care-20260630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2026


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-39731

CARTER BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Virginia

85-3365661

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

1300 Kings Mountain Road,

Martinsville,

Virginia

24112

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (276) 656-1776


NA
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value	CARE	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2026 there were 22,163,931 shares of the registrant’s common stock issued and outstanding.

Table of Contents

TABLE OF CONTENTS


Part I - Financial Information

Item 1.	Financial Statements	3
	Consolidated Balance Sheets - June 30 , 2026 (unaudited) and December 31, 2025 (audited)	3
	Consolidated Statements of Income - Three and Six Months Ended June 30 , 2026 and 2025 (unaudited)	4
	Consolidated Statements of Comprehensive Income - Three and Si x Months Ended June 30 , 2026 and 2025 (unaudited)	5
	Consolidated Statements of Changes in Shareholders’ Equity - Three and Six Months Ended June 30 , 2026 and 2025 (unaudited)	6
	Consolidated Statements of Cash Flows - Six Months Ended June 30 , 2026 and 2025 (unaudited)	8
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	72
Item 4.	Controls and Procedures	73

Part II - Other Information

Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77
	Signatures	79

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS


(Dollars in Thousands Except per Share Data)	June 30, 2026		December 31, 2025
	(unaudited)		(audited)
ASSETS
Cash and Due From Banks	$	41,101	$	36,935
Interest-Bearing Deposits in Other Financial Institutions	167,427		12,134
Federal Reserve Bank Excess Reserves	68,007		56,094
Total Cash and Cash Equivalents	276,535		105,163

Securities Available-for-Sale, at Fair Value (amortized cost of $682,318 and $745,366, respectively)	640,302		691,612
Equity Securities	12,676		10,291
Loans Held-for-Sale	467		339

Portfolio Loans	3,734,594		3,879,560
Allowance for Credit Losses	(55,170)		(71,491)
Portfolio Loans, net	3,679,424		3,808,069

Bank Premises and Equipment, net	69,820		72,497
Goodwill	1,193		1,193
Core Deposit Intangible	812		940
Other Real Estate Owned, net	3,356		142
Other Restricted Stock, at Cost	8,476		16,830
Bank Owned Life Insurance	45,704		44,811
Other Assets	63,118		100,035
Total Assets	$	4,801,883	$	4,851,922

LIABILITIES
Deposits:
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 Deposits	4,197,556		4,210,889
Federal Home Loan Bank Borrowings	—		178,500

Reserve for Unfunded Loan Commitments	2,220		2,992
Other Liabilities	62,961		39,844
Total Liabilities	4,262,737		4,432,225

Commitments and Contingencies - see NOTE 10.

SHAREHOLDERS’ EQUITY
Common Stock, Par Value $1.00 Per Share, Authorized 100,000,000 Shares;
Outstanding - 22,162,213 shares at June 30, 2026, and 22,083,007 shares at December 31, 2025	22,162		22,083
Additional Paid-in Capital	72,505		74,806
Retained Earnings	477,417		364,968
Accumulated Other Comprehensive Loss	(32,938)		(42,160)
Total Shareholders’ Equity	539,146		419,697
Total Liabilities and Shareholders’ Equity	$	4,801,883	$	4,851,922

See accompanying notes to unaudited Consolidated Financial Statements.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 1. FINANCIAL STATEMENTS - (continued)

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands Except per Share Data)	2026		2025		2026		2025
INTEREST INCOME
Loans, including fees
Taxable	$	52,440	$	49,522	$	104,523	$	97,347
Non-Taxable	503		579		1,019		1,180
Investment Securities
Taxable	5,323		6,796		10,905		13,451
Non-Taxable	385		67		451		133
Federal Reserve Bank Excess Reserves	1,519		578		2,102		1,280
Interest on Bank Deposits	1,193		65		1,303		111
Dividend Income	128		140		373		252
Total Interest Income	61,491		57,747		120,676		113,754
Interest Expense
Interest Expense on Deposits	21,402		24,059		42,957		49,082

Interest on Other Borrowings	139		1,329		1,835		2,175
Total Interest Expense	21,541		25,388		44,792		51,257
NET INTEREST INCOME	39,950		32,359		75,884		62,497
Provision (Recovery) for Credit Losses	2,010		(2,330)		(31,907)		(4,355)
Recovery for Unfunded Loan Commitments	(554)		(335)		(772)		(449)
Net Interest Income After Provision (Recovery) for Credit Losses	38,494		35,024		108,563		67,301
NONINTEREST INCOME
Gain on the Insurance Transaction	35,949		—		35,949		—
Gain on the Loan Sale Transaction	—		—		65,000		—
Losses on Sales of Securities, net	(12,531)		—		(12,451)		—
Service Charges, Commissions and Fees	2,491		1,765		4,619		3,639
Debit Card Interchange Fees	2,063		1,942		4,211		4,046
Insurance Commissions	164		714		1,118		1,058
Bank Owned Life Insurance Income	457		357		893		698



Other	137		130		365		2,368
Total Noninterest Income	28,730		4,908		99,704		11,809
NONINTEREST EXPENSE
Salaries and Employee Benefits	14,051		14,082		28,966		27,739
Occupancy Expense, net	4,584		4,230		9,445		8,702
FDIC Insurance Expense	(241)		1,436		1,269		2,866
Other Taxes	776		922		1,701		1,869
Advertising Expense	820		708		1,746		1,619
Telephone Expense	278		307		570		611
Professional and Legal Fees	2,053		1,921		3,599		3,151
Data Processing	2,177		1,395		4,030		2,839


Debit Card Expense	1,072		991		2,073		1,983




Other	4,416		3,312		7,599		5,967
Total Noninterest Expense	29,986		29,304		60,998		57,346
Income Before Income Taxes	37,238		10,628		147,269		21,764
Income Tax Provision	8,327		2,118		32,601		4,301
Net Income	$	28,911	$	8,510	$	114,668	$	17,463

Earnings per Common Share:
Basic Earnings per Common Share	$	1.31	$	0.37	$	5.18	$	0.76
Diluted Earnings per Common Share	$	1.31	$	0.37	$	5.18	$	0.76
Average Shares Outstanding-Basic & Diluted	21,838,645		22,805,881		21,842,497		22,839,412

See accompanying notes to unaudited Consolidated Financial Statements.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 1. FINANCIAL STATEMENTS - (continued)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2026		2025		2026		2025
Net Income	$	28,911	$	8,510	$	114,668	$	17,463
Other Comprehensive Income
Net Unrealized Gains on Securities Available-for-Sale
Net Unrealized Gains (Losses) Arising during the Period	188		5,264		(713)		15,647
Reclassification Adjustment for Losses included in Net Income	12,531		—		12,451		—
Tax Effect	(2,687)		(1,141)		(2,516)		(3,376)
Net Unrealized Gains Recognized in Other Comprehensive Income	10,032		4,123		9,222		12,271
Other Comprehensive Income	10,032		4,123		9,222		12,271
Comprehensive Income	$	38,943	$	12,633	$	123,890	$	29,734

See accompanying notes to unaudited Consolidated Financial Statements.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 1. FINANCIAL STATEMENTS - (continued)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)


	Three Months Ended June 30, 2026
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity


Balance at March 31, 2026	$	22,160	$	74,987	$	450,725	$	(42,970)	$	504,902
Net Income	—		—		28,911		—		28,911
Other Comprehensive Income, Net of Tax	—		—		—		10,032		10,032
Cash Dividends Declared ($0.10 per share)	—		—		(2,219)		—		(2,219)
1% Excise Tax on Stock Buybacks	—		—		—		—		—
Repurchase of Common Stock (108,601 shares)	(109)		(2,769)		—		—		(2,878)
Forfeiture of Restricted Stock (11,670 shares)	(12)		(206)		—		—		(218)
Issuance of Restricted Stock (122,504 shares)	123		(123)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		616		—		—		616
Balance at June 30, 2026	$	22,162	$	72,505	$	477,417	$	(32,938)	$	539,146


	Three Months Ended June 30, 2025
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity


Balance at March 31, 2025	$	23,162	$	92,418	$	342,559	$	(56,373)	$	401,766
Net Income	—		—		8,510		—		8,510
Other Comprehensive Income, Net of Tax	—		—		—		4,123		4,123
1% Excise Tax on Stock Buybacks	—		(75)		—		—		(75)
Repurchase of Common Stock (547,332 shares)	(547)		(8,591)		—		—		(9,138)
Forfeitures of Restricted Stock (6,432 shares)	(6)		(74)		—		—		(80)
Issuance of Restricted Stock (61,015 shares)	61		(61)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		529		—		—		529
Balance at June 30, 2025	$	22,670	$	84,146	$	351,069	$	(52,250)	$	405,635

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 1. FINANCIAL STATEMENTS - (continued)


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

	Six Months Ended June 30, 2026
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity


Balance at December 31, 2025	$	22,083	$	74,806	$	364,968	$	(42,160)	$	419,697
Net Income	—		—		114,668		—		114,668
Other Comprehensive Income, Net of Tax	—		—		—		9,222		9,222
Cash Dividends Declared ($0.10 per share)	—		—		(2,219)		—		(2,219)
1% Excise Tax on Stock Buybacks	—		—		—		—		—
Repurchase of Common Stock (108,601 shares)	(109)		(2,769)		—		—		(2,878)
Forfeiture of Restricted Stock (26,747 shares)	(27)		(452)		—		—		(479)
Issuance of Restricted Stock (214,554 shares)	215		(215)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		1,135		—		—		1,135
Balance at June 30, 2026	$	22,162	$	72,505	$	477,417	$	(32,938)	$	539,146


	Six Months Ended June 30, 2025
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity


Balance at December 31, 2024	$	23,069	$	92,159	$	333,606	$	(64,521)	$	384,313
Net Income	—		—		17,463		—		17,463
Other Comprehensive Income, Net of Tax	—		—		—		12,271		12,271
1% Excise Tax on Stock Buybacks	—		(75)		—		—		(75)
Repurchase of Common Stock (547,332 shares)	(547)		(8,591)		—		—		(9,138)
Forfeitures of Restricted Stock (14,201 shares)	(14)		(195)		—		—		(209)
Issuance of Restricted Stock (162,192 shares)	162		(162)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		1,010		—		—		1,010
Balance at June 30, 2025	$	22,670	$	84,146	$	351,069	$	(52,250)	$	405,635

See accompanying notes to unaudited Consolidated Financial Statements.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 1. FINANCIAL STATEMENTS - (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Six Months Ended June 30,
(Dollars in Thousands)	2026		2025
OPERATING ACTIVITIES
Net Income	$	114,668	$	17,463
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Recovery for Credit Losses, including Recovery for Unfunded Loan Commitments	(32,679)		(4,804)

Origination of Loans Held-for-Sale	(9,748)		(7,877)
Proceeds From Loans Held-for-Sale	9,692		7,711

Depreciation/Amortization of Bank Premises and Equipment	4,284		3,850
Provision for Deferred Taxes	5,275		1,628
Net Amortization of Securities	13,592		1,707
Tax Credit Amortization	86		325
Gains on Sales of Loans Held-for-Sale	(72)		(80)
Gain on the Loan Sale Transaction	(65,000)		—
Gain on the Insurance Transaction	(35,949)		—
Losses on Sales of Securities, net	12,451		—
Unrealized Loss (Gain) on Equity Securities	116		(159)



Commercial Loan Swap Derivative Loss	8		96

Increase in the Value of Life Insurance Contracts	(893)		(698)
Gain on Bank Owned Life Insurance Death Benefit	—		(1,882)
1035 Exchange Fee on Bank Owned Life Insurance	—		527
Balance Sheet Hedge Fair Value Adjustment	—		140
Recognition of Restricted Stock Compensation Expense	1,135		1,010
Decrease in Other Assets	5,169		734
Increase (Decrease) in Other Liabilities	21,234		(3,716)
Net Cash Provided By Operating Activities	43,369		15,975
INVESTING ACTIVITIES
Securities Available-for-Sale:
Proceeds from Sales	142,283		—
Proceeds from Maturities, Redemptions, and Paydowns	20,419		30,445
Purchases	(125,177)		(53,317)
Purchase of Equity Securities	(2,500)		—
Purchase of Bank Premises and Equipment, Net	(3,885)		(3,440)
Proceeds from Sales of Bank Premises and Equipment, net	—		—
Net Cash Acquired from Branch Purchase	—		53,573
Proceeds from Sale of Portfolio Loans From the Loan Sale Transaction	289,484		—
Proceeds From the Insurance Transaction	55,663		—
Redemption (Purchase) of Other Restricted Stock, at Cost, net	8,354		(2,166)
Loan Originations, net	(66,869)		(123,139)
Proceeds from Death Benefit on Bank Owned Life Insurance	—		3,077
Proceeds from Surrender of BOLI Policies	7,161		—


Proceeds from Sales and Payments of Other Real Estate Owned	—		473
Net Cash Used In Investing Activities	324,933		(94,494)
FINANCING ACTIVITIES
Net Change in Demand, Money Markets and Savings Accounts	42,350		49,649
Decrease in Certificates of Deposits	(55,683)		(36,758)
Proceeds from Federal Home Loan Bank Borrowings	299,000		245,000
Repayments on Federal Home Loan Bank Borrowings	(477,500)		(201,500)

Repurchase of Common Stock	(2,878)		(9,138)
Cash Dividends Paid to Common Shareholders	(2,219)		—
Net Cash (Used In) Provided By Financing Activities	(196,930)		47,253
Net Increase (Decrease) in Cash and Cash Equivalents	171,372		(31,266)
Cash and Cash Equivalents at Beginning of Period	105,163		131,171
Cash and Cash Equivalents at End of Period	$	276,535	$	99,905

See accompanying notes to unaudited Consolidated Financial Statements.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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 Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, Carter Bank & 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

Table of Contents

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 not 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.

Table of Contents

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)

Table of Contents

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 not 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.

Table of Contents

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.

Table of Contents

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	%

Table of Contents

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.

Table of Contents

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

Table of Contents

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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

economy, including unemployment levels, borrower credit profiles, and where applicable, the value and liquidity of collateral. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

Construction loans include both commercial and residential construction lending. 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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

independent assessment of 1) overall credit quality of the loan portfolio, 2) compliance with lending policies, 3) adequacy of credit documentation, and 4) appropriateness of assigned risk ratings.

From 2020 through 2026, loan review activities followed a structured, multi-step approach that included:

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

•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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of 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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of 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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of 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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of 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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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


	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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

presented on a net basis in the Consolidated Balance Sheets when the Company has both a derivative asset and a derivative liability related to swap transactions with that counterparty.

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


	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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

Borrowings serve as an additional source of liquidity for the Company. At 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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements. Outstanding standby letters of credit totaled $15.7 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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 INCOME TAXES

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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2026			2025			2026			2025
(Dollars in Thousands)	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
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 Effect1	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

1For 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. The 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

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

receipt of non-objection from the Federal Reserve Bank of Richmond. The program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. 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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

•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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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

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

The Company believes that presenting interest and dividend income, yield on interest earning assets, net interest income, and net interest margin on an FTE basis improves comparability between income derived from taxable and tax-exempt sources and is consistent with industry practice. 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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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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 Securities2	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 & Industrial2	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 Loans1	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 Income2			$	40,187					$	32,530
Net Interest Margin2					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 Securities2	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 & Industrial2	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 Loans1	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 Income2			$	76,275					$	62,846
Net Interest Margin2					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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

The increase was primarily driven by growth in average interest-earning assets and lower funding costs. Average interest-earning assets increased to $4.7 billion from $4.6 billion, while the average yield on interest-earning assets increased 14 basis points to 5.15% from 5.01%. At the same time, the average cost of total interest-bearing liabilities declined 38 basis points to 2.44% from 2.82%, contributing to an increase in the net interest margin to 3.24%, compared to 2.76% for the same period in 2025.

Average loan balances increased across the commercial real estate, commercial and industrial, construction and residential mortgage portfolios, with the average yield on total loans improving to 5.59% from 5.39%. While average securities balances declined from the prior-year period, the Company’s strategic balance sheet initiatives, including the second quarter Portfolio Repositioning into higher-yielding investments, are expected to enhance future interest income. Average interest-bearing deposits with banks also increased as excess liquidity generated from the Company’s strategic transactions was deployed into higher-yielding interest-bearing accounts.

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

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


	Three Months Ended 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)	Volume3		Rate3		Increase/ (Decrease)		Volume3		Rate3		Increase/ (Decrease)
Interest Earned on:
Interest-Bearing Deposits with Banks	$	2,188	$	(119)	$	2,069	$	2,283	$	(269)	$	2,014
Tax-free Investment Securities2	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 & Industrial2	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 Loans1	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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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.

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

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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

million of higher-yielding securities. The Portfolio Repositioning resulted in a $12.5 million pre-tax loss and is expected to enhance future net interest income through improved portfolio yields. The Portfolio Repositioning is discussed further in the “Overview and Strategy” section. The Portfolio Repositioning, together with normal principal repayments, calls, maturities and amortization, resulted in the decline in the securities portfolio during the period. Securities represented 13.3% of total assets at June 30, 2026 compared to 14.3% at December 31, 2025.

Total gross unrealized gains in the available-for-sale portfolio were $1.6 million at June 30, 2026, offset by $43.6 million of gross unrealized losses, compared to gross unrealized gains of $0.4 million and gross unrealized losses of $54.2 million at December 31, 2025. Although increases in intermediate and long-term market interest rates during the six months ended June 30, 2026 would have increased unrealized losses on the remaining portfolio, gross unrealized losses declined overall as a result of the Company’s strategic Portfolio Repositioning, which realized a portion of previously existing unrealized losses through the sale of securities.

Management believes the unrealized losses on debt securities at June 30, 2026 are temporary and primarily attributable to changes in market interest rates since the securities were purchased rather than deterioration in credit quality. Approximately 48.0% of the securities portfolio is comprised of obligations issued by U.S. government sponsored entities that carry implicit government guarantees. States and political subdivision securities represent 26.0% of the portfolio and consist primarily of general obligation and essential purpose revenue bonds, which have historically demonstrated strong credit performance and are predominantly rated AA and AAA. The Company has the ability and intent to hold these securities until recovery of their amortized cost basis through maturity or sale.

Unrealized losses remained concentrated primarily in securities with intermediate and long-term maturities, whose market values are most sensitive to movements in the U.S. Treasury yield curve, particularly the five year and ten year maturities. During the six months ended June 30, 2026, intermediate-term Treasury yields increased, creating additional valuation pressure on the remaining securities portfolio. At June 30, 2026, the five and ten-year U.S. Treasury yields were 4.19% and 4.44%, respectively, compared to 3.73% and 4.18%, respectively, at December 31, 2025. The increase of approximately 46 basis points in the five year yield and 26 basis points in the ten year yield would generally be expected to increase unrealized losses, particularly for longer duration securities such as municipal bonds. However, the Company’s strategic Portfolio Repositioning during the period ended June 30, 2026 reduced the overall gross unrealized loss balance by realizing a portion of previously existing unrealized losses through the sale of selected securities.

Changes in intermediate and long-term interest rates, which are market driven, will continue to affect the market value of fixed rate securities. Accordingly, the Company expects ongoing fluctuations in the market values of its intermediate and long-term maturity securities as Treasury yields change. Floating rate securities generally maintained stable market values, as their coupon rates adjust in line with changes in short-term interest rates set by the Federal Reserve.

If any impairment of securities were determined to be credit related, the Company would recognize an ACL through recovery or provision for credit losses in the period an impairment is identified, while any non-credit related impairment would be recorded in accumulated other comprehensive loss, net of applicable taxes. At June 30, 2026 and December 31, 2025, the Company had no credit related impairments in its securities portfolio.

Under Basel III capital rules, most banking organizations are permitted to make a one-time election to retain the existing regulatory capital treatment for accumulated other comprehensive loss. The Company elected to retain this treatment, under which accumulated other comprehensive loss is excluded from regulatory capital. As a result, changes in unrealized gains and losses on available-for-sale securities do not affect regulatory capital levels, therefore reducing capital volatility associated with interest rate movements.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

Loan Composition

The following table summarizes our loan portfolio 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 loan portfolio is the Company’s primary source of interest income and is subject to inherent credit risk, including the risk that borrowers may be unable to meet their contractual obligations. Adverse developments in a borrower’s industry or in overall economic conditions may negatively affect repayment capacity. For a discussion of risk factors relevant to the Company’s business and operations, refer to Part I, Item 1A. “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Total portfolio loans decreased $145.0 million to $3.7 billion at June 30, 2026, compared to December 31, 2025 largely reflecting the Loan Sale Transaction completed during the first quarter of 2026, partially offset by net loan growth during the first half of the year.

The Company actively monitors the loan portfolio in light of changing market conditions, borrower performance, and the interest rate environment. At June 30, 2026, the loan portfolio consisted of 21.0% floating rates loans that reprice monthly, 37.4% variable rate loans that reprice at least once during the life of the loan, and 41.6% fixed rate loans.

CRE loans represented 57.4% of total portfolio loans at June 30, 2026, compared to 54.5% at December 31, 2025. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant exposure. Collateral securing CRE loans is geographically concentrated primarily in North Carolina, Virginia and South Carolina and includes properties within the retail/restaurant, warehouse, hospitality, multifamily, office, and long-term care sectors.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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


	June 30, 2026
(Dollars in Thousands)	Commercial Real Estate		Commercial & Industrial		Residential Mortgage		Construction		Other		Total		CRE Collateral Type in Special Mention and Substandard Risk Rating		% of Each Segment to Total CRE Collateral Type
Retail/Restaurant	$	529,426	$	110	$	—	$	36,181	$	—	$	565,717	$	56,591	21.2	%
Warehouse	483,322		—		—		42,103		—		525,425		17,664		19.6	%
Hospitality	283,595		—		—		27,771		—		311,366		2,742		11.6	%
Multifamily	364,039		—		—		78,315		—		442,354		51,919		16.5	%
Office	202,700		—		—		3,136		—		205,836		28,727		7.7	%
Land	606		—		—		114,537		—		115,143		36		4.3	%
Single Family	24,135		4		63,848		30,110		—		118,097		383		4.4	%
Country Club	3,320		—		—		—		—		3,320		—		0.1	%
Long-term Care	70,202		—		—		60,353		—		130,555		—		4.9	%
Other	178,876		57		1,696		78,459		—		259,088		145		9.7	%
Total	$	2,140,221	$	171	$	65,544	$	470,965	$	—	$	2,676,901	$	158,207	100.0	%


	December 31, 2025
(Dollars in Thousands)	Commercial Real Estate		Commercial & Industrial		Residential Mortgage		Construction		Other		Total		CRE Collateral Type in Special Mention and Substandard Risk Rating		% of Each Segment to Total CRE Collateral Type
Retail/Restaurant	$	501,030	$	114	$	—	$	49,172	$	3,135	$	553,451	$	6	20.0	%
Warehouse	460,244		—		—		40,472		—		500,716		9,568		18.1	%
Hospitality	280,803		—		—		41,192		51,552		373,547		51,552		13.5	%
Multifamily	348,794		—		—		86,679		—		435,473		5,402		15.7	%
Office	217,092		—		—		—		508		217,600		25,658		7.9	%
Land	809		—		—		101,073		36,619		138,501		36,660		5.0	%
Single Family	33,420		—		62,072		15,144		13,367		124,003		13,460		4.5	%
Country Club	3,346		—		—		—		45,002		48,348		45,002		1.7	%
Long-term Care	59,409		—		—		37,232		—		96,641		—		3.5	%
Other	208,907		73		—		70,835		—		279,815		—		10.1	%
Total	$	2,113,854	$	187	$	62,072	$	441,799	$	150,183	$	2,768,095	$	187,308	100.0	%

The decrease in the CRE loan portfolio at June 30, 2026 is primarily related to the Other segment reducing to zero due to the Loan Sale Transaction, partially offset by an increase in CRE construction loans.

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

Management believes its local and regional market expertise enables effective management of CRE concentration risk. This operating knowledge is derived from direct customer relationships, an understanding of borrower business models, and access to market research tools that provide data on occupancy levels, lease growth rates, and new construction activity. These market indicators are reviewed regularly by credit officers and communicated to lending teams.

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

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

Aggregate commitments to the Company’s top 10 credit relationships totaled $472.4 million, representing 12.65% of gross loans at June 30, 2026, compared to $477.6 million, or 12.31% of gross loans, at December 31, 2025. The following table reflects the impacts of the Loan Sale Transaction, which resulted in elimination of the Company’s largest nonperforming loan relationship and a meaningful decline in borrower concentration. Prior to the Loan Sale Transaction, the top 10 relationships to total gross loans at December 31, 2025 was 17.00%.

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


	For the Periods Ending
Dollars in Thousands	June 30, 2026			December 31, 2025			Change			June 30, 2026 % of Gross Loans		June 30, 2026 % of RBC
1. Multifamily	$	58,475		$	58,610		$	(135)		1.57	%	9.43	%
2. Retail & Office	53,637			54,838			(1,201)			1.44	%	8.65	%
3. Retail & Warehouse	47,725			38,656			9,069			1.28	%	7.70	%
4. Warehouse	47,120			47,969			(849)			1.26	%	7.59	%
5. Warehouse	44,991			46,687			(1,696)			1.20	%	7.25	%
6. Healthcare	44,779			44,779			—			1.20	%	7.22	%
7. Land & Self-Storage	44,625			47,392			(2,767)			1.19	%	7.20	%
8. Multifamily	44,504			44,842			(338)			1.19	%	7.18	%
9. Long-Term Care	43,618			46,199			(2,581)			1.17	%	7.03	%
10. Retail & Office	42,919			47,619			(4,700)			1.15	%	6.92	%
Top Ten (10) Relationships	$	472,393		$	477,591		$	(5,198)		12.65	%	76.17	%
Total Gross Loans	$	3,735,061		$	3,879,899		$	(144,838)
% of Total Gross Loans	12.65		%	12.31		%	0.34		%
Concentration (25% of Risk Based Capital ("RBC"))	$	155,041		$	128,431

Unfunded loan commitments on lines of credit were $564.5 million at June 30, 2026 as compared to $643.9 million at December 31, 2025. The majority of unused commitments relate to construction lines of credit, which are expected to be funded as projects progress toward completion.

Total line of credit utilization was 55.1% at June 30, 2026, compared to 53.2% at December 31, 2025. Utilization of commercial operating lines of credit was 55.0% at June 30, 2026, compared to 52.8% at December 31, 2025.

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

Credit Quality

On a monthly basis, a Criticized Asset Committee meets to review certain watch, special mention and substandard risk rated loans that fall within prescribed policy thresholds. These loans generally represent those with the highest potential risk of loss to the Company. For loans identified through this process, management establishes action plans and conducts ongoing monitoring, which includes regular communication with the borrower and loan officer, review of current financial information and other supporting documentation, evaluation of existing or proposed loan structures or modifications, and periodic reassessment of collateral values.

On a quarterly basis, the Credit Risk Committee of the Board meets to review loan portfolio metrics, approve segment concentration limits, evaluate the adequacy of the ACL, and review the results of loan review activities identified during the prior quarter. Annually, this committee also approves credit related policy changes and enhancements as they are implemented.

Additional credit risk management practices include continuous monitoring of trends within the Company’s lending footprint and ongoing evaluation of lending policies and procedures designed to support sound underwriting standards. These practices include oversight of portfolio concentrations, delinquencies trends, and the results of annual portfolio level stress testing.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

The loan review department provides independent oversight of credit quality and evaluates the effectiveness of credit risk management practices. This function has primary responsibility for assessing commercial credit administration, consumer and mortgage underwriting and credit decision processes, and the appropriateness of assigned risk ratings for loans reviewed, as well as providing input into the overall loan risk rating process.

The Company’s policy is to place loans on nonaccrual status when collection of principal or interest is doubtful or, generally, when contractual principal or interest payments are 90 days or more past due. Consumer unsecured loans and secured loans are evaluated for charge-off once they become 90 days past due, and loans that reach 90 days delinquent are automatically transferred to nonaccrual status. Management, however, retains discretion at the individual loan level. A loan may be placed on nonaccrual prior to becoming 90 days past due if full collection of principal and interest is deemed unlikely. Conversely, a loan that is 90 days or more past due may be maintained in accrual status if it is well-secured and in process of collection.

Unsecured loans are generally charged-off in full, while secured loans are charged-off to the estimated fair value of the collateral, net of estimated cost to sell.

The repayment capacity of commercial borrowers is dependent on the performance of their underlying businesses and general economic conditions. Given the higher potential for loss within the commercial loan portfolio, these loans are monitored through an internal risk rating system. Risk ratings are assigned based on the borrower’s creditworthiness and are reviewed on an ongoing basis in accordance with internal policies. Loans rated special mention or substandard exhibit potential or well-defined weaknesses that are not typically present in higher quality performing loans, and therefore require heightened management attention to mitigate the risk of loss.

Nonperforming assets consist of NPLs and other real estate owned (“OREO”). The following table summarizes nonperforming assets at the dates presented:


(Dollars in Thousands)	June 30, 2026		December 31, 2025		Change
Nonaccrual Loans
Commercial Real Estate	$	21,562	$	23,861	$	(2,299)
Commercial and Industrial	13,546		1,013		12,533
Residential Mortgages	1,945		4,623		(2,678)
Other Consumer	72		25		47
Construction	436		440		(4)
Other	—		214,020		(214,020)
Total Nonperforming Loans	37,561		243,982		(206,421)
Other Real Estate Owned	3,356		142		3,214
Total Nonperforming Assets	$	40,917	$	244,124	$	(203,207)

At June 30, 2026, total nonperforming assets decreased $203.2 million to $40.9 million compared to December 31, 2025, primarily reflecting the Loan Sale Transaction, as the Judgments were previously included in the “Other” loan segment. Total nonperforming loans declined $206.4 million to $37.6 million at June 30, 2026. Commercial real estate nonperforming loans decreased $2.3 million, primarily due to the sale of a property in receivership during the first quarter of 2026. Residential mortgage nonperforming loans decreased $2.7 million as two residential mortgage loans were transferred to OREO during the first quarter of 2026. These improvements were partially offset by an increase in commercial and industrial nonperforming loans, which reflected a commercial and industrial relationship consisting of three loans with an aggregate principal balance of $13.4 million that was downgraded to substandard and placed on nonperforming status during the second quarter of 2026. This increase was partially offset by another commercial and industrial relationship that returned to accruing status during the first quarter of 2026. OREO increased to $3.4 million at June 30, 2026 from $0.1 million at December 31, 2025, primarily due to the transfer of the two residential mortgage loans during 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)

The following is an analysis of nonperforming loans by loan portfolio segment at the dates presented, and each segment’s relative contribution to total nonperforming loans:


	June 30, 2026				December 31, 2025
(Dollars in Thousands)	Amount		% of NPLs		Amount		% of NPLs
Commercial Real Estate	$	21,562	57.4	%	$	23,861	9.8	%
Commercial and Industrial	13,546		36.1	%	1,013		0.4	%
Residential Mortgages	1,945		5.2	%	4,623		1.9	%
Other Consumer	72		0.2	%	25		—	%
Construction	436		1.1	%	440		0.2	%
Other	—		—	%	214,020		87.7	%
Balance End of Period	$	37,561	100.0	%	$	243,982	100.0	%

Closed-end installment loans, amortizing loans secured by real estate, and other loans with monthly payment schedules are considered past due when payments are two or more months in arrears. Multi-payment obligations with payment schedules other than monthly are reported as past due when a scheduled payment remains unpaid for 30 days or more. Management monitors delinquency trends on a monthly basis, including early-stage delinquencies and loans exhibiting heightened risk characteristics, to identify emerging credit deterioration.

Allowance for Credit Losses

The following is the allocation of the ACL balance by segment at the dates presented:


	June 30, 2026				December 31, 2025
(Dollars in Thousands)	Amount		% of Loans in each Category to Total Portfolio Loans		Amount		% of Loans in each Category to Total Portfolio Loans
Commercial Real Estate	$	22,133	57.4	%	$	22,526	54.5	%
Commercial & Industrial	5,890		7.0	%	2,790		6.0	%
Residential Mortgages	11,719		21.8	%	12,449		21.2	%
Other Consumer	569		0.7	%	638		0.7	%
Construction	14,859		13.1	%	15,020		12.0	%
Other	—		—	%	18,068		5.6	%
Balance End of Period	$	55,170	100.0	%	$	71,491	100.0	%

The ACL decreased $16.3 million to $55.2 million, or 1.48%, of total portfolio loans at June 30, 2026 compared to $71.5 million, or 1.84%, of total portfolio loans at December 31, 2025. The decrease primarily reflects the release of reserves associated with the Loan Sale Transaction completed during the first quarter of 2026, which reduced the allowance allocated to the “Other” loan segment by $18.0 million. This decrease was partially offset by an increase in the commercial and industrial loan segment resulting from the downgrade of a $13.4 million commercial and industrial lending relationship to nonperforming status during the second quarter of 2026, for which a $3.1 million specific reserve was established.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

The following table summarizes the credit quality ratios and their components at the dates presented:


(Dollars in Thousands)	June 30, 2026			December 31, 2025
Allowance for Credit Losses to Total Portfolio Loans
Allowance for Credit Losses	$	55,170		$	71,491
Total Portfolio Loans	3,734,594			3,879,560
Allowance for Credit Losses to Total Portfolio Loans	1.48		%	1.84		%

Nonperforming Loans to Total Portfolio Loans
Nonperforming Loans	$	37,561		$	243,982
Total Portfolio Loans	3,734,594			3,879,560
Nonperforming Loans to Total Portfolio Loans	1.01		%	6.29		%

Allowance for Credit Losses to Nonperforming Loans
Allowance for Credit Losses	$	55,170		$	71,491
Nonperforming Loans	37,561			243,982
Allowance for Credit Losses to Nonperforming Loans	146.88		%	29.30		%

Net (Recoveries) / Charge-offs to Average Portfolio Loans
Net (Recoveries) / Charge-offs (annualized)1	$	(31,430)		$	472
Average Total Portfolio Loans	3,817,054			3,759,496
Net (Recoveries) / Charge-offs to Average Portfolio Loans	(0.82)		%	0.01		%

1The year-to-date net (recovery)/charge-offs (annualized) for June 30, 2026 includes the $15.0 million recovery (annualized) related to the Loan Sale Transaction.

The provision (recovery) for credit losses, which includes a provision (recovery) for losses on loans and a recovery on unfunded loan commitments, represents the amount necessary to maintain the ACL at a level that reflects management's estimate of expected credit losses in the loan portfolio as of the balance sheet date. During the three months ended June 30, 2026, the Company recognized a provision for credit losses on loans of $2.0 million and a recovery for unfunded loan commitments of $0.6 million. During the six months ended June 30, 2026, the Company recognized a recovery for credit losses on loans of $31.9 million and a recovery for unfunded loan commitments of $0.8 million, primarily reflecting the release of $18.0 million of previously established specific reserves and a $15.0 million recovery associated with the Loan Sale Transaction completed during the first quarter of 2026. As a result, the Company recognized a net recovery for credit losses during the six-month period ended June 30, 2026, contributing to a lower allowance for credit losses as a percentage of total portfolio loans at June 30, 2026.

The reserve for unfunded loan commitments is largely comprised of unfunded loan commitments related to real estate construction loans. There are three basic factors that influence the reserve rates associated with unfunded loan commitments for real estate construction loans. First, the reserve rate is extrapolated from the reserve rates calculated for certain commercial real estate funded loans within the ACL model. These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts and average portfolio life. Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in Item 8. contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 for additional information related to the ACL Policy and the discussion of these factors. Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain CRE loans. The proportion of these segments affects the weighting. Third, volume changes impact the total reserve calculation.

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 month periods ended June 30, 2025. As a percentage of average portfolio loans, net recoveries 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. The six month results for 2026 included a $15.0 million recovery recognized in connection with the first quarter 2026 Loan Sale Transaction, representing the recovery of the previously charged-off principal balance associated with the “Other” segment of the loan portfolio.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

The following table summarizes portfolio loans past due 30-89 days for the periods presented:


(Dollars in Thousands)	June 30, 2026		December 31, 2025		$ Change
Loans 30 to 89 Days Past Due
Commercial
Commercial Real Estate	$	—	$	3	$	(3)
Commercial & Industrial	90		159		(69)
Total Commercial Loans	90		162		(72)
Consumer
Residential Mortgages	2,337		1,899		438
Other Consumer	148		267		(119)
Total Consumer Loans	2,485		2,166		319
Construction	36		908		(872)
Other	—		—		—
Total Loans 30 to 89 Days Past Due	$	2,611	$	3,236	$	(625)

There were no portfolio loans past due more than 90 days and still accruing at June 30, 2026 or December 31, 2025. Loans past due 30 to 89 days and still accruing decreased by $0.6 million to $2.6 million at June 30, 2026, compared to December 31, 2025.

The following tables represent credit exposures by internally assigned risk ratings at the dates presented:


	June 30, 2026
(Dollars in Thousands)	Commercial Real Estate		Commercial & Industrial		Residential Mortgages		Other Consumer		Construction		Other		Total
Pass	$	2,121,252	$	248,879	$	811,353	$	25,082	$	470,891	$	—	$	3,677,457
Special Mention	548		7		87		—		696		—		1,338
Substandard	21,562		102		2,943		72		17,676		—		42,355
Doubtful	—		13,444		—		—		—		—		13,444

Total Portfolio Loans	$	2,143,362	$	262,432	$	814,383	$	25,154	$	489,263	$	—	$	3,734,594

Performing Loans	$	2,121,800	$	248,886	$	812,438	$	25,082	$	488,827	$	—	$	3,697,033
Nonaccrual Loans	21,562		13,546		1,945		72		436		—		37,561
Total Portfolio Loans	$	2,143,362	$	262,432	$	814,383	$	25,154	$	489,263	$	—	$	3,734,594


	December 31, 2025
(Dollars in Thousands)	Commercial Real Estate		Commercial & Industrial		Residential Mortgages		Other Consumer		Construction		Other		Total
Pass	$	2,079,579	$	230,899	$	816,315	$	28,391	$	459,071	$	3,135	$	3,617,390
Special Mention	10,874		9		89		—		700		—		11,672
Substandard	23,861		1,013		5,737		25		5,842		214,020		250,498


Total Portfolio Loans	$	2,114,314	$	231,921	$	822,141	$	28,416	$	465,613	$	217,155	$	3,879,560

Performing Loans	$	2,090,453	$	230,908	$	817,518	$	28,391	$	465,173	$	3,135	$	3,635,578
Nonaccrual Loans	23,861		1,013		4,623		25		440		214,020		243,982
Total Portfolio Loans	$	2,114,314	$	231,921	$	822,141	$	28,416	$	465,613	$	217,155	$	3,879,560

At June 30, 2026, the Company had $13.4 million of loans classified as doubtful, compared to none at December 31, 2025. The increase during the second quarter of 2026 was attributable to a change in the classification of a relationship from Substandard in May 2026 to Doubtful in June 2026. The relationship was transferred to nonaccrual status in June 2026. The borrower’s financial condition continued to deteriorate with the most recent results indicating inadequate working capital due to an exacerbated cash conversion cycle. The levels of special mention and substandard loans at June 30, 2026, compared to December 31, 2025, reflected a decrease of $10.3 million in special mention and a decrease of $208.1 million in substandard loans.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

Special mention loans decreased primarily due to an upgrade of a $10.8 million CRE office building loan that was moved to watch from special mention during the first quarter of 2026.

Substandard loans decreased $208.1 million during the six months ended June 30, 2026 compared to December 31, 2025, primarily reflecting the first quarter 2026 Loan Sale Transaction. At December 31, 2025, the “Other” segment had an aggregate balance of approximately $214.0 million, which was reduced to zero upon completion of the Loan Sale Transaction. Additional reductions included the payoff of a $5.4 million construction loan, the transfer of two residential mortgage loans totaling $2.9 million to OREO, and the sale of a commercial real estate property in receivership, which reduced the related substandard loan balance by $1.5 million. In addition, a commercial and industrial borrower relationship consisting of two loans totaling $0.9 million improved to a pass rating due to sustained payment performance. These improvements were partially offset by the downgrade of a $17.2 million construction loan to substandard during the first quarter of 2026. Overall these actions resulted in a significant reduction in substandard loans despite the migration of certain credits to substandard status during the period.

Refer to Note 5, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the Company’s ACL.

Deposits

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


(Dollars in Thousands)	June 30, 2026		December 31, 2025		$ Change		% Change
Noninterest-Bearing Demand	$	655,482	$	620,473	$	35,009	5.64	%
Interest-Bearing Demand	866,759		808,171		58,588		7.25	%
Money Market	510,125		553,964		(43,839)		(7.91)	%
Savings	318,774		326,182		(7,408)		(2.27)	%
Certificates of Deposit	1,846,416		1,902,099		(55,683)		(2.93)	%
Total Deposits	$	4,197,556	$	4,210,889	$	(13,333)	(0.32)	%

Deposits are the Company’s primary source of funding, and management believes its deposit base remains stable, with the ability to attract new customers while maintaining a diversified deposit mix. Total deposits decreased $13.3 million to $4.2 billion at June 30, 2026, compared to December 31, 2025. The decrease primarily reflected declines in CDs of $55.7 million, money market accounts of $43.8 million, and savings accounts of $7.4 million, partially offset by increases in interest-bearing demand deposits of $58.6 million and noninterest-bearing demand deposits of $35.0 million.

Noninterest-bearing demand deposits represented 15.6% of total deposits at June 30, 2026, compared to 14.7% at December 31, 2025, while CDs comprised 44.0% of total deposits at June 30, 2026, compared to 45.2% at December 31, 2025.

Based on the assumptions used in preparing the Company’s regulatory Call Reports, approximately 82.3% of total deposits were insured under standard FDIC insurance coverage limits at June 30, 2026, while approximately 17.7% were uninsured, compared to approximately 81.3% insured and 18.7% uninsured at December 31, 2025.

The following table presents additional information in relation to deposits at the dates presented:


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

Noninterest-Bearing Public Funds Deposits	$	38,481	$	33,220
Interest-Bearing Public Funds Deposits	142,362		137,600
Total Deposits not Covered by Deposit Insurance1	743,449		787,114
Certificates of Deposits not Covered by Deposit Insurance	300,132		310,723
Deposits for Certain Directors, Executive Officers and their Affiliates	1,980		3,207

1These deposits are presented on an estimated basis. This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

Maturities of CDs over $250,000, excluding brokered deposits, not covered by deposit insurance at June 30, 2026 are summarized as follows:


(Dollars in Thousands)	Amount		Percent
Three Months or Less	$	92,750	30.9	%
Over Three Months Through Twelve Months	167,428		55.8	%
Over Twelve Months Through Three Years	38,176		12.7	%
Over Three Years	1,778		0.6	%
Total	$	300,132	100.0	%

FHLB Borrowings and Federal Funds Purchased

Information pertaining to FHLB borrowings and federal funds purchased at the dates presented are summarized in the table below:


(Dollars in Thousands)	June 30, 2026			December 31, 2025
Balance at Period End
Federal Home Loan Bank Borrowings	$	—		$	178,500
Federal Funds Purchased	—			—
Average Balance during the Period
Federal Home Loan Bank Borrowings	$	79,575		$	110,944
Federal Funds Purchased	—			—
Average Interest Rate during the Period
Federal Home Loan Bank Borrowings	3.94		%	4.19		%
Federal Funds Purchased	—		%	—		%
Maximum Month-end Balance during the Period
Federal Home Loan Bank Borrowings	$	193,500		$	178,500
Federal Funds Purchased	—			—
Average Interest Rate at Period End
Federal Home Loan Bank Borrowings	—		%	3.89		%
Federal Funds Purchased	—		%	—		%

Borrowings represent an additional source of liquidity for the Company. FHLB borrowings decreased $178.5 million to zero at June 30, 2026, from $178.5 million at December 31, 2025, reflecting the repayment of borrowings utilizing proceeds from the Loan Sale Transaction completed during the first quarter of 2026. The Company had no overnight federal funds purchased outstanding at June 30, 2026 or December 31, 2025.

The level and composition of borrowed funds fluctuates over time based on a variety of factors, including market conditions, loan and deposit growth, investment securities activity, and capital considerations. Management actively monitors and manages borrowings to ensure they remain a reliable and cost-effective source of liquidity.

As a member of the Federal Home Loan Bank of Atlanta, the Company is required to purchase and maintain a specified level of FHLB capital stock based on asset size, outstanding borrowings, and participation in other FHLB programs. At June 30, 2026, the Company held $3.4 million of FHLB stock, compared to $11.7 million at December 31, 2025. The decrease in FHLB stock was attributable to the lower required level of stock holdings resulting from decreased FHLB borrowings.

Dividends recognized on FHLB stock totaled $0.1 million and $0.2 million for the three and six months ended June 30, 2026, respectively, compared to $0.1 million and $0.3 million for the same periods in 2025, respectively. The investment in FHLB stock is carried at cost and evaluated for impairment based on the ultimate recoverability of its par value.

FHLB stock is non-marketable and may be redeemed only at the discretion of the FHLB. Members do not purchase stock for capital appreciation purposes, as FHLB stock can only be purchased, redeemed, or transferred at par value. Rather, ownership of FHLB stock provides members with access to the funding, liquidity, and other financial services offered by the FHLB.

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

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

Liquidity and Capital Resources

Liquidity

Liquidity refers to the Company’s ability to meet cash and collateral obligations in a timely manner and at a reasonable cost, including funding deposit withdrawals and borrower credit demands. The Company’s Board of Directors has delegated oversight of liquidity risk management to ALCO, which is responsible for maintaining sufficient liquidity at a reasonable cost under both normal operating conditions and potential stress scenarios.

ALCO monitors and manages liquidity risk by reviewing cash flow projections, performing balance sheet stress testing, and maintaining a comprehensive contingency funding plan. This plan includes defined liquidity metrics and graduated risk tolerance levels, which are reviewed monthly. If liquidity levels reach thresholds defined as high risk, enhanced monitoring and the implementation of specific predefined action plans to reduce risk are required.

The Company’s primary source of liquidity is its stable customer deposit base. Management believes it can retain existing deposits and attract new deposits, limiting reliance on more volatile funding sources. In addition to deposits, the Company maintains access to multiple supplemental funding sources as part of its normal liquidity management strategy. At 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, of which the Company had the capacity to borrow an additional $879.5 million. During the six months ended June 30, 2026, the Company’s previously disclosed $45.0 million secured line of credit with a correspondent financial institution was decreased 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.

Additional liquidity can be provided by $500.6 million of unpledged available-for-sale investment securities at fair value at June 30, 2026. Refer to the Liquidity Sources table below for further detail regarding FHLB borrowing capacity and correspondent bank lines of credit.

As of June 30, 2026, approximately 82.3% of total deposits were insured under standard FDIC coverage limits, while 17.7% were uninsured. Management actively monitors industry and market conditions that could affect liquidity and evaluates alternative funding strategies as needed. In addition, the Company closely monitors the potential impacts of interest rate movements and market conditions on the fair value of its securities portfolio, particularly in light of evolving banking industry dynamics that may influence liquidity availability or market expectations.

Maintaining a cushion of highly liquid assets or assets that can be converted to cash quickly, with little or no loss in value, is a key component of the Company’s liquidity risk management framework. ALCO policy establishes graduated risk tolerance levels for the ratio of highly liquid assets to total assets. At June 30, 2026, the Bank had $736.5 million of highly liquid assets, consisting of $235.4 million in excess reserves at the Federal Reserve and interest-bearing deposits at other financial institutions, $0.5 million of loans held-for-sale, and $500.6 million of unpledged securities. This resulted in highly liquid assets to total assets ratio of 15.3%. Total available liquidity relative to uninsured deposits was 237.9% at June 30, 2026.

While management believes current liquidity sources are sufficient, an extended economic downturn or significant market disruption could increase reliance on more volatile or higher cost funding sources.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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


(Dollars in Thousands)	June 30, 2026		December 31, 2025
Cash and Due From Banks	$	41,101	$	36,935
Interest Bearing Deposits in Other Financial Institutions	167,427		12,134
Federal Reserve Bank Excess Reserves	68,007		56,094
Unpledged Investment Securities	500,568		402,220
Excess Pledged Securities	7,066		33,443
FHLB Borrowing Availability	879,466		609,392
Collateralized Lines of Credit	—		45,000
Unsecured Lines of Credit Availability	105,000		30,000
Total Liquidity Sources	$	1,768,635	$	1,225,218

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


(Dollars in Thousands)	June 30, 2026			December 31, 2025
Total Liquidity Sources	$	1,768,635		$	1,225,218
Highly Liquid Assets1 to Total Assets	15.3		%	9.7		%
Highly Liquid Assets1 to Uninsured Deposits	99.1		%	59.8		%
Total Available Liquidity to Uninsured Deposits	237.9		%	155.7		%

1 Highly liquid assets consist of $235.4 million in Federal Reserve Board excess reserves and interest-bearing deposits in other financial institutions, loans held-for-sale of $0.5 million and unpledged securities of $500.6 million.

Capital Resources

The Company reviews, on an ongoing basis, its and the Bank’s capital levels and opportunities to effectively deploy the Company’s capital or return capital to shareholders through stock repurchases or potential dividends. The following table summarizes the actual risk-based capital amounts and ratios for the Company and the Bank at the dates presented:


(Dollars in Thousands)	Minimum Required Basel III		Well Capitalized 1		June 30, 2026				December 31, 2025
					Amount		Ratio		Amount		Ratio
Carter Bankshares, Inc.
Leverage Ratio	4.00	%	NA		$	570,098	11.65	%	$	459,735	9.43	%
Common Equity Tier 1 (to Risk-weighted Assets)	7.00	%	NA		570,098		14.26	%	459,735		10.70	%
Tier 1 Capital (to Risk-weighted Assets)	8.50	%	NA		570,098		14.26	%	459,735		10.70	%
Total Capital (to Risk-weighted Assets)	10.50	%	NA		620,164		15.51	%	513,722		11.95	%

Carter Bank & Trust
Leverage Ratio	4.00	%	5.00	%	$	572,804	11.73	%	$	437,670	9.01	%
Common Equity Tier 1 (to Risk-weighted Assets)	7.00	%	6.50	%	572,804		14.34	%	437,670		10.23	%
Tier 1 Capital (to Risk-weighted Assets)	8.50	%	8.00	%	572,804		14.34	%	437,670		10.23	%
Total Capital (to Risk-weighted Assets)	10.50	%	10.00	%	622,810		15.60	%	491,396		11.49	%

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

Total capital was $539.1 million at June 30, 2026, an increase of $119.4 million compared to December 31, 2025. The increase was primarily driven by net income of $114.7 million, a $9.2 million improvement in accumulated other comprehensive loss, reflecting favorable changes in the fair value of the available-for-sale portfolio and a $0.6 million increase related to restricted stock activity during the six months ended June 30, 2026. These increases were partially offset by $2.9 million of common stock repurchases and $2.2 million of dividends declared.

The Company and the Bank remained well capitalized at June 30, 2026, exceeding all regulatory capital requirements. The capital ratios were favorably impacted by the Loan Sale Transaction. The key capital ratios included a leverage ratio of 11.65%,

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

a Common Equity Tier 1 ratio of 14.26%, a Tier 1 ratio of 14.26%, and a Total risk-based capital ratio of 15.51%, all well above regulatory well-capitalized thresholds. Management believes the Company maintains a strong capital position and has the capacity to raise additional capital if needed.

The Company and the Bank are subject to various capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements may result in mandatory and, in certain cases, discretionary actions by regulators that could have a direct material effect on the Company’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital standards that are based on quantitative measures of assets, liabilities and certain off-balance sheet items calculated in accordance with regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators regarding components, risk weightings and other factors. Prompt corrective action provisions do not apply to bank holding companies.

Regulatory capital guidelines require the maintenance of minimum capital amounts and ratios. Under Basel III capital rules, the Company and the Bank are required to maintain minimum ratios of common equity Tier 1 capital, Tier 1 capital and total capital, as well as a capital conservation buffer, which effectively increases the minimum capital levels required. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions that do not maintain capital ratios above the required minimums plus the applicable buffer are subject to restrictions on dividends, equity repurchases and discretionary compensation.

The Basel III capital framework also provides for a “countercyclical capital buffer” applicable to certain covered institutions. This buffer is not currently applicable to the Company or the Bank.

Banking organizations with less than $15 billion in total assets are permitted to make a one-time election to exclude accumulated other comprehensive loss from regulatory capital. The Company elected to retain this treatment, which reduces volatility in regulatory capital levels.

Management believes that, as of June 30, 2026, the Company and the Bank met all applicable capital adequacy requirements, including the capital conservation buffer.

Prompt corrective action regulations establish five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. These classifications are not intended to represent overall financial condition. Institutions that are adequately capitalized require regulatory approval to accept brokered deposits, while undercapitalized institutions are subject to restrictions on capital distributions, asset growth, and expansion and are required to submit capital restoration plans.

As of June 30, 2026 and December 31, 2025, the most recent regulatory notification classified the Company and the Bank as well-capitalized under the prompt corrective action framework. Management is not aware of any conditions or events since that notification that management believes would have changed the Company and the Bank’s capital category.

Stock Repurchase Plan

On February 2, 2026, the Company announced that its Board authorized a repurchase program to purchase up to $10.0 million of the Company’s common stock in the aggregate over a period of twelve months beginning February 11, 2026, the date of receipt of non-objection from the Federal Reserve Bank of Richmond. 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

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

and applicable legal and regulatory requirements. The repurchase program may be modified or terminated by the Board at any time. The repurchase program does not obligate the Company to purchase any particular number of shares.

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.

On May 20, 2025, the Company announced that its Board authorized a repurchase program to purchase up to $20.0 million of the Company’s common stock in the aggregate through May 14, 2026. The program authorized the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended.

The 2025 Program was fully utilized on October 30, 2025.

Contractual Obligations

As of June 30, 2026, there have been no material changes to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 ( the “2025 Annual Report”), except that the Company repaid its outstanding FHLB advances during the six months ended June 30, 2026, reducing its contractual debt obligations.

Off-Balance Sheet Arrangements

As of June 30, 2026, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Off-Balance Sheet Arrangements" in the Company’s 2025 Annual Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk is the risk that changes in market factors, including interest rates, foreign exchange rates, commodity prices, or equity prices, could adversely affect the Company’s earnings or capital. For the Company, market risk arises primarily from interest rate risk associated with its lending, investment, and deposit-taking activities.

Interest rate risk results from differences in the timing of the repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected cash flows or maturities of assets and liabilities resulting from embedded options, such as borrowers’ ability to prepay loans or depositors’ ability to withdraw certificates of deposit before maturity (option risk), changes in the shape and slope of the yield curve (yield curve risk), and changes in the relationships between different market interest rate indices, such as U.S. Treasuries and other benchmark rates (basis risk).

Changes in interest rates affect earnings primarily through their impact on net interest income and other interest-sensitive revenues and expenses. Interest rate changes also affect capital by altering the present value of expected future cash flows. While assuming interest rate risk is an inherent part of banking and an important source of profitability and shareholder value, excessive exposure can adversely affect earnings, capital, liquidity, and overall financial condition.

The Company’s ALCO is responsible for monitoring the Company’s interest rate risk position, establishing policies and limits to manage exposure, and implementing strategies designed to optimize the balance between asset yields and funding costs within established policy limits. The Board of Directors’ Investment / Interest Rate Risk Committee provides oversight by reviewing and approving the policies established by ALCO.

Earnings Simulation Modeling

The ALCO uses an asset/liability management (“ALM”) model to estimate the sensitivity of net interest income to changes in market interest rates. The model projects earnings under a variety of interest rate scenarios using current and forecasted balance sheet volumes, contractual repricing characteristics, and key behavioral assumptions. Significant assumptions include expected loan growth, loan prepayments, deposit growth and pricing, non-maturity deposit betas and decay rates, and projected market interest rates and investment yields.

The ALM model assumes that maturing, called, and prepaid securities are reinvested in similar investment instruments and that projected balance sheet assumptions remain consistent throughout the forecast period. Because the model relies on numerous assumptions, actual results may differ materially from simulated results. In addition, the model does not reflect potential management actions that could be taken in response to changing market conditions. ALCO reviews model assumptions at least quarterly and performs periodic sensitivity analyses of key assumptions, including deposit betas, deposit decay rates, and loan prepayment speeds, to assess their impact on projected results.

The ALM model evaluates the Company’s exposure to interest rate risk using multiple interest rate scenarios, including instantaneous parallel rate shocks of +/- 100, 200, 300, and 400 basis points, as well as selected non-parallel yield curve scenarios. The primary measure monitored by ALCO is the estimated percentage change in net interest income over a twelve-month forecast horizon.

The following table presents the estimated percentage change in pretax net interest income over the next twelve months under various instantaneous parallel interest rate shocks at June 30, 2026 and December 31, 2025.


	June 30, 2026	December 31, 2025
Change in Interest Rate (basis points)	% Change in Pretax Net Interest Income	% Change in Pretax Net Interest Income
400	4.1%	(3.9)%
300	3.6%	(2.2)%
200	2.8%	(1.0)%
100	1.7%	(0.3)%
-100	0.3%	3.1%
-200	1.0%	6.2%
-300	2.3%	6.1%
-400	—%	4.8%

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (continued)

The June 30, 2026 earnings simulation indicates that the Company remains modestly asset sensitive. Under rising rate scenarios, projected net interest income increases modestly due primarily to the repricing characteristics of earning assets and funding sources, the current balance sheet composition, and asset and liability maturity structures. Under moderate declining rate scenarios, projected net interest income also improves modestly, reflecting the Company’s deposit pricing assumptions and balance sheet positioning.

The Company’s interest rate risk profile at June 30, 2026 reflects several factors, including:

•higher than market rate unfunded loan commitments originated during 2024 and early 2025 that are expected to fund over the next twelve months;

•a shorter duration time deposit portfolio resulting from promotional deposit campaigns during the recent inverted yield curve environment;

•deposit pricing assumptions that incorporate more responsive non-maturity deposit betas in declining rate environments based on observed customer behavior during the most recent interest rate cycle; and

•changes in the balance sheet following the Company’s recent strategic transactions, including the repayment of all outstanding FHLB borrowings and the investment of remaining excess liquidity in reserve balances at the Federal Reserve, which earn the Interest Rate on Reserve Balances (IORB) rate of 3.65%.

Economic Value of Equity Modeling

Economic value of equity (“EVE”) simulation is used to estimate the sensitivity of the fair value of the Company’s assets and liabilities to changes in interest rates. The ALM calculates EVE using discounted cash flow (“DCF”) analysis, with economic value defined as the present value of projected asset cash flows less the present value of projected liability cash flows. Changes in EVE under various interest rate scenarios provide an indication of the longer-term impact of interest rate movements on the Company’s capital position.

The EVE model incorporates the same key assumptions used in the earnings simulation model, including assumptions related to loan prepayments, deposit behavior, and balance sheet growth. The analysis applies instantaneous parallel interest rate shocks to the current balance sheet and measures the resulting change in EVE. The Company’s policy guidelines establish limits for changes in EVE under instantaneous parallel interest rate shocks of +/- 100, 200, 300, and 400 basis points, as well as selected non-parallel yield curve scenarios.

Results for the EVE analysis are primarily influenced by the shape of the yield curve, option-adjusted discount spreads applied to projected cash flows, and assumptions regarding the expected lives of interest-earning assets and interest-bearing liabilities. Because the analysis is based on numerous assumptions, actual results may differ from model outcomes as market conditions, customer behavior, and balance sheet composition change over time.

The following table presents the estimated percentage change in EVE under various instantaneous interest rate shock scenarios at the dates indicated. At both June 30, 2026 and December 31, 2025, modeled results remained within management’s established policy limits.


	June 30, 2026		December 31, 2025
Change in Interest Rate (basis points)	% Change in Economic Value of Equity		% Change in Economic Value of Equity
400	(18.6)	%	(21.3)	%
300	(12.4)	%	(14.1)	%
200	(7.0)	%	(7.9)	%
100	(2.7)	%	(3.1)	%
-100	1.8	%	2.0	%
-200	2.9	%	2.6	%
-300	0.9	%	(0.4)	%
-400	(3.6)	%	(9.9)	%

ITEM 4. CONTROLS AND PROCEDURES

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Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), who serve as the Company’s Principal Executive Officer and Principal Financial Officer, respectively, management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2026. In designing and evaluating these controls and procedures, management recognizes that any system of controls, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the U.S. Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective in all material respects as of June 30, 2026.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2026 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors faced by the Company from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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.

The 2025 Program was fully utilized on October 30, 2025.

The following table provides information regarding the Company’s purchases of its common stock during the quarter ended June 30, 2026:


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased1	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum number (or approximate dollar value) of Shares that may yet be purchased under the plans or programs2
04/01/2026 - 04/30/2026	2,477	$24.24	—	$10,000,000
05/01/2026 - 05/31/2026	104,480	26.46	98,601	7,391,586
06/01/2026 - 06/30/2026	10,000	26.97	10,000	7,121,855
Total	116,957	$26.46	108,601

1 Reflects 8,356 shares that were withheld upon vesting of restricted shares granted to associates of the Company in order to satisfy tax withholding obligations.

2 The number shown represents, as of the end of each period, the approximate dollar value of Common Stock shares that may yet be purchased under the 2026 Program, which was announced on February 2, 2026 and authorizes the purchase of up to $10.0 million of the Company’s common stock in the aggregate through February 11, 2027. The shares may be purchased, from time-to-time, depending on a variety of factors.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

During the three months ended June 30, 2026, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 6. EXHIBITS.

Exhibits:


3.1			Articles of Incorporation of Carter Bankshares, Inc., effective October 7, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020)

3.2			Bylaws of Carter Bankshares, Inc., as adopted October 28, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020)

10.1			Second Amended and Restated Employment Agreement, effective June 18, 2026, by and between Carter Bankshares Inc., Carter Bank & Trust and Litz Van Dyke (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2026)

10.2			Second Amended and Restated Employment Agreement, effective June 18, 2026, by and between Carter Bankshares Inc., Carter Bank & Trust and Bradford N. Langs (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2026)

10.3			Second Amended and Restated Employment Agreement, effective June 18, 2026, by and between Carter Bankshares Inc., Carter Bank & Trust and Wendy S. Bell (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2026)

10.4			Second Amended and Restated Employment Agreement, effective June 18, 2026, by and between Carter Bankshares Inc., Carter Bank & Trust and Matthew M. Speare (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2026)

10.5			Amended and Restated Change of Control Severance Agreement, effective June 18, 2026, by and between Carter Bankshares Inc., Carter Bank & Trust and Tony E. Kallsen (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2026)

10.6			Second Amended and Restated Employment Agreement, effective June 18, 2026, by and between Carter Bankshares, Inc., Carter Bank & Trust and Jane Ann Davis (filed herewith)

10.7			Amended and Restated Change of Control Severance Agreement, effective June 18, 2026, by and between Carter Bankshares, Inc., Carter Bank & Trust and Arthur Loran Adams (filed herewith)

31.1			Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith)

31.2			Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith)

32			Certification by principal executive officer and principal financial officer pursuant to 18 U.S.C. §1350 (furnished herewith)

101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH			Inline XBRL Taxonomy Extension Schema

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101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			CARTER BANKSHARES, INC.
			(Registrant)

			By:			/s/ Litz H. Van Dyke
			Name:			Litz H. Van Dyke
			Title:			Chief Executive Officer (Principal Executive Officer)
			Date:			August 6, 2026

			By:			/s/ Wendy S. Bell
			Name:			Wendy S. Bell
			Title:			Chief Financial Officer (Principal Financial and Accounting Officer)
			Date:			August 6, 2026