CARE filing — read by section

Item 1. Financial Statements

ITEM 1. FINANCIAL STATEMENTS - (continued) 

 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - (continued) 
 
 Six Months Ended June 30, 
 (Dollars in Thousands) 2026 2025 
 SUPPLEMENTARY DATA 
 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 — 
 
 

 See accompanying notes to unaudited Consolidated Financial Statements. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 
 
 
 NOTE 1 – BASIS OF PRESENTATION 
 Principles of Consolidation: The interim Consolidated Financial Statements include the accounts of Carter Banks hares, Inc. (the “Company”) and its wholly owned subsidiary, Carter Ban k & Trust (the “Bank”). CB&T Investment Company (the “Investment Company”) is a subsidiary of the Bank. All significant intercompany transactions have been eliminated in consolidation. 
 Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (“SEC”), on March 5, 2026. 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 of the results of operations that may be expected for a full year or any future period. 
 Reclassification: Amounts in prior periods financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no material effect on prior periods’ net income or shareholders’ equity. 
 Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the Consolidated Financial Statements and the disclosures provided, and actual results could differ from those estimates. Information available which could affect these judgments include, but are not limited to, changes in interest rates, economic conditions, and the financial condition and performance of borrowers and counterparties. 
 Accounting Standard Adopted in 2026 
 ASU 2024-04 – Debt — Debt with Conversion and Other Options (Subtopic 470-20) Induced Conversions of Convertible Debt Instruments 
 Accounting Standards Update 2024-04 “Debt - Debt with Conversion and Other Options (Subtopic 470-20)” (“ASU 2024-04”) clarifies whether the settlement of convertible debt, including debt containing cash conversion features at terms that are different from the terms included in the existing debt instrument, should be accounted for as an induced conversion or a debt extinguishment. Updates permitted an entity to apply the new guidance on either a prospective or a retrospective basis. ASU 2024-04 was effective for public business entities beginning on January 1, 2026 and did not have a significant impact on the Company’s financial statements. 
 Accounting Standards Issued but Not Yet Adopted 
 ASU 2025-01 & 2024-03 – Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) 
 In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” (“ASU 2024-03”). The amendments in ASU 2024-03 improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to the financial statements at interim and annual reporting periods. This information is generally not presented in the financial statements today. In January 2025, the FASB issued ASU 2025-01, “Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40).” ASU 2025-01 amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Consolidated Financial Statements, but is expected to result in additional disclosures and potential changes to the line items on the Consolidated Statement of Income. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 ASU 2025-08 – Financial Instruments — Credit Losses (Topic 326): Purchased Loans 
 In December 2025, the FASB issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326),” Purchased Loans which expands the population of acquired financial assets subject to the gross-up approach for accounting for credit losses. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. The Company does not expect these amendments to have a material effect on its financial statements. The accounting for future business combinations, if any, would be impacted. 
 Acquisitions 
 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. 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 
 Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of shares of common stock outstanding, less average participating shares during the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. 
 The following table reconciles the numerators and denominators of basic and diluted earnings per common share calculations for the periods presented: 
 
 Three Months Ended June 30, Six Months Ended June 30, 
 (Dollars in Thousands, except share and per share data) 2026 2025 2026 2025 
 Numerator for Earnings per Common Share – Basic and Diluted 
 Net Income $ 28,911 $ 8,510 $ 114,668 $ 17,463 
 Less: Income allocated to Participating Shares 402 97 1,514 190 
 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 
 
 Denominator: 
 Weighted Average Shares Outstanding, including Shares Considered Participating Shares 22,146,599 23,067,260 22,134,757 23,090,907 
 Less: Average Participating Shares 307,954 261,379 292,260 251,495 
 Weighted Average Common Shares Outstanding - Basic & Diluted 21,838,645 22,805,881 21,842,497 22,839,412 
 
 Earnings per Common Share – Basic $ 1.31 $ 0.37 $ 5.18 $ 0.76 
 Earnings per Common Share – Diluted $ 1.31 $ 0.37 $ 5.18 $ 0.76 

 
 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 NOTE 3 - INVESTMENT SECURITIES 
 The following tables present the amortized cost and fair value of available-for-sale securities at the dates presented: 
 
 June 30, 2026 
 (Dollars in Thousands) Amortized
Cost Gross
Unrealized Gains Gross
Unrealized
Losses Fair Value 
 U.S. Government Agency Securities $ 16,611 $ 5 $ ( 463 ) $ 16,153 
 Residential Mortgage-Backed Securities 68,943 6 ( 7,499 ) 61,450 
 Commercial Mortgage-Backed Securities 21,144 69 ( 303 ) 20,910 
 Other Commercial Mortgage-Backed Securities 22,419 17 ( 1,175 ) 21,261 
 Asset Backed Securities 111,816 3 ( 6,225 ) 105,594 
 Collateralized Mortgage Obligations 199,406 124 ( 6,991 ) 192,539 
 States and Political Subdivisions 182,729 1,357 ( 17,773 ) 166,313 
 Corporate Notes 59,250 — ( 3,168 ) 56,082 
 Total $ 682,318 $ 1,581 $ ( 43,597 ) $ 640,302 

 
 December 31, 2025 
 (Dollars in Thousands) Amortized
Cost Gross
Unrealized Gains Gross
Unrealized
Losses Fair Value 
 
 U.S. Government Agency Securities $ 19,796 $ 17 $ ( 438 ) $ 19,375 
 Residential Mortgage-Backed Securities 83,918 49 ( 7,194 ) 76,773 
 Commercial Mortgage-Backed Securities 25,438 105 ( 421 ) 25,122 
 Other Commercial Mortgage-Backed Securities 25,297 88 ( 1,131 ) 24,254 
 Asset Backed Securities 100,643 10 ( 5,856 ) 94,797 
 Collateralized Mortgage Obligations 168,749 176 ( 7,105 ) 161,820 
 States and Political Subdivisions 262,275 — ( 28,051 ) 234,224 
 Corporate Notes 59,250 — ( 4,003 ) 55,247 
 Total $ 745,366 $ 445 $ ( 54,199 ) $ 691,612 

 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 June 30, Six Months Ended June 30, 
 (Dollars in Thousands) 2026 2025 2026 2025 
 
 Proceeds from Sales of Securities Available-for-Sale $ 126,859 $ — $ 142,283 $ — 
 
 Gross Realized Gains $ — $ — $ 85 $ — 
 Gross Realized Losses ( 12,531 ) — ( 12,536 ) — 
 Net Realized Losses $ ( 12,531 ) $ — $ ( 12,451 ) $ — 
 Tax Impact $ ( 2,632 ) $ — $ ( 2,615 ) $ — 

 Gains or losses on the sale of securities are recognized in earnings on the trade date based on the amortized cost of the specific security sold. The related net gains or losses reflect reclassification adjustments included in the calculation of Other Comprehensive (Loss) 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. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity at the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. 
 
 June 30, 2026 
 (Dollars in Thousands) Amortized
Cost Fair
Value 
 Due in One Year or Less $ — $ — 
 Due after One Year through Five Years 28,384 27,580 
 Due after Five Years through Ten Years 164,148 144,959 
 Due after Ten Years 66,058 66,009 
 Residential Mortgage-Backed Securities 68,943 61,450 
 Commercial Mortgage-Backed Securities 21,144 20,910 
 Other Commercial Mortgage-Backed Securities 22,419 21,261 
 Collateralized Mortgage Obligations 199,406 192,539 
 Asset Backed Securities 111,816 105,594 
 Total $ 682,318 $ 640,302 

 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 $ 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 
 (Dollars in Thousands) Number of 
Securities Fair Value Unrealized 
Losses Number of 
Securities Fair Value Unrealized 
Losses Number of 
Securities Fair Value Unrealized 
Losses 
 U.S. Government Agency Securities 3 $ 1,017 $ ( 8 ) 30 $ 13,838 $ ( 455 ) 33 $ 14,855 $ ( 463 ) 
 Residential Mortgage-Backed Securities 3 4,796 ( 20 ) 26 56,005 ( 7,479 ) 29 60,801 ( 7,499 ) 
 Commercial Mortgage-Backed Securities 7 5,839 ( 67 ) 34 7,837 ( 236 ) 41 13,676 ( 303 ) 
 Other Commercial Mortgage-Backed Securities — — — 6 15,323 ( 1,175 ) 6 15,323 ( 1,175 ) 
 Asset Backed Securities 4 16,884 ( 76 ) 27 75,293 ( 6,149 ) 31 92,177 ( 6,225 ) 
 Collateralized Mortgage Obligations 19 54,020 ( 250 ) 60 100,119 ( 6,741 ) 79 154,139 ( 6,991 ) 
 States and Political Subdivisions 5 7,021 ( 777 ) 71 101,897 ( 16,996 ) 76 108,918 ( 17,773 ) 
 Corporate Notes 2 6,328 ( 172 ) 15 49,754 ( 2,996 ) 17 56,082 ( 3,168 ) 
 Total Debt Securities 43 $ 95,905 $ ( 1,370 ) 269 $ 420,066 $ ( 42,227 ) 312 $ 515,971 $ ( 43,597 ) 

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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 
 December 31, 2025 
 Less Than 12 Months 12 Months or More Total 
 (Dollars in Thousands) Number of 
Securities Fair Value Unrealized 
Losses Number of 
Securities Fair Value Unrealized 
Losses Number of 
Securities Fair Value Unrealized 
Losses 
 
 U.S. Government Agency Securities 4 $ 2,593 $ ( 4 ) 27 $ 14,222 $ ( 434 ) 31 $ 16,815 $ ( 438 ) 
 Residential Mortgage-Backed Securities 1 2,866 ( 1 ) 28 61,655 ( 7,193 ) 29 64,521 ( 7,194 ) 
 Commercial Mortgage-Backed Securities 9 5,101 ( 22 ) 36 10,410 ( 399 ) 45 15,511 ( 421 ) 
 Other Commercial Mortgage-Backed Securities — — — 7 17,363 ( 1,131 ) 7 17,363 ( 1,131 ) 
 Asset Backed Securities 1 1,048 ( 8 ) 27 77,739 ( 5,848 ) 28 78,787 ( 5,856 ) 
 Collateralized Mortgage Obligations 11 13,021 ( 24 ) 65 119,595 ( 7,081 ) 76 132,616 ( 7,105 ) 
 States and Political Subdivisions 6 6,643 ( 672 ) 150 227,581 ( 27,379 ) 156 234,224 ( 28,051 ) 
 Corporate Notes — — — 17 55,247 ( 4,003 ) 17 55,247 ( 4,003 ) 
 Total Debt Securities 32 $ 31,272 $ ( 731 ) 357 $ 583,812 $ ( 53,468 ) 389 $ 615,084 $ ( 54,199 ) 

 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 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. These conditions are not expected to affect the Company’s ability to collect contractual principal and interest, and the fair value of the securities is expected to recover as the securities approach maturity or repricing dates. 
 While the Company may periodically sell securities to take advantage of market opportunities or as part of strategic initiatives, management concluded that the unrealized losses presented in the table above were not credit related and, accordingly, no ACL was recorded on investment securities. If any impairment were to become credit related, the Company would recognize an ACL through 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 and six months ended June 30, 2026 and June 30, 2025, the Company had no credit related net investment impairment losses. 
 Equity Securities 
 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. Although the fund invests on a national basis, individual bond investments are designated to the Company and aligned with its geographic footprint. The Company’s investment in this mutual fund qualifies for consideration under the Community Reinvestment Act (“CRA”) and supports the Company’s ongoing commitment to community development activities. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 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 “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 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) June 30, 2026 December 31, 2025 
 Commercial 
 Commercial Real Estate $ 2,143,362 $ 2,114,314 
 Commercial and Industrial 262,432 231,921 
 Total Commercial Loans 2,405,794 2,346,235 
 Consumer 
 Residential Mortgages 814,383 822,141 
 Other Consumer 25,154 28,416 
 Total Consumer Loans 839,537 850,557 
 Construction 489,263 465,613 
 Other — 217,155 
 Total Portfolio Loans 3,734,594 3,879,560 
 Loans Held-for-Sale 467 339 
 
 Total Loans $ 3,735,061 $ 3,879,899 

 The Company attempts to limit exposure to credit risk by diversifying the loan portfolio by segment, geography, collateral and industry, while actively monitoring and managing concentrations. When concentrations exist in certain loan segments, management seeks to mitigate this risk through ongoing review of relevant economic indicators, portfolio performance metrics, and internal risk rating trends specific to those segments. 
 The Company’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. 
 Unsecured loans present a higher level of risk due to the absence of a defined secondary source of repayment. Accordingly, commercial unsecured lending is generally limited to high quality borrowers with well-established businesses, strong cash flow, and low financial and operating leverage. Repayment capacity for unsecured borrowers is expected to exceed policy guidelines applicable to secured loans. In addition, the Company strengthened underwriting standards for consumer unsecured lending by increasing minimum qualifying Fair Isaac Corporation (“FICO”) score requirements and reducing approved loan amounts for borrowers with lower credit scores, which contributed to a significant reduction in loss rate. 
 Deferred loan costs, net of fees, included in loan portfolio balances totaled $ 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. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 Loan Restructurings 
 A loan that is considered a restructured loan may be subject to the individually evaluated loan (“IEL”) analysis if the commitment is $ 1.0 million or greater and/or based on management’s discretion; otherwise, the restructured loan remains in the appropriate segment in the ACL model. For a discussion with respect to reserve calculations regarding IELs refer to the “Nonrecurring Basis” section in Note 6 - Fair Value Measurements, in the Notes to Consolidated Financial Statements in Item 1. of this Quarterly Report on Form 10-Q. 
 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 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 
 Accruing Restructured Loans 
 Commercial Real Estate — $ — — % — $ — — % 
 Commercial and Industrial 1 253 0.10 % 3 1,202 0.46 % 
 Residential Mortgages — — — % — — — % 
 Other Consumer — — — % — — — % 
 Construction 1 17,240 3.52 % 1 17,240 3.52 % 
 Other — — — % — — — % 
 Total Accruing Restructured Loans 2 $ 17,493 0.47 % 4 $ 18,442 0.49 % 
 
 Nonaccrual Restructured Loans 
 Commercial Real Estate — $ — — % — $ — — % 
 Commercial and Industrial — — — % — — — % 
 Residential Mortgages — — — % — — — % 
 Other Consumer — — — % — — — % 
 Construction — — — % — — — % 
 Other — — — % — — — % 
 Total Nonaccrual Restructured Loans — $ — — % — $ — — % 
 Total Restructured Loans 2 $ 17,493 0.47 % 4 $ 18,442 0.49 % 

 16 

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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 
 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) 
 (Dollars in Thousands) Current 30-89 Days Past Due 90+ Days Past Due Total Current 30-89 Days Past Due 90+ Days Past Due Total 
 Accruing Restructured Loans 
 Commercial Real Estate $ — $ — $ — $ — $ — $ — $ — $ — 
 Commercial and Industrial 1,202 — — 1,202 — — — — 
 Residential Mortgages — — — — — — — — 
 Other Consumer — — — — — — — — 
 Construction 17,240 — — 17,240 — 4,516 — 4,516 
 Other — — — — — — — — 
 Total Accruing Restructured Loans $ 18,442 $ — $ — $ 18,442 $ — $ 4,516 $ — $ 4,516 
 — — 
 Nonaccrual Restructured Loans — — 
 Commercial Real Estate $ — $ — $ — $ — $ — $ — $ — $ — 
 Commercial and Industrial — — — — 1,004 — — 1,004 
 Residential Mortgages — — — — — — — — 
 Other Consumer — — — — — — — — 
 Construction — — — — — — — — 
 Other — — — — 235,542 — — 235,542 
 Total Nonaccrual Restructured Loans $ — $ — $ — $ — $ 236,546 $ — $ — $ 236,546 
 Total Restructured Loans $ 18,442 $ — $ — $ 18,442 $ 236,546 $ 4,516 $ — $ 241,062 

 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. 
 17 

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 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 % 
 
 
 Construction — 17,240 17,240 3.52 % 
 
 Total $ 253 $ 17,240 $ 17,493 0.47 % 
 
 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 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 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 June 30, 2025 
 Weighted-Average Payment Delay Weighted-Average Term Extension/Payment Delay 
 
 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 

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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued) 

 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 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 
 The Company maintains an ACL at a level management believes is adequate to absorb expected credit losses associated with the Company’s financial instruments over their contractual lives as of the balance sheet date. The ACL is estimated using a systematic methodology that incorporates historical loss experience, current conditions, and reasonable and supportable forecasts. 
 The Company’s loan portfolio is segmented by homogeneous loan types that are expected to respond similarly to changes in economic conditions. The portfolio segments used in developing the ACL are as follows: 1) CRE, 2) Commercial and Industrial (“C&I”), 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other. Management evaluates credit risk and estimates expected credit losses for each portfolio segment based on the specific risk characteristics described below. 
 CRE loans are secured by income producing or owner-occupied commercial properties, including hotels, retail centers, office buildings, and multifamily properties. The primary sources of repayment are cash flows generated by the underlying properties and, where applicable, global cash flows of the borrower. Credit risk in this segment is influenced by property specific factors, borrower financial strength, tenant concentration, and local and regional economic conditions affecting property values and demand. 
 C&I loans are extended to operating companies for working capital, equipment financing, inventory, and accounts receivable financing. Repayment is primarily dependent on the cash flows generated from the borrower’s ongoing operations. Credit risk in this segment is influenced by borrower profitability, leverage, liquidity, and industry specific risks, as well as broader economic conditions. Collateral supporting these loans may have limited liquidation value in a stressed environment. 
 This segment also includes loans to local and state municipalities for purposes such as refinancing existing obligations, infrastructure improvements, and equipment purchases. These loans may be supported by general obligation pledges or specific revenue streams. Repayment is generally dependent on the taxing authority, or revenues of the municipal borrower, and credit risk is influenced by the financial condition and economic stability of the underlying jurisdiction. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio. 
 Residential Mortgages are secured by first and second liens on 1-4 family residential properties, including home equity loans, home equity lines of credit and purchased money mortgages. The primary source of repayment is the income and financial capacity of the borrower. Credit risk in this segment is influenced by borrower employment levels, income stability, and housing market conditions, including changes in property values that may affect a borrower’s ability to refinance or sell the underlying collateral. 
 Other Consumer loans consist of loans to individuals that may be secured by collateral other than residential real estate or unsecured. This segment includes automobile loans and unsecured consumer loans and lines of credit. Repayment is primarily dependent on the income and financial condition of the borrower. Credit risk is influenced by the condition of the local 
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 economy, including unemployment levels, borrower credit profiles, and where applicable, the value and liquidity of collateral. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values. 
 Construction loans include both commercial and residential construction lending. Commercial construction loans finance the development of income producing properties or the acquisition and development of land. These loans are subject to risks related to project completion, cost overruns, contractor performance, and market demand upon stabilization. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Repayment may depend on the successful completion and leasing or sale of the project. 
 Residential construction loans are generally extended to finance the construction of owner occupied or presold residential properties and typically provide for interest only payments during the construction period. Credit risk arises from construction delays, cost overruns, contractor performance, and economic conditions affecting housing demand. 
 The “ Other ” loan segment 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 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 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 
 The Company’s CECL model is based on management’s best estimates using information available as of the reporting date. Certain components of the CECL model are inherently subjective, including, but not limited to, assumptions related to prepayment speeds and timing, loss given default, discount rates, and the timing of future cash flows. 
 Management utilizes widely published economic forecasts as inputs to the regression analysis used to estimate probabilities of default in the baseline CECL model. The projected peaks and troughs within these forecasts serve as guardrails when evaluating potential qualitative management adjustments. While management considers outcomes across a range of scenarios, it also recognizes that published forecasts may not fully reflect the Company’s specific market footprint, risk profile or unique portfolio characteristics. 
 Significant changes in economic forecasts may introduce volatility into modeled results. Accordingly, management evaluates not only the absolute level of the ACL, but also the reasonableness of the magnitude and pace of changes in the allowance. To address this, management has developed a framework to assess the tolerance and reasonableness of CECL outputs by challenging certain model assumptions when appropriate. These alternative outcomes, referred to as “challenger models,” are designed to provide additional perspective, support management judgment, and reduce undue volatility in reserve levels through a countercyclical approach. 
 Credit Quality Indicators: 
 The Company’s credit quality assessment is based on an internal loan grading system that evaluates the borrower’s capacity to repay contractual obligations in accordance with loan terms. Risk ratings consider factors such as debt service coverage, collateral values, borrower financial condition, and other qualitative considerations. Residential mortgage and consumer loans are generally assigned a pass rating unless a loan migrates to a past due or otherwise criticized status. 
 The Company maintains a formal loan review policy and annual loan review scope report that defines the level and focus of independent loan review activities for the year. The annual loan review provides the Credit Risk Committee with an 
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 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; 
 • Sampling of other large loan relationships meeting the same exposure threshold but not in the top 20 LLRs; 
 • Sample review of Executive Loan Committee approved modifications, including both new and existing loans, to evaluate consistency with established policies and procedures; 
 • Sample review of non-organic commercial loans and loans approved outside of the Executive Loan Committee process; and 
 • Annual rotational focus reviews of specific portfolio segments to identify emerging risk rather than assess individual loan performance. 
 The Company assigns internal risk grades to all loans as follows: 
 Pass – The Company utilizes multiple pass grades, including a watch designation. Loans rated pass are generally performing in accordance with contractual terms and are considered to be of high credit quality. 
 Special Mention – Loans with potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects or the Company’s credit position. 
 Substandard – Loans that are inadequately protected by the borrower’s paying capacity or by the collateral pledged, if any. These loans exhibit well-defined weaknesses that jeopardize repayment and present a distinct possibility of loss if deficiencies are not corrected. 
 Doubtful – Loans that possess all the weaknesses inherent in substandard loans, with the added characteristic that collection or liquidation in full is highly questionable and improbable based on currently known facts, conditions, and values. 
 Loss – Loans considered to be of such little value that continuation on the balance sheet is not warranted. While partial recovery may occur in the future, the asset is deemed uncollectible and is charged off. 
 The repayment of commercial loans is dependent on the success of the borrower’s business and overall economic conditions. Given the higher inherent risk within the commercial portfolio, these loans are monitored through ongoing risk grading and periodic review in accordance with internal policies. Loans rated special mention or substandard require increased oversight and active management to mitigate potential credit losses. 
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 The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of June 30: 
 
 Risk Rating 
 (Dollars in Thousands) 2026 2025 2024 2023 2022 2021 and Prior Revolving Total Portfolio Loans 
 Commercial Real Estate 
 Pass $ 144,769 $ 319,675 $ 244,322 $ 301,101 $ 408,250 $ 674,954 $ 28,181 $ 2,121,252 
 Special Mention — — — — — 548 — 548 
 Substandard — — 7,552 — 13,974 36 — 21,562 
 
 Total Commercial Real Estate $ 144,769 $ 319,675 $ 251,874 $ 301,101 $ 422,224 $ 675,538 $ 28,181 $ 2,143,362 
 YTD Gross Charge-offs — — — — — — — — 
 
 Commercial and Industrial 
 Pass $ 34,206 $ 21,193 $ 785 $ 14,993 $ 18,513 $ 104,510 $ 54,679 $ 248,879 
 Special Mention — 7 — — — — — 7 
 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 
 YTD Gross Charge-offs — — — — — — — — 
 
 Residential Mortgages 
 Pass $ 53,029 $ 92,341 $ 21,596 $ 40,996 $ 246,166 $ 291,719 $ 65,506 $ 811,353 
 Special Mention — — — — — 87 — 87 
 Substandard — — — — 998 1,239 706 2,943 
 
 Total Residential Mortgages $ 53,029 $ 92,341 $ 21,596 $ 40,996 $ 247,164 $ 293,045 $ 66,212 $ 814,383 
 YTD Gross Charge-offs — — — — — — — — 
 
 Other Consumer 
 Pass $ 7,838 $ 10,118 $ 4,122 $ 1,488 $ 743 $ 773 $ — $ 25,082 
 Special Mention — — — — — — — — 
 Substandard 29 — 36 — 7 — — 72 
 
 Total Other Consumer $ 7,867 $ 10,118 $ 4,158 $ 1,488 $ 750 $ 773 $ — $ 25,154 
 YTD Gross Charge-offs 64 67 53 12 77 26 — 299 
 
 Construction 
 Pass $ 37,753 $ 126,564 $ 187,533 $ 65,011 $ 31,554 $ 7,578 $ 14,898 $ 470,891 
 Special Mention — — 661 — — 35 — 696 
 Substandard — — — 17,642 — 34 — 17,676 
 
 Total Construction $ 37,753 $ 126,564 $ 188,194 $ 82,653 $ 31,554 $ 7,647 $ 14,898 $ 489,263 
 YTD Gross Charge-offs — — — — — — — — 
 
 Other 
 Pass $ — $ — $ — $ — $ — $ — $ — $ — 
 Special Mention — — — — — — — — 
 Substandard — — — — — — — — 
 
 Total Other Loans $ — $ — $ — $ — $ — $ — $ — $ — 
 YTD Gross Charge-offs — — — — — — — — 
 
 Total Portfolio Loans 
 Pass $ 277,595 $ 569,891 $ 458,358 $ 423,589 $ 705,226 $ 1,079,534 $ 163,264 $ 3,677,457 
 Special Mention — 7 661 — — 670 — 1,338 
 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 
 Current YTD Period: 
 YTD Gross Charge-offs $ 64 $ 67 $ 53 $ 12 $ 77 $ 26 $ — $ 299 

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 The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of December 31: 
 
 Risk Rating 
 (Dollars in Thousands) 2025 2024 2023 2022 2021 2020 and Prior Revolving Total Portfolio Loans 
 Commercial Real Estate 
 Pass $ 314,624 $ 189,311 $ 335,491 $ 424,445 $ 232,130 $ 536,023 $ 47,555 $ 2,079,579 
 Special Mention 10,829 — — — — 45 — 10,874 
 Substandard — 9,494 — 14,321 — 46 — 23,861 
 
 Total Commercial Real Estate $ 325,453 $ 198,805 $ 335,491 $ 438,766 $ 232,130 $ 536,114 $ 47,555 $ 2,114,314 
 YTD Gross Charge-offs — — — — — — — — 
 
 Commercial and Industrial 
 Pass $ 24,231 $ 786 $ 28,939 $ 19,406 $ 9,409 $ 106,348 $ 41,780 $ 230,899 
 Special Mention 9 — — — — — — 9 
 Substandard — — — 13 915 21 64 1,013 
 
 Total Commercial and Industrial $ 24,240 $ 786 $ 28,939 $ 19,419 $ 10,324 $ 106,369 $ 41,844 $ 231,921 
 YTD Gross Charge-offs — — — 7 — — — 7 
 
 Residential Mortgages 
 Pass $ 101,104 $ 20,369 $ 56,383 $ 262,355 $ 148,230 $ 163,744 $ 64,130 $ 816,315 
 Special Mention — — — — — 89 — 89 
 Substandard — — — 1,014 826 3,289 608 5,737 
 
 Total Residential Mortgages $ 101,104 $ 20,369 $ 56,383 $ 263,369 $ 149,056 $ 167,122 $ 64,738 $ 822,141 
 YTD Gross Charge-offs — — — — — — — — 
 
 Other Consumer 
 Pass $ 17,463 $ 6,096 $ 2,380 $ 1,142 $ 244 $ 1,066 $ — $ 28,391 
 Special Mention — — — — — — — — 
 Substandard 2 18 — 1 4 — — 25 
 
 Total Other Consumer $ 17,465 $ 6,114 $ 2,380 $ 1,143 $ 248 $ 1,066 $ — $ 28,416 
 YTD Gross Charge-offs 202 181 71 334 80 11 — 879 
 
 Construction 
 Pass $ 90,343 $ 192,733 $ 103,325 $ 47,124 $ 2,015 $ 7,768 $ 15,763 $ 459,071 
 Special Mention — 660 — — — 40 — 700 
 Substandard — — 403 5,402 — 37 — 5,842 
 
 Total Construction $ 90,343 $ 193,393 $ 103,728 $ 52,526 $ 2,015 $ 7,845 $ 15,763 $ 465,613 
 YTD Gross Charge-offs — — — 1 — — — 1 
 
 Other 
 Pass $ — $ — $ — $ — $ — $ 3,135 $ — $ 3,135 
 Special Mention — — — — — — — — 
 Substandard 214,020 — — — — — — 214,020 
 
 Total Other Loans $ 214,020 $ — $ — $ — $ — $ 3,135 $ — $ 217,155 
 YTD Gross Charge-offs — — — — — — — — 
 
 Total Portfolio Loans 
 Pass $ 547,765 $ 409,295 $ 526,518 $ 754,472 $ 392,028 $ 818,084 $ 169,228 $ 3,617,390 
 Special Mention 10,838 660 — — — 174 — 11,672 
 Substandard 214,022 9,512 403 20,751 1,745 3,393 672 250,498 
 
 Total Portfolio Loans $ 772,625 $ 419,467 $ 526,921 $ 775,223 $ 393,773 $ 821,651 $ 169,900 $ 3,879,560 
 Current YTD Period: 
 YTD Gross Charge-offs $ 202 $ 181 $ 71 $ 342 $ 80 $ 11 $ — $ 887 

 
 
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 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 
 Commercial Real Estate 
 Performing $ 144,769 $ 319,675 $ 244,322 $ 301,101 $ 408,250 $ 675,502 $ 28,181 $ 2,121,800 
 Nonperforming — — 7,552 — 13,974 36 — 21,562 
 Total Commercial Real Estate $ 144,769 $ 319,675 $ 251,874 $ 301,101 $ 422,224 $ 675,538 $ 28,181 $ 2,143,362 
 Commercial and Industrial 
 Performing $ 34,206 $ 21,200 $ 785 $ 14,993 $ 18,513 $ 104,510 $ 54,679 $ 248,886 
 Nonperforming — — — 12,944 12 15 575 13,546 
 Total Commercial and Industrial $ 34,206 $ 21,200 $ 785 $ 27,937 $ 18,525 $ 104,525 $ 55,254 $ 262,432 
 Residential Mortgages 
 Performing $ 53,029 $ 92,341 $ 21,596 $ 40,996 $ 247,164 $ 291,806 $ 65,506 $ 812,438 
 Nonperforming — — — — — 1,239 706 1,945 
 Total Residential Mortgages $ 53,029 $ 92,341 $ 21,596 $ 40,996 $ 247,164 $ 293,045 $ 66,212 $ 814,383 
 Other Consumer 
 Performing $ 7,838 $ 10,118 $ 4,122 $ 1,488 $ 743 $ 773 $ — $ 25,082 
 Nonperforming 29 — 36 — 7 — — 72 
 Total Other Consumer $ 7,867 $ 10,118 $ 4,158 $ 1,488 $ 750 $ 773 $ — $ 25,154 
 Construction 
 Performing $ 37,753 $ 126,564 $ 188,194 $ 82,251 $ 31,554 $ 7,613 $ 14,898 $ 488,827 
 Nonperforming — — — 402 — 34 — 436 
 Total Construction $ 37,753 $ 126,564 $ 188,194 $ 82,653 $ 31,554 $ 7,647 $ 14,898 $ 489,263 
 Other 
 Performing $ — $ — $ — $ — $ — $ — $ — $ — 
 Nonperforming — — — — — — — — 
 Total Other Loans $ — $ — $ — $ — $ — $ — $ — $ — 
 Total Portfolio Loans 
 Performing $ 277,595 $ 569,898 $ 459,019 $ 440,829 $ 706,224 $ 1,080,204 $ 163,264 $ 3,697,033 
 Nonperforming 29 — 7,588 13,346 13,993 1,324 1,281 37,561 
 Total Portfolio Loans $ 277,624 $ 569,898 $ 466,607 $ 454,175 $ 720,217 $ 1,081,528 $ 164,545 $ 3,734,594 

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 The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of December 31: 
 
 (Dollars in Thousands) 2025 2024 2023 2022 2021 2020 and Prior Revolving Total Portfolio Loans 
 Commercial Real Estate 
 Performing $ 325,453 $ 189,311 $ 335,491 $ 424,445 $ 232,130 $ 536,068 $ 47,555 $ 2,090,453 
 Nonperforming — 9,494 — 14,321 — 46 — 23,861 
 Total Commercial Real Estate $ 325,453 $ 198,805 $ 335,491 $ 438,766 $ 232,130 $ 536,114 $ 47,555 $ 2,114,314 
 Commercial and Industrial 
 Performing $ 24,240 $ 786 $ 28,939 $ 19,406 $ 9,409 $ 106,348 $ 41,780 $ 230,908 
 Nonperforming — — — 13 915 21 64 1,013 
 Total Commercial and Industrial $ 24,240 $ 786 $ 28,939 $ 19,419 $ 10,324 $ 106,369 $ 41,844 $ 231,921 
 Residential Mortgages 
 Performing $ 101,104 $ 20,369 $ 56,383 $ 263,369 $ 148,230 $ 163,833 $ 64,230 $ 817,518 
 Nonperforming — — — — 826 3,289 508 4,623 
 Total Residential Mortgages $ 101,104 $ 20,369 $ 56,383 $ 263,369 $ 149,056 $ 167,122 $ 64,738 $ 822,141 
 Other Consumer 
 Performing $ 17,463 $ 6,096 $ 2,380 $ 1,142 $ 244 $ 1,066 $ — $ 28,391 
 Nonperforming 2 18 — 1 4 — — 25 
 Total Other Consumer $ 17,465 $ 6,114 $ 2,380 $ 1,143 $ 248 $ 1,066 $ — $ 28,416 
 Construction 
 Performing $ 90,343 $ 193,393 $ 103,325 $ 52,526 $ 2,015 $ 7,808 $ 15,763 $ 465,173 
 Nonperforming — — 403 — — 37 — 440 
 Total Construction $ 90,343 $ 193,393 $ 103,728 $ 52,526 $ 2,015 $ 7,845 $ 15,763 $ 465,613 
 Other 
 Performing $ — $ — $ — $ — $ — $ 3,135 $ — $ 3,135 
 Nonperforming 214,020 — — — — — — 214,020 
 Total Other Loans $ 214,020 $ — $ — $ — $ — $ 3,135 $ — $ 217,155 
 Total Portfolio Loans 
 Performing $ 558,603 $ 409,955 $ 526,518 $ 760,888 $ 392,028 $ 818,258 $ 169,328 $ 3,635,578 
 Nonperforming 214,022 9,512 403 14,335 1,745 3,393 572 243,982 
 Total Portfolio Loans $ 772,625 $ 419,467 $ 526,921 $ 775,223 $ 393,773 $ 821,651 $ 169,900 $ 3,879,560 

 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. 
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 Age Analysis of Past-Due Loans by Class 
 The following tables include an aging analysis of the recorded investment of past-due portfolio loans at the dates presented: 
 
 June 30, 2026 
 (Dollars in Thousands) Current Loans Loans 30-59
Days Past Due Loans 60-89
Days Past Due Total 30-89 Days
Past Due Nonaccrual Loans Total Portfolio Loans 
 Commercial Real Estate $ 2,121,800 $ — $ — $ — $ 21,562 $ 2,143,362 
 Commercial & Industrial 248,796 90 — 90 13,546 262,432 
 Residential Mortgages 810,101 2,337 — 2,337 1,945 814,383 
 Other Consumer 24,934 86 62 148 72 25,154 
 Construction 488,791 36 — 36 436 489,263 
 Other — — — — — — 
 Total $ 3,694,422 $ 2,549 $ 62 $ 2,611 $ 37,561 $ 3,734,594 

 
 
 
 December 31, 2025 
 (Dollars in Thousands) Current Loans Loans 30-59
Days Past Due Loans 60-89
Days Past Due Total 30-89 Days
Past Due Nonaccrual Loans Total Portfolio Loans 
 Commercial Real Estate $ 2,090,450 $ 3 $ — $ 3 $ 23,861 $ 2,114,314 
 Commercial & Industrial 230,749 159 — 159 1,013 231,921 
 Residential Mortgages 815,619 1,899 — 1,899 4,623 822,141 
 Other Consumer 28,124 159 108 267 25 28,416 
 Construction 464,265 40 868 908 440 465,613 
 Other 3,135 — — — 214,020 217,155 
 Total $ 3,632,342 $ 2,260 $ 976 $ 3,236 $ 243,982 $ 3,879,560 

 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. 
 
 June 30, 2026 December 31, 2025 
 (Dollars in Thousands) 
 Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual
Loans Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual
Loans 
 Commercial Real Estate $ — $ 21,562 $ 21,562 $ — $ 23,861 $ 23,861 
 Commercial and Industrial — 13,546 13,546 — 1,013 1,013 
 Residential Mortgages — 1,945 1,945 2,018 2,605 4,623 
 Other Consumer — 72 72 — 25 25 
 Construction — 436 436 — 440 440 
 Other — — — — 214,020 214,020 
 Total Portfolio Loans $ — $ 37,561 $ 37,561 $ 2,018 $ 241,964 $ 243,982 

 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 
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 loan level. A loan may be placed on nonaccrual status prior to becoming 90 days past due if collectability of principal and interest is doubtful. Conversely, a loan that is 90 days or more past due may remain on accrual status if management believes it is well secured and in the process of collection. 
 Nonaccrual loans, including loans that have been restructured, may be individually evaluated for expected credit losses when the outstanding loan balance is $ 1.0 million or greater or when management determines individual evaluation is appropriate. Loans not individually evaluated are included in the applicable pooled segment of the ACL. 
 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 
 
 Total $ 13,445 $ 661 $ 7,552 $ 13,973 $ 17,239 $ 52,870 

 
 
 
 December 31, 2025 
 Collateral Type Equipment Single Family Warehouse Office Building Discounted Cash Flow Total 
 (Dollars in Thousands) Fair Value - Collateral 
 Commercial Real Estate $ — $ — $ 9,494 $ 14,321 $ — $ 23,815 
 Commercial and Industrial 915 — — — — 915 
 Residential Mortgage — 2,018 — — — 2,018 
 
 Construction — 661 — — — 661 
 Other — — — — 214,020 214,020 
 Total $ 915 $ 2,679 $ 9,494 $ 14,321 $ 214,020 $ 241,429 

 The following tables present activity in the ACL for the periods presented: 
 Three 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 $ 22,171 $ 2,538 $ 11,761 $ 588 $ 15,445 $ — $ 52,503 
 (Recovery) Provision for Credit Losses on Loans ( 286 ) 3,352 ( 44 ) 85 ( 1,097 ) — 2,010 
 Charge-offs — — — ( 161 ) — — ( 161 ) 
 Recoveries 248 — 2 57 511 — 818 
 Net Recoveries / (Charge-offs) 248 — 2 ( 104 ) 511 — 657 
 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 

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 Three 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 $ 20,144 $ 2,675 $ 10,843 $ 693 $ 12,049 $ 27,114 $ 73,518 
 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 ) 
 Balance, End of Period $ 20,723 $— $ 2,722 $ 11,143 $ 668 $ 11,764 $ 24,003 $ 71,023 

 
 
 
 NOTE 6 - FAIR VALUE MEASUREMENTS 
 The Company uses fair value measurements when recording and disclosing certain financial assets and liabilities. Securities available-for-sale, equity securities and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record other assets at fair value on a nonrecurring basis, such as loans held-for-sale, IELs, OREO, and certain other assets. 
 Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, the Company uses various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data the Company has obtained from independent sources. Unobservable inputs reflect the Company’s estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances. 
 The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). There are three levels of inputs that may be used to measure fair values: 
 Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs. 
 Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. 
 Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. 
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 A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred. 
 The following are descriptions of the valuation methodologies that the Company uses for financial instruments recorded at fair value on either a recurring or nonrecurring basis. 
 Recurring Basis 
 Securities Available-for-Sale: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using DCF or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy. 
 Equity Securities : The fair values of equity securities are determined by obtaining quoted prices on nationally recognized or foreign securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. As of 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: The Company uses derivative instruments such as interest rate swaps for commercial loans with our customers. Upon entering into swaps with the borrower, the Company entered into offsetting positions with counterparties to minimize risk to the Company. The back-to-back swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with borrower and counterparties and their ability to meet contractual terms. The Company calculates the fair value for derivatives using accepted valuation techniques, including DCF analysis on the expected cash flows of each derivative. Each valuation considers the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, such as interest rate curves and implied volatilities. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty, and, therefore, has no risk. Accordingly, interest rate swaps for commercial loans are classified as Level 2. 
 The Company also enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans to be held-for-sale are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 15 to 90 days. The Company protects itself from changes in interest rates through the use of best-efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on rate lock commitments due to changes in interest rates. 
 Nonrecurring Basis 
 Individually Evaluated Loans: IELs with commitments of $ 1.0 million or greater and/or based on management’s discretion are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent. All loans with a specific reserve are classified as Level 3 in the fair value hierarchy. 
 Fair value for IELs is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of 
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 approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. 
 Subsequent to the initial impairment date, existing IELs are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For IELs, the first stage of our impairment analysis involves inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will order a new appraisal. 
 For non-individually evaluated loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan. 
 OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $ 0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets marked to fair value are classified as Level 3. At 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: 
 
 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) 
 Assets 
 Securities Available-for-Sale: 
 
 U.S. Government Agency Securities $ 16,153 $ — $ 16,153 $ — 
 Residential Mortgage-Backed Securities 61,450 — 61,450 — 
 Commercial Mortgage-Backed Securities 20,910 — 20,910 — 
 Other Commercial Mortgage-Backed Securities 21,261 — 21,261 — 
 Asset Backed Securities 105,594 — 105,594 — 
 Collateralized Mortgage Obligations 192,539 — 192,539 — 
 States and Political Subdivisions 166,313 — 166,313 — 
 Corporate Notes 56,082 — 49,797 6,285 
 Total Securities Available-for-Sale 640,302 — 634,017 6,285 
 Equity Securities 12,676 12,676 — — 
 
 Derivatives 10,938 — 10,938 — 
 Total $ 663,916 $ 12,676 $ 644,955 $ 6,285 
 
 Liabilities 
 Derivatives $ 11,392 $ — $ 11,392 $ — 
 Total $ 11,392 $ — $ 11,392 $ — 

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 December 31, 2025 
 (Dollars in Thousands) Carrying Value Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 
 Assets 
 Securities Available-for-Sale: 
 
 U.S. Government Agency Securities $ 19,375 $ — $ 19,375 $ — 
 Residential Mortgage-Backed Securities 76,773 — 76,773 — 
 Commercial Mortgage-Backed Securities 25,122 — 25,122 — 
 Other Commercial Mortgage-Backed Securities 24,254 — 24,254 — 
 Asset Backed Securities 94,797 — 94,797 — 
 Collateralized Mortgage Obligations 161,820 — 161,820 — 
 States and Political Subdivisions 234,224 — 234,224 — 
 Corporate Notes 55,247 — 51,967 3,280 
 Total Securities Available-for-Sale 691,612 — 688,332 3,280 
 Equity Securities 10,291 10,291 — — 
 
 Derivatives 10,182 — 10,182 — 
 Total $ 712,085 $ 10,291 $ 698,514 $ 3,280 
 
 Liabilities 
 Derivatives $ 10,089 $ — $ 10,089 $ — 
 Total $ 10,089 $ — $ 10,089 $ — 

 The Company invests in subordinated debt securities issued by other financial institutions that are classified as Corporate Notes in the tables above. 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. Valuation techniques incorporate comparable financial ratio analysis and qualitative assessments specific to the industry in which the underlying issuers operate. Key factors considered include capital adequacy, asset quality trends, management effectiveness, core earnings capacity, liquidity profile, and on and off-balance sheet interest rate exposures. 
 Financial assets measured at fair value on a nonrecurring basis at the dates presented are summarized below: 
 
 June 30, 2026 
 (Dollars in Thousands) Level 1 Level 2 Level 3 Fair Value 
 OREO $ — $ — $ 3,356 $ 3,356 
 Individually Evaluated Loans $ — $ — $ 30,779 $ 30,779 

 
 December 31, 2025 
 (Dollars in Thousands) Level 1 Level 2 Level 3 Fair Value 
 OREO $ — $ — $ 142 $ 142 
 Individually Evaluated Loans $ — $ — $ 22,809 $ 22,809 

 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 
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 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: 
 
 June 30, 2026 
 (Dollars in Thousands) Fair Value Valuation Technique Unobservable Inputs Weighted Range Average 
 Assets 
 
 Individually Evaluated Loans $ 30,779 Appraisals Estimated Selling Costs 3.0 % —% 9.6 % 6.5 % 
 
 Total Individually Evaluated Loans $ 30,779 
 
 OREO $ 2,122 Appraisals Estimated Selling Costs 0.0 % —% 6.0 % 3.7 % 
 OREO 143 Internal Valuations Estimated Selling Costs 5.0 % 5.0 % 
 OREO 1,091 Discounted Internal Valuations Management's Subject Discount 24.0 % 24.0 % 
 
 Total OREO $ 3,356 

 
 December 31, 2025 
 (Dollars in Thousands) Fair Value Valuation Technique Unobservable Inputs Weighted Range Average 
 Assets 
 
 
 Individually Evaluated Loans $ 22,809 Appraisals Estimated Selling Costs 3.5 % — 6.0 % 5.9 % 
 Total Individually Evaluated Loans $ 22,809 
 
 
 
 
 OREO 142 Discounted Internal Valuations Management’s Subject Discount 5.0 % 5.0 % 
 Total OREO $ 142 

 A baseline discount rate has been established for use in impairment and fair value measurements. This baseline rate was developed through back-testing against historical OREO sales and reflects an average recovery rate based on transaction size and asset type within the population analyzed. Management considers the specific facts and circumstances of each IEL and may apply judgment to adjust the baseline discount rate when appropriate. 
 The carrying values and estimated fair values of the Company’s financial instruments at 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 . In accordance with U.S. GAAP, the Company is required to disclose the estimated fair value of financial instruments carried at amortized cost when quoted market prices are not readily available. 
 Estimated fair values are derived using present value techniques or other valuation methodologies and are significantly affected by the assumptions applied, including discount rates and expected future cash flows. Because these estimates are based on models and assumptions rather than observable market transactions, they may not be realized upon immediate settlement. Accordingly, the aggregate fair values presented do not necessarily represent the underlying value of the Company. 
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 Fair Value Measurements at June 30, 2026 
 (Dollars in Thousands) Carrying Value Level 1 Level 2 Level 3 Total 
 Financial Assets: 
 Cash and Cash Equivalents $ 276,535 $ 41,101 $ 235,434 $ — $ 276,535 
 Securities Available-for-Sale 640,302 — 634,017 6,285 640,302 
 Equity Securities 12,676 12,676 — — 12,676 
 Loans Held-for-Sale 467 — — 467 467 
 Portfolio Loans, net 3,679,424 — — 3,586,854 3,586,854 
 
 Other Restricted Stock, at Cost 8,476 — — NA NA 
 Other Assets- Interest Rate Derivatives 10,938 — 10,938 — 10,938 
 Accrued Interest Receivable 16,890 36 3,165 13,689 16,890 
 
 Financial Liabilities: 
 Deposits $ 4,197,556 $ 655,482 $ 1,695,658 $ 1,861,684 $ 4,212,824 
 
 Other Liabilities- Interest Rate Derivatives 11,392 — 11,392 — 11,392 
 
 
 Accrued Interest Payable 5,891 — — 5,891 5,891 

 
 Fair Value Measurements at December 31, 2025 
 (Dollars in Thousands) Carrying Value Level 1 Level 2 Level 3 Total 
 Financial Assets: 
 Cash and Cash Equivalents $ 105,163 $ 36,935 $ 68,228 $ — $ 105,163 
 Securities Available-for-Sale 691,612 — 688,332 3,280 691,612 
 Equity Securities 10,291 10,291 — — 10,291 
 Loans Held-for-Sale 339 — — 339 339 
 Portfolio Loans, net 3,808,069 — — 3,711,795 3,711,795 
 
 Other Restricted Stock, at Cost 16,830 — — NA NA 
 Other Assets- Interest Rate Derivatives 10,182 — 10,182 — 10,182 
 Accrued Interest Receivable 17,797 — 3,683 14,114 17,797 
 
 Financial Liabilities: 
 Deposits $ 4,210,889 $ 620,473 $ 1,688,317 $ 1,917,786 $ 4,226,576 
 
 Other Liabilities- Interest Rate Derivatives 10,089 — 10,089 — 10,089 
 FHLB Borrowings 178,500 — — 178,552 178,552 
 
 Accrued Interest Payable 6,971 — — 6,971 6,971 

 
 NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES 
 In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities in the Consolidated Balance Sheets and are measured at fair value. 
 Interest Rate Swap Arrangements with Customers 
 Interest rate swaps are contracts under which a series of fixed and variable interest rate payments are exchanged over a specified period. The notional amounts on which the interest payments are based are not exchanged. The Company enters into interest rate swap transactions with commercial customers to facilitate customer risk management objectives. In these transactions, the Company originates a floating rate loan to the customer at a notional amount and simultaneously enters into a corresponding offsetting interest rate swap with a third-party financial institution or counterparty. 
 Under this structure, the customer enters into an interest rate swap with the Company to exchange the variable rate cash flows associated with the loan for fixed rate cash flows based on the same notional amount as the Company’s loan. These transactions allow customers to effectively convert variable rate loans to fixed rate loans, while the Company receives variable rate payments. Certain agreements may include contractual interest rate floors or caps. 
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 Customer related interest rate swaps are considered derivatives, but are not designated as hedging instruments for accounting purposes. Accordingly, changes in the estimated fair value of these derivatives are recognized in current earnings in the Consolidated Statements of Income. 
 Balance Sheet Hedging Activities 
 The Company 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. On July 11, 2024, the Company entered into two related pay-fixed/receive floating interest rate swaps (the “Pay-Fixed/Receive Floating Interest Rate Swap Agreements”) with a combined notional amount of $ 300.0 million. These swaps were designated as fair value hedges to mitigate changes in the fair value of the fixed rate loans, including amortizing single-family residential mortgage loans and CRE loans. The hedges were intended to synthetically convert the hedged fixed rate loans to floating rate loans indexed to the Secured Overnight Financing Rate (“ SOFR”). 
 On December 19, 2024, the Company terminated the first Pay-Fixed/Receive Floating Swap Agreement with an original notional amount of $ 175.0 million, which was scheduled to mature on July 11, 2029. The termination resulted in a negative interest income adjustment of $ 154 thousand. On January 13, 2025, the Company terminated the remaining Pay-Fixed/Receive Floating Swap Agreement with an original notional amount of $ 125.0 million, which was scheduled to mature on July 11, 2027, resulting in a negative interest income adjustment of $ 110 thousand. While these Pay-Fixed/Receive Floating Swap Agreements were outstanding, the Company recognized $ 1.2 million of interest income related to these hedging instruments. 
 Hedge Accounting Treatment 
 As long as a hedging instrument is properly designated and effectiveness testing supports qualification for hedge accounting treatment, changes in fair value of the hedging instrument attributable to the hedged risk are recognized in net interest income. The fair value of the derivative is recorded in other assets or other liabilities, as applicable, with a corresponding adjustment recorded to the carrying amount of the hedged loans. Under this accounting treatment, there is no separate measurement or recognition of hedge ineffectiveness, and the full impact of hedge gains and losses is recognized in earnings in the period in which the hedged item affects earnings. 
 Collateral and Credit Risk 
 Pursuant to agreements with various financial institutions, the Company may be required to post collateral or may receive collateral based on the mark-to-market position of its derivative contracts. Beyond unsecured threshold levels, collateral may be provided in the form of cash or securities. Based on current derivative positions and related collateral requirements, management believes any impact on the Company’s liquidity or cash flows is immaterial. 
 Derivative instruments expose the Company to credit risk, representing the risk that a counterparty may fail to perform under the terms of a contract. All derivative transactions with financial institutions are executed only with counterparties approved by the Asset and Liability Committee (“ALCO”). Derivative transactions with customers are subject to approval by members of senior management with appropriate training and experience in interest rate risk management. 
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 The following tables indicate the amounts representing the fair value of derivative assets and derivative liabilities at the dates presented: 
 
 Fair Values of Derivative Instruments
Asset Derivatives (Included in Other Assets) 
 June 30, 2026 December 31, 2025 
 (Dollars in Thousands) Number of
Transactions Notional
Amount Fair
Value Number of
Transactions Notional
Amount Fair
Value 
 Derivatives Designated as Hedging Instruments 
 Interest Rate Swaps - Balance Sheet Hedge — $ — $ — — $ — $ — 
 Total Derivatives Designated as Hedging Instruments — $ — $ — — $ — $ — 
 
 Derivatives not Designated as Hedging Instruments 
 Interest Rate Lock Commitments – Mortgage Loans 11 $ 3,788 $ 6 3 $ 1,328 $ — 
 Interest Rate Swap Contracts – Commercial Loans 54 345,176 10,932 54 352,184 10,182 
 Total Derivatives not Designated as Hedging Instruments 65 $ 348,964 $ 10,938 57 $ 353,512 $ 10,182 
 
 Total Derivatives 65 $ 348,964 $ 10,938 57 $ 353,512 $ 10,182 

 
 Fair Values of Derivative Instruments
Liability Derivatives (Included in Other Liabilities) 
 June 30, 2026 December 31, 2025 
 (Dollars in Thousands) Number of
Transactions Notional
Amount Fair
Value Number of
Transactions Notional
Amount Fair
Value 
 Derivatives Designated as Hedging Instruments 
 Interest Rate Swaps - Balance Sheet Hedge 5 $ 29,852 $ 539 — $ — $ — 
 Total Derivatives Designated as Hedging Instruments 5 $ 29,852 $ 539 — $ — $ — 
 
 Derivatives not Designated as Hedging Instruments 
 Forward Sale Contracts – Mortgage Loans 11 $ 3,788 $ 6 3 $ 1,328 $ — 
 Interest Rate Swap Contracts – Commercial Loans 54 345,176 10,847 54 352,184 10,089 
 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 June 30, Six Months Ended June 30, 
 (Dollars in Thousands) 2026 2025 2026 2025 
 Derivatives Designated as Hedging Instruments 
 Interest Rate Swaps - Balance Sheet Hedge $ — $ — $ — $ ( 140 ) 
 Total Derivative Loss Designated as Hedging Instruments $ — $ — — ( 140 ) 
 
 Derivatives not Designated as Hedging Instruments 
 Interest Rate Lock Commitments – Mortgage Loans $ ( 6 ) $ ( 7 ) 6 ( 1 ) 
 Forward Sale Contracts – Mortgage Loans 6 7 ( 6 ) 1 
 Interest Rate Swap Contracts – Commercial Loans ( 8 ) ( 52 ) ( 8 ) ( 96 ) 
 Total Derivative Loss not Designated as Hedging Instruments $ ( 8 ) $ ( 52 ) ( 8 ) ( 96 ) 
 
 Net Derivative Loss $ ( 8 ) $ ( 52 ) $ ( 8 ) $ ( 236 ) 

 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 
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 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: 
 
 Asset Derivatives Liability Derivatives 
 (Included in Other Assets) (Included in Other Liabilities) 
 (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 
 Gross Amounts Recognized $ 10,938 $ 10,182 $ 10,853 $ 10,089 
 Gross Amounts Offset — — — — 
 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) June 30, 2026 December 31, 2025 
 Noninterest-Bearing Demand $ 655,482 $ 620,473 
 Interest-Bearing Demand 866,759 808,171 
 Money Market 510,125 553,964 
 Savings 318,774 326,182 
 Certificates of Deposit 1,846,416 1,902,099 
 
 Total $ 4,197,556 $ 4,210,889 

 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 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) June 30, 2026 
 2027 $ 1,461,236 
 2028 284,725 
 2029 56,708 
 2030 34,543 
 2031 8,820 
 Thereafter 384 
 Total $ 1,846,416 

 Overdrafts reclassified to loans were $ 0.3 million at both June 30, 2026 and December 31, 2025. 
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 NOTE 9 – FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED 
 Borrowings serve as an additional source of liquidity for the Company. 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 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 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) June 30, 2026 December 31, 2025 
 FHLB Borrowings $ — $ 178,500 
 Weighted Average Interest Rate — % 3.89 % 
 FHLB Availability $ 879,466 $ 609,392 

 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) June 30, 2026 December 31, 2025 
 Federal Funds Purchased $ — $ — 
 Weighted Average Interest Rate — % — % 
 Federal Funds Purchased Availability $ 105,000 $ 75,000 

 
 NOTE 10 – COMMITMENTS AND CONTINGENCIES 
 Commitments to extend credit represent agreements to lend to customers that generally have fixed expiration dates or other termination clauses. 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 
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 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 $ 15.7 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 
 Standby and Performance Letter of Credit 15,709 16,507 
 Total $ 661,318 $ 788,184 

 The Company’s exposure to credit loss for commitments to extend credit and standby letters of credit in the event of nonperformance by the counterparty is represented by the contractual amounts of these instruments. The Company applies the same credit policies and underwriting standards to these commitments as it does to on-balance sheet credit exposures. Unless noted otherwise, commitments that expose the Company to credit risk are supported by collateral or other security. 
 Life-of-Loss Reserve on Unfunded Loan Commitments 
 The Company maintains a life-of-loss reserve on unfunded commercial lending commitments and standby letters of credit to provide for the risk of loss inherent in these arrangements. The reserve is calculated using a methodology similar to that used to determine the ACL on loans, adjusted to reflect the probability of drawdown on the unfunded commitment. The reserve for unfunded loan commitments is included on the Consolidated Balance Sheets, with changes recognized through earnings in the recovery for unfunded loan commitments. 
 The reserve for unfunded loan commitments fluctuates primarily based on changes in construction related commitments between reporting periods. 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 June 30, Six Months Ended June 30, 
 (Dollars in Thousands) 2026 2025 2026 2025 
 Life-of-Loss Reserve on Unfunded Loan Commitments 
 Balance at beginning of period $ 2,774 $ 3,072 $ 2,992 $ 3,186 
 
 
 Recovery for Unfunded Loan Commitments ( 554 ) ( 335 ) ( 772 ) ( 449 ) 
 Balance at end of period $ 2,220 $ 2,737 $ 2,220 $ 2,737 

 Legal Proceedings 
 In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty. 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. Justice, James C. Justice, III and various related entities that he and/or they own and control (such entities, the “Justice Entities” and collectively, the “Plaintiffs”). The allegations contained in the lawsuit relate to a series of loans, which were later reduced to judgments (such loans subsequently reduced to judgments, the “Judgments”) made by the Bank to certain Justice Entities that are secured by collateral pledged by certain Justice Entities and are backed by personal guarantees from James C. Justice, II and Cathy L. Justice and, in certain cases, by personal guarantees from James C. Justice, 
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 III. 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. The Plaintiffs further seek injunctions against the unaffiliated third-party defendants, direct damages of at least $ 500 million and additional consequential and punitive damages, and payment of costs, expenses and attorneys’ fees. 
 The Company and the Bank deny the allegations contained in the lawsuit and intend to vigorously defend the matter, the validity of the Bank’s sale of the Judgments to the unaffiliated third-party purchaser and the Bank’s conduct prior to selling the Judgments. Based on information presently available to the Company and the Bank and based on consultation with legal counsel, the Company believes that the Company and the Bank have meritorious defenses to all allegations contained in the lawsuit. 
 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. 
 
 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 June 30, 2026 Six Months Ended June 30, 2026 
 (Dollars in Thousands) Pre-Tax
Amount Tax Expense Net of Tax
Amount Pre-Tax
Amount Tax Benefit (Expense) Net of Tax
Amount 
 
 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
Amount 
 
 Net Unrealized Gains Arising during the Period $ 5,264 $ ( 1,141 ) $ 4,123 $ 15,647 $ ( 3,376 ) $ 12,271 
 
 Other Comprehensive Income $ 5,264 $ ( 1,141 ) $ 4,123 $ 15,647 $ ( 3,376 ) $ 12,271 

 
 NOTE 12 - PROVISION FOR INCO M E T AX ES 
 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 
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 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 
 U. S. Federal Statutory Rate $ 7,821 21.0 $ 2,232 21.0 $ 30,927 21.0 $ 4,571 21.0 
 State and Local Income Taxes, Net of Federal Income Tax Effect 1 
 2,025 5.4 130 1.2 3,511 2.4 391 1.8 
 Tax Credits 
 Rehabilitation Tax Credits, Net of Basis Reduction 2 — ( 157 ) ( 1.5 ) 2 — ( 309 ) ( 1.4 ) 
 Tax Credit Investment Amortization, Net of Federal Benefits 23 0.1 128 1.2 68 — 256 1.2 
 Change in Valuation Allowance ( 869 ) ( 2.3 ) ( 8 ) ( 0.1 ) ( 824 ) ( 0.6 ) 23 0.1 
 Nontaxable or Nondeductible Items 
 Tax-Exempt Interest, Net of Disallowance ( 168 ) ( 0.5 ) ( 114 ) ( 1.1 ) ( 271 ) ( 0.2 ) ( 231 ) ( 1.1 ) 
 Income From Bank Owned Life Insurance ( 90 ) ( 0.2 ) ( 71 ) ( 0.7 ) ( 175 ) ( 0.1 ) ( 538 ) ( 2.4 ) 
 
 Other Adjustments 
 
 Interim Period Effective Rate Adjustment ( 304 ) ( 0.8 ) ( 27 ) ( 0.3 ) ( 558 ) ( 0.4 ) 154 0.7 
 Other ( 113 ) ( 0.3 ) 5 0.2 ( 79 ) — ( 16 ) ( 0.1 ) 
 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 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 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. 
 Investments accounted for using the proportional amortization method are amortized and recorded as a component of the income tax provision on the Consolidated Statements of Income. 
 The Company records non-income-tax-related activity and other returns received from its HTC investments as a component of other noninterest income on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows. As of 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 
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 receipt of non-objection from the Federal Reserve Bank of Richmond. The program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the program, and the number of shares actually purchased under the program, will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements. The repurchase program may be modified or terminated by the Board at any time. The repurchase program does not obligate the Company to purchase any particular number of shares. 
 During 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 
 The Company is a financial holding company and the parent company to the Bank and conducts its business solely through the Bank. As a state-chartered commercial bank, and state member of the FRB, the Bank earns revenue primarily from interest on loans and securities and fees charged for financial services provided to customers. The Company operates through a single operating and reporting segment, Community Banking, that offers services which include accepting a full range of deposit products and originating commercial and consumer loans. All financial information is reported on a consolidated basis and is evaluated regularly by the Chief Executive Officer, the Company’s Chief Operating Decision Maker (“CODM”) in allocating resources and assessing performance. The CODM uses the consolidated net income to benchmark the Company against its competitors. The benchmarking analysis in conjunction with monitoring of actual to budget results are used in assessment of performance and in establishing compensation. Loans, investments and deposits provide the revenues, net in the community bank’s operation. Interest expense, recovery for credit losses and salaries and employee benefits provide the significant expenses in the community bank’s operation. The results of operations for the Company’s single reporting segment are shown within the Consolidated Statements of Income and Consolidated Balance Sheets. 
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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist readers in understanding Carter Bankshares, Inc.’s operations, financial condition, and current business environment. 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. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods. The MD&A includes the following sections: 
 • Important Note Regarding Forward-Looking Statements 
 • Explanation of Use of Non-GAAP Financial Measures 
 • Critical Accounting Estimates 
 • Overview and Strategy 
 • Results of Operations and Financial Condition 
 ◦ Earnings Summary 
 ◦ Financial Condition 
 ◦ Liquidity and Capital Resources 
 ◦ Contractual Obligations 
 ◦ 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 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. In addition, certain tables may include additional periods to illustrate trends within the Company’s consolidated financial statements and related disclosures. 
 The results of operations presented in the consolidated financial statements are not necessarily indicative of future results. 
 
 Important Note Regarding Forward-Looking Statements 
 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 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. 
 These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company’s control. Although the Company believes the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Actual results may differ significantly from those expressed in or implied by these forward-looking statements. 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: 
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 • 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; 
 • inflation, market and monetary fluctuations; 
 • changes in trade policies, tariffs, monetary and fiscal policies and laws of the U.S. government and the related impacts on economic conditions and financial markets, and changes in policies of the Federal Reserve, FDIC and U.S. Department of the Treasury; 
 • changes in accounting policies, practices, or guidance, for example, our adoption of Current Expected Credit Losses (“CECL”) methodology, including potential volatility in the Company’s operating results due to application of the CECL methodology; 
 • cyber-security threats, attacks or events; 
 • rapid technological developments and changes, including emerging issues related to the development and use of artificial intelligence that could give rise to legal or regulatory action or increase cybersecurity threats; 
 • our ability to resolve our nonperforming assets and our ability to secure collateral on loans that have entered nonaccrual status due to loan maturities and failure to pay in full; 
 • changes in the Company’s liquidity and capital positions; 
 • 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; 
 • the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other geopolitical conflicts or public health events (such as pandemics), and of any governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on macroeconomic conditions; the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth; 
 • a change in spreads on interest-earning assets and interest-bearing liabilities; 
 • regulatory supervision and oversight, including our relationship with regulators and any actions that may be initiated by our regulators; 
 • legislation affecting the financial services industry as a whole, and the Company and the Bank, in particular and changes impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies; 
 • the outcome of pending and future litigation and/or governmental proceedings; 
 • increasing price and product/service competition; 
 • the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; 
 • managing our internal growth and acquisitions; 
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 • 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; 
 • 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; 
 • material increases in costs and expenses; 
 • reliance on significant customer relationships; 
 • general economic or business conditions, including unemployment levels, supply chain disruptions, slowdowns in economic growth, government shutdowns and geopolitical instability and tensions; 
 • significant weakening of the local economies in which the Company operates; 
 • changes in customer behaviors, including consumer spending, borrowing and saving habits; 
 • changes in deposit flows and loan demand; 
 • our failure to attract or retain key associates; 
 • expansions or consolidations in the Company’s branch network, including that the anticipated benefits of the Company’s branch acquisitions or the Company’s branch network optimization project are not fully realized in a timely manner or at all; 
 • deterioration of the housing market and reduced demand for mortgages; and 
 • 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”). Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Company cautions you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events are expressed in or implied by a forward-looking statement may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and the Company undertakes no obligation to update, revise or clarify any forward-looking statement to reflect developments occurring after the statement is made, except as required by law. 
 
 
 
 Explanation of Use of Non-GAAP Financial Measures 
 In addition to results presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), management uses, and this quarterly report contains or references, certain non-GAAP financial measures, including interest and dividend income, yield on interest earning assets, net interest income, and net interest margin on a fully taxable equivalent (“FTE”) basis. These non-GAAP measures should be read along with the accompanying tables that provide reconciliations of GAAP to non-GAAP financial measures. 
 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 
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 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. Accordingly, GAAP measures presented in the Consolidated Statements of Income are reconciled to their corresponding FTE amounts, including: 
 • interest and dividend income, 
 • yield on interest earning assets, 
 • net interest income, and 
 • net interest margin. 
 These reconciliations are provided in the "Results of Operations and Financial Condition - Net Interest Income" section of this MD&A. 
 While management believes these non-GAAP measures provide meaningful supplemental information, they should not be considered as an alternative to GAAP results, as more relevant than financial results prepared in accordance with GAAP, or as necessarily comparable to similarly titled measures used by other companies. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of the Company’s financial condition or results of operations as reported under GAAP. Investors are encouraged to review the Company’s GAAP financial results and all other relevant information when evaluating its performance and financial condition. 
 
 Critical Accounting Estimates 
 The Company’s critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 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 June 30, 2026. The Company is the parent company of its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). The Bank is a Federal Deposit Insurance Corporation (“FDIC”) insured, Virginia state-chartered bank, which operates 63 branches in Virginia and North Carolina. The Bank became a member of the Federal Reserve System on November 13, 2025. The Company provides a full range of commercial banking, consumer banking, mortgage and other services through the Bank. 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 (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. No loans were acquired as part of the Branch Purchase. The Branch Purchase closed during the second quarter of 2025. 
 The Company earns revenue primarily from interest on loans and investment securities and from fees charged for financial services provided to customers. Expenses consist principally of funding costs, the provision or recovery for credit losses, compensation and benefits, occupancy and equipment, technology and data processing, regulatory assessments, and other operating expenses. 
 As part of its three-year strategic plan, the Company is working to elevate brand awareness by leveraging its core strengths: exceptional service and lasting customer relationships. We believe these core strengths set the Company apart in a competitive 
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 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 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. 
 The Company’s goal is to shift from balance-sheet restructuring to a prudent growth strategy when appropriate. We anticipate this strategy will primarily focus on organic growth, but the Company will also consider opportunistic acquisitions that align with this strategy. We believe the Bank’s strong capital and liquidity positions support this approach. The Company will seek to grow loans and deposits and increase fee income. At the same time, it will closely monitor operating expenses. 
 The Company is executing this strategy to support its brand and grow its business in its current markets. It will also apply this approach when entering new markets . 
 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 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. 
 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; and 
 ◦ $15.0 million net recovery; 
 • Released $18.0 million of specific reserves related to the Judgments; 
 • The Loan Sale Transaction was accretive to diluted earnings per share by $3.50 for the first quarter of 2026; and 
 • The Loan Sale Transaction increased book value per share by $3.49 for the first quarter of 2026. 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES 
 ITEM 2. 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; and 
 • 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 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 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; and 
 • 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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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 ◦ 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; and 
 ◦ 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 $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 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 decreased $13.3 million, or 0.64%, on an annualized basis, to $4.2 billion, compared to December 31, 2025; and 
 • 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 
 Return on Average Assets 2.39 % 0.72 % 4.75 % 0.75 % 
 Return on Average Shareholders' Equity 22.01 % 8.45 % 48.08 % 8.85 % 
 Portfolio Loans to Deposit Ratio 88.97 % 88.75 % 88.97 % 88.75 % 
 Allowance for Credit Losses to Total Portfolio Loans 1.48 % 1.90 % 1.48 % 1.90 % 
 Nonperforming Loans to Total Portfolio Loans 1.01 % 6.69 % 1.01 % 6.69 % 

 
 Net Interest Income 
 Net interest income is the Company’s primary source of revenue and represents the difference between interest and fee income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities. 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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 ITEM 2. 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. ALCO utilizes a variety of strategies within established risk parameters to manage exposure to changing interest rate environments and to achieve what management believes to be an appropriate and sustainable level of net interest income. 
 Interest and dividend income, yield on interest-earning assets, net interest income and net interest margin are presented on an FTE basis, which are non-GAAP financial measures. The FTE presentation adjusts net interest income and net interest margin to reflect the tax-equivalent impact of income earned on certain tax-exempt loans and securities, using the applicable federal statutory income tax rate for each period presented, which was 21%, as well as the impact of the dividends-received deduction on equity securities. Management believes that the FTE basis presentation provides a more meaningful comparison between taxable and tax-exempt sources of interest income and is consistent with industry practice. 
 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. 
 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 June 30, Six Months Ended June 30, 
 2026 2025 2026 2025 
 Interest and Dividend Income (GAAP) $ 61,491 $ 57,747 $ 120,676 $ 113,754 
 Tax Equivalent Adjustment 237 171 391 349 
 Interest and Dividend Income (FTE) (Non-GAAP) $ 61,728 $ 57,918 $ 121,067 $ 114,103 
 Average Earning Assets 4,736,054 4,634,635 $ 4,742,159 $ 4,594,591 
 Yield on Interest-earning Assets (GAAP) 5.21 % 5.00 % 5.13 % 4.99 % 
 Yield on Interest-earning Assets (FTE) (Non-GAAP) 5.23 % 5.01 % 5.15 % 5.01 % 
 
 Net Interest Income (GAAP) $ 39,950 $ 32,359 $ 75,884 $ 62,497 
 Tax Equivalent Adjustment 237 171 391 349 
 Net Interest Income (FTE) (Non-GAAP) $ 40,187 $ 32,530 $ 76,275 $ 62,846 
 Average Earning Assets 4,736,054 4,634,635 $ 4,742,159 $ 4,594,591 
 Net Interest Margin (GAAP) 3.38 % 2.80 % 3.23 % 2.74 % 
 Net Interest Margin (FTE) (Non-GAAP) 3.40 % 2.82 % 3.24 % 2.76 % 

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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 Average Balance Sheet and Net Interest Income Analysis (FTE) 
 The following table 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 June 30, 2026 Three Months Ended June 30, 2025 
 Average
Balance Income/
Expense Yield/Rate Average
Balance Income/
Expense Yield/Rate 
 ASSETS 
 Interest-Bearing Deposits with Banks $ 291,575 $ 2,712 3.73 % $ 58,006 $ 643 4.45 % 
 Tax-Free Investment Securities 2 
 37,890 488 5.17 % 11,622 85 2.93 % 
 Taxable Investment Securities 671,139 5,323 3.18 % 818,588 6,796 3.33 % 
 Total Securities 709,029 5,811 3.29 % 830,210 6,881 3.32 % 
 Commercial Real Estate 2,155,650 31,936 5.94 % 1,986,702 30,522 6.16 % 
 Commercial & Industrial 2 
 251,682 3,769 6.01 % 204,287 3,404 6.68 % 
 Residential Mortgage 820,831 8,739 4.27 % 811,414 8,581 4.24 % 
 Other Consumer 25,246 285 4.53 % 27,883 389 5.60 % 
 Construction 473,565 8,348 7.07 % 429,511 7,358 6.87 % 
 Other — — — % 278,194 — — % 
 Total Loans 1 
 3,726,974 53,077 5.71 % 3,737,991 50,254 5.39 % 
 Other Restricted Stock, at Cost 8,476 128 6.06 % 8,428 140 6.66 % 
 Total Interest-Earning Assets 4,736,054 $ 61,728 5.23 % 4,634,635 $ 57,918 5.01 % 
 Noninterest Earning Assets 120,968 126,303 
 Total Assets $ 4,857,022 $ 4,760,938 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY 
 Interest-Bearing Demand $ 900,160 $ 3,400 1.51 % $ 805,749 $ 3,661 1.82 % 
 Money Market 511,221 2,522 1.98 % 536,366 3,510 2.62 % 
 Savings 325,283 130 0.16 % 347,863 129 0.15 % 
 Certificates of Deposit 1,872,499 15,350 3.29 % 1,885,486 16,759 3.57 % 
 Total Interest-Bearing Deposits 3,609,163 21,402 2.38 % 3,575,464 24,059 2.70 % 
 FHLB Borrowings — — — % 108,753 1,186 4.37 % 
 
 Other Borrowings 10,775 139 5.17 % 10,713 143 5.35 % 
 Total Borrowings 10,775 139 5.17 % 119,466 1,329 4.46 % 
 Total Interest-Bearing Liabilities 3,619,938 21,541 2.39 % 3,694,930 25,388 2.76 % 
 Noninterest-Bearing Liabilities 710,174 662,168 
 Shareholders' Equity 526,910 403,840 
 Total Liabilities and Shareholders' Equity $ 4,857,022 $ 4,760,938 
 Net Interest Income 2 
 $ 40,187 $ 32,530 
 Net Interest Margin 2 
 3.40 % 2.82 % 
 Net Interest Spread 2.84 % 2.25 % 

 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 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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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 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 
 Average 
Balance Income/
Expense Rate Average 
Balance Income/
Expense Rate 
 ASSETS 
 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. 
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 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 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 
 Rate 3 
 Increase/
(Decrease) Volume 3 
 Rate 3 
 Increase/
(Decrease) 
 Interest Earned on: 
 Interest-Bearing Deposits with Banks $ 2,188 $ (119) $ 2,069 $ 2,283 $ (269) $ 2,014 
 Tax-free Investment Securities 2 
 301 102 403 265 137 402 
 Taxable Investment Securities (1,180) (293) (1,473) (1,758) (788) (2,546) 
 Total Securities (879) (191) (1,070) (1,493) (651) (2,144) 
 Commercial Real Estate 2,531 (1,117) 1,414 6,181 (2,260) 3,921 
 Commercial & Industrial 2 
 734 (369) 365 1,248 (157) 1,091 
 Residential Mortgages 100 58 158 295 92 387 
 Other Consumer (35) (69) (104) (60) (184) (244) 
 Construction 772 218 990 1,231 587 1,818 
 Other — — — — — — 
 Total Loans 1 
 4,102 (1,279) 2,823 8,895 (1,922) 6,973 
 Other Restricted Stock, at Cost 1 (13) (12) 147 (26) 121 
 Total Interest-Earning Assets $ 5,412 $ (1,602) $ 3,810 $ 9,832 $ (2,868) $ 6,964 
 
 Interest Paid on: 
 Interest-Bearing Demand $ 399 $ (660) $ (261) $ 709 $ (1,647) $ (938) 
 Money Market (159) (829) (988) 103 (1,435) (1,332) 
 Savings (8) 9 1 (18) 17 (1) 
 Certificates of Deposit (114) (1,295) (1,409) (306) (3,548) (3,854) 
 Total Interest-Bearing Deposits 118 (2,775) (2,657) 488 (6,613) (6,125) 
 Federal Home Loan Bank Borrowings (593) (593) (1,186) (198) (134) (332) 
 Federal Funds Purchased — — — — — — 
 Other Borrowings 1 (5) (4) 7 (15) (8) 
 Total Borrowings (592) (598) (1,190) (191) (149) (340) 
 Total Interest-Bearing Liabilities $ (474) $ (3,373) $ (3,847) $ 297 $ (6,762) $ (6,465) 
 Change in Net Interest Margin (FTE) 2 
 $ 5,886 $ 1,771 $ 7,657 $ 9,535 $ 3,894 $ 13,429 

 1 Nonaccruing loans are included in the daily average loan amounts outstanding. 
 2 Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent. 
 3 Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis. 
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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 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. Similarly, the Company records a provision or recovery for unfunded loan commitments to adjust the related reserve to the level considered appropriate to cover expected credit losses associated with those commitments. 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 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 Provision (Recovery) for Credit Losses on Loans 1,456 (2,665) 4,121 (32,679) (4,804) (27,875) 
 Provision for Securities — — — — — — 
 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 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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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 Noninterest Income 
 
 (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 % 
 Debit Card Interchange Fees 2,063 1,942 121 6.2 % 4,211 4,046 165 4.1 % 
 Insurance Commissions 164 714 (550) (77.0) % 1,118 1,058 60 5.7 % 
 Bank Owned Life Insurance Income 457 357 100 28.0 % 893 698 195 27.9 % 
 
 
 
 Other 137 130 7 5.4 % 365 2,368 (2,003) (84.6) % 
 Total Noninterest Income $ 28,730 $ 4,908 $ 23,822 485.4 % $ 99,704 $ 11,809 $ 87,895 744.3 % 
 
 NM- Not Meaningful 
 

 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. 
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 Noninterest Expense 
 
 (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 % 
 Occupancy Expense, net 4,584 4,230 354 8.4 % 9,445 8,702 743 8.5 % 
 FDIC Insurance Expense (241) 1,436 (1,677) (116.8) % 1,269 2,866 (1,597) (55.7) % 
 Other Taxes 776 922 (146) (15.8) % 1,701 1,869 (168) (9.0) % 
 Advertising Expense 820 708 112 15.8 % 1,746 1,619 127 7.8 % 
 Telephone Expense 278 307 (29) (9.4) % 570 611 (41) (6.7) % 
 Professional and Legal Fees 2,053 1,921 132 6.9 % 3,599 3,151 448 14.2 % 
 Data Processing 2,177 1,395 782 56.1 % 4,030 2,839 1,191 42.0 % 
 
 
 Debit Card Expense 1,072 991 81 8.2 % 2,073 1,983 90 4.5 % 
 
 
 
 
 Other 4,416 3,312 1,104 33.3 % 7,599 5,967 1,632 27.4 % 
 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 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. 
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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 

 Provision for Income Taxes 
 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 
 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 
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 ITEM 2. 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. 
 
 Securities 
 The following table presents the composition of available-for-sale securities at the dates presented: 
 
 (Dollars in Thousands) June 30, 2026 December 31, 2025 $ Change 
 
 U.S. Government Agency Securities $ 16,153 $ 19,375 $ (3,222) 
 Residential Mortgage-Backed Securities 61,450 76,773 (15,323) 
 Commercial Mortgage-Backed Securities 20,910 25,122 (4,212) 
 Other Commercial Mortgage-Backed Securities 21,261 24,254 (2,993) 
 Asset Backed Securities 105,594 94,797 10,797 
 Collateralized Mortgage Obligations 192,539 161,820 30,719 
 States and Political Subdivisions 166,313 234,224 (67,911) 
 Corporate Notes 56,082 55,247 835 
 Total $ 640,302 $ 691,612 $ (51,310) 

 The Company invests in various securities to maintain liquidity to satisfy various pledging requirements, enhance net interest income, and support balance sheet diversification and interest rate risk management through oversight by ALCO. Securities are subject to market risk, which could adversely affect the level of liquidity available. 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 $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 
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 CARTER BANKSHARES, INC. AND SUBSIDIARIES
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Carter Bankshares, Inc. 10-Q

Item 1. Financial Statements
