presented in the Consolidated Balance Sheets — — — 554 Derivatives not Designated as Hedging Instruments Gross Amounts Recognized 10,182 17,356 10,089 17,156 Gross Amounts Offset — — — — Net Amounts Presented in the Consolidated Balance Sheets 10,182 17,356 10,089 17,156 Net Amount $ 10,182 $ 17,356 $ 10,089 $ 17,710 NOTE 14 – DEPOSITS The following table presents the composition of deposits at December 31: (Dollars in Thousands) 2025 2024 Noninterest-Bearing Demand $ 620,473 $ 634,436 Interest-Bearing Demand 808,171 726,947 Money Market 553,964 512,162 Savings 326,182 355,506 Certificates of Deposits 1,902,099 1,924,370 Total $ 4,210,889 $ 4,153,421 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: (Dollars in Thousands) 2025 2026 $ 1,363,255 2027 415,907 2028 66,729 2029 41,133 2030 14,601 Thereafter 474 Total $ 1,902,099 Overdrafts reclassified to loans were $ 0.3 million at both December 31, 2025 and December 31, 2024, respectively. Total deposit dollars from executive officers, directors, and their related interests at December 31, 2025 and 2024, respectively, were $ 3.2 million and $ 2.3 million. 124 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) NOTE 15 – FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED Borrowings serve as an additional source of liquidity for the Company. 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: (Dollars in Thousands) 2025 2024 2023 FHLB Borrowings $ 178,500 $ 70,000 $ 393,400 Weighted Average Interest Rate 3.89 % 4.02 % 5.20 % Interest Expense $ 4,648 $ 11,379 $ 20,822 FHLB Availability $ 609,392 $ 735,294 $ 480,266 The following table represents the balance of federal funds purchased, the weighted average interest rate, the interest expense and the borrowing availability for the years ended December 31: (Dollars in Thousands) 2025 2024 2023 Federal Funds Purchased $ — $ — $ — Weighted Average Interest Rate — % — % — % Interest Expense $ — $ — $ 368 Federal Funds Purchased Availability $ 75,000 $ 75,000 $ 50,000 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: 125 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (Dollars in Thousands) Balance Weighted Average Rate 2026 $ 138,500 3.90 % 2027 20,000 3.83 % 2028 20,000 3.82 % 2029 — — % 2030 — — % Thereafter — — % Total FHLB Borrowings $ 178,500 3.89 % NOTE 16 - EMPLOYEE BENEFIT PLANS 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: 1 Year of Service 20 % Vested 2 Years of Service 40 % Vested 3 Years of Service 60 % Vested 4 Years of Service 80 % Vested 5 Years of Service 100 % Vested 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. 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 126 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 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. 127 Table of Contents CARTER BANKSHARES, INC. 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: Restricted Shares Weighted Average Grant Date Fair Value Non-vested at December 31, 2023 219,111 $ 15.67 Granted 128,115 13.07 Forfeited/Vested ( 103,826 ) 15.59 Non-vested at December 31, 2024 243,400 14.34 Granted 162,192 17.26 Forfeited/Vested ( 126,597 ) 14.71 Non-vested at December 31, 2025 278,995 $ 15.87 Performance Units The Company periodically grants performance units to executive officers pursuant to the Plan. 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 128 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (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 the income tax provision (benefit) were as follows: (Dollars in Thousands) 2025 2024 2023 Current Federal $ 5,693 $ 3,159 $ 4,243 State 775 498 726 Total Current 6,468 3,657 4,969 Deferred 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 U.S. 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 Tax Credits 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 ) 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 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, 129 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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, 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 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, 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: (Dollars in Thousands) 2025 2024 Deferred Tax Assets Allowance for Credit Losses $ 15,655 $ 16,667 Net Unrealized Loss on Available-for-sale Securities 11,594 17,820 Capital Loss Carryforward 1,136 1,151 Accrued Interest on Nonaccrual Loans 1,792 1,717 Operating Lease Liabilities 2,393 2,293 Other 2,323 2,110 Gross Deferred Tax Assets 34,893 41,758 Less: Valuation Allowance ( 897 ) ( 903 ) Total Deferred Tax Assets $ 33,996 $ 40,855 (Dollars in Thousands) 2025 2024 Deferred Tax Liabilities Fixed Asset Depreciation $ ( 4,537 ) $ ( 4,095 ) Acquisition-Related Fair Value Adjustments ( 2,218 ) ( 2,480 ) Deferred Loan Income ( 3,166 ) ( 1,943 ) Operating Lease Right-of-Use Assets ( 2,197 ) ( 2,172 ) Equity Investment in Partnerships ( 903 ) ( 607 ) Other ( 157 ) ( 343 ) Total Deferred Tax Liabilities ( 13,178 ) ( 11,640 ) Net Deferred Tax Assets $ 20,818 $ 29,215 130 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The following is a summary of income taxes paid, net of refunds received: (Dollars in Thousands) 2025 2024 2023 U.S. Federal $ 3,000 $ ( 151 ) $ 4,725 U.S. 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 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, 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. The Company is subject to U.S. federal income tax, as well as various other state and local jurisdictions. The Company is generally no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2022. 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 Amount Tax (Expense) Benefit Net of Tax Amount 2025 Net Unrealized Gains Arising during the Period $ 28,633 $ ( 6,236 ) $ 22,397 Reclassification Adjustment for Gains included in Net Income ( 46 ) 10 ( 36 ) Other Comprehensive Income $ 28,587 $ ( 6,226 ) $ 22,361 2024 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 2023 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 NOTE 20 – COMMITMENTS AND CONTINGENCIES 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 131 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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 Life-of-Loss Reserve on Unfunded Loan Commitments Balance at beginning of period $ 3,186 $ 3,193 Recovery for Unfunded Commitments ( 194 ) ( 7 ) Balance at end of period $ 2,992 $ 3,186 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. 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 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. 132 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 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. Insurance: 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. OREO Income: 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: (Dollars in Thousands) Point of Revenue Recognition 2025 2024 2023 In-Scope Revenue Streams Service Charges on Deposit Accounts At a point in time $ 5,826 $ 5,856 $ 5,534 Other Fees and Other Income At a point in time 3,826 1,983 1,885 Debit Card Interchange Fees At a point in time 7,935 7,843 7,828 Insurance Customer Commissions At a point in time 195 166 131 Annual Commission on Investment Over time 2,475 3,476 1,814 Special Production Payout Over time 58 43 — Other Real Estate Owned Income At a point in time — 46 75 Gains (Losses) on Sale of Other Real Estate Owned At a point in time *** *** *** Total In-Scope Revenue Streams 20,315 19,413 17,267 Out of Scope Revenue Streams Gains (Losses) on Sales of Securities, net 46 68 ( 1,521 ) Bank Owned Life Insurance Income 1,511 1,473 1,381 Commercial Loan Swap Fee Income — — 139 Other 532 414 1,012 Total Noninterest Income $ 22,404 $ 21,368 $ 18,278 *** Reported net with Losses on Sales and Write-downs of Other Real Owned in Noninterest Expense 133 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) NOTE 22 – PARENT COMPANY CONDENSED FINANCIAL INFORMATION Balance Sheets December 31, (Dollars in Thousands) 2025 2024 ASSETS Cash $ 1,345 $ 354 Investment in Bank Subsidiary 397,632 377,395 Investment in Non-Subsidiary 19,949 — Other Assets 952 6,564 Total Assets $ 419,878 $ 384,313 LIABILITIES Other Liabilities $ 181 $ — Total Shareholders’ Equity 419,697 384,313 Total Liabilities and Shareholders’ Equity $ 419,878 $ 384,313 Statements of Net Income December 31, (Dollars in Thousands) 2025 2024 2023 Dividends from Subsidiaries $ 16,600 $ 3,950 $ 14,029 Total Income 102 ( 10 ) 418 Total Expenses ( 3,437 ) ( 3,121 ) ( 3,011 ) 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 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 $ 53,723 $ 31,441 $ 37,561 Statements of Cash Flows December 31, (Dollars in Thousands) 2025 2024 2023 OPERATING ACTIVITIES Net Income $ 31,362 $ 24,523 $ 23,384 Equity in Undistributed Net Income of Bank Subsidiary ( 17,630 ) ( 23,048 ) ( 11,414 ) 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 Decrease (Increase) in Other Assets 5,921 ( 3,111 ) 1,774 Decrease in Other Liabilities ( 229 ) ( 275 ) ( 47 ) Net Cash Provided by (Used In) Operating Activities 21,100 ( 159 ) 15,258 INVESTING ACTIVITIES Equity Investment in Non-Subsidiary, net of distributions ( 109 ) ( 116 ) ( 412 ) Net Cash Used in Investing Activities ( 109 ) ( 116 ) ( 412 ) FINANCING ACTIVITIES Repurchase of Common Stock ( 20,000 ) — ( 16,416 ) Net Cash Used In Financing Activities ( 20,000 ) — ( 16,416 ) Net Increase (Decrease) in Cash 991 ( 275 ) ( 1,570 ) Cash at Beginning of Year 354 629 2,199 Cash at End of Year $ 1,345 $ 354 $ 629 134 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) NOTE 23 - CAPITAL ADEQUACY 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 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. 135 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The following table summarizes risk-based capital amounts and ratios for the Company and the Bank, excluding the 2.5% capital conservation buffer: Actual Minimum Regulatory Capital Requirements To be Well Capitalized Under Prompt Corrective Action Provisions (Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 2025 Leverage Ratio Carter Bankshares, Inc. $ 459,735 9.43 % $ 194,967 4.00 % NA NA Carter Bank & Trust 437,670 9.01 % 194,313 4.00 % $ 242,891 5.00 % Common Equity Tier 1 (to Risk-Weighted Assets) Carter Bankshares, Inc. $ 459,735 10.70 % $ 193,431 4.50 % NA NA Carter Bank & Trust 437,670 10.23 % 192,479 4.50 % $ 278,025 6.50 % Tier 1 Capital (to Risk-Weighted Assets) Carter Bankshares, Inc. $ 459,735 10.70 % $ 257,908 6.00 % NA NA Carter Bank & Trust 437,670 10.23 % 256,639 6.00 % $ 342,185 8.00 % Total Capital (to Risk-Weighted Assets) Carter Bankshares, Inc. $ 513,722 11.95 % $ 343,878 8.00 % NA NA Carter Bank & Trust 491,396 11.49 % 342,185 8.00 % $ 427,731 10.00 % As of December 31, 2024 Leverage Ratio Carter Bankshares, Inc. $ 448,834 9.56 % $ 187,837 4.00 % NA NA Carter Bank & Trust 441,916 9.42 % 187,649 4.00 % $ 234,561 5.00 % Common Equity Tier 1 (to Risk-Weighted Assets) Carter Bankshares, Inc. $ 448,834 10.88 % $ 185,721 4.50 % NA NA Carter Bank & Trust 441,916 10.72 % 185,422 4.50 % $ 267,832 6.50 % Tier 1 Capital (to Risk-Weighted Assets) Carter Bankshares, Inc. $ 448,834 10.88 % $ 247,628 6.00 % NA NA Carter Bank & Trust 441,916 10.72 % 247,230 6.00 % $ 329,640 8.00 % Total Capital (to Risk-Weighted Assets) Carter Bankshares, Inc. $ 500,759 12.13 % $ 330,171 8.00 % NA NA Carter Bank & Trust 493,760 11.98 % 329,640 8.00 % $ 412,050 10.00 % 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 136 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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 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. All financial information is reported on a consolidated basis and is evaluated regularly by the Chief Executive Officer, the Company’s Chief Operating Decision Maker (“CODM”) in allocating resources and assessing performance. The CODM uses the consolidated net income to benchmark the Company against it competitors. The benchmarking analysis in conjunction with monitoring of actual to budget results are used in assessment of performance and in establishing compensation. Loans, investments and deposits provide the revenues, net in the community bank’s operation. Interest expense, (recovery) provision for credit losses and salaries and 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. 137 Table of Contents Crowe LLP Independent Member Crowe Global REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Carter Bankshares, Inc. and Subsidiaries Martinsville, Virginia Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Carter Bankshares, Inc. 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: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. 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 138 Table of Contents 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. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding 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, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Credit Losses – Individually Evaluated Other Pool Loans The Company’s methodology for estimating the allowance for credit losses includes segmentation, quantitative analysis, qualitative analysis, and individually evaluated loans. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. Further, management elected to evaluate certain loans based on shared but unique risk attributes by segmenting into the Other pool. The loans included in the Other pool of the model were underwritten and approved based on standards that are inconsistent with the Company’s current underwriting standards. As of December 31, 2025, $214 million of the Other pool loans were considered individually evaluated with an allowance for credit losses of $18 million. This represents 25% of the overall allowance for credit losses. The reserves for the individually evaluated loans within the Other pool are based upon a modified discounted cash flow method. The modifications to the discounted cash flow method include assumptions with respect to the expected amount and timing of cash flows and the utilization of a discount rate reflective of the inherent risk of the loans. A substantial change in these assumptions could cause a significant impact to the model causing volatility. Management reviews the model output for appropriateness and subjectively adjusts as needed. We identified the allowance for credit losses – individually evaluated Other pool loans as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management in the development of the estimate. 139 Table of Contents The primary procedures performed to address this critical audit matter include: Testing the effectiveness of internal controls over: • The Company’s affirmation of the key assumptions used in the model, including the discount rate, expected amount and timing of cash flows, and other adjustments • The completeness and accuracy of data used in the model Substantively testing management’s estimate, which included: • Assessing the reasonableness of management’s selection of discount rate, expected amount and timing of cash flows, and other adjustments • Evaluating the mathematical accuracy of the discounted cash flow model used for the Other pool, including evaluating the completeness and accuracy of loan data used in the model Allowance for Credit Losses – Adjustments to Economic Forecasts The Company’s methodology for estimating the allowance for credit losses includes segmentation, quantitative analysis, qualitative analysis, and individually evaluated loans. The Company’s quantitative analysis uses a discounted cash flow with economic forecasts to estimate a loss rate. 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. 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 adjustments to economic forecasts. The primary procedures performed to address this critical audit matter include: Testing the effectiveness of internal controls over: • The Company’s selection of adjustments to economic forecasts • 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 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 We have served as the Company's auditor since 2019. Washington, D.C. March 5, 2026 140 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 141 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 9A. 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: 1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; 2. 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; and 3. 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. 142 Table of Contents