What changed in this filing

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Item 1. Financial Statements

2026-08-06 compared with 2026-05-07 · 511 added, 704 removed, 1213 unchanged (50% of the section changed)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - (continued)

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in Thousands) 2026 2025

1 unchanged sentence

Cash Interest Paid $ 45,872 $ 52,800

Cash Paid for Income Taxes 2,800 1,480

Transfer from Portfolio Loans to Other Real Estate Owned, net 2,937 —

Transfer from Bank Premises and Equipment, net to Other Real Estate Owned, net 2,172 1,814

Right-of-use Asset Recorded in Exchange for Lease Liabilities 107 958

Stock Repurchase Excise Tax Settled in Subsequent Period ( 181 ) ( 75 )

Stock Repurchases Settled in Subsequent Period — ( 181 )

Portfolio Loans Transferred to Held-for-Sale 209,484 —

13 unchanged sentences

In management’s opinion, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position and the results of operations for each of the interim periods presented.

Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.

Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

Reclassification:

28 unchanged sentences

The accounting for future business combinations, if any, would be impacted.

The Company completed an acquisition of two leased branch facilities and related deposits on May 23, 2025.

On May 23, 2025, the Company completed the acquisition of two leased branch facilities and the related deposits .

See Note 2 – Business Combinations, in the Company’s 2025 Form 10-K for additional information.

There have been no material changes to the preliminary purchase accounting as of March 31, 2026.

The measurement period has concluded and purchase accounting has been finalized with no material changes to preliminary reported amounts.

NOTE 2 – EARNINGS PER COMMON SHARE

2 unchanged sentences

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

Three Months Ended March 31,

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

(Dollars in Thousands, except share and per share data) 2026 2025 2026 2025

3 unchanged sentences

Net Income Allocated to Common Shareholders - Basic & Diluted $ 28,509 $ 8,413 $ 113,154 $ 17,273

Distributed Earnings allocated to Common Stock $ 2,188 $ — $ 2,189 $ —

Undistributed Earnings allocated to Common Stock 26,321 8,413 110,965 17,273

Net income allocated to Common Shareholders - Basic & Diluted $ 28,509 $ 8,413 $ 113,154 $ 17,273

Weighted Average Shares Outstanding, including Shares Considered Participating Shares 22,146,599 23,067,260 22,134,757 23,090,907

8 unchanged sentences

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

March 31, 2026

June 30, 2026

(Dollars in Thousands) Amortized

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Total $ 745,366 $ 445 $ ( 54,199 ) $ 691,612

The Company did no t have securities classified as held-to-maturity at March 31, 2026 or December 31, 2025.

The Company did no t have securities classified as held-to-maturity at June 30, 2026 or December 31, 2025.

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

Three Months Ended March 31,

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

(Dollars in Thousands) 2026 2025 2026 2025

2 unchanged sentences

Gross Realized Losses ( 12,531 ) — ( 12,536 ) —

Net Realized Gains $ 80 $ —

Net Realized Losses $ ( 12,531 ) $ — $ ( 12,451 ) $ —

Tax Impact $ ( 2,632 ) $ — $ ( 2,615 ) $ —

1 unchanged sentence

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

Net realized gains are reported in noninterest income as gains 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.

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

CARTER BANKSHARES, INC.

4 unchanged sentences

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

March 31, 2026

June 30, 2026

(Dollars in Thousands) Amortized

9 unchanged sentences

Total $ 682,318 $ 640,302

At March 31, 2026 and December 31, 2025, the Company held no securities of any single issuer, other than securities issued by or collateralized by the U.S.

At June 30, 2026 and December 31, 2025, 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 $ 254.4 million at March 31, 2026 and $ 289.4 million at December 31, 2025.

Available-for-sale securities with unrealized losses at March 31, 2026 and December 31, 2025, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

March 31, 2026

The carrying value of securities pledged to meet various regulatory and legal requirements was $ 139.7 million at June 30, 2026 and $ 289.4 million at December 31, 2025.

Available-for-sale securities with unrealized losses at June 30, 2026 and December 31, 2025, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

June 30, 2026

Less Than 12 Months 12 Months or More Total

34 unchanged sentences

Total Debt Securities 32 $ 31,272 $ ( 731 ) 357 $ 583,812 $ ( 53,468 ) 389 $ 615,084 $ ( 54,199 )

The Company did no t record an allowance for credit losses (“ACL”), on its investment securities as of March 31, 2026 or December 31, 2025 as no credit related impairment was identified.

The Company did no t record an allowance for credit losses (“ACL”), on its investment securities as of June 30, 2026 or December 31, 2025 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 March 31, 2026, 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.

As of June 30, 2026, 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.

2 unchanged sentences

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

During the three months ended March 31, 2026 and March 31, 2025, the Company had no credit related net investment impairment losses.

During the three and six months ended June 30, 2026 and June 30, 2025, the Company had no credit related net investment impairment losses.

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.

During the second quarter of 2026, the Company purchased an additional $ 2.5 million of equity securities.

These securities are reported separately as “equity securities” on the Consolidated Balance Sheets and 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.

The mutual fund’s underlying investments are 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.

4 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

During the three months ended March 31, 2026, the Company recognized an unrealized fair value loss of $ 45 thousand on these equity securities.

During the three months ended March 31, 2025 the Company recognized an unrealized fair value gain of $ 137 thousand on these equity securities.

During the three and six months ended June 30, 2026, the Company recognized an unrealized fair value loss of $ 70 thousand and $ 116 thousand on these equity securities.

During the three and six months ended June 30, 2025 the Company recognized an unrealized fair value gain of $ 23 thousand and $ 159 thousand on these equity securities.

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

NOTE 4 – LOANS AND LOANS HELD-FOR-SALE

During the three months ended March 31, 2026, the Company completed the sale (the “Transaction”) of all loans, subsequently reduced to judgments, related to various entities in which James C.

During the three months ended March 31, 2026, the Company completed the sale (the “Loan Sale Transaction”) of all loans, subsequently reduced to judgments, related to various entities in which James C.

Justice II has an interest (such loans, subsequently reduced to judgments, the “Judgments”).

The Transaction was completed as an absolute, “as-is, where-is” sale to an unaffiliated third party.

The Transaction resulted in changes to total portfolio loans and the allowance for credit losses, due to a release of specific reserves of $ 18.0 million related to the Judgments, as well as a $ 15.0 million net recovery associated with the Judgments, in each case related to the Transaction.

The Loan Sale Transaction was completed as an absolute, “as-is, where-is” sale to an unaffiliated third party.

The Loan Sale Transaction resulted in changes to total portfolio loans and the allowance for credit losses, due to a release of specific reserves of $ 18.0 million related to the Judgments, as well as a $ 15.0 million net recovery associated with the Judgments, in each case related to the Loan Sale Transaction.

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

(Dollars in Thousands) March 31, 2026 December 31, 2025

(Dollars in Thousands) June 30, 2026 December 31, 2025

Commercial Real Estate $ 2,143,362 $ 2,114,314

11 unchanged sentences

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.

The Company’s loan policy 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.

3 unchanged sentences

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 $ 18.1 million at June 30, 2026 and $ 14.5 million at December 31, 2025.

Discounts on purchased 1-4 family loans included in portfolio balances totaled $ 62.9 thousand and $ 73.2 thousand at June 30, 2026 and December 31, 2025, respectively.

As of June 30, 2026, the Company had $ 467 thousand in loans held-for-sale and $ 339 thousand as of December 31, 2025.

CARTER BANKSHARES, INC.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Deferred loan costs, net of fees, included in loan portfolio balances totaled $ 16.4 million at March 31, 2026 and $ 14.5 million at December 31, 2025.

Discounts on purchased 1-4 family loans included in portfolio balances totaled $ 68.1 thousand and $ 73.2 thousand at March 31, 2026 and December 31, 2025, respectively.

As of March 31, 2026, the Company had $ 341 thousand in loans held-for-sale and $ 339 thousand as of December 31, 2025.

Loan Restructurings

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of this Quarterly Report on Form 10-Q.

The following table shows the amortized cost basis as of March 31, 2026 and March 31, 2025 for the loans restructured during the three months ended March 31, 2026 and March 31, 2025 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

The following table shows the amortized cost basis as of June 30, 2026 and June 30, 2025 for the loans restructured during the three and six months ended June 30, 2026 and June 30, 2025 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

Restructured Loans

Three Months Ended March 31, 2026 Three Months Ended March 31, 2025

Three Months Ended June 30, 2026 Six Months Ended June 30, 2026

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

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Total Restructured Loans 2 $ 17,493 0.47 % 4 $ 18,442 0.49 %

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 shows the performance of loans that were modified during the three months ended March 31, 2026 and March 31, 2025:

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

As of March 31, 2026 As of March 31, 2025

Restructured Loans

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

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

Accruing Restructured Loans

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

Commercial and Industrial — — — % — — — %

Residential Mortgages — — — % — — — %

Other Consumer — — — % — — — %

Construction — — — % 1 4,516 1.02 %

Other — — — % — — — %

Total Accruing Restructured Loans — $ — — % 1 $ 4,516 0.12 %

Nonaccrual Restructured Loans

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

Commercial and Industrial 2 1,004 0.45 % 2 1,004 0.45 %

Residential Mortgages — — — % — — — %

Other Consumer — — — % — — — %

Construction — — — % — — — %

Other 4 76,509 32.05 % 9 235,542 98.67 %

Total Nonaccrual Restructured Loans 6 $ 77,513 2.07 % 11 $ 236,546 6.31 %

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

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 shows the performance of loans that were modified during the three and six months ended June 30, 2026 and June 30, 2025:

As of June 30, 2026 As of June 30, 2025

Payment Status (Amortized Cost Basis)

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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.

Three Months Ended March 31, 2026

(Dollars in Thousands) Payment Delay Short-term Extension Total % of Total Class of Financing Receivable

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Three Months Ended June 30, 2026

(Dollars in Thousands) Payment Delay/ Extended Fixed Rate Short-term Extension Total % of Total Class of Financing Receivable

Commercial and Industrial $ 253 $ — $ 253 0.10 %

1 unchanged sentence

Total $ 253 $ 17,240 $ 17,493 0.47 %

Three Months Ended March 31, 2025

Six Months Ended June 30, 2026

(Dollars in Thousands) Payment Delay/Extended Fixed Rate Short-term Extension Total % of Total Class of Financing Receivable

Commercial and Industrial $ 254 $ 948 $ 1,202 0.46 %

Construction — 17,240 17,240 3.52 %

Total $ 254 $ 18,188 $ 18,442 0.49 %

Three Months Ended June 30, 2025

(Dollars in Thousands) Payment Delay Short-term Extension Total % of Total Class of Financing Receivable

Commercial Real Estate $ 4,516 $ — $ 4,516 0.24 %

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

Other — 76,509 76,509 32.05 %

Total $ — $ 77,513 $ 77,513 2.07 %

Six Months Ended June 30, 2025

(Dollars in Thousands) Payment Delay Short-term Extension Total % of Total Class of Financing Receivable

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

Construction 4,516 — 4,516 1.02 %

Other — 235,542 235,542 98.67 %

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

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

Three Months Ended March 31, 2026

Weighted-Average Payment Delay Short-term Extension

Three Months Ended June 30, 2026

Weighted-Average Payment Delay Weighted-Average Short-term Extension Weighted-Average Interest Rate Reduction

Commercial and Industrial 0.59 years — 0.50 %

Construction — 0.08 years — %

Six Months Ended June 30, 2026

Weighted-Average Payment Delay Weighted-Average Short-term Extension Weighted-Average Interest Rate Reduction

Commercial and Industrial 0.83 years 0.41 years 0.50 %

Construction — 0.41 years — %

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

Weighted-Average Payment Delay Weighted-Average Term Extension/Payment Delay

Commercial Real Estate 0.32 years —

Commercial and Industrial $ — 0.07 years

Other — 0.24 years

Six Months Ended June 30, 2025

Weighted-Average Payment Delay Weighted-Average Term Extension/Payment Delay

Commercial and Industrial — 0.07 years

Construction 0.32 years —

Other — 0.86 years

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

As of March 31, 2026 and December 31, 2025, the Bank had approximately $ 2.1 million and $ 4.5 million of commitments to lend additional funds on accruing loans that had been restructured.

As of March 31, 2026 and December 31, 2025, the Bank had no commitments to lend additional funds on nonperforming loans that had been restructured.

In addition, as of March 31, 2026 and December 31, 2025, 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.

During the second quarter of 2026, one commercial and industrial loan relationship and one construction loan relationship that had previously been modified during the first quarter of 2026 were subsequently modified again.

As a result, these relationships are included as current-period loan modifications in the tables above.

As of June 30, 2026 and December 31, 2025, the Bank had approximately $ 2.1 million and $ 4.5 million of commitments to lend additional funds on accruing loans that had been restructured.

As of June 30, 2026 and December 31, 2025, the Bank had no commitments to lend additional funds on nonperforming loans that had been restructured.

In addition, as of June 30, 2026 and December 31, 2025, 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 March 31, 2026 and December 31, 2025, the Company had zero and $ 2.0 million, respectively, of residential real estate loans in process of foreclosure.

Residential real estate included in OREO totaled $ 2.9 million at March 31, 2026 and zero at December 31, 2025 .

As of June 30, 2026 and December 31, 2025, the Company had $ 0.5 million and $ 2.0 million, respectively, of residential real estate loans in process of foreclosure.

Residential real estate included in OREO totaled $ 2.1 million at June 30, 2026 and $ 0.0 at December 31, 2025.

NOTE 5 - ALLOWANCE FOR CREDIT LOSSES

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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.

Credit risk is influenced by the condition of the local

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

5 unchanged sentences

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

The “ Other ” loan segment previously consisted primarily of the loans subsequently reduced to the Judgments, which were Company’s largest lending relationship and had unique risk characteristics that differed from the Company’s current [standard] underwriting criteria.

The “ Other ” loan segment previously consisted primarily of the loans subsequently reduced to the Judgments, which were the Company’s largest lending relationship and had unique risk characteristics that differed from the Company’s current standard underwriting criteria.

Expected credit losses for this segment were estimated using a discounted cash flows (or “DCF”) methodology, and the related ACL was subject to fluctuation based on changes in expected future cash flows.

These inconsistencies included, but were not limited to i) transaction and/or relationship sizes that exceeded 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.

During the three months ended March 31, 2026, the Company completed the Transaction in which the Company sold the Judgments to an unaffiliated third party.

During the six months ended June 30, 2026, the Company completed the Loan Sale Transaction in which the Company sold the Judgments to an unaffiliated third party.

However, the segment remains presented in prior periods for comparative purposes.

Prior to the Transaction, the Company previously established specific reserves of $ 18.0 million related to the Judgments, which were established based on the Company’s expected loss estimates and were subsequently released in connection with the Transaction.

Prior to the Loan Sale Transaction, the Company previously established specific reserves of $ 18.0 million related to the Judgments, which were established based on the Company’s expected loss estimates and were subsequently released in connection with the Loan Sale Transaction.

Current Expected Credit Losses (“CECL”) Model

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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 2026, loan review activities followed a structured, multi-step approach that included:

The annual loan review provides the Credit Risk Committee with an

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 2026, 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;

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of March 31:

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

(Dollars in Thousands) 2026 2025 2024 2023 2022 2021 and Prior Revolving Total Portfolio Loans

9 unchanged sentences

Substandard — — — — 12 15 75 102

Doubtful — — — 12,944 — — 500 13,444

Total Commercial and Industrial $ 34,206 $ 21,200 $ 785 $ 27,937 $ 18,525 $ 104,525 $ 55,254 $ 262,432

26 unchanged sentences

Substandard 29 — 7,588 17,642 14,991 1,324 781 42,355

Doubtful — — — 12,944 — — 500 13,444

Total Portfolio Loans $ 277,624 $ 569,898 $ 466,607 $ 454,175 $ 720,217 $ 1,081,528 $ 164,545 $ 3,734,594

50 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

(Dollars in Thousands) 2026 2025 2024 2023 2022 2021 and Prior Revolving Total Portfolio Loans

56 unchanged sentences

Total Portfolio Loans $ 772,625 $ 419,467 $ 526,921 $ 775,223 $ 393,773 $ 821,651 $ 169,900 $ 3,879,560

The Bank’s largest lending relationship, previously included in the “Other” segment, was sold in the Transaction effective on March 26, 2026, resulting in a significant reduction in both substandard and nonperforming loans at March 31, 2026, compared to an aggregate principal balance of $ 214.0 million classified as substandard and nonperforming at December 31, 2025.

The sale of the Bank’s largest lending relationship, which was previously included in the “Other” segment, completed on March 26, 2026, resulted in a significant reduction in both substandard and nonperforming loans at June 30, 2026, compared to an aggregate principal balance of $ 214.0 million classified as substandard and nonperforming at December 31, 2025.

CARTER BANKSHARES, INC.

3 unchanged sentences

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

March 31, 2026

June 30, 2026

(Dollars in Thousands) Current Loans Loans 30-59

21 unchanged sentences

Total $ 3,632,342 $ 2,260 $ 976 $ 3,236 $ 243,982 $ 3,879,560

Loans past due 90 days or more and still accruing were zero at March 31, 2026 and December 31, 2025.

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 March 31, 2026 and December 31, 2025, respectively.

Loans past due 90 days or more and still accruing were zero at June 30, 2026 and December 31, 2025.

There were no nonaccrual or past due loans related to loans held-for-sale as of June 30, 2026 and December 31, 2025, respectively.

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

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

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

(Dollars in Thousands)

8 unchanged sentences

Total Portfolio Loans $ — $ 37,561 $ 37,561 $ 2,018 $ 241,964 $ 243,982

During the quarter ended March 31, 2026, nonaccrual loans in the Other segment decreased by $ 214.0 million following the resolution of the Company’s largest nonperforming lending relationship, and the related $ 18.0 million specific ACL was fully reversed in connection with the Transaction.

Nonaccrual loans in the “Other” segment decreased by $ 214.0 million, reflecting the Loan Sale Transaction completed during the first quarter of 2026.

The Loan Sale Transaction also resulted in the reversal of $ 18.0 million of previously established specific reserves.

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

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

2 unchanged sentences

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

During the three months ended March 31, 2026 and March 31, 2025, respectively, no material interest income was recognized on nonperforming loans (“NPLs”) subsequent to their classification as nonaccrual.

The following tables present 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.

March 31, 2026

Collateral Type Single Family Warehouse Office Building Multifamily Total

During the three and six months ended June 30, 2026 and June 30, 2025, respectively, no material interest income was recognized on nonperforming loans (“NPLs”) subsequent to their classification as nonaccrual.

The following tables present changes in the fair value of the types of collateral and DCF modeling for IELs in the (recovery) provision for credit losses on loans in the period of change.

June 30, 2026

Collateral Type Blanket UCC Lien on Business Assets Single Family Warehouse Office Building Multifamily Total

(Dollars in Thousands) Fair Value - Collateral

Commercial Real Estate $ — $ — $ 7,552 $ 13,973 $ — $ 21,525

Commercial and Industrial 13,445 — — — — 13,445

Construction — 661 — — 17,239 17,900

10 unchanged sentences

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

Three Months Ended March 31, 2026

Three Months Ended June 30, 2026

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

6 unchanged sentences

Balance, End of Period $ 22,133 $ 5,890 $ 11,719 $ 569 $ 14,859 $ — $ 55,170

Six Months Ended June 30, 2026

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

Allowance for Credit Losses on Loans:

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

(Recovery) Provision for Credit Losses on Loans ( 641 ) 3,100 — ( 734 ) 108 ( 672 ) ( 33,068 ) ( 31,907 )

Charge-offs — — — ( 299 ) — — ( 299 )

Recoveries 248 — 4 122 511 15,000 15,885

Net Recoveries / (Charge-offs) 248 — 4 ( 177 ) 511 15,000 15,586

Balance, End of Period $ 22,133 $ 5,890 $ 11,719 $ 569 $ 14,859 $ — $ 55,170

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

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

1 unchanged sentence

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

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

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

Charge-offs — — — ( 288 ) — — ( 288 )

Recoveries — 2 2 119 — — 123

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

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

Six Months Ended June 30, 2025

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

Allowance for Credit Losses on Loans:

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

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

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

Recoveries — 5 10 229 1 — 245

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

16 unchanged sentences

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

4 unchanged sentences

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

8 unchanged sentences

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

As of March 31, 2026 and December 31, 2025, Level 1 fair values are available for each of the Company’s equity securities.

As of June 30, 2026 and December 31, 2025, Level 1 fair values are available for each of the Company’s equity securities.

Derivative Financial Instruments and Hedging Activities:

19 unchanged sentences

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.

These appraisals may utilize a single valuation approach or a combination of

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

3 unchanged sentences

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

marketing time and value range for the property.

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

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

7 unchanged sentences

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

At March 31, 2026 OREO assets were in compliance with the OREO policy as described above, except for $ 2.9 million related to two residential mortgage loans that are not currently marketed for sale as the Company is still in the process of determining a market value for listing the properties.

At June 30, 2026, OREO assets were in compliance with the OREO policy as described above, except for $ 0.2 million related to two residential mortgage loans that are not currently marketed for sale as the Company is still in the process of determining a market value for listing the properties.

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at the dates presented:

March 31, 2026

June 30, 2026

(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)

35 unchanged sentences

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

At both March 31, 2026 and December 31, 2025, the Company held one such security with an aggregate fair value of $ 3.3 million that was classified within Level 3 of the fair value hierarchy due to the absence of observable market inputs and limited trading activity.

At June 30, 2026, the Company held two such securities with an aggregate fair value of $ 6.3 million, and at December 31, 2025, the Company held one such security with an aggregate fair value of $ 3.3 million all of which were classified within Level 3 of the fair value hierarchy due to the absence of observable market inputs and limited trading activity.

These Level 3 assets increased compared to December 31, 2025, reflecting the addition of a $ 3.0 million corporate bond during the second quarter of 2026.

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

2 unchanged sentences

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

March 31, 2026

June 30, 2026

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

5 unchanged sentences

Individually Evaluated Loans $ — $ — $ 22,809 $ 22,809

The Company had two IELs totaling $ 20.6 million that were measured at fair value on a nonrecurring basis at March 31, 2026, compared to three totaling $ 22.8 million at December 31, 2025.

The Company’s largest credit relationship, previously classified as an IEL had a net carrying value of zero at March 31, 2026, compared to $ 196.0 million at December 31, 2025, as a result of the Transaction during the first quarter of 2026.

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

These valuation techniques resulted in a valuation allowance of zero at March 31, 2026, compared to $ 18.0 million at December 31, 2025, as the previously established specific reserves were released in connection with the Transaction during the first quarter of 2026.

The Company had three IEL relationships consisting of seven loans totaling $ 30.8 million that were measured at fair value on a nonrecurring basis at June 30, 2026, compared to three IEL relationships consisting of eight loans totaling $ 22.8 million at December 31, 2025.

The Company’s largest credit relationship, previously classified as an IEL had a net carrying value of zero at June 30, 2026, compared to $ 196.0 million at December 31, 2025, as a result of the Loan Sale Transaction during the first quarter of 2026.

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

These valuation

CARTER BANKSHARES, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

OREO, which is measured at the lower of carrying amount or fair value less costs to sell, had a net carrying amount of $ 3.4 million as of March 31, 2026, compared to $ 0.1 million at December 31, 2025.

techniques resulted in a valuation allowance of zero at June 30, 2026, compared to $ 18.0 million at December 31, 2025, as the previously established specific reserves were released in connection with the Loan Sale Transaction during the first quarter of 2026.

OREO, which is measured at the lower of carrying amount or fair value less costs to sell, had a net carrying amount of $ 3.4 million as of June 30, 2026, compared to $ 0.1 million at December 31, 2025.

The increase was primarily attributable to two nonperforming residential mortgage loans totaling $ 2.9 million that were transferred to OREO during the first quarter of 2026.

The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis at the dates presented:

March 31, 2026

June 30, 2026

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

1 unchanged sentence

Total Individually Evaluated Loans $ 30,779

OREO $ 2,937 NA NA NA NA

OREO $ 2,122 Appraisals Estimated Selling Costs 0.0 % —% 6.0 % 3.7 %

OREO 143 Internal Valuations Estimated Selling Costs 5.0 % 5.0 %

10 unchanged sentences

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 March 31, 2026 and December 31, 2025 are presented in the accompanying tables.

The carrying values and estimated fair values of the Company’s financial instruments at June 30, 2026 and December 31, 2025 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 .

7 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Fair Value Measurements at March 31, 2026

Fair Value Measurements at June 30, 2026

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

44 unchanged sentences

Balance Sheet Hedging Activities

The Company uses interest rate swaps as part of its interest rate risk management strategy to reduce its exposure to changes in the fair value of certain fixed-rate available-for-sale debt securities resulting from fluctuations in benchmark interest rates.

During the six months ended June 30, 2026, the Company designated interest rate swaps with an aggregate notional amount of $ 29.9 million as fair value hedges of certain available-for-sale securities.

The hedging relationships qualify for the shortcut method under ASC 815, Derivatives and Hedging, as management determined that the critical terms of the interest rate swaps and the hedged securities matched.

Accordingly, changes in the fair value of the interest rate swaps are recognized in earnings and are expected to offset changes in the fair value of the hedged securities attributable to changes in the designated benchmark interest rate.

Changes in the fair value of the available-for-sale securities that are not attributable to the hedged risk continue to be recognized in other comprehensive income.

The Company assesses the qualifying criteria for application of the shortcut method on an ongoing basis.

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

17 unchanged sentences

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

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

1 unchanged sentence

Asset Derivatives (Included in Other Assets)

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

(Dollars in Thousands) Number of

2 unchanged sentences

Transactions Notional

Derivatives Designated as Hedging Instruments

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

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

Derivatives not Designated as Hedging Instruments

2 unchanged sentences

Total Derivatives not Designated as Hedging Instruments 65 $ 348,964 $ 10,938 57 $ 353,512 $ 10,182

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Total Derivatives 65 $ 348,964 $ 10,938 57 $ 353,512 $ 10,182

Fair Values of Derivative Instruments

Liability Derivatives (Included in Other Liabilities)

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

(Dollars in Thousands) Number of

2 unchanged sentences

Transactions Notional

Derivatives Designated as Hedging Instruments

Interest Rate Swaps - Balance Sheet Hedge 5 $ 29,852 $ 539 — $ — $ —

Total Derivatives Designated as Hedging Instruments 5 $ 29,852 $ 539 — $ — $ —

Derivatives not Designated as Hedging Instruments

2 unchanged sentences

Total Derivatives not Designated as Hedging Instruments 65 $ 348,964 $ 10,853 57 $ 353,512 $ 10,089

Total Derivatives 70 $ 378,816 $ 11,392 57 $ 353,512 $ 10,089

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 periods presented:

Three Months Ended March 31,

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

(Dollars in Thousands) 2026 2025 2026 2025

9 unchanged sentences

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.

Accordingly, derivative positions with the same counterparty may be

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

The following table indicates the gross amounts of derivative assets and derivative liabilities not designated as hedging instruments, the amounts offset and the carrying values included in the Consolidated Balance Sheets at the dates presented:

1 unchanged sentence

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

(Dollars in Thousands) March 31, 2026 December 31, 2025 March 31, 2026 December 31, 2025

(Dollars in Thousands) June 30, 2026 December 31, 2025 June 30, 2026 December 31, 2025

Derivatives Designated as Hedging Instruments

Gross Amounts Recognized $ — $ — $ 539 $ —

Gross Amounts Offset — — — —

Net Amounts Presented in the Consolidated Balance Sheets $ — $ — $ 539 $ —

Derivatives not Designated as Hedging Instruments

2 unchanged sentences

Net Amounts Presented in the Consolidated Balance Sheets $ 10,938 $ 10,182 $ 10,853 $ 10,089

Net Amount $ 10,938 $ 10,182 $ 11,392 $ 10,089

NOTE 8 – DEPOSITS

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

(Dollars in Thousands) March 31, 2026 December 31, 2025

(Dollars in Thousands) June 30, 2026 December 31, 2025

Noninterest-Bearing Demand $ 655,482 $ 620,473

4 unchanged sentences

Total $ 4,197,556 $ 4,210,889

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 March 31, 2026 and December 31, 2025 were $ 303.7 million and $ 310.7 million, respectively.

At both March 31, 2026 and December 31, 2025, total brokered deposits (excluding the ICS two-way) were $ 191.2 million, which are included within the “certificates of deposit” line item in the Consolidated Balance Sheets.

Certificates of deposit that exceed the FDIC Insurance limit of $250,000 at June 30, 2026 and December 31, 2025 were $ 300.1 million and $ 310.7 million, respectively.

At June 30, 2026, total brokered deposits (excluding the ICS two-way) were $ 181.2 million, compared to $ 191.2 million at December 31, 2025, which are included within the “certificates of deposit” line item in the Consolidated Balance Sheets.

Certificates of Deposit maturing as of the date presented:

(Dollars in Thousands) March 31, 2026

(Dollars in Thousands) June 30, 2026

2027 $ 1,461,236

1 unchanged sentence

Total $ 1,846,416

Overdrafts reclassified to loans were $ 0.3 million at both March 31, 2026 and December 31, 2025.

Overdrafts reclassified to loans were $ 0.3 million at both June 30, 2026 and December 31, 2025.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 9 – FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED

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

At March 31, 2026, the Company had no outstanding Federal Home Loan Bank (“FHLB”) borrowings, compared to $ 178.5 million at December 31, 2025.

The $ 178.5 million decrease from December 31, 2025, reflects the repayment of borrowings utilizing proceeds from the Transaction.

At June 30, 2026, the Company had no outstanding Federal Home Loan Bank (“FHLB”) borrowings, compared to $ 178.5 million at December 31, 2025.

The $ 178.5 million decrease from December 31, 2025, reflects the repayment of borrowings utilizing proceeds from the Loan Sale Transaction.

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.

At March 31, 2026, the Company had no variable rate FHLB borrowings compared to 52.0 % of total borrowings at December 31, 2025.

At June 30, 2026, the Company had no variable rate FHLB borrowings compared to 52.0 % of total borrowings at December 31, 2025.

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.

During the quarter ended March 31, 2026, FHLB early prepayment credits totaled $ 0.1 million.

Loans pledged as collateral to the FHLB totaled $ 1.3 billion at both March 31, 2026 and December 31, 2025.

No available-for-sale securities were pledged as collateral at March 31, 2026 or December 31, 2025.

At March 31, 2026, funding sources accessible to the Company included borrowing availability from the FHLB equal to 30 % of total assets, or approximately $ 1.4 billion, subject to the amount of eligible collateral pledged.

Based on eligible collateral at March 31, 2026, the Company had the capacity to borrow up to an additional $ 816.6 million from the FHLB, compared to additional borrowing capacity of $ 609.4 million at December 31, 2025.

In addition to FHLB funding, at March 31, 2026 and December 31, 2025, 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 $ 25.0 million.

The secured line of credit decreased by $ 20.0 million during the quarter ended March 31, 2026, from $ 45.0 million, as a result of the sale of investment securities previously pledged as collateral to the secured facility that were not replaced with new pledged assets, which reduced the borrowing capacity.

No amounts were outstanding under these facilities as of March 31, 2026 or December 31, 2025.

The Company also had access to the institutional CD and the brokered deposit markets.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

During the six months ended June 30, 2026, FHLB early prepayment credits totaled $ 0.1 million.

Loans pledged as collateral to the FHLB totaled $ 1.4 billion at both June 30, 2026 and December 31, 2025.

No available-for-sale securities were pledged as collateral at June 30, 2026 or December 31, 2025.

At June 30, 2026, funding sources accessible to the Company included borrowing availability at the FHLB equal to 30.0 % of total assets, or $ 1.4 billion, subject to eligible collateral pledged.

Based on eligible collateral at June 30, 2026, the Company had the capacity to borrow an additional $ 879.5 million from the FHLB, compared to additional borrowing capacity of $ 609.4 million at December 31, 2025.

During the six months ended June 30, 2026, the Company decreased its $ 45.0 million secured line of credit with a correspondent financial institution to $ 25.0 million, and during the second quarter of 2026, this line of credit was converted to an unsecured facility.

In addition, a $ 50.0 million unsecured line of credit with an unrelated correspondent financial institution was fully reinstated.

Reflecting the Company’s improved earnings performance and enhanced credit risk profile following the Loan Sale Transaction during the first quarter of 2026, the Company now maintains unsecured borrowing lines of credit totaling $ 105.0 million with four correspondent financial institutions, inclusive of the converted unsecured facility noted previously.

The Company also continues to have access to the institutional CD market.

At December 31, 2025, 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 June 30, 2026 or December 31, 2025.

The following table represents the balance of FHLB borrowings, the weighted average interest rate and the borrowing availability at the dates presented:

(Dollars in Thousands) March 31, 2026 December 31, 2025

(Dollars in Thousands) June 30, 2026 December 31, 2025

FHLB Borrowings $ — $ 178,500

2 unchanged sentences

The following table represents the balance of federal funds purchased, the weighted average interest rate and the borrowing availability at the dates presented:

(Dollars in Thousands) March 31, 2026 December 31, 2025

(Dollars in Thousands) June 30, 2026 December 31, 2025

Federal Funds Purchased $ — $ —

3 unchanged sentences

Commitments to extend credit represent agreements to lend to customers that generally have fixed expiration dates or other termination clauses.

At March 31, 2026 and December 31, 2025, commitments to extend credit totaled $ 730.6 million and $ 771.7 million, respectively.

At June 30, 2026 and December 31, 2025, commitments to extend credit totaled $ 645.6 million and $ 771.7 million, respectively.

These commitments primarily consist of lines of credit provided to customers to finance the 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 $ 421.1 million, or 57.6 %, of total commitments to extend credit at March 31, 2026, compared to $ 452.8 million, or 58.7 %, at December 31, 2025.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

related lines of credit represented $ 344.1 million, or 53.3 %, of total commitments to extend credit at June 30, 2026, compared to $ 452.8 million, or 58.7 %, at December 31, 2025.

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 $ 15.9 million at March 31, 2026 and $ 16.5 million at December 31, 2025.

(Dollars in Thousands) March 31, 2026 December 31, 2025

Outstanding standby letters of credit totaled $ 15.7 million at June 30, 2026 and $ 16.5 million at December 31, 2025.

(Dollars in Thousands) June 30, 2026 December 31, 2025

Commitments to Extend Credit $ 645,609 $ 771,677

9 unchanged sentences

The reserve for unfunded loan commitments fluctuates primarily based on changes in construction related commitments between reporting periods.

A recovery of $( 0.2 ) million was recorded for the three months ended March 31, 2026, reflecting a decrease of $ 0.1 million compared to the same period in 2025.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Recoveries of $ 0.6 million and $ 0.8 million were recorded for the three and six months ended June 30, 2026, respectively, reflecting decreases of $ 0.2 million and $ 0.3 million compared to the same periods in 2025.

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

Three Months Ended March 31,

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

(Dollars in Thousands) 2026 2025 2026 2025

6 unchanged sentences

Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty.

Other than as set forth below, as of March 31, 2026, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business.

On April 12, 2026, the Company and the Bank, along with certain unaffiliated third parties, were named as defendants in a lawsuit filed in the Circuit Court of Greenbrier County, West Virginia by James C.

Other than as set forth below, as of June 30, 2026, the Company is not involved in any material pending legal proceedings other than proceedings occurring in the ordinary course of business.

The Company and the Bank, along with certain unaffiliated third parties, have been named as defendants in a lawsuit filed on April 12, 2026, and subsequently amended on April 29, 2026, in the Circuit Court of Greenbrier County, West Virginia by James C.

Justice, II, Cathy L.

4 unchanged sentences

Justice and, in certain cases, by personal guarantees from James C.

Justice, III.

The allegations contained in the lawsuit also relate to a transaction in which the Bank sold its interest in the Judgments and related collateral to one of the unaffiliated third-party defendants.

In the lawsuit the Plaintiffs allege that the Bank (i) breached an implied covenant of good faith and fair dealing, (ii) tortiously interfered with Plaintiffs’ business interests, (iii) harmed Plaintiffs through a series of allegedly misleading promises, representations and/or omissions on which Plaintiffs allegedly relied, (iv) tortiously interfered with the Plaintiffs’ business interests under agreements between Plaintiffs and the unaffiliated third-party defendants, and (v) together with the unaffiliated third-party defendants, participated in a scheme to restrain trade and competition in an alleged market in the which certain collateral securing the Judgments operates.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The allegations contained in the lawsuit also relate to the Loan Sale Transaction in which the Bank sold its interest in the Judgments and related collateral to one of the unaffiliated third-party defendants.

In the lawsuit the Plaintiffs allege that the Bank (i) breached an implied covenant of good faith and fair dealing, (ii) tortiously interfered with Plaintiffs’ business interests, (iii) harmed Plaintiffs through a series of allegedly misleading promises, representations and/or omissions on which Plaintiffs allegedly relied, (iv) tortiously interfered with the Plaintiffs’ business interests under agreements between Plaintiffs and the unaffiliated third-party defendants, and (v) together with the unaffiliated third-party defendants, participated in a scheme to restrain trade and competition in an alleged market in which certain collateral securing the Judgments operates.

With respect to the Bank, the Plaintiffs have requested the court to rescind the Bank’s sale of the Judgments to the unaffiliated third-party purchaser and seek declaratory relief that the Plaintiffs are entitled to pay-off the Judgments at no more than the sale price.

3 unchanged sentences

At this early stage of the lawsuit, the Company is not yet able to make a determination as to the likelihood of an unfavorable outcome in this matter or to estimate the range of any possible loss.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

NOTE 11 – TAX EFFECTS ON OTHER COMPREHENSIVE INCOME

The following tables present the change in components of other comprehensive (loss) income for the periods presented, net of tax effects:

Three Months Ended March 31, 2026

Three Months Ended June 30, 2026 Six Months Ended June 30, 2026

(Dollars in Thousands) Pre-Tax

Amount Tax Benefit Net of Tax

Net Unrealized Losses Arising during the Period $ ( 901 ) $ 153 $ ( 748 )

Reclassification Adjustment for Gains included in Net Income ( 80 ) 18 ( 62 )

Other Comprehensive Loss $ ( 981 ) $ 171 $ ( 810 )

Three Months Ended March 31, 2025

Amount Tax Expense Net of Tax

Amount Pre-Tax

Amount Tax Benefit (Expense) Net of Tax

Net Unrealized Gains (Losses) Arising during the Period $ 188 $ ( 55 ) $ 133 $ ( 713 ) $ 99 $ ( 614 )

Reclassification Adjustment for Losses included in Net Income 12,531 ( 2,632 ) 9,899 12,451 ( 2,615 ) 9,836

Other Comprehensive Income $ 12,719 $ ( 2,687 ) $ 10,032 $ 11,738 $ ( 2,516 ) $ 9,222

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

(Dollars in Thousands) Pre-Tax

Amount Tax Expense Net of Tax

Amount Pre-Tax

Amount Tax Expense Net of Tax

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

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The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before taxes.

The Company ordinarily generates an annual effective tax rate that differs from the statutory rate of 21% due to benefits resulting from tax-exempt interest, tax-exempt income from bank-owned life insurance (“BOLI”), and tax benefits resulting from certain partnership investments.

Three Months Ended March 31,

(Dollars in Thousands) Amount Percent Amount Percent

The Company ordinarily generates an annual effective tax rate that differs from the statutory rate of 21% due to benefits

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

resulting from tax-exempt interest, tax-exempt income from bank-owned life insurance (“BOLI”), and tax benefits resulting from certain partnership investments.

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

2026 2025 2026 2025

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

Federal Statutory Rate $ 7,821 21.0 $ 2,232 21.0 $ 30,927 21.0 $ 4,571 21.0

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Income From Bank Owned Life Insurance ( 90 ) ( 0.2 ) ( 71 ) ( 0.7 ) ( 175 ) ( 0.1 ) ( 538 ) ( 2.4 )

Other 29 — ( 22 ) ( 0.1 )

Other Adjustments

Taxes and Penalty on Surrender of Bank Owned Life Insurance — — — —

Interim Period Effective Rate Adjustment ( 304 ) ( 0.8 ) ( 27 ) ( 0.3 ) ( 558 ) ( 0.4 ) 154 0.7

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Income Tax Provision and Effective Income Tax Rate $ 8,327 22.4 $ 2,118 19.9 $ 32,601 22.1 $ 4,301 19.8

1 For the three months ended March 31, 2026 and 2025, North Carolina comprised the majority (greater than 50%) of the tax effect in this category.

For the three months ended March 31, 2026, the Company recorded an income tax provision of $ 24.3 million, reflecting an effective tax rate of 22.1 %, compared to $ 2.2 million and an effective tax rate of 19.6 % for the three months ended March 31, 2025.

For the period ended March 31, 2026, the annual effective tax rate was greater than the statutory rate of 21%, primarily due to a $ 98.9 million increase in pre-tax income, attributable to the Transaction, and the expiration of tax credits generated from historic tax credit investments.

Conversely, during the three months ended March 31, 2025, a tax-free BOLI death benefit of $ 1.9 million further reduced the annual effective tax rate reported in that period.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

1 For the three and six months ended June 30, 2026 and 2025, North Carolina comprised the majority (greater than 50%) of the tax effect in this category.

For the three and six months ended June 30, 2026, the Company recorded income tax provision of $ 8.3 million and $ 32.6 million, respectively, reflecting effective tax rates of 22.4 % and 22.1 %, compared to income tax provisions of $ 2.1 million and $ 4.3 million and effective tax rates of 19.9 % and 19.8 %, respectively, for the same periods in 2025.

T he effective tax rates for the 2026 periods exceeded the federal statutory rate of 21%, primarily due to state income taxes and the expiration of certain tax credits associated with historic tax credit investments.

These items were partially offset by the tax benefits associated with tax-exempt interest income, BOLI income and rehabilitation tax credits.

The lower effective tax rates for the comparable 2025 periods were primarily attributable to the recognition of a $ 1.9 million tax-free BOLI death benefit, which favorably impacted the Company’s annual effective tax rate.

The Company elected to adopt the proportional amortization method of accounting for all qualifying equity investments within the historic tax credit (“HTC”) program.

The Company makes equity investments as a limited partner in various partnerships that sponsor HTC as a strategic tax initiative designed to receive income tax credits and other income tax benefits, such as deductible flow-through losses.

As of March 31, 2026 and December 31, 2025, the Company recognized $ 0.3 million and $ 0.5 million, respectively, in HTC equity investments recorded as a component of other assets on the Consolidated Balance Sheets.

As of June 30, 2026 and December 31, 2025, the Company recognized $ 0.3 million and $ 0.5 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.

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

As of March 31, 2026 and March 31, 2025, the Company had not recognized any non-income-tax-related activity from its HTC investments.

As of June 30, 2026 and June 30, 2025, the Company had not recognized any non-income-tax-related activity from its HTC investments.

NOTE 13 – STOCK REPURCHASE PLAN

On February 2, 2026, the Company announced that its 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.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

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

The Company did not repurchase any shares under this repurchase plan during the three months ended March 31, 2026.

During both the three and six months ended June 30, 2026, the Company repurchased 108,601 shares of its common stock at a total cost of $ 2.9 million and a weighted average cost per share of $ 26.50 .

NOTE 14 - SEGMENT REPORTING

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The results of operations for the Company’s single reporting segment are shown within the Consolidated Statements of Income and Consolidated Balance Sheets.

NOTE 15 - SUBSEQUENT EVENTS

On May 1, 2026, the Company announced that it has completed the sale of its membership interest in Bearing Insurance Group, LLC to an unaffiliated third party.

Based on currently available information, the Company expects to recognize a pre-tax gain of approximately $ 35.8 million in the second quarter of 2026.

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The MD&A is provided as a supplement to, and should be read in conjunction with, The Company’s Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this Quarterly Report on Form 10-Q.

Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.

The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.

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◦ Off-Balance Sheet Arrangements

This section reviews the Company’s financial condition and results of operations and highlights material changes in its financial condition and results of operations as of and for the three-month periods ended March 31, 2026 and March 31, 2025.

This section reviews the Company’s financial condition and results of operations and highlights material changes in its financial condition and results of operations as of and for the three and six month periods ended June 30, 2026 and June 30, 2025.

Certain prior period amounts have been reclassified to conform to the current period presentation.

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This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements may include statements relating to our financial condition, market conditions, results of operations, plans, including our strategic plan, brand strategy, and guiding principles and the anticipated results of the foregoing, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, loan pipeline and nonaccrual and nonperforming loans (“NPL”).

Forward-looking statements may include statements relating to the financial consequences of the Loan Sale Transaction, Insurance Transaction and Portfolio Repositioning, including the expected enhancement of future earnings, asset yields, and net interest income from the Portfolio Repositioning, our expansion in the Carolinas and the anticipated results of such expansion, our financial condition, market conditions, results of operations, plans, including our strategic plan, brand strategy, and guiding principles and the anticipated results of the foregoing, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, loan pipeline and nonaccrual and nonperforming loans (“NPL”).

Forward looking statements are typically identified by words or phrases such as “will likely result,” “expect,” “anticipate,” “estimate,” “forecast,” “project,” “intend,” “believe,” “assume,” “strategy,” “trend,” “plan,” “outlook,” “outcome,” “continue,” “remain,” “potential,” “opportunity,” “comfortable,” “current,” “position,” “maintain,” “sustain,” “seek,” “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may.

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The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements including, but not limited to the effects of:

• market interest rates and the impacts of market interest rates on economic conditions, customer behavior, and the Company’s net interest margin, net interest income, funding costs and its deposit, loan and securities portfolios;

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

• inflation, market and monetary fluctuations;

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

• concentrations of loans secured by real estate, particularly commercial real estate (“CRE”) loans, and the potential impacts of changes in market conditions on the value of real estate collateral;

• increased delinquency and foreclosure rates on CRE loans;

• concentrations of loans secured by real estate, particularly commercial real estate loans, and the potential impacts of changes in market conditions on the value of real estate collateral;

• increased delinquency and foreclosure rates on commercial real estate loans;

• an insufficient allowance for credit losses;

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• managing our internal growth and acquisitions;

• the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating acquired operations will be more difficult, disruptive or more costly than anticipated;

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

• the soundness of other financial institutions and any indirect exposure related to large bank failures and their impact on the broader market through other customers, suppliers and partners or that the conditions which resulted in the liquidity concerns with those failed banks may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships with;

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• deterioration of the housing market and reduced demand for mortgages;

• re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses.

• turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses.

Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 , and any of the Company’s subsequent filings with the Securities and Exchange Commission (“SEC”).

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Management believes these non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results across periods in a meaningful manner.

These measures also assist in assessing the Company’s underlying operating performance and performance trends and facilitate comparisons with other financial services companies.

These measures also assist in

CARTER BANKSHARES, INC.

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

assessing the Company’s underlying operating performance and performance trends and facilitate comparisons with other financial services companies.

The Company believes that presenting interest and dividend income, yield on interest earning assets, net interest income, and net interest margin on an FTE basis improves comparability between income derived from taxable and tax-exempt sources and is consistent with industry practice.

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Critical Accounting Estimates

The Company’s critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2026 have remained unchanged from the disclosures presented under the heading “Critical Accounting Estimates” in its Annual Report on Form 10-K for the year ended December 31, 2025 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are incorporated herein by reference.

The Company’s critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2026 have remained unchanged from the disclosures presented under the heading “Critical Accounting Estimates” in its Annual Report on Form 10-K for the year ended December 31, 2025 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are incorporated herein by reference.

Overview and Strategy

Carter Bankshares, Inc.

(the “Company”) is a financial holding company, as of October 27, 2025, headquartered in Martinsville, Virginia with assets of $4.8 billion at March 31, 2026.

(the “Company”) is a financial holding company, as of October 27, 2025, headquartered in Martinsville, Virginia with assets of $4.8 billion at June 30, 2026.

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

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The Company’s common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE”.

During 2025, the Company acquired two leased branch facilities, along with the associated deposits, located in Mooresville, North Carolina and Winston Salem, North Carolina, from First Reliance Bank (the “Branch Purchase”).

During 2025, the Company acquired two leased branch facilities, along with the associated deposits, located in Mooresville, North Carolina and Winston Salem, North Carolina (the “Branch Purchase”).

In connection with the Branch Purchase, the Bank acquired $55.9 million in deposits, along with cash and premises and equipment associated with the branch locations, and welcomed ten associates to its team.

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exceptional service and lasting customer relationships.

We believe these core strengths set the Company apart in a competitive landscape.

The multi-year initiative aims for sustainable growth through innovation, operational excellence, and a continual focus on customer experience.

A key strategy is expanding consumer and business banking to meet customers’ evolving needs.

Recent milestones include comprehensive rebranding, new product and service launches, modernization of locations, and

We believe these core strengths set the Company apart in a competitive

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

upgrades to digital platforms, which we believe have led to deeper customer engagement and increased community impact.

The multi-year initiative aims for sustainable growth through innovation, operational excellence, and a continual focus on customer experience.

A key strategy is expanding consumer and business banking to meet customers’ evolving needs.

Recent milestones include comprehensive rebranding, new product and service launches, modernization of locations, and upgrades to digital platforms, which we believe have led to deeper customer engagement and increased community impact.

The Company’s brand identity remains rooted in customers, associates, and communities, reflecting the Company’s dedication to delivering superior value and lasting success.

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It will also apply this approach when entering new markets .

On March 26, 2026, the Bank completed the sale (the “Transaction”) of all loans subsequently reduced to judgments related to various entities in which James C.

Following the successful Loan Sale Transaction during the first quarter of 2026, the Company entered the second quarter with enhanced liquidity and a substantially improved risk profile.

During the second quarter of 2026, the Company completed the sale of its membership interest in Bearing Insurance Group, LLC (the “Insurance Transaction”) to an unaffiliated third party and used a portion of the proceeds from the Insurance Transaction to execute a strategic repositioning of a portion of its available-for-sale investment securities portfolio (the “Portfolio Repositioning”).

During the second quarter of 2026, the Company expanded its presence in the Carolinas by opening a loan production office in Greenville, South Carolina, its first physical location in the state.

The office supports the Company’s strategic growth initiative by providing commercial banking services to businesses throughout the Upstate South Carolina region and reflects managements’ continued focus on expanding its commercial banking franchise in attractive growth markets.

Three strategic milestones during the first half of 2026:

Credit Risk Transformation

On March 26, 2026, the Bank completed the Loan Sale Transaction of all loans subsequently reduced to judgments related to various entities in which James C.

Justice, II has an interest (such loans, subsequently reduced to judgments, the “Judgments”).

The Transaction was completed as an absolute, “as-is, where-is” sale to an unaffiliated third party.

The Company received consideration of $289.5 million in cash in the Transaction.

Immediately prior to the Transaction, the Judgments had an outstanding aggregate principal amount of $209.5 million, all of the Judgments were nonperforming and on nonaccrual status, and the Company had recorded a specific reserve with respect to the Judgments of $18.0 million as of December 31, 2025.

The Loan Sale Transaction was completed as an absolute, “as-is, where-is” sale to an unaffiliated third party.

The Company received consideration of $289.5 million in cash in the Loan Sale Transaction.

Immediately prior to the Loan Sale Transaction, the Judgments had an outstanding aggregate principal amount of $209.5 million, all of the Judgments were nonperforming and on nonaccrual status, and the Company had recorded a specific reserve with respect to the Judgments of $18.0 million as of December 31, 2025.

Management’s continued focus on the resolution of this relationship has improved overall asset quality, reduced credit concentration risk and helped to optimize capital and liquidity.

Transaction Summary

• Received consideration of $289.5 million in cash in the Transaction during the first quarter of 2026;

• Recognized a net gain on the Transaction of $80.0 million, comprised of:

◦ $65.0 million gain on the Transaction;

Loan Sale Transaction Summary

• Received consideration of $289.5 million in cash in the Loan Sale Transaction, during the first quarter of 2026;

• Recognized a net gain on the Loan Sale Transaction of $80.0 million, comprised of:

◦ $65.0 million gain on the Loan Sale Transaction;

◦ $15.0 million net recovery;

• Released $18.0 million of specific reserves related to the Judgments;

• The Transaction was accretive to diluted earnings per share by $3.50 for the first quarter of 2026;

• The Transaction increased book value per share by $3.49 for the first quarter of 2026.

• The Loan Sale Transaction was accretive to diluted earnings per share by $3.50 for the first quarter of 2026;

• The Loan Sale Transaction increased book value per share by $3.49 for the first quarter of 2026.

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

Balance Sheet Optimization

On May 1, 2026, the Company announced that it had completed the Insurance Transaction to an unaffiliated third party, effective May 1, 2026.

The Company recognized a pre-tax gain of $35.9 million on the Insurance Transaction, which was recognized by the Company in its financial results for the second quarter of 2026.

Insurance Transaction Summary

• Recognized a net gain (pre-tax) from the Insurance Transaction of $35.9 million;

• The Insurance Transaction was accretive to diluted earnings per share by $1.30 for the quarter;

• The Insurance Transaction increased tangible book value per share by $1.28.

As a result of the successful completion of the Insurance Transaction and the Loan Sale Transaction during the second and first quarters of 2026, respectively, the Company generated approximately $100.9 million of aggregate nonrecurring gains during the first six months of 2026.

These gains afforded an opportunity to optimize the Company’s balance sheet, improve future earnings potential and enhance interest rate risk positioning.

As part of this process, the Company completed a strategic Portfolio Repositioning, which is discussed below, during the second quarter of 2026, resulting in a pre-tax loss of $12.5 million.

The Portfolio Repositioning is expected to enhance future earnings performance through improved asset yields and balance sheet positioning.

Positioning for Future Earnings Growth

In the Portfolio Repositioning, the Company sold $139.4 million in book value of securities available-for-sale with a weighted average yield of 2.28% and representing approximately 18.7% of the Company’s securities portfolio, and purchased approximately $88.5 million of securities available-for-sale with a weighted average yield of approximately 5.27%.

All of the securities purchased were rated AAA or AA by a recognized credit rating agency.

The Company expects to use the remaining proceeds from the Portfolio Repositioning to fund organic loan growth during the remainder of 2026.

Results of Operations and Financial Condition

Earnings Summary

Highlights for the Three Months Ended March 31, 2026 compared to the Three Months Ended March 31, 2025.

• Net interest income totaled $35.9 million, an increase of $5.8 million, or 19.2% compared to the same period in 2025;

Highlights for the Three Months Ended June 30, 2026

• Net interest income totaled $40.0 million, an increase of $7.6 million, or 23.5% compared to the same period in 2025, despite approximately $132.6 million in commercial real estate loan payoffs during the second quarter of 2026;

• Net interest margin, increased 58 basis points to 3.38%, compared to 2.80% for the same period in 2025;

• The recovery for credit losses was $33.9 million, compared to a recovery for credit losses of $2.0 million for the same period in 2025;

• Total noninterest income increased $64.1 million to $71.0 million compared to the same period in 2025 primarily due to the $65.0 million gain on the Transaction;

• The provision for credit losses was $2.0 million, compared to a recovery for credit losses of $2.3 million for the same period in 2025;

• Total noninterest income increased $23.8 million to $28.7 million compared to the same period in 2025 primarily due to the net gain recognized from the Insurance Transaction, during the second quarter of 2026, partially offset by the $12.5 million of losses on sales of securities recognized in connection with the Portfolio Repositioning during the second quarter of 2026;

• Total noninterest expense increased $0.7 million to $30.0 million compared to the same period in 2025;

• Income tax provision increased $6.2 million to $8.3 million compared to $2.1 million for the same period in 2025.

Highlights for the Six Months Ended June 30, 2026

◦ Net interest income totaled $75.9 million, an increase of $13.4 million, or 21.4% compared to the same period in 2025;

◦ Net interest margin, increased 49 basis points to 3.23%, compared to 2.74% for the same period in 2025;

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

Balance Sheet Highlights (period-end balances, March 31, 2026 compared to December 31, 2025 )

◦ The recovery for credit losses was $31.9 million, compared to a recovery for credit losses of $4.4 million for the same period in 2025;

◦ Total noninterest income increased $87.9 million to $99.7 million compared to the same period in 2025 primarily attributable to the $65.0 million gain from the Loan Sale Transaction during the first quarter of 2026 and the $35.9 million net gain recognized from the Insurance Transaction during the second quarter of 2026, partially offset by the $12.5 million of losses on sales of securities recognized in connection with the Portfolio Repositioning during the second quarter of 2026;

◦ Total noninterest expense increased $3.7 million to $61.0 million compared to the same period in 2025;

◦ Income tax provision increased $28.3 million to $32.6 million compared to $4.3 million for the same period in 2025.

Balance Sheet Highlights (period-end balances, June 30, 2026 compared to December 31, 2025 )

• The available-for-sale securities portfolio decreased $51.3 million and is currently 13.3% of total assets compared to 14.3% of total assets;

• Total portfolio loans decreased $151.1 million due to the Transaction, partially offset by net loan growth during the quarter of $58.4 million;

• Total portfolio loans decreased $145.0 million primarily due to the Loan Sale Transaction in the first quarter of 2026, partially offset by net loan growth during the first half of the year;

• The portfolio loans to deposit ratio was 89.0%, compared to 92.1%;

• Nonperforming loans (“NPLs”) decreased significantly by $220.0 million to $24.0 million compared to $244.0 million due to the Transaction and NPLs to total portfolio loans were 0.64% compared to 6.29%;

• Nonperforming loans (“NPLs”) decreased by $206.4 million to $37.6 million compared to $244.0 million due to the Loan Sale Transaction and NPLs to total portfolio loans were 1.01% compared to 6.29%;

• The allowance for credit losses to total portfolio loans was 1.48%, compared to 1.84%, primarily reflecting the reversal of specific reserves of $18.0 million related to the Judgments;

• Total deposits increased $24.4 million, or 2.3%, on an annualized basis, to $4.2 billion, compared to December 31, 2025;

• FHLB borrowings decreased $178.5 million, reflecting the repayment of borrowings utilizing proceeds from the Transaction.

The Company reported net income of $85.8 million , or $3.88 diluted earnings per share for the three months ended March 31, 2026, compared to net income of $9.0 million , or $0.39 diluted earnings per share for the three months ended March 31, 2025 .

Three Months Ended March 31,

• Total deposits decreased $13.3 million, or 0.64%, on an annualized basis, to $4.2 billion, compared to December 31, 2025;

• FHLB borrowings decreased $178.5 million, reflecting the repayment of borrowings utilizing proceeds from the Loan Sale Transaction.

The Company reported net income of $28.9 million , or $1.31 diluted earnings per share, and $114.7 million , or $5.18 diluted earnings per share for the three and six months ended June 30, 2026 , respectively, compared to net income of $8.5 million , or $0.37 diluted earnings per share, and $17.5 million , or $0.76 diluted earnings per share, for the three and six months ended June 30, 2025 , respectively.

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

PERFORMANCE RATIOS 2026 2025 2026 2025

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Net interest income is influenced by changes in the average balances of interest-earning assets and interest-bearing liabilities, as well as changes in interest rates, asset yields, funding costs, and interest rate spreads.

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

The composition and mix of interest-earning assets and interest-bearing liabilities are actively managed by the Company’s Asset and Liability Committee (“ALCO”) to mitigate interest rate risk and liquidity risk within the balance sheet.

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Additional discussion regarding the Company’s uses of non-GAAP financial measures is included in the “Explanation of Use of Non-GAAP Financial Measures” section above.

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

The following table reconciles interest and dividend income, yield on interest-earning assets, net interest income, and net interest margin as reported under GAAP to the corresponding amounts presented on an FTE basis for the periods presented:

(Dollars in Thousands) Three Months Ended March 31,

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

2026 2025 2026 2025

Interest and Dividend Income (GAAP) $ 61,491 $ 57,747 $ 120,676 $ 113,754

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The following table presents average balances, interest income and expense, and average yields and rates on interest-earning assets and interest-bearing liabilities for the periods presented:

(Dollars in Thousands) Three Months Ended March 31, 2026 Three Months Ended March 31, 2025

(Dollars in Thousands) Three Months Ended June 30, 2026 Three Months Ended June 30, 2025

Balance Income/

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1 Nonaccruing loans are included in the daily average loan amounts outstanding.

2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent.

Net interest income for the three months ended March 31, 2026 increased $5.8 million, or 19.2%, to $35.9 million compared to the same period in 2025.

On an FTE basis (non-GAAP), net interest income increased $5.8 million to $36.1 million compared to the same period in 2025.

The increase in net interest income was primarily driven by growth in average interest-earning assets, particularly loans, and a reduction in the cost of interest-bearing liabilities.

Average interest-earning assets increased $194.2 million, or 4.3% , to $4.7 billion for the three months ended March 31, 2026, compared to $4.6 billion for the same period in 2025.

This increase was primarily attributable to growth in the loan portfolio, including commercial real estate (“CRE”), construction loans, residential mortgage loans and commercial & industrial loans,

2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21%.

Net interest income for the three months ended June 30, 2026 increased $7.6 million, or 23.5%, to $40.0 million, compared to $32.4 million for the same period in 2025.

On a fully taxable equivalent (“FTE”) basis (non-GAAP), net interest income increased $7.7 million, or 23.5%, to $40.2 million, compared to $32.5 million for the second quarter of 2025.

The increase was primarily attributable to higher average interest-earning assets, led by growth in the commercial real estate, commercial and industrial, construction, and residential mortgage loan portfolios, as well as a reduction in the average costs of interest-bearing liabilities.

The average yield on total interest-earning assets increased 22 basis points to 5.23% from 5.01% primarily as a result of the redeployment of funds from the Loan Sale Transaction, while the average cost of total interest-bearing liabilities declined 37 basis points to 2.39% from 2.76%, primarily due to continued reductions in funding costs, as well as stabilization in deposit pricing, partially reflecting the broader interest rate environment, resulting in expansion of the net interest margin to 3.40%, compared to 2.82% for the second quarter of 2025.

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

partially offset by a decline in other loans due to the Transaction, and the decrease in the average balances of investment securities.

The yield on average interest-earning assets (GAAP) increased six basis points to 5.05% for the three months ended March 31, 2026, compared to 4.99% for the same period in 2025.

The yield on total interest-earning assets (FTE)(non-GAAP) increased seven basis points to 5.07% for the three months ended March 31, 2026 compared to 5.00% during the same period in 2025.

The increase reflects higher loan yields driven by new originations at higher rates and the repricing of variable-rate loans.

These improvements were partially offset by declines in both average balance and yields on investment securities.

Total interest expense decreased $2.6 million, or 10.1%, to $23.3 million for the three months ended March 31, 2026, compared to $25.9 million for the same period in 2025.

The average cost of total interest-bearing liabilities declined 41 basis points to 2.49%, primarily due to continued reductions in funding costs, as well as stabilization in deposit pricing, partially reflecting the broader interest rate environment.

As a result of these factors, net interest margin increased to 3.07% for the three months ended March 31, 2026, compared to 2.68% for the same period in 2025.

On an FTE basis (non-GAAP), net interest margin increased 38 basis points to 3.08%.

Average loan balances decreased compared to the prior-year quarter, as a result of the Loan Sale Transaction, and the average yield on total loans improved to 5.71% from 5.39%, reflecting higher market interest rates on new originations and portfolio mix.

While average security balances declined from the prior-year period, the Company’s strategic balance sheet initiatives, including the second quarter Portfolio Repositioning of a portion of the available-for-sale securities portfolio into higher-yielding investments, are expected to enhance future interest income.

In addition, interest-bearing deposits with banks increased from the prior-year period due to elevated liquidity following the Company’s strategic transactions completed during the first half of 2026.

Funding costs continued to improve during the quarter as the average costs of interest-bearing liabilities declined to 2.39% from 2.76%, and the Company eliminated FHLB borrowings outstanding compared to the prior-year quarter, further reducing interest expense.

(Dollars in Thousands) Six Months Ended June 30, 2026 Six Months Ended June 30, 2025

Balance Income/

Expense Rate Average

Balance Income/

Interest-Bearing Deposits with Banks $ 184,375 $ 3,405 3.72 % $ 62,670 $ 1,391 4.48 %

Tax-Free Investment Securities 2

24,769 571 4.65 % 11,642 169 2.93 %

Taxable Investment Securities 702,290 10,905 3.13 % 813,269 13,451 3.34 %

Total Securities 727,059 11,476 3.18 % 824,911 13,620 3.33 %

Commercial Real Estate 2,148,588 63,623 5.97 % 1,941,884 59,702 6.20 %

Commercial & Industrial 2

245,345 7,715 6.34 % 205,771 6,624 6.49 %

Residential Mortgage 825,567 17,467 4.27 % 811,584 17,080 4.24 %

Other Consumer 25,882 564 4.39 % 28,104 808 5.80 %

Construction 470,567 16,444 7.05 % 434,919 14,626 6.78 %

Other 102,574 — — % 277,279 — — %

Total Loans 1

3,818,523 105,813 5.59 % 3,699,541 98,840 5.39 %

Other Restricted Stock, at Cost 12,202 373 6.16 % 7,469 252 6.80 %

Total Interest-Earning Assets 4,742,159 $ 121,067 5.15 % 4,594,591 $ 114,103 5.01 %

Noninterest Earning Assets 125,430 124,048

Total Assets $ 4,867,589 $ 4,718,639

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-Bearing Demand $ 859,541 $ 6,109 1.43 % $ 775,490 $ 7,047 1.83 %

Money Market 539,003 5,497 2.06 % 530,944 6,829 2.59 %

Savings 326,206 241 0.15 % 351,473 242 0.14 %

Certificates of Deposit 1,884,958 31,110 3.33 % 1,901,751 34,964 3.71 %

Total Interest-Bearing Deposits 3,609,708 42,957 2.40 % 3,559,658 49,082 2.78 %

FHLB Borrowings 79,575 1,556 3.94 % 89,400 1,888 4.26 %

Other Borrowings 10,822 279 5.20 % 10,566 287 5.48 %

Total Borrowings 90,397 1,835 4.09 % 99,966 2,175 4.39 %

Total Interest-Bearing Liabilities 3,700,105 44,792 2.44 % 3,659,624 51,257 2.82 %

Noninterest-Bearing Liabilities 686,538 661,308

Shareholders' Equity 480,946 397,707

Total Liabilities and Shareholders' Equity $ 4,867,589 $ 4,718,639

Net Interest Income 2

$ 76,275 $ 62,846

Net Interest Margin 2

3.24 % 2.76 %

Net Interest Spread 2.71 % 2.19 %

1 Nonaccruing loans are included in the daily average loan amounts outstanding.

2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21%.

Net interest income for the six months ended June 30, 2026 increased $13.4 million, or 21.4% to $75.9 million, compared to $62.5 million for the same period in 2025.

On an FTE basis (non-GAAP), net interest income increased $13.4 million, or 21.4%, to $76.3 million, compared to $62.8 million for the same period in 2025.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

The increase was primarily driven by growth in average interest-earning assets and lower funding costs.

Average interest-earning assets increased to $4.7 billion from $4.6 billion, while the average yield on interest-earning assets increased 14 basis points to 5.15% from 5.01%.

At the same time, the average cost of total interest-bearing liabilities declined 38 basis points to 2.44% from 2.82%, contributing to an increase in the net interest margin to 3.24%, compared to 2.76% for the same period in 2025.

Average loan balances increased across the commercial real estate, commercial and industrial, construction and residential mortgage portfolios, with the average yield on total loans improving to 5.59% from 5.39%.

While average securities balances declined from the prior-year period, the Company’s strategic balance sheet initiatives, including the second quarter Portfolio Repositioning into higher-yielding investments, are expected to enhance future interest income.

Average interest-bearing deposits with banks also increased as excess liquidity generated from the Company’s strategic transactions was deployed into higher-yielding interest-bearing accounts.

Interest expense declined as deposit pricing improved and average FHLB borrowings were lower than the prior-year period, reflecting the Company’s continued emphasis on optimizing its funding mix and reducing overall funding costs.

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025 Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

(Dollars in Thousands) Volume 3

(Decrease) Volume 3

Interest Earned on:

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Tax-free Investment Securities 2

301 102 403 265 137 402

Taxable Investment Securities (1,180) (293) (1,473) (1,758) (788) (2,546)

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Commercial & Industrial 2

734 (369) 365 1,248 (157) 1,091

Residential Mortgages 100 58 158 295 92 387

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Construction 772 218 990 1,231 587 1,818

Other — — — — — —

Total Loans 1

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

Recovery for Credit Losses

Provision (Recovery) for Credit Losses

The Company records a provision or recovery for credit losses to adjust the allowance for credit losses (“ACL”) to the level deemed appropriate to absorb expected credit losses in the loan portfolio.

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The provision or recovery for credit losses reflects management’s estimate of the ACL required to absorb expected life-of-loan losses in the loan portfolio, after consideration of net charge-offs and recoveries during the period.

The following table presents information regarding the recovery for credit losses and net (recoveries) / charge-offs for the periods presented:

(Dollars in Thousands) Three Months Ended March 31,

2026 2025 $ Change

Recovery for Credit Losses $ (33,917) $ (2,025) $ (31,892)

The following table presents information regarding the provision (recovery) for credit losses and net (recoveries) / charge-offs for the periods presented:

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

2026 2025 $ Change 2026 2025 $ Change

Provision (Recovery) for Credit Losses $ 2,010 $ (2,330) $ 4,340 $ (31,907) $ (4,355) $ (27,552)

Recovery for Unfunded Loan Commitments (554) (335) (219) (772) (449) (323)

Total Recovery for Credit Losses on Loans (34,135) (2,139) (31,996)

Total Provision (Recovery) for Credit Losses on Loans 1,456 (2,665) 4,121 (32,679) (4,804) (27,875)

Provision for Securities — — — — — —

Total Recovery for Credit Losses $ (34,135) $ (2,139) $ (31,996)

Total Provision (Recovery) for Credit Losses $ 1,456 $ (2,665) $ 4,121 $ (32,679) $ (4,804) $ (27,875)

Net Loan (Recoveries) / Charge-offs $ (657) $ 165 $ (822) $ (15,586) $ 222 $ (15,808)

Net Loan (Recoveries) / Charge-offs (annualized) / Average Portfolio Loans (0.07) % 0.02 % (0.82) % 0.01 %

During the three months ended March 31, 2026, the Company recorded a recovery for credit losses of $33.9 million, compared to a recovery of $2.0 million for the same period in 2025.

The recovery for credit losses in the first quarter of 2026 primarily reflects the release of previously established specific reserves of $18.0 million, as well as a $15.0 million net recovery associated with the Judgments, in each case related to the Transaction.

In addition to the impact of the Transaction, specific reserves declined $0.9 million during the quarter related to other individually evaluated loans.

This decline was primarily attributable to the sale of one property securing a CRE loan relationship, improved performance and payments on another CRE loan, which reduced the required reserve, and a commercial and industrial (“C&I”) loan relationship returning to accrual status due to sustained payment performance, resulting in the removal of its specific reserves.

The Company also recorded a recovery for unfunded loan commitments of $0.2 million compared to $0.1 million for the same period in 2025.

The increase from the prior year was primarily due to a reduction in unfunded loan commitments, which is reflective of the increase in construction loans in the loan composition.

As a result of these factors, the Company recorded a net benefit to the recovery for credit losses, contributing to a decline in the allowance for credit losses to total portfolio loans declined to 1.41% during the quarter.

The net benefit to the recovery for credit losses was a significant driver of earnings for the first quarter of 2026.

Net recoveries totaled $14.9 million for the three months ended March 31, 2026, compared to net charge-offs of $0.1 million for the same period in 2025.

Net recoveries (annualized) to average portfolio loans, were 1.55% for the three months ended March 31, 2026 compared to net charge-offs of 0.01% for the same period in 2025.

During the three months ended June 30, 2026, the Company recorded a provision for credit losses of $2.0 million, compared to a recovery of $2.3 million for the same period in 2025.

The provision for the quarter ended June 30, 2026 was primarily attributable to a commercial and industrial credit relationship consisting of three loans that transferred to NPL status during the quarter, resulting in the establishment of a $3.1 million specific reserve.

This increase was partially offset by $0.7 million net recoveries received during the period.

During the six months ended June 30, 2026, the Company recorded a recovery for credit losses of $31.9 million, compared to a recovery of $4.3 million for the same period in 2025.

The recovery for credit losses during the six months ended June 30, 2026 primarily reflects the release of previously established specific reserves of $18.0 million, as well as a $15.0 million net recovery associated with the Judgments, in each case related to the Loan Sale Transaction.

This recovery was offset by the previously mentioned $3.1 million specific reserve recorded in the second quarter.

The recovery for credit losses in the first six months of 2025 was primarily driven by a decline in the Other segment reserve rate, specifically the Company’s former largest nonperforming credit relationship due to curtailment payments received during the period.

The Company also recorded a recovery for unfunded loan commitments of $0.6 million and $0.8 million for the three and six months ended June 30, 2026, respectively compared to $0.3 million and $0.4 million for the same periods in 2025, respectively.

The increases from the three and six months ended June 30, 2025 were primarily due to a reduction in unfunded loan commitments, which is reflective of the increase in construction loans in the loan composition.

As a result of these factors, the allowance for credit losses to total portfolio loans declined to 1.48% at June 30, 2026 from 1.90% at June 30, 2025.

While the Company recorded a provision for credit losses during the second quarter of 2026, the year-to-date recovery for credit losses, primarily driven by the first quarter of 2026 Loan Sale Transaction and related reserve release and recovery discussed above, remained a significant contributor to earnings for the six months ended June 30, 2026.

Net recoveries totaled $0.7 million and $15.6 million for the three and six months ended June 30, 2026, respectively, compared to net charge-offs of $0.2 million for both the three and six months ended June 30, 2025.

Net recoveries (annualized) to average portfolio loans, were 0.07% and 0.82% for the three and six months ended June 30, 2026, respectively, compared to net charge-offs of 0.02% and 0.01% for the same periods in 2025, respectively.

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

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Noninterest Income

(Dollars in Thousands) Three Months Ended March 31,

2026 2025 $ Change % Change

Gain on the Transaction $ 65,000 $ — $ 65,000 NM

Gains on Sales of Securities, net 80 — 80 NM

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

2026 2025 $ Change % Change 2026 2025 $ Change % Change

Gain on the Insurance Transaction $ 35,949 $ — $ 35,949 NM $ 35,949 $ — $ 35,949 NM

Gain on the Loan Sale Transaction — — — NM 65,000 — 65,000 NM

Losses on Sales of Securities, net (12,531) — (12,531) NM (12,451) — (12,451) NM

Service Charges, Commissions and Fees 2,491 1,765 726 41.1 % 4,619 3,639 980 26.9 %

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NM- Not Meaningful

Noninterest income for the three months ended March 31, 2026 totaled $71.0 million, an increase of $64.1 million compared to the same period in 2025.

The increase was primarily driven by the $65.0 million gain on the Transaction, which is considered non-core in nature and not indicative of the Company’s ongoing operating performance.

Compared to the quarter ended March 31, 2025, insurance commissions increased $0.6 million, while other noninterest income decreased by $2.0 million, primarily reflecting favorable period-end adjustments within insurance commissions and the impact of a $1.9 million gain on a BOLI death benefit recognized in the first quarter of 2025, respectively.

Noninterest income for the three months ended June 30, 2026 totaled $28.7 million, an increase of $23.8 million compared to the same period in 2025.

The increase was primarily attributable to the $35.9 million net gain recognized on the Insurance Transaction and a $0.7 million increase in service charges on deposit accounts, partially offset by the $12.5 million loss on the sale of securities recognized in connection with the Portfolio Repositioning completed during the second quarter of 2026 and a $0.6 million decline in insurance commissions.

The decrease in insurance commissions primarily reflected the Insurance Transaction, which reduced ongoing insurance commission income.

For the six months ended June 30, 2026, noninterest income totaled $99.7 million, compared to $11.8 million for the same period in 2025.

The increase was primarily attributable to the $65.0 million gain recognized on the Loan Sale Transaction during the first quarter of 2026, the $35.9 million net gain recognized on the Insurance Transaction during the second quarter of 2026, and a $1.0 million increase in service charges on deposit accounts.

These increases were partially offset by the $12.5 million loss on the sale of securities recognized in connection with the Portfolio Repositioning during the second quarter of 2026 and the $1.9 million BOLI death benefit recognized during the first quarter of 2025.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Noninterest Expense

(Dollars in Thousands) Three Months Ended March 31,

2026 2025 $ Change % Change

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

2026 2025 $ Change % Change 2026 2025 $ Change % Change

Salaries and Employee Benefits $ 14,051 $ 14,082 $ (31) (0.2) % $ 28,966 $ 27,739 $ 1,227 4.4 %

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Total Noninterest Expense $ 29,986 $ 29,304 $ 682 2.3 % $ 60,998 $ 57,346 $ 3,652 6.4 %

Noninterest expense for the three months ended March 31, 2026 totaled $31.0 million, an increase of $3.0 million compared to the same period in 2025.

The increase was primarily driven by higher salaries and employee benefits of $1.3 million, as well as increases in other noninterest expense of $0.5 million, data processing expense of $0.4 million, occupancy expense of $0.4 million, and professional and legal fees of $0.3 million.

The increase in salaries and employee benefits was primarily attributable to higher incentive compensation, increased medical costs and annual merit increases, partially offset by higher deferred costs on loan originations.

Other noninterest expense increased primarily due to a $0.6 million write-down on one closed office that was transferred to OREO during the first quarter of 2026.

Data processing expense increased due to inflationary cost pressures and higher costs associated with new and existing service agreements implemented in early 2026.

The increase in occupancy expense was primarily attributable to maintenance contracts entered into during the first quarter of 2026 and related infrastructure investments.

Professional and legal fees increased primarily due to costs associated with the Transaction and higher expenses related to the management of special assets.

Noninterest expense for the three months ended June 30, 2026 totaled $30.0 million, an increase of $0.7 million compared to the same period in 2025.

The increase was primarily driven by $1.1 million of higher other noninterest expense, $0.8 million of higher data processing expense and $0.4 million of higher occupancy expense, partially offset by a $1.7 million decline in FDIC insurance expense.

FDIC insurance expense declined during the second quarter of 2026, primarily reflecting the favorable impact of the Company’s improved risk profile following the Loan Sale Transaction completed during the first quarter of 2026, which reduced FDIC assessment costs.

Other noninterest expense increased primarily due to a $0.8 million write-down of an OREO property based on an updated appraisal received during the second quarter of 2026, as well as a $0.5 million write-down on a closed corporate office building.

Data processing expense increased due to new and expanded service agreements implemented in early 2026.

Occupancy expense increased primarily as a result of higher costs associated with service agreements, software licenses, maintenance contracts, and other infrastructure investments.

For the six months ended June 30, 2026, noninterest expense totaled $61.0 million, compared to $57.3 million for the same period in 2025, an increase of $3.7 million.

The increase primarily reflected $1.6 million of higher other noninterest expense, $1.2 million of higher data processing expense, $1.2 million of higher salaries and employee benefits, $0.7 million of higher occupancy expense and $0.4 million of higher professional and legal fees, partially offset by a $1.6 million decline in FDIC insurance expense.

Consistent with the quarterly discussion above, other noninterest expense increased primarily due to the OREO property write-down and the write-down on the closed corporate office building, while data processing expense increased due to new and expanded service agreements implemented in early 2026.

Occupancy expense increased primarily as a result of higher costs associated with service agreements, software licenses, maintenance contracts, and related infrastructure investments.

Salaries and employee benefits increased primarily due to higher incentive compensation, increased medical benefit costs and annual merit increases, partially offset by higher deferred costs on loan originations.

Professional and legal fees increased primarily due to costs associated with the Loan Sale Transaction and higher expenses related to the management of special assets.

FDIC insurance expense declined as a result of the Company’s improved risk profile following the Loan Sale Transaction completed during the first quarter of 2026.

CARTER BANKSHARES, INC.

2 unchanged sentences

Provision for Income Taxes

The income tax provision for the three months ended March 31, 2026 was $24.3 million, an increase of $22.1 million compared to $2.2 million for the same period in 2025.

The increase was primarily driven by higher pre-tax income, which increased $98.9 million period over period primarily due to the Transaction.

The effective tax rate was 22.1% for the three months ended March 31, 2026 compared to 19.6% for the same period in 2025.

The current period effective tax rate exceeded the statutory federal rate of 21% primarily due to the impact of higher pre-tax income attributable to the Transaction and the expiration of tax credits associated with historic tax credit investments.

In contrast, the prior year period included a $1.9 million tax-free BOLI death benefit, which reduced the annual effective tax rate in that period.

The provision for income taxes increased $6.2 million and $28.3 million for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025.

The increases were primarily attributable to higher pre-tax income, which increased $26.6 million and $125.5 million for the three and six month periods, respectively.

For the three months ended June 30, 2026, the increase in pre-tax income was primarily driven by the Insurance Transaction, which resulted in a $35.9 million pre-tax gain, partially offset by a $12.5 million pre-tax loss recognized in connection with the strategic Portfolio Repositioning completed during the second quarter of 2026.

For the six months ended June 30, 2026, the increase in pre-tax income primarily reflected the first quarter 2026 Loan Sale Transaction, which resulted in a $65.0 million gain on sale, an $18.0 million release of specific reserves, and a $15.0 million recovery for credit losses.

In addition, the second quarter Insurance Transaction resulted in a $35.9 million pre-tax gain, partially offset by the $12.5 million loss recognized in connection with the strategic Portfolio Repositioning.

Comparability to the prior-year period was also affected by a $1.9 million tax-exempt gain recognized on a BOLI death benefit during the first quarter of 2025.

The effective income tax rate was 22.4% and 22.1% for the three and six months ended June 30, 2026, respectively compared to 19.9% and 19.8% for the same periods in 2025.

The effective tax rates for 2026 exceeded the statutory federal tax rate of 21.0%, primarily due to state income taxes and the expiration of certain tax credits associated with historic tax credit investments.

These items were partially offset by the tax benefits associated with tax-exempt interest income, BOLI income and rehabilitation tax credits.

In contrast, the effective tax rate for the prior-year periods benefited from the $1.9 million tax-exempt BOLI death benefit recognized during the first quarter of 2025.

The $0.8 million reversal of a federal valuation allowance related to the realization of capital loss carryforwards from prior tax years, which were created by the exit of tax equity investments and sales of securities.

Management assesses all available positive and negative evidence to estimate whether sufficient taxable income of the appropriate character would be available to utilize the capital loss carryforwards prior to their expiration.

Management believes that the gains resulting from the second quarter Insurance Transaction create sufficient capital gain income to realize the entirety of the capital loss carryforwards.

Consequently, the $0.8 million federal valuation allowance was reversed.

Refer to Note 12, Provision for Income Taxes, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Financial Condition

March 31, 2026

Total assets decreased $52.7 million, to $4.8 billion at March 31, 2026, compared to December 31, 2025.

The decrease was primarily driven by a $151.1 million decline in portfolio loans, largely reflecting the Transaction, partially offset by net loan growth during the first quarter of $58.4 million.

This decrease was partially offset by an increase in cash and due from banks of $123.2 million, as balances held at the Federal Reserve Bank increased due to the excess proceeds from the Transaction in the first quarter of 2026.

The allowance for credit losses decreased $19.0 million during the quarter, primarily reflecting the release of the $18.0 million of specific reserves related to the Judgments.

Available-for-sale investment securities decreased $29.5 million, primarily due to normal paydowns, calls and sales, as well as changes in unrealized losses, partially offset by purchases.

These securities represented 13.8% of total assets at March 31, 2026, compared to 14.3% at December 31, 2025.

Federal Home Loan Bank (“FHLB”) stock, included in Other Restricted Stock, at cost on the Consolidated Balance Sheets, declined $8.4 million in line with lower borrowing levels.

On the funding side, FHLB borrowings decreased $178.5 million during the first quarter, reflecting the repayment of borrowings utilizing proceeds from the Transaction.

Total deposits increased $24.4 million to $4.2 billion at March 31, 2026 compared to December 31, 2025, reflecting an increase of $63.2 million in interest-bearing demand deposits and $17.5 million in noninterest-bearing demand deposits, partially offset by decreases of $39.6 million in money market accounts and $17.5 million in certificates of deposit (“CDs”).

Other liabilities increased $16.5 million, primarily due to an increase in taxes payable associated with the Transaction.

At March 31, 2026, approximately 82.8% of total deposits were insured under FDIC insurance coverage limits, while approximately 17.2% of total deposits were uninsured.

At December 31, 2025, approximately 81.3% of total deposits were insured under FDIC insurance coverage limits, while approximately 18.7% of total deposits were uninsured.

June 30, 2026

Total assets were $4.8 billion at June 30, 2026, a decrease of $50.0 million, or 1.0%, from $4.9 billion at December 31, 2025.

The decrease primarily reflected lower portfolio loans and available-for-sale securities partially offset by higher cash and cash equivalents, higher other real estate owned, and increased interest-bearing deposits with other financial institutions.

Total cash and cash equivalents increased $171.4 million, or 163.0%, to $276.5 million at June 30, 2026, from $105.2 million at December 31, 2025.

The increase primarily reflected liquidity generated from the Loan Sale Transaction during the first quarter of 2026 and the Insurance Transaction during the second quarter of 2026.

A portion of these proceeds were strategically redeployed from Federal Reserve Bank excess reserve balances into higher-yielding interest-bearing deposits with other financial institutions.

Available-for-sale securities decreased $51.3 million, or 7.4%, to $640.3 million at June 30, 2026.

During the second quarter of 2026, the Company completed the Portfolio Repositioning of approximately $139.4 million of lower-yielding available-for-sale securities, recognizing a pre-tax loss while reinvesting a portion of the proceeds into higher-yielding securities.

This Portfolio Repositioning is expected to enhance future net interest income and improve the overall earning asset mix.

Available-for-sale securities represented 13.3% of total assets at June 30, 2026, compared to 14.3% at December 31, 2025.

FHLB stock, included

CARTER BANKSHARES, INC.

1 unchanged sentence

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

in Other Restricted Stock, at cost on the Consolidated Balance Sheets, declined $8.4 million in line with lower borrowing levels.

Portfolio loans decreased $145.0 million, or 7.5% annualized, to $3.7 billion at June 30, 2026, compared to $3.9 billion at December 31, 2025.

The decline primarily reflected the first quarter Loan Sale Transaction.

Excluding the Loan Sale Transaction, the Company continued to generate organic loan growth through new loan originations, partially offset by normal loan repayments and payoffs.

The allowance for credit losses decreased $16.3 million, or 22.8%, to $55.2 million at June 30, 2026.

The decline primarily reflected the Loan Sale Transaction during the first quarter of 2026, including the associated release of specific reserves, partially offset by provision recorded during the second quarter related to a commercial and industrial lending relationship that migrated to nonperforming status.

Total deposits decreased $13.3 million, or 0.6% annualized, to $4.2 billion at June 30, 2026.

The decrease was primarily attributable to declines in certificates of deposit and savings balances, partially offset by growth in noninterest-bearing demand deposits and interest-bearing demand deposits.

The Company continues to maintain a stable and diversified deposit base.

On the funding side, the Company had no FHLB borrowings outstanding at June 30, 2026, as higher cost wholesale borrowings were repaid with proceeds from the Company’s recent strategic transactions, improving its funding profile and reducing interest expense.

Shareholders’ equity increased $119.4 million, or 28.5%, to $539.1 million at June 30, 2026.

The increase was primarily attributable to net income generated during the first six months of 2026 and an improvement in accumulated other comprehensive loss primarily resulting from the Portfolio Repositioning as well as changes in the fair value of the available-for-sale securities portfolio partially offset by dividends declared and share repurchases.

At June 30, 2026, approximately 82.3% of total deposits were insured under FDIC insurance coverage limits, while approximately 17.7% of total deposits were uninsured.

At December 31, 2025, approximately 81.3% of total deposits were insured under FDIC insurance coverage limits, while approximately 18.7% of total deposits were uninsured.

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

(Dollars in Thousands) March 31, 2026 December 31, 2025 $ Change

(Dollars in Thousands) June 30, 2026 December 31, 2025 $ Change

Government Agency Securities $ 16,153 $ 19,375 $ (3,222)

10 unchanged sentences

All security purchases are governed by the Company’s investment policy, which is approved annually by the Board of Directors and administered by ALCO and the treasury function.

The securities portfolio totaled $662.1 million at March 31, 2026, a net decrease of $29.5 million from December 31, 2025.

During the quarter ended March 31, 2026, the Company purchased $3.5 million of securities and recognized a $1.0 million improvement in unrealized losses driven primarily by fluctuations in intermediate term U.S.

Treasury yields.

This net increase was more than offset by $32.0 million of principal reductions resulting from normal paydowns, sales, calls and amortization, resulting in the net decline in the securities portfolio during the three months ended March 31, 2026.

Securities represented 13.8% of total assets at March 31, 2026 compared to 14.3% at December 31, 2025.

As of March 31, 2026, approximately 34.2% of the securities portfolio consisted of variable rate securities, with approximately 100.0% of the portfolio repricing at least once within the next 12 months.

Total gross unrealized gains in the available-for-sale portfolio were $0.2 million at March 31, 2026, offset by $55.0 million of gross unrealized losses, compared to gross unrealized gains of $0.4 million and gross unrealized losses of $54.2 million at December 31, 2025.

Management believes that unrealized losses on debt securities at March 31, 2026 are temporary and primarily attributable to changes in market interest rates since the time of purchase rather than deterioration in credit quality.

Approximately 43.5% of the securities portfolio is comprised of obligations issued by U.S.

government sponsored entities that carry implicit government guarantees.

States and political subdivision securities comprise 35.2% and are largely general obligations and essential purpose revenue bonds, which have historically performed well across economic cycles and are predominantly rated AA and AAA.

The Company has the ability and intent to hold these securities to maturity and expects to recover the full amortized cost of these investments.

The Company may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative.

Unrealized losses were concentrated primarily in securities with intermediate and long-term maturities, whose market values are most sensitive to movements in the U.S.

Treasury yield curve, particularly the five year and ten year maturities.

During the three months ended March 31, 2026, intermediate term Treasury yields increased, contributing to an increase in unrealized losses.

At March 31, 2026, the five and ten-year U.S.

Treasury yields were 3.92% and 4.30%, respectively, compared to 3.73% and 4.18%, respectively, at December 31, 2025.

The increase of approximately 19 basis points in the five year yield and 12 basis points in the ten year yield largely explains the slight increase in unrealized losses during the three months ended March 31, 2026, with longer duration securities, such as municipal bonds, experiencing the most pronounced valuation changes.

Changes in intermediate and long-term interest rates, which are market driven, will continue to affect the market value of fixed rate securities.

Accordingly, the Company expects ongoing fluctuations in the market values of its intermediate and long-term

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

maturity securities as Treasury yields change.

Floating rate securities generally maintained stable market values, as their coupon rates adjust in line with changes in short-term interest rates set by the Federal Reserve.

If any impairment of securities were determined to be credit related, the Company would recognize an ACL through recovery or provision for credit losses in the period an impairment is identified, while any non-credit related impairment would be recorded in accumulated other comprehensive loss, net of applicable taxes.

At March 31, 2026 and December 31, 2025, the Company had no credit related impairments in its securities portfolio.

Under Basel III capital rules, most banking organizations are permitted to make a one-time election to retain the existing regulatory capital treatment for accumulated other comprehensive loss.

The Company elected to retain this treatment, under which accumulated comprehensive loss is excluded from regulatory capital.

As a result, changes in unrealized gains and losses on available-for-sale securities do not affect regulatory capital levels, therefore reducing capital volatility associated with interest rate movements.

Loan Composition

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

(Dollars in Thousands) March 31, 2026 December 31, 2025

Commercial Real Estate $ 2,127,928 $ 2,114,314

Commercial and Industrial 245,455 231,921

Total Commercial Loans 2,373,383 2,346,235

Residential Mortgages 815,263 822,141

Other Consumer 26,264 28,416

Total Consumer Loans 841,527 850,557

Construction 513,551 465,613

Other — 217,155

Total Portfolio Loans 3,728,461 3,879,560

Loans Held-for-Sale 341 339

Total Loans $ 3,728,802 $ 3,879,899

The loan portfolio is the Company’s primary source of interest income and is subject to inherent credit risk, including the risk that borrowers may be unable to meet their contractual obligations.

Adverse developments in a borrower’s industry or in overall economic conditions may negatively affect repayment capacity.

For a discussion of risk factors relevant to the Company’s business and operations, refer to Part I, Item 1A.

“Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 .

Total portfolio loans decreased $151.1 million to $3.7 billion at March 31, 2026, compared to December 31, 2025 largely reflecting the Transaction, partially offset by net loan growth during the three months ended March 31, 2026 of $58.4 million.

The Company actively monitors the loan portfolio in light of changing market conditions, borrower performance, and the interest rate environment.

At March 31, 2026, the loan portfolio consisted of 20.7% floating rates loans that reprice monthly, 38.2% variable rate loans that reprice at least once during the life of the loan, and 41.1% fixed rate loans.

CRE loans represented 57.1% of total portfolio loans at March 31, 2026, compared to 54.5% at December 31, 2025.

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

Collateral securing CRE loans is geographically concentrated primarily in North Carolina, Virginia and South Carolina and includes properties within the retail/restaurant, warehouse, hospitality, multifamily, office, and long-term care sectors.

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

The following tables present the Company's CRE loan portfolio by collateral type, including outstanding balances, loans classified as special mention or substandard, and the related percentages by collateral category as of the dates presented:

March 31, 2026

(Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgage Construction Other Total CRE Collateral Type in Special Mention and Substandard Risk Rating % of Each Segment to Total CRE Collateral Type

Retail/Restaurant $ 496,723 $ 113 $ — $ 51,066 $ — $ 547,902 $ 4 20.4 %

Warehouse 490,646 — — 44,173 — 534,819 7,622 19.9 %

Hospitality 255,175 — — 57,261 — 312,436 — 11.6 %

Multifamily 360,238 — — 79,495 — 439,733 17,240 16.4 %

Office 201,234 — — 1,514 — 202,748 14,055 7.6 %

Land 678 — — 114,456 — 115,134 37 4.3 %

Single Family 27,008 — 63,079 27,176 — 117,263 237 4.4 %

Country Club 3,332 — — — — 3,332 — 0.1 %

Long-term Care 72,238 — — 48,703 — 120,941 — 4.5 %

Other 217,804 65 — 70,526 — 288,395 — 10.8 %

Total $ 2,125,076 $ 178 $ 63,079 $ 494,370 $ — $ 2,682,703 $ 39,195 100.0 %

December 31, 2025

Retail/Restaurant $ 501,030 $ 114 $ — $ 49,172 $ 3,135 $ 553,451 $ 6 20.0 %

Warehouse 460,244 — — 40,472 — 500,716 9,568 18.1 %

Hospitality 280,803 — — 41,192 51,552 373,547 51,552 13.5 %

Multifamily 348,794 — — 86,679 — 435,473 5,402 15.7 %

Office 217,092 — — — 508 217,600 25,658 7.9 %

Land 809 — — 101,073 36,619 138,501 36,660 5.0 %

Single Family 33,420 — 62,072 15,144 13,367 124,003 13,460 4.5 %

Country Club 3,346 — — — 45,002 48,348 45,002 1.7 %

Long-term Care 59,409 — — 37,232 — 96,641 — 3.5 %

Other 208,907 73 — 70,835 — 279,815 — 10.1 %

Total $ 2,113,854 $ 187 $ 62,072 $ 441,799 $ 150,183 $ 2,768,095 $ 187,308 100.0 %

The decrease in the CRE loan portfolio at March 31, 2026 is primarily related to the Other segment reducing to zero due to the Transaction, partially offset by an increase in CRE construction loans.

CRE loans represent a concentration of credit risk within the loan portfolio.

The majority of the Company’s CRE loans are originated within its core geographic markets, extended to experienced developers and sponsors, and generally supported by guaranty structures that provide recourse to individuals with demonstrated financial capacity.

Management believes its local and regional market expertise enables effective management of CRE concentration risk.

This operating knowledge is derived from direct customer relationships, an understanding of borrower business models, and access to market research tools that provide data on occupancy levels, lease growth rates, and new construction activity.

These market indicators are reviewed regularly by credit officers and communicated to lending teams.

The Company’s underwriting process incorporates multiple stress scenarios, primarily focused on borrower cash flow and leverage, to determine supportable loan structures and appropriate commitment levels.

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

Aggregate commitments to the Company’s top 10 credit relationships totaled $478.7 million, representing 12.8% of gross loans at March 31, 2026, compared to $477.6 million, or 12.3% of gross loans, at December 31, 2025.

The following table reflects the impacts of the Transaction, which resulted in elimination of the Company’s largest nonperforming loan relationship and a meaningful decline in borrower concentration.

Prior to the Transaction, the top 10 relationships to total gross loans at December 31, 2025 was 17.00%.

The following table summarizes our top 10 relationships and a description of industries represented at the dates presented:

For the Periods Ending

Dollars in Thousands March 31, 2026 December 31, 2025 Change March 31, 2026 % of Gross Loans March 31, 2026 % of RBC

Multifamily $ 58,541 $ 58,610 $ (69) 1.57 % 9.82 %

Retail & Office 54,487 54,838 (351) 1.46 % 9.14 %

Retail & Warehouse 47,965 38,656 9,309 1.29 % 8.04 %

Warehouse 47,534 47,969 (435) 1.27 % 7.97 %

Warehouse 46,721 46,687 34 1.25 % 7.84 %

Long-Term Care 46,199 46,199 — 1.24 % 7.75 %

Health Care 44,779 44,779 — 1.20 % 7.51 %

Land & Self-Storage 44,744 47,392 (2,648) 1.20 % 7.50 %

Multifamily 44,669 44,842 (173) 1.20 % 7.49 %

Retail 43,068 47,619 (4,551) 1.16 % 7.22 %

Top Ten (10) Relationships $ 478,707 $ 477,591 $ 1,116 12.84 % 80.28 %

Total Gross Loans $ 3,728,802 $ 3,879,899 $ (151,097)

% of Total Gross Loans 12.84 % 12.31 % 0.53 %

Concentration (25% of Risk Based Capital ("RBC")) $ 149,083 $ 128,431

Unfunded loan commitments on lines of credit were $636.9 million at March 31, 2026 as compared to $643.9 million at December 31, 2025.

The majority of unused commitments relate to construction lines of credit, which are expected to be funded as projects progress toward completion.

Total line of credit utilization was 54.2% at March 31, 2026, compared to 53.2% at December 31, 2025.

Utilization of commercial operating lines of credit was 54.2% at March 31, 2026, compared to 52.8% at December 31, 2025.

Refer to Note 4, Loans and Loans Held-for-Sale, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s loans.

Credit Quality

On a monthly basis, a Criticized Asset Committee meets to review certain watch, special mention and substandard risk rated loans that fall within prescribed policy thresholds.

These loans generally represent those with the highest potential risk of loss to the Company.

For loans identified through this process, management establishes action plans and conducts ongoing monitoring, which includes regular communication with the borrower and loan officer, review of current financial information and other supporting documentation, evaluation of existing or proposed loan structures or modifications, and periodic reassessment of collateral values.

On a quarterly basis, the Credit Risk Committee of the Board meets to review loan portfolio metrics, approve segment concentration limits, evaluate the adequacy of the ACL, and review the results of loan review activities identified during the prior quarter.

Annually, this committee also approves credit related policy changes and enhancements as they are implemented.

Additional credit risk management practices include continuous monitoring of trends within the Company’s lending footprint and ongoing evaluation of lending policies and procedures designed to support sound underwriting standards.

These practices include oversight of portfolio concentrations, delinquencies trends, and the results of annual portfolio level stress testing.

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

The loan review department provides independent oversight of credit quality and evaluates the effectiveness of credit risk management practices.

This function has primary responsibility for assessing commercial credit administration, consumer and mortgage underwriting and credit decision processes, and the appropriateness of assigned risk ratings for loans reviewed, as well as providing input into the overall loan risk rating process.

The Company’s policy is to place loans on nonaccrual status when collection of principal or interest is doubtful or, generally, when contractual principal or interest payments are 90 days or more past due.

Consumer unsecured loans and secured loans are evaluated for charge-off once they become 90 days past due, and loans that reach 90 days delinquent are automatically transferred to nonaccrual status.

Management, however, retains discretion at the individual loan level.

A loan may be placed on nonaccrual prior to becoming 90 days past due if full collection of principal and interest is deemed unlikely.

Conversely, a loan that is 90 days or more past due may be maintained in accrual status if it is well-secured and in process of collection.

Unsecured loans are generally charged-off in full, while secured loans are charged-off to the estimated fair value of the collateral, net of estimated cost to sell.

The repayment capacity of commercial borrowers is dependent on the performance of their underlying businesses and general economic conditions.

Given the higher potential for loss within the commercial loan portfolio, these loans are monitored through an internal risk rating system.

Risk ratings are assigned based on the borrower’s creditworthiness and are reviewed on an ongoing basis in accordance with internal policies.

Loans rated special mention or substandard exhibit potential or well-defined weaknesses that are not typically present in higher quality performing loans, and therefore require heightened management attention to mitigate the risk of loss.

Nonperforming assets consist of NPLs and other real estate owned (“OREO”).

The following table summarizes nonperforming assets at the dates presented:

(Dollars in Thousands) March 31, 2026 December 31, 2025 Change

Nonaccrual Loans

Commercial Real Estate $ 21,649 $ 23,861 $ (2,212)

Commercial and Industrial 91 1,013 (922)

Residential Mortgages 1,766 4,623 (2,857)

Other Consumer 28 25 3

Construction 437 440 (3)

Other — 214,020 (214,020)

Total Nonperforming Loans 23,971 243,982 (220,011)

Other Real Estate Owned 3,443 142 3,301

Total Nonperforming Assets $ 27,414 $ 244,124 $ (216,710)

At March 31, 2026, total nonperforming assets decreased $216.7 million to $27.4 million compared to December 31, 2025, primarily reflecting the Transaction, as the Judgments were previously included in the “Other” segment.

Nonperforming loans declined $220.0 million to $24.0 million, driven largely by the Transaction.

Residential mortgage nonperforming loans decreased $2.9 million, due to two loans that transferred to OREO during the first quarter of 2026.

Commercial real estate nonperforming loans decreased $2.2 million related to the sale of a property in receivership, while commercial and industrial nonperforming loans declined $0.9 million due to a relationship returning to accruing status.

These decreases were partially offset by an increase in OREO to $3.4 million at March 31, 2026, compared to $0.1 million at December 31, 2025 due to the above-mentioned transfer of two residential mortgage loans in the first quarter of 2026.

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

The following is an analysis of nonperforming loans by loan portfolio segment at the dates presented, and each segment’s relative contribution to total nonperforming loans:

March 31, 2026 December 31, 2025

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

Commercial Real Estate $ 21,649 90.3 % $ 23,861 9.8 %

Commercial and Industrial 91 0.4 % 1,013 0.4 %

Residential Mortgages 1,766 7.4 % 4,623 1.9 %

Other Consumer 28 0.1 % 25 — %

Construction 437 1.8 % 440 0.2 %

Other — — % 214,020 87.7 %

Balance End of Period $ 23,971 100.0 % $ 243,982 100.0 %

Closed-end installment loans, amortizing loans secured by real estate, and other loans with monthly payment schedules are considered past due when payments are two or more months in arrears.

Multi-payment obligations with payment schedules other than monthly are reported as past due when a scheduled payment remains unpaid for 30 days or more.

Management monitors delinquency trends on a monthly basis, including early-stage delinquencies and loans exhibiting heightened risk characteristics, to identify emerging credit deterioration.

Allowance for Credit Losses

The following is the allocation of the ACL balance by segment at the dates presented:

March 31, 2026 December 31, 2025

(Dollars in Thousands) Amount % of Loans in each Category to Total Portfolio Loans Amount % of Loans in each Category to Total Portfolio Loans

Commercial Real Estate $ 22,171 57.1 % $ 22,526 54.5 %

Commercial & Industrial 2,538 6.6 % 2,790 6.0 %

Residential Mortgages 11,761 21.8 % 12,449 21.2 %

Other Consumer 588 0.7 % 638 0.7 %

Construction 15,445 13.8 % 15,020 12.0 %

Other — — % 18,068 5.6 %

Balance End of Period $ 52,503 100.0 % $ 71,491 100.0 %

The ACL was $52.5 million, or 1.41%, of total portfolio loans at March 31, 2026 compared to $71.5 million, or 1.84%, of total portfolio loans at December 31, 2025.

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

The following table summarizes the credit quality ratios and their components at the dates presented:

(Dollars in Thousands) March 31, 2026 December 31, 2025

Allowance for Credit Losses to Total Portfolio Loans

Allowance for Credit Losses $ 52,503 $ 71,491

Total Portfolio Loans 3,728,461 3,879,560

Allowance for Credit Losses to Total Portfolio Loans 1.41 % 1.84 %

Nonperforming Loans to Total Portfolio Loans

Nonperforming Loans $ 23,971 $ 243,982

Total Portfolio Loans 3,728,461 3,879,560

Nonperforming Loans to Total Portfolio Loans 0.64 % 6.29 %

Allowance for Credit Losses to Nonperforming Loans

Allowance for Credit Losses $ 52,503 $ 71,491

Nonperforming Loans 23,971 243,982

Allowance for Credit Losses to Nonperforming Loans 219.03 % 29.30 %

Net (Recoveries) / Charge-offs to Average Portfolio Loans

Net (Recoveries) / Charge-offs (annualized) $ (60,545) $ 472

Average Total Portfolio Loans 3,908,452 3,759,496

Net (Recoveries) / Charge-offs to Average Portfolio Loans (1.55) % 0.01 %

The (recovery) provision for credit losses, which includes a (recovery) provision for losses on loans and a (recovery) provision on unfunded loan commitments, is a (recovery) or charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date.

During the three months ended March 31, 2026, the Company recognized a recovery for credit losses of $33.9 million and a recovery for unfunded loan commitments of $0.2 million, primarily reflecting the release of previously established specific reserves of $18.0 million, as well as a $15.0 million recovery associated with the Judgments, in each case related to the Transaction.

As a result, the Company recorded a net benefit to the recovery for credit losses, contributing to a decline in the allowance for credit losses to total portfolio loans.

The decline in the reserve for unfunded loan commitments was due to decreased unfunded loan commitments reflecting an increase in the construction loan segment in 2026.

The reserve for unfunded loan commitments is largely comprised of unfunded loan commitments related to real estate construction loans.

There are three basic factors that influence the reserve rates associated with unfunded loan commitments for real estate construction loans.

First, the reserve rate is extrapolated from the reserve rates calculated for certain commercial real estate funded loans within the ACL model.

These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts and average portfolio life.

Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in Item 8.

contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 for additional information related to the ACL Policy and the discussion of these factors.

Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain CRE loans.

The proportion of these segments affect the weighting.

Third, volume changes impact the total reserve calculation.

Net (recoveries) were $14.9 million for the three months ended March 31, 2026 compared to net charge-offs of $0.5 million for the year ended December 31, 2025.

As a percentage of average portfolio loans, net recoveries were 1.55% for the three months ended March 31, 2026, compared to net charge-offs of 0.01% for the year ended December 31, 2025.

The $15.0 million recovery recognized in connection with the Transaction during the quarter ended March 31, 2026 represents the recovery of the $15.0 million principal charge-off related to the Other segment of the loan portfolio during the year ended December 31, 2025.

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

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

(Dollars in Thousands) March 31, 2026 December 31, 2025 $ Change

Loans 30 to 89 Days Past Due

Commercial Real Estate $ 133 $ 3 $ 130

Commercial & Industrial 19 159 (140)

Total Commercial Loans 152 162 (10)

Residential Mortgages 2,673 1,899 774

Other Consumer 301 267 34

Total Consumer Loans 2,974 2,166 808

Construction 40 908 (868)

Total Loans 30 to 89 Days Past Due $ 3,166 $ 3,236 $ (70)

There were no portfolio loans past due more than 90 days and still accruing at March 31, 2026 or December 31, 2025.

Loans past due 30 to 89 days and still accruing decreased by $0.1 million to $3.2 million at March 31, 2026, compared to December 31, 2025.

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

March 31, 2026

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

Pass $ 2,106,237 $ 245,356 $ 811,775 $ 26,236 $ 495,176 $ — $ 3,684,780

Special Mention 42 8 88 — 698 — 836

Substandard 21,649 91 3,400 28 17,677 — 42,845

Total Portfolio Loans $ 2,127,928 $ 245,455 $ 815,263 $ 26,264 $ 513,551 $ — $ 3,728,461

Performing Loans $ 2,106,279 $ 245,364 $ 813,497 $ 26,236 $ 513,114 $ — $ 3,704,490

Nonaccrual Loans 21,649 91 1,766 28 437 — 23,971

Total Portfolio Loans $ 2,127,928 $ 245,455 $ 815,263 $ 26,264 $ 513,551 $ — $ 3,728,461

December 31, 2025

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

Pass $ 2,079,579 $ 230,899 $ 816,315 $ 28,391 $ 459,071 $ 3,135 $ 3,617,390

Special Mention 10,874 9 89 — 700 — 11,672

Substandard 23,861 1,013 5,737 25 5,842 214,020 250,498

Total Portfolio Loans $ 2,114,314 $ 231,921 $ 822,141 $ 28,416 $ 465,613 $ 217,155 $ 3,879,560

Performing Loans $ 2,090,453 $ 230,908 $ 817,518 $ 28,391 $ 465,173 $ 3,135 $ 3,635,578

Nonaccrual Loans 23,861 1,013 4,623 25 440 214,020 243,982

Total Portfolio Loans $ 2,114,314 $ 231,921 $ 822,141 $ 28,416 $ 465,613 $ 217,155 $ 3,879,560

At March 31, 2026 and December 31, 2025, the Company had no loans classified as doubtful.

The levels of special mention and substandard loans at March 31, 2026, compared to December 31, 2025, reflected a decrease of $10.8 million in special mention and a decrease of $207.7 million in substandard loans.

Special mention loans decreased primarily due to an upgrade of a $10.8 million CRE office building loan that was moved to watch from special mention during the first quarter of 2026.

Substandard loans decreased $207.7 million during the quarter ended March 31, 2026 compared to December 31, 2025, primarily reflecting the Transaction.

At year-end December 2025, the Judgments had an aggregate balance of approximately

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

$214.0 million, which balance was reduced to zero as a result of the Transaction.

Additional reductions included the payoff of a construction loan totaling $5.4 million, as well as two residential mortgage loans transferred to OREO totaling $2.9 million.

The Company also recognized $1.5 million in proceeds on a CRE relationship related to the sale of property in receivership during the first quarter of 2026.

Further contributing to the improvement, a borrower relationship consisting of two C&I loans totaling $0.9 million returned to accruing status, or pass rating, due to improved payment performance.

Partially offsetting these improvements, a new construction loan totaling $17.2 million was downgraded to substandard during the first quarter of 2026.

Collectively, these actions drove a meaningful decline in substandard loans and reflect continued progress in enhancing overall credit quality.

Refer to Note 5, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s ACL.

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

(Dollars in Thousands) March 31,

2026 December 31,

2025 $ Change % Change

Noninterest-Bearing Demand $ 637,933 $ 620,473 $ 17,460 2.81 %

Interest-Bearing Demand 871,398 808,171 63,227 7.82 %

Money Market 514,362 553,964 (39,602) (7.15) %

Savings 326,929 326,182 747 0.23 %

Certificates of Deposit 1,884,628 1,902,099 (17,471) (0.92) %

Total Deposits $ 4,235,250 $ 4,210,889 $ 24,361 0.58 %

Deposits are the Company’s primary source of funding, and management believes the deposit base remains stable with the ability to attract new customers while continuing to diversify deposit composition.

At March 31, 2026, total deposits increased $24.4 million, primarily driven by growth in interest-bearing demand deposits of $63.2 million, noninterest-bearing demand deposits of $17.5 million and savings accounts of $0.7 million.

These increases were partially offset by decreases in money market accounts of $39.6 million and CDs of $17.4 million.

At March 31, 2026, noninterest-bearing demand deposits represented 15.1% of total deposits, compared to 14.7% at December 31, 2025.

CDs comprised 44.5% of total deposits at March 31, 2026, compared to 45.2% at December 31, 2025.

Based on the assumptions used in preparing regulatory call reports, approximately 82.8% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits at March 31, 2026, while approximately 17.2% were uninsured, compared to approximately 81.3% insured and 18.7% uninsured at December 31, 2025.

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

(Dollars in Thousands) March 31, 2026 December 31, 2025

Noninterest-Bearing Public Funds Deposits $ 27,504 $ 33,220

Interest-Bearing Public Funds Deposits 76,695 137,600

Total Deposits not Covered by Deposit Insurance 1

726,850 787,114

Certificates of Deposits not Covered by Deposit Insurance 303,660 310,723

Deposits for Certain Directors, Executive Officers and their Affiliates 2,742 3,207

1 These deposits are presented on an estimated basis.

This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements.

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

Maturities of CDs over $250,000 or more, excluding brokered deposits, not covered by deposit insurance at March 31, 2026 are summarized as follows:

(Dollars in Thousands) Amount Percent

Three Months or Less $ 107,400 35.4 %

Over Three Months Through Twelve Months 154,950 51.0 %

Over Twelve Months Through Three Years 39,544 13.0 %

Over Three Years 1,766 0.6 %

Total $ 303,660 100.0 %

FHLB Borrowings and Federal Funds Purchased

Information pertaining to FHLB borrowings and federal funds purchased at the dates presented are summarized in the table below:

(Dollars in Thousands) March 31, 2026 December 31, 2025

Balance at Period End

Federal Home Loan Bank Borrowings $ — $ 178,500

Federal Funds Purchased — —

Average Balance during the Period

Federal Home Loan Bank Borrowings $ 160,033 $ 110,944

Federal Funds Purchased — —

Average Interest Rate during the Period

Federal Home Loan Bank Borrowings 3.94 % 4.19 %

Federal Funds Purchased — % — %

Maximum Month-end Balance during the Period

Federal Home Loan Bank Borrowings $ 193,500 $ 178,500

Federal Funds Purchased — —

Average Interest Rate at Period End

Federal Home Loan Bank Borrowings — % 3.89 %

Federal Funds Purchased — % — %

Borrowings represent an additional source of liquidity for the Company.

FHLB borrowings decreased $178.5 million to zero at March 31, 2026, from $178.5 million at December 31, 2025, reflecting the repayment of borrowings utilizing proceeds from the Transaction.

The Company had no overnight federal funds purchased outstanding at March 31, 2026 or December 31, 2025.

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

Management actively monitors and manages borrowings to ensure they remain a reliable and cost-effective source of liquidity.

As a member of the Federal Home Loan Bank of Atlanta, the Company is required to purchase and maintain a specified level of FHLB capital stock based on asset size, outstanding borrowings, and participation in other FHLB programs.

At March 31, 2026, the Company held $3.4 million of FHLB stock, compared to $11.7 million at December 31, 2025.

The decrease in FHLB stock was attributable to the lower required level of stock holdings resulting from decreased FHLB borrowings.

Dividends recognized on FHLB stock totaled $0.2 million for the three months ended March 31, 2026, compared to $0.1 million for the same period in 2025.

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

FHLB stock is non-marketable and may be redeemed only at the discretion of the FHLB.

Members do not purchase stock for capital appreciation purposes, as FHLB can only be purchased, redeemed, or transferred at par value.

Rather, ownership of FHLB stock provides members with access to the funding, liquidity, and other financial services offered by the FHLB.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to meet cash and collateral obligations in a timely manner and at a reasonable cost, including funding deposit withdrawals and borrower credit demands.

The Company’s Board of Directors has delegated oversight of liquidity risk management to ALCO, which is responsible for maintaining sufficient liquidity at a reasonable cost under both normal operating conditions and potential stress scenarios.

ALCO monitors and manages liquidity risk by reviewing cash flow projections, performing balance sheet stress testing, and maintaining a comprehensive contingency funding plan.

This plan includes defined liquidity metrics and graduated risk tolerance levels, which are reviewed monthly.

If liquidity levels reach thresholds defined as high risk, enhanced monitoring and the implementation of specific predefined action plans to reduce risk are required.

The Company’s primary source of liquidity is its stable customer deposit base.

Management believes it can retain existing deposits and attract new deposits, limiting reliance on more volatile funding sources.

In addition to deposits, the Company maintains access to multiple supplemental funding sources as part of its normal liquidity management strategy.

At March 31, 2026, funding sources accessible to the Company included borrowing availability at the FHLB equal to 30.0% of the Company’s total assets, or $1.4 billion, subject to eligible collateral pledged, of which the Company had the capacity to borrow an additional $816.6 million.

The Company also maintains unsecured borrowing facilities with three correspondent financial institutions totaling $30.0 million, a fully secured facility with one correspondent financial institution totaling $25.0 million, and access to the institutional CD market.

The borrowing capacity under the secured line of credit decreased by $20.0 million during the quarter ended March 31, 2026, from $45.0 million as of March 31, 2025, as a result of the sale of investment securities previously pledged as collateral to the secured facility, which reduced the borrowing capacity, as the Company did not replace the sold investment securities with new pledged assets.

Additional liquidity can be provided by $407.8 million of unpledged available-for-sale investment securities at fair value at March 31, 2026.

Refer to the Liquidity Sources table below for further detail regarding FHLB borrowing capacity and correspondent bank lines of credit.

As of March 31, 2026, approximately 82.8% of total deposits were insured under standard FDIC coverage limits, while 17.2% were uninsured.

Management actively monitors industry and market conditions that could affect liquidity and evaluates alternative funding strategies as needed.

In addition, the Company closely monitors the potential impacts of interest rate movements and market conditions on the fair value of its securities portfolio, particularly in light of evolving banking industry dynamics that may influence liquidity availability or market expectations.

Maintaining a cushion of highly liquid assets or assets that can be converted to cash quickly, with little or no loss in value, is a key component of the Company’s liquidity risk management framework.

ALCO policy establishes graduated risk tolerance levels for the ratio of highly liquid assets to total assets.

At March 31, 2026, the Bank had $599.5 million of highly liquid assets, consisting of $191.4 million in excess reserves at the Federal Reserve and interest-bearing deposits at other financial institutions, $0.3 million of loans held-for-sale, and $407.8 million of unpledged securities.

This resulted in highly liquid assets to total assets ratio of 12.5%.

Total available liquidity relative to uninsured deposits was 214.5% at March 31, 2026.

While management believes current liquidity sources are sufficient, an extended economic downturn or significant market disruption could increase reliance on more volatile or higher cost funding sources.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

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

(Dollars in Thousands) March 31, 2026 December 31, 2025

Cash and Due From Banks, including Interest-bearing Deposits $ 228,318 $ 105,163

Unpledged Investment Securities 407,764 402,220

Excess Pledged Securities 51,500 33,443

FHLB Borrowing Availability 816,643 609,392

Collateralized Lines of Credit 25,000 45,000

Unsecured Lines of Credit Availability 30,000 30,000

Total Liquidity Sources $ 1,559,225 $ 1,225,218

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

(Dollars in Thousands) March 31, 2026 December 31, 2025

Total Liquidity Sources $ 1,559,225 $ 1,225,218

Highly Liquid Assets 1 to Total Assets

Highly Liquid Assets 1 to Uninsured Deposits

82.5 % 59.8 %

Total Available Liquidity to Uninsured Deposits 214.5 % 155.7 %

1 Highly liquid assets consist of $191.4 million in Federal Reserve Board excess reserves and interest-bearing deposits in other financial institutions, loans held-for-sale of $0.3 million and unpledged securities of $407.8 million.

Capital Resources

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

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

(Dollars in Thousands) Minimum Required

Basel III Well

Capitalized 1

March 31, 2026 December 31, 2025

Amount Ratio Amount Ratio

Carter Bankshares, Inc.

Leverage Ratio 4.00 % NA $ 545,820 11.10 % $ 459,735 9.43 %

Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % NA 545,820 13.52 % 459,735 10.70 %

Tier 1 Capital (to Risk-weighted Assets) 8.50 % NA 545,820 13.52 % 459,735 10.70 %

Total Capital (to Risk-weighted Assets) 10.50 % NA 596,330 14.78 % 513,722 11.95 %

Carter Bank & Trust

Leverage Ratio 4.00 % 5.00 % $ 522,928 10.68 % $ 437,670 9.01 %

Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % 6.50 % 522,928 13.02 % 437,670 10.23 %

Tier 1 Capital (to Risk-weighted Assets) 8.50 % 8.00 % 522,928 13.02 % 437,670 10.23 %

Total Capital (to Risk-weighted Assets) 10.50 % 10.00 % 573,179 14.28 % 491,396 11.49 %

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

Total capital was $504.9 million at March 31, 2026, an increase of $85.2 million compared to December 31, 2025.

The increase was primarily driven by net income of $85.8 million and a $0.2 million increase related to restricted stock activity during the first quarter of 2026, partially offset by a $0.8 million decline in other comprehensive loss due to changes in the fair value of investment securities.

The Company and the Bank remained well capitalized at March 31, 2026, exceeding all regulatory capital requirements.

The capital ratios were favorably impacted by the Transaction.

The key capital ratios included a leverage ratio of 11.10%, a Common Equity Tier 1 ratio of 13.52%, a Tier 1 ratio of 13.52%, and a Total risk-based capital ratio of 14.78%, all well above regulatory well-capitalized thresholds.

Management believes the Company maintains a strong capital position and has the capacity to raise additional capital if needed.

The securities portfolio totaled $640.3 million at June 30, 2026, a net decrease of $51.3 million from December 31, 2025.

During the second quarter of 2026, the Company completed a strategic Portfolio Repositioning of a portion of its available-for-sale securities portfolio, selling approximately $139.4 million of lower-yielding securities and purchasing approximately $88.5

CARTER BANKSHARES, INC.

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What changed 10-Q

Item 1. Financial Statements