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What changed in Carter Bankshares, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Carter Bankshares, Inc.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+759 added−610 removedSource: 10-K (2026-03-05) vs 10-K (2025-03-07)

Top changes in Carter Bankshares, Inc.'s 2025 10-K

759 paragraphs added · 610 removed · 327 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

63 edited+185 added−63 removed4 unchanged
Biggest changeWhile the Company generally seeks to reduce or resolve problem assets through, among other methods, loan workouts, restructurings, or sales of the loans or underlying collateral, decreases in the value of the underlying collateral, decreases in the respective borrowers’ financial condition, profitability, or operating performance, or efforts by the respective borrowers’ to delay or avoid legal processes may inhibit such reduction or resolution efforts which, in turn, could adversely impact the Company’s business, financial condition and results of operations.
Biggest changeThe Company seeks to reduce or resolve problem assets through a variety of methods, including loan workouts, restructurings, or the sale of loans or underlying collateral. However, declines in collateral values or deterioration in a borrower’s financial condition, operating performance, or profitability, as well as actions by borrowers to delay or avoid legal processes, may impede these resolution efforts.
Regulations adopted under the BSA impose on financial institutions customer due diligence requirements, and the federal banking regulators expect that customer due diligence programs will be integrated within a financial institution’s broader BSA and anti-money laundering compliance program. The Office of Foreign Assets Control (“OFAC”), which is a division of the U.S.
Regulations adopted under the BSA impose on financial institutions customer due diligence requirements, and the federal banking agencies expect that customer due diligence programs will be integrated within a financial institution’s broader BSA and anti-money laundering compliance program. In addition, the Office of Foreign Assets Control (“OFAC”), a division of the U.S.
Since the Company placed these loans on nonaccrual status, the Company has been unable to accrue approximately $65.1 million of interest income, in the aggregate through December 31, 2024. The Company’s level of credit risk is elevated due to relationship exposure to the Company’s largest credit relationship.
Since the Company placed these loans on nonaccrual status, the Company has been unable to accrue approximately $91.2 million of interest income in the aggregate through December 31, 2025. The Company’s level of credit risk is elevated due to relationship exposure to the Company’s largest credit relationship.
Effect of Governmental Monetary Policies As with other financial institutions, the earnings of the Company and the Bank are affected by general economic conditions as well as by the monetary policies of the FRB.
Effect of Governmental Monetary Policies As with other financial institutions, the earnings and financial condition of the Company and the Bank are influenced by general economic conditions and by the monetary policies of the FRB.
The CTA imposes additional reporting requirements on entities not previously subject to such beneficial ownership disclosure regulations and also contains exemptions for several different types of entities, including among others: (i) certain banks, bank holding companies, and credit unions; (ii) money transmitting businesses registered with FinCEN; and (iii) certain insurance companies.
The CTA imposes additional reporting requirements on entities not previously subject to such beneficial ownership disclosure regulations and also contains exemptions for several different types of entities, including among others certain banks, bank holding companies, credit unions, and insurance companies.
ITEM 1. BUSINESS - (continued) The Company is also subject to various laws and regulations that attempt to combat money laundering and terrorist financing. The Bank Secrecy Act (the “BSA”) requires all financial institutions to, among other things, create a system of controls designed to prevent money laundering and the financing of terrorism, and imposes recordkeeping and reporting requirements.
The Company and the Bank are also subject to laws and regulations designed to combat money laundering and terrorist financing. The Bank Secrecy Act (the “BSA”) requires financial institutions to, among other things, create a system of controls designed to prevent money laundering and the financing of terrorism, and imposes recordkeeping and reporting requirements.
Copies of documents may also be obtained free of charge by directing a request by telephone to (276) 656-1776 or mail to Investor Relations, Carter Bankshares, Inc., 1300 Kings Mountain Road, Martinsville, Virginia 24112. 19 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A. RISK FACTORS Investments in the Company’s common stock involves risks.
In addition, copies of these materials may be obtained free of charge by contacting Investor Relations by telephone at (276) 656-1776 or by mail at Carter Bankshares, Inc., 1300 Kings Mountain Road, Martinsville, Virginia 24112. 21 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A. RISK FACTORS Investments in the Company’s common stock involve risks.
The FRB exerts a substantial influence on interest rates and credit conditions, primarily through establishing target rates for federal funds, open market operations in U.S. Government securities, varying the discount rate on member bank borrowings and setting cash reserve requirements against deposits.
The FRB significantly influences interest rates and credit conditions primarily through setting target ranges for the federal funds rate, conducting open market operations in U.S. government securities, establishing the discount rate for member bank borrowing, and imposing reserve requirements on deposits.
During the second quarter of 2023, the Company placed these loans on nonaccrual status due to loan maturities and failure to pay in full. This credit relationship comprises 96.9% of the Company’s 20 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
All such loans are classified in the Other segment of the Company’s loan portfolio. During the second quarter of 2023, the Company placed these loans on nonaccrual status due to loan maturities and failure to pay in full. 22 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
These factors could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, and capital position, and could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K, in which case, the trading price of the Company’s common stock could decline.
The risks described below could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, and capital position, and could cause actual results to differ materially from historical results or from those anticipated in the forward-looking statements contained in this Annual Report on Form 10-K.
The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on its financial condition or results of operations. A change in statutes, regulations or regulatory policies applicable to the Company and the Bank could have a material effect on our business.
The Company cannot predict whether any such initiatives will be adopted or, if adopted, the nature or extent of their impact. Changes in statutes, regulations, or regulatory policies applicable to the Company and the Bank could have a material effect on the Company’s business, financial condition, or results of operations.
Where You Can Find More Information The Company files quarterly, annual and periodic reports, proxy statements and insider filings with the SEC. The Company’s SEC filings are available to the public over the Internet at the SEC’s web site at http://www.sec.gov. The Company’s SEC filings also are available through our website, www.CBTCares.com.
Where You Can Find More Information The Company files annual, quarterly, and current reports, proxy statements, and other information, including insider filings, with the SEC. The Company’s filings are available to the public at no cost on the SEC’s website at http://www.sec.gov.
Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.
Reportable incidents generally include those that have materially affected, or are reasonably likely to materially affect, the viability of operations, the ability to deliver banking products and services, or the stability of the financial system.
These rules require a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber-incident has occurred.
The federal banking agencies adopted rules to enhance the timely reporting of cybersecurity incidents that may affect the U.S. banking system. These rules require a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after determining that a reportable computer security incident has occurred.
Changes in interest rates could cause the value of our investment securities to decline. We hold available-for-sale investment securities, which are carried at fair value, the majority of which are high-quality, liquid fixed income securities. The determination of fair value for certain of these securities requires significant judgment of management.
Changes in market interest rates and other market conditions could cause the fair value of our investment securities to decline. The Company holds available-for-sale investment securities that are carried at fair value, the majority of which consist of high-quality, liquid, fixed income instruments. The fair value for certain investment securities is determined using valuation techniques that require significant management judgment.
Risks Related to Market Conditions, Interest Rates and Investments The Company’s business is subject to interest rate risk and fluctuations in interest rates may adversely affect its earnings and capital levels. The majority of our assets are monetary in nature and, as a result, we are subject to significant risk from changes in interest rates.
The Company’s business is subject to interest rate risk, and fluctuations in market interest rates may adversely affect its earnings, income, cash flow, capital levels, credit quality and financial condition. The majority of the Company’s assets and liabilities are monetary in nature, which exposes it to significant risks arising from changes in interest rates.
The Company believes that its financial condition and its operations are not significantly affected by the Volcker Rule, amendments thereto, or its implementing regulations.
The Company 20 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) believes that its financial condition and operations are not affected by the Volcker Rule, amendments thereto, or its implementing regulations.
RISK FACTORS - (continued) nonperforming assets and 97.2% of the Company’s nonperforming loans and 7.0% of total portfolio loans at December 31, 2024. The Company believes it is well secured based on the net carrying value of the credit relationship and it has appropriately reserved for expected credit losses with respect to all such loans based on information currently available.
The Company believes it is well secured based on the net carrying value of the credit relationship and it has appropriately reserved for expected credit losses with respect to all such loans based on information currently available. The Company has agreed on a path of curtailment and payoff of such loans.
Corporate Transparency Act On January 1, 2021, as part of the 2021 National Defense Authorization Act, Congress enacted the Corporate Transparency Act (“CTA”), which requires the Financial Crimes Enforcement Network (“FinCEN”) to issue regulations implementing reporting requirements for “reporting companies” (as defined in the CTA) to disclose beneficial ownership interests of certain U.S. and foreign entities by January 1, 2022.
Corporate Transparency Act The Corporate Transparency Act (“CTA”) was enacted as part of the 2021 National Defense Authorization Act and directed the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) to establish a beneficial ownership information reporting regime for certain U.S. and foreign entities by January 1, 2022.
In addition, the rules require a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. The rule became effective on May 1, 2022.
A bank service provider must also notify affected banking organization customers as soon as possible upon determining that it has experienced a computer-security incident that has materially affected, or is reasonably likely to materially affect, such customers for a period of four or more hours.
Risks Related to Our Operations, Cybersecurity and Technology A failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt the Company’s businesses, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
Risks Related to the Company’s Operations, Cybersecurity and Technology A failure, disruption, or breach of our operational, cybersecurity, or information technology systems, or those of third-party service providers, could disrupt the Company’s business and adversely affect our results of operations, liquidity, financial condition, and reputation.
These and other changes in the general level of market interest rates may affect net yield on interest-earning assets, loan origination volume, loan portfolios, and funding costs which impact our overall results.
Changes in market interest rates may also affect the net yield on interest-earning assets, loan origination volumes, the composition and performance of the Company’s loan and securities portfolios, and its overall funding costs, each of which may adversely impact the Company’s results of operations and financial condition.
In June 2019, the federal banking agencies issued a final rule to permit insured depository institutions with total assets of less than $5 billion that do not engage in certain complex or international activities to file the most streamlined version of the quarterly call report, and to reduce data reportable on certain streamlined call report submissions.
In June 2019, the federal banking agencies adopted a final rule permitting insured depository institutions with less than $5 billion in total assets and limited complexity to file the most streamlined version of the quarterly Call Report and reducing the amount of data required to be reported on eligible filings.
The Company’s policy is to place loans in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms.
As of December 31, 2025, nonperforming loans (“NPLs”) totaled $244.0 million, representing 6.29%, of the Company’s loan portfolio. Loans are generally placed on nonaccrual status when the collection of principal or interest is doubtful or when interest or principal payments are 90 days or more past due based on contractual terms.
FDIC expense has increased significantly due to the deterioration in asset quality as a direct result of one large nonperforming loan relationship, which is a component used to determine the assessment.
The Company’s FDIC insurance assessment expense has increased significantly as a result of deterioration in asset quality, driven primarily by a single large nonperforming loan relationship. Asset quality is a key component in determining the applicable assessment rate.
The Company is closely monitoring all developments that may impact collateral values or potential recoveries on its nonperforming loans, including claims that may be asserted by other purported creditors.
However, the Company cannot give any assurance as to the timing or amount of future payments or collections on such loans or that the Company will ultimately collect all amounts contractually due. The Company is closely monitoring all developments that may impact collateral values or potential recoveries on its NPLs, including claims that may be asserted by other purported creditors.
On September 29, 2022, FinCEN issued a final rule to implement the beneficial ownership reporting requirements of the CTA, which became effective January 1, 2024, and would have required reporting of beneficial ownership for entities that were formed or first registered prior to 2024 by January 1, 2025.
The rule would have required reporting of beneficial ownership for entities that were formed or first registered prior to 2024 by January 1, 2025. In March 2025, FinCEN issued an interim final rule removing the 19 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
The Company and the Bank continue to monitor regulatory developments related to the CTA, including future rule makings, and will continue to assess the ultimate impact of the CTA on the Company and the Bank. We cannot currently predict the nature and timing of future developments related to the CTA.
The Company and the Bank continue to monitor legal, regulatory and supervisory developments related to the CTA and FinCEN’s implementing regulations and will assess the ultimate impact, if any, on their operations and compliance obligations. At this point, the Company cannot predict the nature and timing of future developments related to the CTA.
The EGRRCPA and final rules adopted to implement the EGRRCPA exempt all banks with less than $10 billion in assets (including their holding companies and affiliates) from the Volcker Rule, provided that the institution has total trading assets and liabilities of 5% or less of total assets, subject to certain limited exceptions.
The EGRRCPA and related implementing regulations provide an exemption from the Volcker Rule for banking organizations with less than $10 billion in total assets, including their holding companies and affiliates, provided that the institution’s total trading assets and liabilities do not exceed five percent of total assets, subject to certain limited exceptions.
Risks Related to Credit Nonperforming assets can take significant time to resolve and may adversely affect the Company’s results of operations and financial condition, and could result in further losses in the future. As of December 31, 2024, our nonperforming loans totaled $259.3 million, or 7.15%, of the Company’s loan portfolio.
Any such events could adversely affect the trading price of the Company’s common stock. Risks Related to Credit Nonperforming assets can take significant time to resolve and may adversely affect the Company’s results of operations and financial condition, and could result in additional losses in future periods.
In addition to the other information set forth in this Annual Report on Form 10-K, including the information addressed above under “Important Note Regarding Forward-Looking Statements,” investors in the Company’s common stock should carefully consider the risk factors discussed below.
In addition to the other information included in this Annual Report on Form 10-K, including the discussion under “Important Note Regarding Forward-Looking Statements,” investors should carefully consider the risks described below. These risk factors highlight those risks that the Company believes are material; however, they do not necessarily include all risks the Company may face.
Changes in interest rates influence the origination of loans, the prepayment of loans, the fair value of existing assets and liabilities, the purchase of investments, the retention and generation of deposits, the rates received on loans and investment securities, and the rates paid on deposits or other sources of funding.
Interest rate movements also influence the demand for and origination of loans, the timing of loan prepayments, the fair value of our assets and liabilities, investment activity, deposit retention and growth, the yields earned on loans and investment securities, and the rates paid on deposits or other funding sources.
The Company’s CRE loan portfolio is concentrated predominantly in North Carolina, Virginia, South Carolina, West Virginia and Georgia within the retail/restaurant, warehouse, hospitality, multifamily, and office sectors. As a result of this concentration of the Company’s loan portfolio, it may be more sensitive, as compared to more diversified institutions, to future disruptions in and deterioration of this market.
The Company’s CRE loan portfolio is concentrated primarily in North Carolina, Virginia, South Carolina, West Virginia and Georgia, with significant exposure to the retail/restaurant, warehouse, hospitality, multifamily, and office sectors.
Call Reports and Examination Cycle All institutions, regardless of size, submit a quarterly call report that includes data used by federal banking agencies to monitor the condition, performance, and risk profile of individual institutions and the industry as a whole. The EGRRCPA contained provisions expanding the number of regulated institutions eligible to use streamlined call report forms.
Call Reports All insured depository institutions, regardless of size, are required to file quarterly Reports of Condition and Income (“Call Reports”) that provide detailed financial and operational information and are used by federal banking agencies to monitor the condition, performance, and risk profile of individual institutions and the banking industry as a whole.
The value of the Company's collateral could be impaired by changes in demand, rental rates and capitalization rates and could be insufficient to recover outstanding principal and interest. As a result, the Company’s profitability and financial condition could be negatively impacted by an adverse change in the real estate market.
The value of this collateral may be adversely affected by changes in market demand, rental rates, capitalization rates, interest rates, or other economic factors, and may be insufficient to fully recover outstanding principal and accrued interest. As a result, declines in real estate values could lead to increased credit losses, higher provisions for credit losses, and reduced profitability.
Future Regulation From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or to substantially change the financial institution regulatory system.
Future Regulation From time to time, legislative, regulatory, and policy initiatives are proposed by Congress, state legislatures, and federal and state regulatory agencies that could affect the powers, activities, and oversight of bank holding companies and depository institutions.
The Company relies on independent appraisals to determine the value of the real estate which secures a significant portion of our loans, and the values indicated by such appraisals may not be realizable if foreclosure on such loans is forced. A significant portion of the Company’s loan portfolio consists of loans secured by real estate.
A significant portion of the Company’s loan portfolio is secured by real estate, and the Company relies on independent third party appraisers to provide professional estimates of the value of such collateral.
A severe downturn in real estate could affect demand for leases, capitalization rates and property valuations, which could adversely affect our financial condition and results of operations. Our allowance for credit losses may be insufficient. The measure of our allowance for credit losses (“ACL”) is dependent on the interpretation and application of the Current Expected Credit Losses (“CECL”) methodology.
The Company’s allowance for credit losses may be insufficient to absorb expected losses in its loan portfolio, which may adversely affect its business, financial condition and results of operations. The adequacy of the Company’s allowance for credit losses (“ACL”) depends on the effectiveness of management’s estimation processes and the interpretation and application of the Current Expected Credit Losses (“CECL”) methodology.
The Company’s nonperforming assets adversely affect its business, financial condition and results of operations in various ways.
As a result, nonperforming assets may persist for extended periods and could continue to adversely affect the Company’s business, financial condition and results of operations. The Company’s nonperforming assets (consisting of NPLs and other real estate owned, or “OREO”) adversely affect its business, financial condition and result of operations in various ways.
These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial products and services.
Cybersecurity The federal banking agencies have adopted guidelines and supervisory expectations requiring financial institutions to establish and maintain information security and cybersecurity programs under the oversight of their boards of directors. These guidelines and related regulatory materials emphasize risk management and processes related to information technology and the use of third parties in the provision of financial products and services.
The final rules did not have a material impact on the Company or the Bank’s operations. Stress Testing The federal banking agencies have implemented stress-testing requirements for certain large or risky financial institutions, including bank holding companies and state-chartered banks.
With increased focus on cybersecurity, the Company continues to monitor legislative, regulatory and supervisory developments related thereto. Stress Testing The federal banking agencies have established stress testing requirements for certain large or higher risk financial institutions, including bank holding companies and state-chartered banks. These requirements do not apply to the Company or the Bank.
As of December 31, 2024, the Company’s largest credit relationship operates in the hospitality, agriculture and energy sectors and had loans outstanding with an aggregate principal amount of $252.0 million. All such loans are classified in the Other segment of the Company’s loan portfolio.
As of December 31, 2025, the Company’s largest credit relationship is loans, now reduced to judgments, related to various entities in which James. C. Justice, II has an interest (collectively, the “Justice Entities”). This relationship operates in the hospitality, agriculture and energy sectors and had loans, now reduced to judgments, outstanding with an aggregate principal amount of $214.0 million.
The Company’s operational and security systems, infrastructure, including our computer systems, data management, and internal processes, as well as those of third parties, are integral to our business.
Our operations rely heavily on the secure and efficient functioning of our information technology systems, data management processes, internal controls, and operational infrastructure, as well as those of third parties that support critical business functions.
An adverse change in the economy affecting occupancy and/or rental rates in the investment real estate market areas we serve could increase the likelihood of defaults. Real estate collateral securing the Company's loans are a secondary source of repayment in the event of unremedied defaults.
Adverse economic conditions affecting occupancy levels, rental rates, or tenant demand in the markets the Company serves could increase the likelihood of borrower defaults. Real estate collateral generally serves as a secondary source of repayment in the event of borrower default.
Changes in interest rates can impact our net interest income as well as the valuation of our assets and liabilities. Also, our earnings are significantly dependent on net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings.
The Company’s earnings are highly dependent on net interest income, which represents the difference between interest income earned on loans, investment securities and other interest-earning assets, and interest expense paid on deposits and borrowings. Differences in the timing and repricing characteristics of the Company’s assets and liabilities create interest rate sensitivity gaps.
A large percentage of the Company’s commercial loans are secured by real estate, and an adverse change in the real estate market or in economic conditions more generally may result in losses and adversely affect our profitability. Approximately 94.1% of the Company’s commercial loan portfolio as of December 31, 2024, was comprised of loans secured by real estate.
A significant portion of the Company’s commercial loan portfolio is secured by real estate, and adverse changes in the real estate market or economic conditions could adversely affect our results.
For example, increases in interest rates or changes in interest rate spreads may negatively impact the fair value of our investment securities and may adversely affect accumulated other comprehensive income and, thus, our equity levels.
Increases in market interest rates, in particular, have in the past, and may in the future result in declines in the fair value of fixed-income securities. Declines in the fair value of our available-for-sale investment securities are reflected in accumulated other comprehensive income (“AOCI”) and, therefore, may negatively affect shareholder’s equity, regulatory capital ratios, and liquidity.
A cyber-attack, information or security breach, or a technology failure of ours or of a third-party could adversely affect the Company’s ability to conduct business or manage exposure to risk, resulting in the disclosure or misuse of confidential or proprietary information, increase costs to maintain and update our operational systems, security systems, and infrastructure, and adversely impact results of operations, liquidity and financial condition, as well as cause reputation harm.
Cyberattacks, information security breaches, or technology failures involving our systems or those of third-party service providers could impair our ability to conduct business, manage risk exposures, and safeguard confidential information, and could adversely affect our results of operations, liquidity, financial condition, and reputation.
The Company does not record interest income on nonaccrual loans or OREO; thus nonperforming assets adversely affect the Company’s net income and returns on assets and equity, increase the Company’s loan administration costs and adversely affects the Company’s results of operations and efficiency ratio.
The Company does not recognize interest income on nonaccrual loans or OREO, which reduces net income, return on assets, and return on equity. In addition, nonperforming assets increase loan administration and collection costs, negatively impact operating results and the efficiency ratio, and require significant management time and attention, which may detract from other strategic and operational priorities.
The Company’s business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with whom we interact and rely upon.
Our business is highly dependent on the secure and efficient operation of our information technology infrastructure, computer systems, data management systems, and networks, as well as those of third parties upon whom it relies. The Company depends on digital technologies to process, transmit, store, and retrieve confidential, proprietary, and sensitive information, including customer and associate data.
BUSINESS - (continued) had a significant effect on the operating results of community banks, including us, in the past and are expected to do so in the future.
FRB monetary policies have materially affected the operating results and financial condition of community banks, including the Company and the Bank, in prior periods and are expected to continue to do so in the future.
The following discussion highlights the risks that we believe are material to the Company, but the following discussion does not necessarily include all risks that we may face, and an investor in the Company’s common stock should not interpret the disclosure of a risk in the following discussion to state or imply that the risk has not already materialized.
The inclusion of a risk in the following discussion should not be interpreted to state or imply that the risk has not already materialized.
Inflation could negatively impact our business, our profitability, and our stock price. Volatility and uncertainty related to inflation and the effects of inflation, may lead to increased costs for businesses and consumers and potentially contribute to poor business and economic conditions.
Inflationary pressures, as well as volatility and uncertainty related to inflation, could adversely affect our business, results of operations, financial condition, and stock price. Elevated or persistent inflation may increase operating costs for businesses and consumers and contribute to weaker economic conditions, which could reduce demand for our products and services.
Such legislation could change banking statutes and the operating environment of the Company and the Bank in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions with which we compete.
If enacted or implemented, these changes could increase or decrease compliance and operating costs, restrict or expand permissible business activities, affect capital or liquidity requirements, or influence the competitive dynamics among banks, savings associations, credit unions, and other financial service providers.
We expect we will experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa.
As a result, either the Company’s interest-bearing liabilities may reprice more quickly than its interest-earning assets, or vice versa. If market interest rates move in a manner that is unfavorable to the Company’s interest rate position, its net interest income and earnings could be negatively affected.
Therefore, the market price we receive for our investment securities could be less than the carrying value for such securities. Further, the value of our investment portfolio could decline for numerous reasons, many of which are outside our control, including general market conditions, volatility in the securities market, changes in market interest rates, and inflation rates or expectations of inflation.
The value of our investment securities may also decline due to factors beyond our control, including general economic and market conditions, volatility in the securities market, changes in interest rates or interest rate spreads, and actual or expected changes in inflation.
Such policies, which include regulating the national supply of bank reserves and bank credit, can have a major effect upon the source and cost of funds and the rates of return earned on loans and investments, and on levels of inflation in the United States.
These policies, which include actions affecting the availability and cost of bank reserves and credit, can significantly impact funding costs, loan demand, investment activity, deposit flows, and the rates of return earned on loans and investment securities, as well as the overall level of inflation in the United States.
Although these requirements do not apply to the Company and the Bank, the federal banking agencies emphasize that all banking organizations, regardless of size, should have the capacity to analyze the potential effect of adverse market conditions or outcomes on the organization’s financial condition.
However, supervisory guidance emphasizes that all banking organizations, regardless of size, should maintain the ability to assess the potential effects of adverse economic, market, and financial conditions on their financial condition and operating performance.
Because we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate.
Because the Company originates loans secured by real estate, it may be required to foreclose on collateral properties to protect its investment. Following foreclosure, the Company may take title to the property and assume the risks associated with real estate ownership, including the potential for declines in property values and the costs of maintaining and disposing of such assets.
Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits, and rates received on loans and investment securities and paid on deposits. Federal Reserve monetary policies have 18 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
Changes in monetary policy, including changes in interest rates, affect the origination and pricing of loans, the purchase and valuation of investment securities, deposit generation and pricing, and overall net interest income.
Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors.
Cybersecurity risks for financial institutions have increased significantly in recent years due to the expanded use of digital banking channels, mobile and cloud technologies, remote work environments, the use of AI, “bots” or other automation software, which can increase the velocity and efficacy of cyberattacks, and the growing sophistication and frequency of cyber threats posed by organized crime, hackers, ransomware groups, and foreign state actors.
For example, higher inflation, or volatility and uncertainty related to inflation, could reduce demand for the Company’s products, which could affect the creditworthiness of the Company’s borrowers, result in lower values for the Company’s investment securities and other interest-earning assets and increase expense related to talent acquisition and retention.
Higher inflation or inflation-related volatility may negatively affect the creditworthiness of our borrowers, particularly if increased costs are not offset by higher revenues or pricing power. Inflation may also adversely affect the value of our investment securities and other interest-earning assets and could contribute to increased market volatility and interest rate uncertainty.
In addition, to access our network, products and services, our customers and third parties may use personal mobile devices or computing devices that are outside of our network environment. 24 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES
Customers, associates, and third parties may also access our systems using personal or remote devises that are outside of our controlled network environment, which may increase cybersecurity risks.
Removed
Department of Treasury, is responsible for helping to ensure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress.
Added
ITEM 1. BUSINESS - (continued) staffing levels, and administrative priorities at regulatory agencies may influence the timing, scope, and manner of regulatory oversight. Any changes to such laws, regulations and policies may impose compliance costs and create obligations, including, in some cases, reporting obligations, requiring the Company and its subsidiaries to expend significant resources.
Removed
If the Company finds the name of an “enemy” of the United States on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account or place transferred funds into a blocked account, and report it to OFAC.
Added
The Company operates in an environment of ongoing regulatory change. These changes may affect permissible activities, compliance obligations, operational costs, strategic initiatives, and growth opportunities. The specific impact of future legislative, regulatory, or supervisory developments cannot be fully predicted and will depend on the nature, scope, and implementation of any adopted changes.
Removed
Reporting companies subject to the CTA are required to provide specific information with respect to beneficial owner(s) (as defined in the CTA) as well as satisfy initial filing obligations (for newly-formed reporting companies) and submit on-going periodic reports. Non-compliance with FinCEN regulations promulgated under the CTA may result in civil fines and criminal penalties.
Added
Moreover, changes in the interpretation or application of existing laws, regulations or regulatory guidance by supervisory authorities or courts could have a material effect on the Company’s business, financial condition, results of operations or prospects.
Removed
Beginning in December 2024, U.S. federal courts have issued preliminary injunctions against enforcement of the CTA, including a stay of the beneficial ownership reporting requirements pending resolution of a lawsuit challenging the CTA’s constitutionality. On February 18, 2025, the U.S.
Added
Regulation of the Company and the Bank As a financial holding company, the Company is subject to the BHCA, and to regulation and supervision by the FRB. The Company is also subject to applicable provisions of the Virginia bank holding company laws and is regulated and supervised by the Virginia BFI, a division of the Virginia State Corporation Commission.
Removed
District Court for the Eastern District of Texas lifted the preliminary injunction blocking enforcement of the beneficial ownership reporting requirements under the CTA.
Added
Under the BHCA, the FRB has authority to supervise and examine bank holding companies and their nonbank subsidiaries and to take enforcement action where it determines that the bank holding company or its subsidiaries are engaged in unsafe or unsound practices or are in violation of applicable laws and regulations.
Removed
Pending further court action, beneficial ownership information reporting obligations are back in effect and a majority of companies must now report by March 21, 2025; however, recent FinCEN guidance indicates that FinCEN will not issue any fines or penalties, or take any other enforcement actions, based on failure to file or update reports pursuant to the CTA by the current deadlines.
Added
The FRB may require a bank holding company to terminate or limit activities, or to divest ownership or control of a subsidiary, if it determines that the continuation of such activities or ownership constitutes a serious risk to the financial soundness, safety, or stability of the bank holding company or its bank subsidiary.
Removed
Cybersecurity The federal banking agencies have also adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors.
Added
The FRB and the FDIC have adopted regulations and issued supervisory guidance, and interpretative materials that establish operational and managerial standards intended to promote the safe and sound operation of banks and bank holding companies.
Removed
The federal banking agencies expect financial institutions to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack.
Added
These standards address, among matters, capital adequacy, internal controls, internal audit systems, information technology and cybersecurity, loan documentation and credit underwriting, interest rate and liquidity risk management, third-party vendor management, executive management and compensation practices, corporate governance, asset growth, asset quality, earnings performance, and overall risk management.
Removed
If the Company or the Bank fails to meet the expectations set forth in this regulatory guidance, the Company or the Bank could be subject to various regulatory actions and any remediation efforts may require significant resources of the Company or the Bank. 17 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

42 edited+135 added−84 removed0 unchanged
Biggest changeOur stock price can fluctuate significantly in response to a variety of factors including, among other things: • volatility of stock market prices and volumes in general; • changes in market valuations of similar companies; • changes in the conditions of credit markets; • changes in accounting policies or procedures as required by the Financial Accounting Standards Board, or other regulatory agencies; • legislative and regulatory actions, including the impact of the Dodd-Frank Act and related regulations, that may subject us to additional regulatory oversight which may result in increased compliance costs and/or require us to change our business model; 31 Table of Contents CARTER BANKSHARES, INC.
Biggest changeThe Company’s stock price can fluctuate significantly in response to a variety of factors including, among other things: • variations in the Company’s operating results, including if its financial results fall below the expectation of investor or securities analysts; • changes in analysts’ recommendations or projections with regard to the Company’s common stock or the markets and businesses in which it operates; • volatility of stock market prices and volumes in general; • changes in market valuations of similar companies; • reports of trends and concerns and other issues related to the financial services industry; • changes in the conditions of credit markets; • changes in accounting policies or procedures as required by the Financial Accounting Standards Board, or other regulatory agencies; • legislative and regulatory actions, including the impact of the Dodd-Frank Act and related regulations, that may subject the Company to additional regulatory oversight which may result in increased compliance costs and/or require changes to its business model; • government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the FRB; • additions or departures of key members of management; and • the realization of any of the other risks presented in this Annual Report on Form 10-K.
The legal and regulatory environment relating to AI is uncertain and rapidly evolving in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI.
The legal and regulatory framework governing AI is rapidly evolving in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in privacy, consumer protection, intellectual property, employment, model governance, and other laws applicable to the use of AI.
Future issuances of the Company’s common stock could adversely affect the market price of the common stock and could be dilutive. The Company is not restricted from issuing additional shares of common stock, and may issue securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock.
Future issuances of the Company’s common stock or securities convertible into common stock could dilute existing shareholders and adversely affect the market price of its common stock. The Company is generally not restricted from issuing additional shares of common stock or securities that are convertible into, exchangeable for, or represent the right to receive shares of its common stock.
RISK FACTORS - (continued) “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
A “material weakness” is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its annual or interim financial statements would not be prevented or detected on a timely basis.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, which may be compounded by the reach and depth of media attention, including social media, have in the past and may in the future lead to market-wide liquidity problems.
Adverse developments in the financial services industry, including actual events or concerns involving liquidity constraints, defaults, nonperformance by financial institutions or transactional counterparties, or other similar risks have in the past and may in the future lead to market-wide liquidity disruptions.
Our inability to identify, recruit and retain talented personnel to manage our operations effectively and in a timely manner could limit our growth or impair our ability to implement our business strategy effectively and efficiently, which could materially adversely affect our business.
Failure to attract, retain, and successfully onboard talented personnel in a timely manner could limit the Company’s growth, disrupt operations, and impair its ability to implement its business strategy effectively, which could materially and adversely affect the Company’s business, financial condition, and results of operations.
Deposit levels may be impacted by industry factors, market interest rates, rates paid for deposits by other financial institutions and market interest rates generally, inflationary conditions, general economic conditions than can impact savings rates, and banking industry conditions that can impact customers’ perceptions of the safety and soundness of the banking industry generally or of specific financial institutions.
Deposit levels may be affected by a variety of factors, including changes in market interest rates, competitive pricing pressures from other financial institutions, inflationary conditions, general economic trends influencing savings behavior, and customer perceptions regarding the safety and soundness of the banking industry or specific institutions.
We own stock in the FHLB of Atlanta, in order to qualify for membership in the FHLB system, which enables us to borrow on our line of credit with the FHLB that is secured by a blanket lien on select commercial loans, multifamily loans, residential mortgages and investment securities available-for-sale.
As a member of the FHLB system, the Company may borrow against a line of credit secured by a blanket lien on certain commercial and multifamily loans, residential mortgages, and available-for-sale investment securities.
The local economic conditions in the areas where we operate have a significant impact on our commercial, real estate and construction loans, the ability of our borrowers to repay their loans and the value of the collateral securing these loans and on customer demand for loans, deposits and other bank products.
Local economic conditions directly affect the performance of our loan portfolio, particularly commercial, real estate and construction loans, by influencing borrowers’ ability to repay, the value of collateral securing these loans, and customer demand for loans, deposits, and other financial products and services.
In addition, changes in key personnel at the agencies that regulate such banking organizations, including the federal banking agencies, may result in differing interpretations of existing rules and guidelines and potentially different enforcement priorities. The potential impact of any changes in agency personnel, policies, priorities, regulations and interpretations on the financial services sector, including us, cannot be predicted.
In addition, changes in key personnel at the agencies that regulate financial institutions may result in differing interpretations of existing rules and guidelines and potentially different supervision and enforcement priorities. The ultimate impact of these developments remains uncertain.
The failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first quarter of 2023, and the resulting industry turmoil, have underscored the importance of maintaining diversified funding sources to ensure the safety and soundness of a financial institution.
The closures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first quarter of 2023, and the resulting industry volatility, underscored the importance of maintaining diversified funding sources and robust liquidity management practices. The response to bank closures by the U.S. government, including the U.S.
Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. We are required to establish and maintain an adequate internal control structure over financial reporting.
Effective internal control over financial reporting and disclosure controls and procedures are essential to our ability to produce reliable financial statements, safeguard assets, prevent and detect fraud, and operate successfully as a public company. The Company is required to establish and maintain an adequate system of internal control over financial reporting and to evaluate its effectiveness on an ongoing basis.
RISK FACTORS - (continued) Increased scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks.
RISK FACTORS - (continued) Heightened scrutiny and evolving expectations regarding environmental, social and governance (“ESG”) matters may increase costs and expose the Company to additional risks. As a regulated financial institution and a publicly traded company, the Company faces growing scrutiny from customers, regulators, investors, advocacy groups, and other stakeholders regarding our ESG practices, policies, and disclosures.
The Company’s liquidity could be impaired by an inability to access short-term funding or the inability to monetize liquid assets. If significant volatility or disruptions occur in the wholesale funding or investment securities markets, the Company’s ability to access short-term liquidity could be materially impaired.
The Company’s ability to maintain adequate liquidity depends on reliable access to funding sources and the capacity to convert liquid assets into cash in a timely manner. Significant volatility or disruptions in the wholesale funding markets or investment securities markets could materially impair its access to short-term funding.
Common stock is equity and is subordinate to the Company’s existing and future indebtedness and effectively subordinated to all the indebtedness and other non-equity claims against the Bank. Shares of the Company’s common stock are equity interests and do not constitute indebtedness.
RISK FACTORS - (continued) The Company’s common stock is subordinate to its existing and future indebtedness and is structurally subordinated to the claims of the Bank’s creditors. Shares of our common stock represent an equity interest in the Company and do not constitute indebtedness.
In addition, any of the matters described above could adversely impact our results of operations and financial condition. The Company relies on third-party providers and other suppliers for a number of services that are important to our business. An interruption or cessation of an important service by any third-party could have a material adverse effect on our business .
An interruption, failure, or cessation of services provided by any significant third-party provider could disrupt its operations and have a material adverse effect on its business, results of operations, liquidity, or financial condition . The Company is dependent on third-party providers for a substantial portion of its technology environment, including its core banking and other key systems.
Our ability to meet contingency funding needs, in the event of a crisis that causes a disruption to our core deposit base, is dependent on access to wholesale markets, including funds provided by the FHLB of Atlanta .
In the event of a crisis that disrupts our core deposit base, our ability to meet contingency funding needs relies significantly on access to wholesale funding markets. Significant and unanticipated deposit outflows have occurred at other financial institutions and could occur in the future.
Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions.
Deposit levels are influenced by numerous factors, including interest rates offered by competitors, prevailing market interest rates, returns available on alternative investments, customer preferences, and broader economic conditions.
Because the Company’s decision to issue equity securities in the future will depend on market conditions and other factors, it cannot predict or estimate the amount, timing, or nature of possible future stock issuances. Accordingly, the Company’s shareholders bear the risk that future stock issuances will reduce market prices and dilute their stock holdings in the Company.
The timing, amount, and terms of any future equity issuances will depend on market conditions, regulatory considerations, capital needs, acquisition opportunities, and other factors beyond the Company’s control, and the Company cannot predict or estimate the amount, timing or nature of possible future issuance of its common stock.
Issuances of a substantial number of shares of common stock, or the expectation that such issuances might occur, including in connection with acquisitions by the Company, could materially adversely affect the market price of the shares of common stock and could be dilutive to shareholders.
The issuance of a substantial number of shares of the Company’s common stock or the perception that such issuances may occur could materially reduce the market price of its common stock and dilute the ownership interests of existing shareholders.
We or our third-party vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI presents several potential risks and challenges to our business.
The development and use of Artificial Intelligence (“AI”) technologies present risks that could adversely affect the Company’s business, financial condition, and results of operations. The Company, as well as or its third-party vendors, clients or counterparties may continue to develop or incorporate AI technologies into certain business processes, products, and services.
See “Supervision and Regulation” included in Item 1, Business, of this Annual Report on Form 10-K for a more detailed description of the certain regulatory requirements applicable to the Bank. The financial services industry may be subject to new or changing legislation, regulation, and government policy, which could affect the banking industry and the broader economy.
For additional information regarding the regulatory framework applicable to us, see “Supervision and Regulation” included in Item 1, Business, of this Annual Report on Form 10-K. The CFPB may increase our regulatory compliance burden and could affect the consumer financial products and services that the Company offers.
In addition, other factors outside of the Company’s control could limit the Company’s ability to access short-term funding or to monetize liquid assets, including by selling investment securities at an attractive price or at all, operational issues that impact third parties in the funding or securities markets or unforeseen significant deposit outflows.
Factors outside our control may further limit our ability to obtain funding or monetize liquid assets, including the need to sell investment securities at unfavorable prices or the inability to sell such assets at all, operational or financial difficulties affecting third parties that participate in funding or securities markets, and unexpected or substantial deposit outflows.
If our risk management program has flaws or gaps, or if our risk management controls do not function effectively, our results of operations, financial condition or business may be adversely affected. Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies. The policies of the FRB affect us significantly.
Any such developments could materially adversely affect its business, financial condition, results of operations, and long-term prospects. The Company’s earnings and financial condition are significantly influenced by monetary and fiscal policies of the federal government and its agencies.
Regulatory capital standards may require the Company and the Bank to maintain higher levels of capital and liquidity, which could adversely affect its return on equity and otherwise affect its business. The Company and the Bank are each subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital, which each must maintain.
Regulatory capital and liquidity requirements could require the Company to maintain higher levels of capital and liquid assets, which may adversely affect its profitability and business operations. 35 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A. RISK FACTORS - (continued) The Company and the Bank each must meet regulatory capital requirements and maintain sufficient liquidity.
Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit the Company’s ability to make distributions, including paying out dividends or buying back shares.
Changes to regulatory capital rules including revisions to asset risk weightings, the composition of qualifying capital, required regulatory deductions, or the capital conservation buffer could restrict our ability to make capital distributions, including paying out dividends or repurchasing shares, and may require adjustments to our business strategy.
Also, in the event the Bank is unable to pay dividends to the Company, the Company may not be able to service any debt that is outstanding, pay obligations, or pay any future dividends on its common stock.
If the Bank is unable to pay dividends to the Company, the Company may lack sufficient liquidity to satisfy its obligations, including servicing its outstanding debt and paying future dividends on its common stock, and may be required to seek alternative sources of funding, which may not be available on favorable terms or at all.
Risks Related to Liquidity Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, may have a material adverse effect on our financial condition and results of operations.
Risks Related to Liquidity Liquidity risks and adverse developments affecting the financial services industry could materially adversely affect our financial condition and results of operations.
RISK FACTORS - (continued) institutional CD market and the brokered deposit market. We may also seek to raise funds through the issuance of shares of our common stock, or other equity or equity-related securities, or debt securities including subordinated notes as additional sources of liquidity.
If deposits in our markets are insufficient to support our operating needs and growth, the Company may seek supplemental funding through sources such as federal funds lines with other financial institutions, borrowings from the FHLB, institutional CD market, brokered deposits, or the issuance of debt or equity securities, including subordinated notes.
The Company’s inability to access short-term funding or inability to monetize liquid assets could impair the Company’s ability to make new loans or meet existing lending commitments, and could adversely impact the Company’s overall financial condition, liquidity and regulatory capital.
If the Company is unable to access short-term funding or monetize liquid assets as needed, our ability to originate new loans, fund existing commitments, and otherwise support our operations could be negatively affected. Such conditions could place pressure on our liquidity position, adversely affect regulatory capital, and materially harm our financial condition and results of operations.
The inability to access this source of funds could have a materially adverse effect on our ability to meet our customer’s needs. Other wholesale market sources of liquidity include the Fed discount window, the brokered CD market, and our four fed funds lines totaling $95.0 million with correspondent banks.
Additional wholesale liquidity sources include the FRB discount window, the brokered CD market, federal funds lines with correspondent banks totaling approximately $75.0 million, and the ability to generate liquidity from our investment securities portfolio through pledging or sales.
As such, shares of the common stock will rank junior to all of the Company’s indebtedness and to other non-equity claims against the Company and its assets available to satisfy claims against it, including in the event of the Company’s liquidation. The Company is permitted to incur additional debt.
As a result, our common stock ranks junior to all of our existing and future debt obligations and other non-equity claims with respect to our assets, including in the event of liquidation, bankruptcy, or other insolvency proceedings.
The Company is dependent on its management team, and the loss of any senior executive officers or other key personnel could impair its relationship with its customers and adversely affect its business and financial results. We believe that our growth and future success will depend in large part on the skills of our executive officers.
The Company’s business is dependent on its executive management team and other key personnel, and the loss of their services could adversely affect its operations. The Company’s success depends significantly on the leadership, experience, and expertise of its executive officers and other key personnel.
As of December 31, 2024, that line of credit is estimated to be equal to 25% of our assets approximating $[1.2] billion, with available borrowing capacity subject to the amount of eligible collateral pledged at any given time.
At December 31, 2025, total borrowing capacity with the FHLB was approximately $1.5 billion, or about 30% of total assets, although actual availability is dependent on the amount and composition of eligible collateral pledged at any given time.
Our operating results may fluctuate due to a variety of factors, many of which are outside of our control, including the changing U.S. economic environment and changes in the commercial and residential real estate market, any of which may cause our stock price to fluctuate.
The market price of the Company’s common stock has been volatile in the past and may fluctuate significantly in the future in response to a variety of factors, many of which are beyond the Company’s control.
The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition, and results of operations . Risks Related to Our Business Strategy Our profitability depends significantly on economic conditions. Our success depends primarily on the general economic conditions of the geographic markets in which we operate, primarily in Virginia and North Carolina.
RISK FACTORS - (continued) Risks Related to the Company’s Business Strategy The Company’s profitability is significantly influenced by economic conditions in the markets that it serves. The Company’s success is closely tied to the economic health of the geographic markets in which it operates, primarily Virginia and North Carolina.
In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out our strategy is often lengthy, and we may not be able to effectively integrate these individuals into our operations.
In addition, the process of identifying candidates with the combination of skills, experience, and culture fit can be time consuming, and the Company may not successfully recruit or effectively integrate new hires into its operations.
Many competitors offer the same banking services that we offer in our service area. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including without limitation, savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries.
The Company’s competitors include national and regional banks, community banks, savings institutions, credit unions, finance companies, mortgage banks, brokerage firms, financial technology companies, insurance companies, and other financial intermediaries. In addition, certain nonbank financial services providers operate with fewer regulatory constraints, may have larger lending limits, and may be better positioned to serve the credit needs of larger customers.
If the Company and the Bank fail to meet these minimum capital guidelines and/or other regulatory requirements, the Company’s financial condition would be materially and adversely affected. Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could have a material adverse effect on our results of operation and financial condition.
Any such limitations could materially adversely affect its business, financial condition, results of operations, and shareholder returns. Failure to maintain effective internal control over financial reporting and disclosure controls could materially adversely affect the Company’s financial condition and results of operations.
The application of more stringent capital requirements could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions if the Company were to be unable to comply with such requirements.
These actions could dilute existing shareholders, reduce returns on equity, and constrain our ability to pursue strategic initiatives. The Company could also be subject to regulatory actions if it were unable to comply with the capital standards.
Furthermore, the change in presidential administration has, and is expected to continue to, result in certain changes in the leadership and senior staffs of the federal banking agencies. Such changes are likely to impact the rule-making, supervision, examination and enforcement priorities and policies of the agencies.
Changes in administration and congressional leadership often lead to revisions in regulatory frameworks, examination practices, supervision and enforcement priorities, and rulemaking initiatives affecting financial institutions, as well as to changes in the leadership and senior staffs of the federal banking agencies, which also drive such changes.
Changes or disruptions to the FHLB or the FHLB system in general may materially impact our ability to meet short and long-term liquidity needs.
Any operational, financial, or regulatory disruption affecting the FHLB or the broader FHLB system could materially impair our ability to meet short and long-term liquidity needs. In addition, access to FHLB advances is subject to our continued compliance with applicable borrowing requirements, collateral eligibility standards, and regulatory expectations.
Removed
RISK FACTORS - (continued) Financial services institutions have been subject to, and are likely to continue to be the target of, cyber-attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, its associates or customers or of third parties, or otherwise materially disrupt network access or business operations.
Added
ITEM 1A. RISK FACTORS - (continued) The Company relies on third-party service providers and other suppliers to support a number of critical business functions, including technology infrastructure, data processing, payment systems, and its core operating platform.
Removed
For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers.
Added
If any of these providers were to experience operation failures, cybersecurity incidents, financial distress, elect to discontinue or materially modify their services, or fail to handle current or higher volumes of use, the Company could experience significant disruptions to its business.
Removed
We have not experienced material cyber security incidents in the past, but there is no assurance that we will not experience an attack in the future.
Added
In addition, these providers are themselves, subject to risks of cyberattacks, data breaches, system failures, and other security incidents, and there can be no assurance that their systems have not been in the past and will not be in the future compromised.
Removed
Technology failures, cyber-attacks or other information or security breaches can cause material losses or other material consequences, and e ven with all reasonable security efforts, not every system or network breach can be prevented or even detected.
Added
Our ability to monitor, control, or remediate risks associated with third-party systems is more limited than for systems under our direct control. A failure by a third-party provider to maintain adequate performance, reliability, resilience, or security could impair our ability to process transactions, service customers, comply with regulatory requirements, or manage operation and financial risks.
Removed
Furthermore, because some of our employees are working remotely from their homes, there is an increased risk of disruption to our operations because our employees’ residential networks and infrastructure may not be as secure as our office environment. In addition to external threats, insider threats also represent a risk to us.
Added
Such failures could also result in the unauthorized access to or disclosure of sensitive customer or proprietary information, leading to reputational harm, loss of customer relationships, regulatory scrutiny, litigation, or financial liability.
Removed
Insiders, having legitimate access to our systems and the information contained in them, have the opportunity to make inappropriate use of the systems and information. We have policies, procedures and controls in place designed to prevent or limit this risk, but we cannot guarantee that such policies, procedures and controls fully mitigate this risk.
Added
If the Company were required to replace a significant third-party service provider, it may not be able to do so in a timely manner or on comparable or commercially reasonable terms.
Removed
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents.
Added
Transitioning to alternative providers could involve substantial costs, implementation risks, data migration challenges, service disruptions, and reduced functionality during transition periods, any of which could materially and adversely affect our business and results of operations.
Removed
Any of these matters could result in loss of customers and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, damage to computers or systems of our customers and/or third parties, violation of applicable privacy laws and other laws, litigation, costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs.
Added
Failure to keep pace with technological change could adversely affect the Company’s business and ability to remain competitive, and it may experience operational challenges when implementing new technologies. The financial services industry is continually undergoing technological change with frequent introductions of new technology-driven products and services, and the Company anticipates that new technologies will continue to emerge.
Removed
The Company is dependent for the majority of our technology, including our core operating system, on third-party providers. If these companies were to discontinue providing services to us, we may experience significant disruptions to our business.
Added
The Company’s continued success depends, in part, on the ability to address the needs of its customers by using technology to provide products and services that satisfy customer demands and create efficiencies in our operations.
Removed
In addition, each of these third parties faces the risk of a cyber-attack, information breach or loss, or technology failure and there is no assurance that they have not or will not experience a system or network breach .
Added
Developing or acquiring access to new technologies and incorporating those technologies into our products and services, or using them to expand our products and services, may require significant investments, may take considerable time to complete, and ultimately may not be successful.
Removed
If any of our third-party service providers experience such difficulties, or if there is any other disruption in our relationships with them, we may be required to find alternative sources of such services, which may not be on comparable or commercially reasonable terms.
Added
If the Company fails to maintain or enhance its competitive position with respect to technology, whether because of a failure to anticipate customer expectations, substantially fewer resources to invest in technological improvements than its larger competitors, or because its technological developments fail to perform as desired or are not rolled out in a timely manner, the Company may lose market share or incur additional expense.
Removed
We are dependent on these third-party providers securing their information systems, over which we have no control, and any failure to maintain performance, reliability and security of these systems could have a significant adverse effect on our financial condition or results of operations.
Added
In addition, any future implementation of technological changes and upgrades to maintain current systems may cause operational and customer challenges upon implementation and for some time afterwards.
Removed
A breach of our third-party providers’ information systems could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of customer business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability.
Added
Key challenges include service interruptions, transaction processing errors and system conversion delays, which may cause the Company to lose customers or fail to comply with applicable laws, and may cause the Company to incur additional expenses, which may be substantial and could have a material adverse effect on its business, financial condition, results of operations, and future prospects.
Removed
Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of operations.
Added
These individuals possess substantial knowledge of the markets the Company serves, maintain important customer and community relationship, and provide critical strategic direction. The unexpected loss of the services of one or more executive officers or key personnel could disrupt the Company’s operations, impair customer relationships, and hinder the execution of strategic initiatives.
Removed
We also depend upon the experience of the senior executive officers and other key personnel and their relationship with the communities they serve.
Added
The loss of personnel with extensive customer relationship may also lead to the loss of business if the customers were to follow that employee to a competitor. In addition, competition of qualified financial services professionals is intense, and the Company may not be able to attract or retain suitable replacements on a timely basis or at acceptable costs.
Removed
The loss of the services of one or more of these officers or key personnel could have an adverse impact on the business of the Company because of their skills, knowledge of the market, years of industry experience and the difficulty promptly finding qualified replacement personnel. 25 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
Added
The loss of key personnel, or the inability to recruit and retain experienced leaders, could materially and adversely affect the Company’s business, financial condition, and results of operations. 29 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
Removed
RISK FACTORS - (continued) The success of our business strategies depends on our ability to identify and recruit individuals with experience and relationships in our primary markets. The successful implementation of our business strategy will require us to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services.
Added
RISK FACTORS - (continued) The Company uses models in its business, and could be adversely affected if its design, implementation, or use of models is flawed. The use of statistical and quantitative models and other quantitatively based analyses is central to bank decision-making and regulatory compliance processes, and the employment of such analyses is becoming increasingly widespread in our operations.
Removed
The market for qualified management personnel is competitive, which has contributed to salary and employee benefit costs that have risen and are expected to continue to rise, which may have an adverse effect on the Company’s net income (loss).
Added
The Company uses quantitative models to price products and services, measure risk, calculate the quantitative portion of its allowance for credit losses, estimate asset and liability values, assess capital and liquidity, manage its balance sheet, create financial forecasts, and otherwise conduct our business and operations.
Removed
Liquidity is essential to the Company’s banking business, and the Company’s business strategies are largely based on access to funding from customer deposits and supplemental funding provided by secondary liquidity sources, including wholesale funding facilities.
Added
The Company anticipates that model-derived insights will penetrate further into bank decision-making, and particularly risk management efforts. While these quantitative techniques and approaches improve its decision-making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse outcomes or regulatory scrutiny.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

10 edited+3 added−3 removed7 unchanged
Biggest changeKey elements of the Cybersecurity and Information Technology programs include: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader information technology (“IT”) environment; • an incident response team principally responsible for managing cybersecurity risk assessment processes, security controls, and responses to cybersecurity incidents; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • training and awareness programs for team members that include periodic and ongoing assessments to drive adoption and awareness of cybersecurity processes and controls; • a cybersecurity and IT incident response plan that includes procedures for responding to cybersecurity incidents; • utilization of independent third parties to perform penetration testing of the Company’s environment; and • utilization of a third party to monitor elements of our Cybersecurity and IT environment continuously.
Biggest changeKey elements of the Cybersecurity and Information Technology programs include: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader information technology (“IT”) environment; • information security and incident response teams principally responsible for managing cybersecurity processes, security controls, and responses to cybersecurity incidents; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • training and awareness programs for team members that include periodic and ongoing assessments to drive adoption and awareness of cybersecurity processes and controls; • a cybersecurity and IT incident response plan that includes procedures for responding to cybersecurity incidents; • utilization of independent third-party tools and services to perform annual penetration testing and vulnerability scanning of the Company’s environment; • utilization of a third party to monitor elements of our Cybersecurity and IT environment continuously; and • utilization of a risk-based Third-Party Risk Management (“TPRM”) program that evaluates vendor cybersecurity controls and performs ongoing monitoring commensurate with risk as a result of third-party access to bank systems and data.
The COO is responsible for the oversight and implementation of both programs. Additionally, the COO and the Information Security Manager meet with the Information Technology Steering Committee (“IT Steering Committee”) on a monthly basis or more frequently as necessary to discuss, among other things, cybersecurity matters. The Cybersecurity and Information Technology programs are aligned to the Company’s business strategy.
The COO is responsible for the oversight and implementation of both programs. Additionally, the COO and the Information Security Director meet with the Information Technology Steering Committee (“IT Steering Committee”) on a monthly basis or more frequently as necessary to discuss, among other things, cybersecurity matters. The Cybersecurity and Information Technology programs are aligned to the Company’s business strategy.
Use of the framework does not imply that the Company meets any particular technical standards, specifications, or requirements, but rather the NIST is used as a guide to help identify, assess, and manage cybersecurity risks relevant to the Company’s business. The Company’s Cybersecurity and Information Technology programs are led by our Chief Operations Officer, (“COO”) and Information Security Manger.
Use of the framework does not imply that the Company meets any particular technical standards, specifications, or requirements, but rather the framework is used as a guide to help identify, assess, and manage cybersecurity risks relevant to the Company’s business. The Company’s Cybersecurity and Information Technology programs are led by our Chief Operations Officer, (“COO”) and Information Security Director.
Our information security team and members of IT monitor the effectiveness of preventative measures, detection, mitigation, and remediation of cybersecurity risks and incidents through various means, which may include briefings with law enforcement, regulators, external consultants, and reports produced by security tools we have deployed in our IT environment.
The Company’s information security team and members of IT monitor the effectiveness of preventative measures, detection, mitigation, and remediation of cybersecurity risks and incidents through various means, which may include briefings with law enforcement, regulators, external consultants, and reports produced by security tools deployed in its IT environment.
The IRT is also responsible for assessing the nature and scope of the incident, and engaging third-party service providers where appropriate to support the Company through the resolution of the incident. The COO escalates incidents to the Company’s IT Steering Committee, who is responsible for cybersecurity risk oversight, and also reports to the Board on a monthly basis.
The IRT is also responsible for assessing the nature and scope of the incident, and engaging third-party service providers where appropriate to support the Company through the resolution of the incident. When required the COO escalates incidents to the Company’s ITSC, who is responsible for cybersecurity risk oversight, and also reports to the Board on a monthly basis.
During the years ended December 31, 2024 and December 31, 2023, the Company had no cybersecurity incidents that had a material adverse effects on its business, financial condition or results of operations.
During the years ended December 31, 2025 and December 31, 2024, the Company had no cybersecurity incidents that had, or are reasonably likely to have, a material adverse effect on its business, financial condition or results of operations.
Our Information Security Manager, who also holds multiple cybersecurity industry-recognized certifications and is a member of the IT Steering Committee, has 20 years of experience working in IT and cybersecurity in various roles and industries throughout his career. Additionally, leaders in the Company’s IT function receive periodic training and education on cybersecurity related topics.
Our Information Security Director, who also holds multiple cybersecurity industry-recognized certifications and is a member of the IT Steering Committee, has over 20 years of experience working in IT and cybersecurity in various roles and industries throughout his career.
Our COO holds multiple cybersecurity industry-recognized certifications and has gained extensive cybersecurity knowledge and skills through over 7 years of work experience on the IT security team at the Company .
The COO provides executive oversight of the program and is responsible for elevating significant cybersecurity matters to senior management and the Board of Directors, as appropriate. Our COO holds multiple cybersecurity industry-recognized certifications and has gained extensive cybersecurity knowledge and skills through over 7 years of work experience on the IT security team at the Company.
Cybersecurity Governance Management’s Role The Company’s management has created an Incident Response Team (“IRT”), that consists of the Chief Operations Officer, a network manager, an application delivery manager, an information security manager, the IT Steering Committee, the regulatory 33 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES risk management director and an internal auditor.
Additionally, leaders in the Company’s IT function receive periodic training and education on cybersecurity related topics. The Company’s management has created an Incident Response Team (“IRT”), that consists of the COO, a network manager, an application delivery manager, The Information Security Director, the ITSC, the regulatory risk management director and an internal auditor.
Risk Factors – "Risks Related to Our Operations and Technology," which is incorporated by reference into this Item 1C.
Risk Factors – "Risks Related to Our Operations and Technology," which is incorporated by reference into this Item 1C. 41 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES Cybersecurity Governance Management’s Role The Cybersecurity function is responsible for the design, implementation, and ongoing management of the organization’s cybersecurity program.
Removed
The IRT is governed by policies and procedures and their proactive responsibilities include implementing awareness programs for the overall cybersecurity risk management plan and for the supervision of vulnerability and penetration testing.
Added
This includes policy development, security awareness and training, vulnerability and penetration testing oversight, risk assessment, control monitoring, incident response coordination, third-party risk oversight, and reporting cybersecurity risk to senior management and the Board. The function is led by the Company’s Information Security Director, who reports to the Chief Operating Officer (COO).
Removed
The Company’s IRT serves as the central point for all cybersecurity incidents and reporting, including incidents that directly target associates, customers or the Company’s internal information systems and incidents originating from third parties.
Added
Cybersecurity topics are formally presented at monthly Information Technology Steering Committee (“ITSC”) meetings, where risk posture, vulnerability management, third-party risk management activities, cyber events or incidents, and other topics are reviewed. When cybersecurity policy changes occur, the ITSC reviews and approves such policies as part of its governance responsibilities.
Removed
The IRT evaluates each incident in terms of its impact on the Company’s operations, ability to conduct business with customers, reputational risk to the Company, reduce legal risk and the speed and degree to which the incident has been contained.
Added
The Company’s IRT serves as the central point for all cybersecurity incidents and technical response activities. Regulatory notifications, customer communications, and reputational or legal risk determinations are managed by executive management, Legal, Compliance, and Communications, informed by information and details provided by the IRT.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed1 unchanged
Biggest changeThe leases are described in Note 9, Premises and Equipment, of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Biggest changeThe leases are described in Note 10, Premises and Equipment, of the Notes to Consolidated Financial Statements in Item 8. of this Annual Report on Form 10-K. 42 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES
In addition, the Bank leases a loan production office, a commercial banking office and another office housing various Bank functions. Management believes the terms of the various leases are consistent with market standards and were arrived at through arm’s length bargaining.
In addition, the Bank leases three loan production offices, one commercial banking office and one office housing various Bank functions. Management believes the terms of the various leases are consistent with market standards and were arrived at through arm’s length bargaining.
As of December 31, 2024, we offer our community banking services through 65 combined depository locations in Virginia and North Carolina, and have 53 offices located in Virginia and 12 offices located in North Carolina. Three of these depository banking locations are held under lease contracts.
As of December 31, 2025, the Company offers its community banking services through 64 combined depository locations in Virginia and North Carolina, and have 51 offices located in Virginia and 13 offices located in North Carolina. Eight of these depository banking locations are held under lease contracts.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeAs of December 31, 2024 , the Company is not involved in any material pending or threatened legal proceedings other than proceedings occurring in the ordinary course of business. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 34 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES
Biggest changeAs of December 31, 2025 , the Company is not involved in any material pending or threatened legal proceedings other than proceedings occurring in the ordinary course of business. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 43 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

48 edited+23 added−19 removed7 unchanged
Biggest changeResults of Operations and Financial Condition Earnings Summary 2024 Highlights • Net interest income decreased $7.9 million, or 6.4%, to $114.5 million for the year ended December 31, 2024 compared to the same period in 2023, reflecting the impact of higher funding costs during the year ended December 31, 2024, which more than offset loan growth and higher loan and securities yields; • The (recovery) provision for credit losses decreased $10.5 million to a recovery of $5.0 million for the year ended December 31, 2024, compared to a provision for credit losses of $5.5 million for the same period in 2023 primarily driven by the updated analysis of the individually evaluated loans and Other segment reserves released of $6.6 million due to $49.9 million of curtailment payments during the year ended December 31, 2024, offset by loan growth during 2024; • Total noninterest income increased $3.1 million to $21.4 million for the year ended December 31, 2024 compared to the same period in 2023; • Total noninterest expense increased $4.5 million to $110.0 million for the year ended December 31, 2024 compared to the same period in 2023; and • Provision for income taxes increased $1.0 million to $6.3 million for the year ended December 31, 2024 compared to the same period in 2023.
Biggest changeResults of Operations and Financial Condition Earnings Summary 2025 Highlights • Net interest income increased $16.4 million, or 14.3%, to $130.8 million for the year ended December 31, 2025 compared to the same period in 2024; • The (recovery) for credit losses was $(3.6) million for the year ended December 31, 2025, compared to a (recovery) for credit losses of $(5.0) million for the same period in 2024; • Total noninterest income increased $1.0 million to $22.4 million for the year ended December 31, 2025 compared to the same period in 2024; • Total noninterest expense increased $7.1 million to $117.1 million for the year ended December 31, 2025 compared to the same period in 2024; and • Income tax provision increased $2.3 million to $8.6 million for the year ended December 31, 2025 compared to the same period in 2024.
This means a commitment to aligning processes, operations and systems around the Company’s brand while introducing new products and services, so that in time the Company can increase its brand awareness in the communities it serves.
This means a commitment to aligning processes, operations, and systems around the Company’s brand while introducing new products and services, so that, over time, the Company can increase its brand awareness in the communities it serves.
To strengthen and further shape the brand and culture of the Company, a new set of guiding principles were introduced to associates in June 2023. The guiding principles include a new purpose statement: To create opportunities for more people and businesses to prosper ; supported by our new set of core values: Build Relationships, Earn Trust and Take Ownership .
To strengthen and further shape the brand and culture of the Company, a new set of guiding principles was introduced to associates in June 2023. The guiding principles include a new purpose statement: To create opportunities for more people and businesses to prosper, supported by our new set of core values: Build Relationships, Earn Trust, and Take Ownership.
With this new brand strategy, the Company has embarked on a multi-year implementation plan to create a brand tailored to the needs of its critical growth audiences, with a focus on innovating brand experiences to exceed expectations and to build a brand that stands apart.
With this brand strategy, the Company has embarked on a multi-year implementation plan to create a brand tailored to the needs of its critical growth audiences, focusing on innovating brand experiences to exceed expectations and build a brand that stands apart.
The Company’s financial results continue to be significantly impacted by the single large credit relationship that the Company placed on nonaccrual status during the second quarter of 2023, which has an aggregate principal balance of $252.0 million as of December 31, 2024.
The Company’s financial results continue to be significantly impacted by the single large credit relationship that the Company placed on nonaccrual status during the second quarter of 2023, which has an aggregate principal balance of $214.0 million as of December 31, 2025.
The MD&A includes the following sections: • Explanation of Use of Non-GAAP Financial Measures • Critical Accounting Estimates • Our Business and Strategy • Results of Operations and Financial Condition • Capital Resources • Contractual Obligations • Off-Balance Sheet Arrangements • Liquidity • Inflation • Stock Repurchase Program This section reviews our financial condition for each of the past two years and results of operations for each of the past three years.
The MD&A includes the following sections: • Explanation of Use of Non-GAAP Financial Measures; • Critical Accounting Estimates; • The Company’s Business and Strategy; • Results of Operations and Financial Condition; • Capital Resources; • Contractual Obligations; • Off-Balance Sheet Arrangements; • Liquidity; • Inflation; and • Stock Repurchase Program This section reviews the Company’s financial condition for each of the two most recent years and results of operations for each of the three most recent years.
Since placement of these loans, now reduced to judgements, on nonaccrual status during the second quarter of 2023, interest income has been negatively impacted by $35.1 million and $30.0 million during the years ended December 31, 2024 and 2023, respectively, or by $65.1 million in the aggregate.
Since placement of these loans, now reduced to judgments, on nonaccrual status during the second quarter of 2023, interest income has been negatively impacted by $26.1 million, $35.1 million and $30.0 million during the years ended December 31, 2025, 2024 and 2023, respectively, or by $91.2 million in the aggregate.
The Company reported net income of $24.5 million , or $1.06 diluted earnings per share for the year ended December 31, 2024 compared to net income of $23.4 million , or $1.00 diluted earnings per share, for the year ended December 31, 2023 .
The Company reported net income of $31.4 million , or $1.38 diluted earnings per share for the year ended December 31, 2025 compared to net income of $24.5 million , or $1.06 diluted earnings per share, for the year ended December 31, 2024 .
Refer to Note 1, Summary of Significant Accounting Policies, for further detailed descriptions of our estimation process and methodology related to the ACL and Note 6, Allowance for Credit Losses, of this Annual Report on Form 10-K. Our Business and Strategy Carter Bankshares, Inc.
Refer to Note 1, Summary of Significant Accounting Policies, for further detailed descriptions of our estimation process and methodology related to the ACL and Note 7, Allowance for Credit Losses, of this Annual Report on Form 10-K. 47 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Explanation of Use of Non-GAAP Financial Measures In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), management uses, and this annual report references, interest and dividend income, yield on interest earning assets, net interest income and net interest margin on a fully taxable equivalent, (“FTE”) basis, which are non-GAAP financial measures.
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 Annual 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.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II Market for Common Stock and Dividends The Company’s common stock trades on NASDAQ, under the ticker symbol “CARE.” As of the close of business on February 28, 2025, we had 2,049 shareholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II Market for Common Stock and Dividends The Company’s common stock trades on NASDAQ, under the ticker symbol “CARE.” As of the close of business on March 2, 2026, there were 1,717 shareholders of record.
The Company believes the presentation of interest and dividend income, yield on interest earning assets, net interest income and net interest margin on an FTE basis ensures the comparability of interest and dividend income, yield on interest earning assets, net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice.
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.
The MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 8 of this Annual Report on Form 10-K.
The MD&A should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes included in Item 8. of this Annual Report on Form 10-K.
However, future estimates could be impacted by a number of environmental changes, including but not limited to changes in the composition of the loan portfolio, changes in current and forecasted economic conditions and changes in the interest rate environment.
Future ACL levels may be materially impacted by changes in a number of factors, including but not limited to, the composition of the loan portfolio, changes in current and forecasted economic conditions, borrower performance, and changes in the interest rate environment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table reconciles interest and dividend income (GAAP), yield on interest-earning assets (GAAP), net interest margin (GAAP) and net interest income (GAAP) per the Consolidated Statements of Income to interest and dividend income on an FTE basis (non-GAAP), yield on interest-earning assets on an FTE basis (non-GAAP), net interest margin on an FTE basis (non-GAAP) and net interest income on an FTE basis (non-GAAP), respectively, for the periods presented: (Dollars in Thousands) Years Ended December 31, 2024 2023 2022 Interest and Dividend Income (GAAP) $ 221,729 $ 196,420 $ 160,182 Tax Equivalent Adjustment 775 1,004 1,143 Interest and Dividend Income (FTE) (Non-GAAP) 222,504 197,424 161,325 Average Earning Assets 4,458,601 4,293,838 4,023,634 Yield on Interest-earning Assets (GAAP) 4.97 % 4.57 % 3.98 % Yield on Interest-earning Assets (FTE) (Non-GAAP) 4.99 % 4.60 % 4.01 % Net Interest Income (GAAP) 114,457 122,310 139,928 Tax Equivalent Adjustment 775 1,004 1,143 Net Interest Income (FTE) (Non-GAAP) $ 115,232 $ 123,314 $ 141,071 Average Earning Assets 4,458,601 4,293,838 4,023,634 Net Interest Margin (GAAP) 2.57 % 2.85 % 3.48 % Net Interest Margin (FTE) (Non-GAAP) 2.58 % 2.87 % 3.51 % 42 Table of Contents CARTER BANKSHARES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table reconciles interest and dividend income, yield on interest-earning assets, net interest income, and net interest margin as reported under GAAP to the corresponding amounts presented on an FTE basis for the periods presented: (Dollars in Thousands) Years Ended December 31, 2025 2024 2023 Interest and Dividend Income (GAAP) $ 232,222 $ 221,729 $ 196,420 Tax Equivalent Adjustment 671 775 1,004 Interest and Dividend Income (FTE) (Non-GAAP) 232,893 222,504 197,424 Average Earning Assets 4,644,599 4,458,601 4,293,838 Yield on Interest-earning Assets (GAAP) 5.00 % 4.97 % 4.57 % Yield on Interest-earning Assets (FTE) (Non-GAAP) 5.01 % 4.99 % 4.60 % Net Interest Income (GAAP) 130,820 114,457 122,310 Tax Equivalent Adjustment 671 775 1,004 Net Interest Income (FTE) (Non-GAAP) $ 131,491 $ 115,232 $ 123,314 Average Earning Assets 4,644,599 4,458,601 4,293,838 Net Interest Margin (GAAP) 2.82 % 2.57 % 2.85 % Net Interest Margin (FTE) (Non-GAAP) 2.83 % 2.58 % 2.87 % 51 Table of Contents CARTER BANKSHARES, INC.
AND SUBSIDIARIES ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Critical Accounting Estimates The Company’s preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that could affect the amounts reported in the financial statements and accompanying notes.
Critical Accounting Estimates The preparation of the Company’s consolidated financial statements in accordance with GAAP requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Carter Bankshares, Inc., our operations, and our present business environment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW 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 FTE basis (non-GAAP) adjusts net interest income and net interest margin for the tax benefit of income on certain tax-exempt loans and securities using the applicable federal statutory tax rate for each period (which was 21% for the periods presented) and the dividend-received deduction for equity securities.
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.
In addition to loan and deposit growth, the Company will seek to increase fee income while closely monitoring operating expenses. The Company is focused on executing this strategy to successfully support the new brand and grow its business in our current markets as well as any new markets it may enter.
The Company is focused on executing this strategy to successfully support the new brand and grow its business in its current markets as well as any new markets it may enter.
Years Ended December 31, PERFORMANCE RATIOS 2024 2023 2022 Return on Average Assets 0.54 % 0.53 % 1.21 % Return on Average Shareholders' Equity 6.67 % 6.79 % 14.30 % Portfolio Loans to Deposit Ratio 87.27 % 94.20 % 86.69 % Allowance for Credit Losses to Total Portfolio Loans 2.09 % 2.77 % 2.98 % Nonperforming Loans to Total Portfolio Loans 7.15 % 8.83 % 0.21 % Net Interest Income Our principal source of revenue is net interest income.
Years Ended December 31, PERFORMANCE RATIOS 2025 2024 2023 Return on Average Assets 0.66 % 0.54 % 0.53 % Return on Average Shareholders' Equity 7.74 % 6.67 % 6.79 % Portfolio Loans to Deposit Ratio 92.13 % 87.27 % 94.20 % Allowance for Credit Losses to Total Portfolio Loans 1.84 % 2.09 % 2.77 % Nonperforming Loans to Total Portfolio Loans 6.29 % 7.15 % 8.83 % Allowance for Credit Losses to Nonperforming Loans 29.30 % 29.15 % 31.35 % 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.
AND SUBSIDIARIES ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES - (continued) Five-Year Cumulative Total Return The following chart compares the cumulative total shareholder return on our common stock with the cumulative total return of the NASDAQ Composite Index and S&P U.S.
Five-Year Cumulative Total Return The following chart compares the cumulative total shareholder return on our common stock with the cumulative total return of the NASDAQ Composite Index and S&P U.S.
Also in connection with the dismissal of the GLAS Trust Lawsuit, certain Justice Entities executed documents reaffirming the legality, validity and binding nature of all loan documents they have executed in favor of the Bank. 39 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Also, in connection with the dismissal of the GLAS Trust Lawsuit, certain Justice Entities executed documents reaffirming the legality, validity and binding nature of all loan documents they have executed in favor of the Bank. The Company tendered a payment (the “Settlement Payment”) in consideration of the voluntary dismissal of the GLAS Trust Lawsuit.
On October 30, 2024 the Company unveiled the new brand identity centered entirely around the people who matter most: customers and associates of Carter Bank and Trust and the communities it serves to help deliver on its promise of helping people experience a life lived full.
The brand identity is centered entirely around the people who matter most: customers and associates of the Bank and the communities it serves to help deliver on its promise of helping people experience a life lived full. The Company’s goal is to shift from balance-sheet restructuring to pursuing a prudent growth strategy when appropriate.
(the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.7 billion at December 31, 2024. 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 65 branches in Virginia and North Carolina.
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 64 branches in Virginia and North Carolina. The Company provides a full range of financial services with retail and, commercial banking products and insurance.
Notwithstanding the Bank’s prior practice of paying a quarterly cash dividend on its common stock, the Bank Board believed this decision was necessary and appropriate as the Bank committed, and now the Company commits, additional resources to assist with regulatory compliance, and making significant investments in new technology and human resources.
Dividends The Company has not historically paid dividends on its common stock. The Company Board believes this decision is currently necessary and appropriate, as the Company commits, additional resources to assist with regulatory compliance, and making significant investments in new technology and human resources.
We believe these new guiding principles will help create alignment to support future growth by empowering our associates and igniting a passion for the Company.
We believe these new guiding principles will help create alignment to support future growth by empowering our associates and igniting a passion for the Company. On October 30, 2024, the Company unveiled its new brand identity and, in 2025, renovated 47 retail branch locations and seven corporate offices, and launched new websites for the Company and the Bank.
Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets, interest-bearing liabilities, as well as changes in interest rates and spreads.
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.
The Company believes this FTE basis presentation provides a relevant comparison between taxable and non-taxable sources of interest income. Refer to the “Explanation of Use of Non-GAAP Financial Measures” above for additional discussion regarding the non-GAAP measures used in this Annual Report on Form 10-K. 41 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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. 50 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Balance Sheet Highlights (period-end balances, December 31, 2024 compared to December 31, 2023 ) • The available-for-sale securities portfolio decreased $60.6 million and is currently 15.4% of total assets compared to 17.3% of total assets; • Total portfolio loans increased $118.9 million, or 3.4%, due to loan growth, primarily in the commercial real estate (“CRE”) and construction segments during the year ended December 31, 2024, partially offset by $80.0 million in loan payoffs on two large CRE loans and the above mentioned curtailment payments; • The portfolio loans to deposit ratio was 87.3%, compared to 94.2%; • At December 31, 2024, nonperforming loans declined by $50.2 million to $259.3 million compared to December 31, 2023.
Balance Sheet Highlights (period-end balances, December 31, 2025 compared to December 31, 2024 ) • The available-for-sale securities portfolio decreased $26.8 million and is currently 14.3% of total assets compared to 15.4% of total assets; • Total portfolio loans increased $254.7 million, or 7.0%, due to loan growth during the year ended December 31, 2025; • The portfolio loans to deposit ratio was 92.1%, compared to 87.3%; • At December 31, 2025, NPLs declined by $15.4 million to $244.0 million compared to December 31, 2024.
The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense.
The ACL is reduced by charge-offs, net of recoveries, and increased by a provision or decreased by a recovery through the (recovery) provision for credit losses, which is recorded as a component of operating expense. Determining an appropriate ACL is inherently complex and requires the use of significant judgment and highly subjective assumptions.
Period Total number of shares purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan 1 10/10/2024 - 10/31/2024 — $— — — 11/01/2024 - 11/30/2024 — — — — 12/01/2024 - 12/31/2024 — — — — Total — $— — 1 The Company had no purchases of our common stock during the quarter ended December 31, 2024 . 35 Table of Contents CARTER BANKSHARES, INC.
Period Total number of shares purchased 1 Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan 2 10/01/2025 - 10/31/2025 315,089 $18.91 315,089 — 11/01/2025 - 11/30/2025 — — — — 12/01/2025 - 12/31/2025 999 19.83 — — Total 316,088 $18.91 315,089 1 Reflects 999 shares that were withheld upon vesting of restricted shares granted to employees of the Company in order to satisfy tax withholding obligations and 315,089 shares repurchased during the period under the 2025 Program. 44 Table of Contents CARTER BANKSHARES, INC.
Justice II, his wife Cathy L. Justice, his son James C. Justice, III, and related entities that he and/or they own (the “Justice Entities”) was dismissed with prejudice. In connection with the dismissal of this litigation, the Justice Entities agreed upon a pathway of curtailment and payoff of the outstanding loans with the Bank.
As previously disclosed, during the second quarter of 2024, a federal court lawsuit filed against the Company and the Bank by then West Virginia Governor James C. Justice II, his wife Cathy L. Justice, his son James C. Justice, III, and related entities that he and/or they own (the “Justice Entities”) was dismissed with prejudice.
The ACL on portfolio loans totaled $75.6 million at December 31, 2024, compared to $97.1 million at December 31, 2023; • Total deposits increased $431.5 million, or 11.6%, to $4.2 billion at December 31, 2024, compared to December 31, 2023; and • FHLB borrowings decreased $323.4 million to $70.0 million at December 31, 2024 compared to $393.4 million at December 31, 2023 primarily due to deposit growth.
The ACL on portfolio loans totaled $71.5 million at December 31, 2025, compared to $75.6 million at December 31, 2024; • Total deposits increased $57.5 million, or 1.4%, to $4.2 billion at December 31, 2025, compared to December 31, 2024; and 49 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee (“ALCO”), in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Company believes is an acceptable level of net interest income.
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.
The Justice Entities have reduced the aggregate nonperforming loan balance from $301.9 million as of March 30, 2024 to $252.0 million as of December 31, 2024.
In connection with the dismissal of this litigation, the Justice Entities agreed upon a pathway of curtailment and payoff of the outstanding loans with the Bank. The Justice Entities have reduced the aggregate nonperforming loan balance from $301.9 million as of June 30, 2023 to $214.0 million as of December 31, 2025.
In connection with the dismissal of the GLAS Trust Lawsuit, GLAS Trust and certain affiliates and parties on whose behalf it was acting executed a release that waives any and all causes of action of any kind that they might claim to have against the Bank.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) executed a release that waives any and all causes of action of any kind that they might claim to have against the Bank.
Interest and dividend income (GAAP) per the Consolidated Statements of Income is reconciled to interest and dividend income adjusted on an FTE basis, yield on interest earning assets (GAAP) is reconciled to yield on interest earning assets adjusted on an FTE basis, net interest income (GAAP) is reconciled to net interest income adjusted on an FTE basis and net interest margin (GAAP) is reconciled to net interest margin adjusted on an FTE basis in the "Results of Operations and Financial Condition - Net Interest Income" section of this MD&A for the years ended 2024, 2023 and 2022.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) These reconciliations are provided in the "Results of Operations and Financial Condition - Net Interest Income" section of this MD&A for the years ended 2025, 2024 and 2023.
The Company’s goal is to shift from restructuring the balance sheet to pursuing a prudent growth strategy when appropriate. We believe this strategy will be primarily targeted at organic growth, but will also consider opportunistic acquisitions that fit this strategic vision. We believe that the Bank’s strong capital and liquidity positions support this strategy.
We believe this strategy will primarily focus on organic growth, but will also consider opportunistic acquisitions that align with this strategic vision. We believe that the Bank’s strong capital and liquidity positions support this strategy. In addition to loan and deposit growth, the Company will seek to increase fee income while closely monitoring operating expenses.
The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources. Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes.
Management evaluates the potential variability of economic conditions by analyzing historical economic cycles, including peak and trough periods, which are used to stress the base-case estimate and develop a range of possible outcomes. Management then determines the appropriate allowance by evaluating these outcomes relative to current economic conditions and known portfolio risks.
Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more relevant than financial results determined in accordance with GAAP, nor is it necessarily comparable with similar non-GAAP measures which may be presented by other companies. 37 Table of Contents CARTER BANKSHARES, INC.
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.
Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. Some tables may include additional time periods to illustrate trends within our Consolidated Financial Statements and notes thereto.
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.
The Company repurchased 1,000,000 shares of its common stock at a total cost of $14.2 million, or an average price of $14.16 per share, during the year ended December 31, 2023. The following table provides information regarding the Company’s purchases of our common stock during the quarter ended December 31, 2024.
During the year ended December 31, 2025, the Company repurchased 1,124,690 shares of its common stock at a total cost of $20.0 million at a weighted average cost per share of $17.78. The 2025 Program was fully utilized on October 30, 2025.
The Company expects this transaction to close during the first half of 2025, subject to obtaining required regulatory approvals The Company earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers.
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 for credit losses, compensation and benefits, occupancy and equipment, technology and data processing, regulatory assessments, and other operating expenses.
Management believes these measures provide information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry.
Management believes these non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results across periods in a meaningful manner. These measures also assist in assessing the Company’s underlying operating performance and performance trends and facilitate comparisons with other financial services companies.
The Company incurs expenses for the cost of deposits, borrowings, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, FDIC expense, occupancy and income tax provision. Part of the Company’s current three-year strategic plan is to focus on refining and enhancing its brand image and position in the markets it serves.
Part of the Company’s current three-year strategic plan is to refine and enhance its brand image and position in the markets it serves.
The Company has entered into a definitive purchase and assumption agreement to acquire two branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston Salem, North Carolina, from First Reliance 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, from First Reliance Bank (the “Branch Purchase”).
We currently view the determination of the allowance for credit losses to be critical, because it is made in accordance with GAAP, is highly dependent on subjective or complex judgments, assumptions and estimates made by management and have had or is reasonably likely to have a material impact on the Company’s financial condition and results of operations.
Changes in these assumptions or estimates have had a material impact on the Company’s financial condition and results of operations in the past and are reasonably likely to do so in future periods. Allowance for Credit Losses (“ACL”) The ACL represents management's estimate of expected credit losses over the contractual life of outstanding loans as of the balance sheet date.
The Company periodically engages a third party to validate the model. We believe the level of the allowance for credit losses is appropriate as recorded in the consolidated financial statements as of December 31, 2024. As future events cannot be determined with precision, actual results could differ significantly from our estimates.
The ACL is subject to review by various regulatory agencies as part of their examination process, and the Company periodically engages an independent third-party to validate its credit loss model. Because future events and economic conditions cannot be predicted with precision, actual results may differ materially from management’s estimates.
Removed
Dividends In October 2016, prior to the Reorganization, the board of directors of the Bank (the "Bank Board") determined that it was prudent not to declare a quarterly cash dividend on the Bank's common stock beginning in the fourth quarter of 2016.
Added
Additionally, because we are a financial holding company and do not engage directly in business activities of a material nature, the Company’s ability to pay future dividends, if any, depends in large part, on the Company’s receipt of dividends from the Bank, which is also subject to limitations on the payment of dividends under federal banking laws, regulations and policies.
Removed
The Bank Board paid a special one-time cash dividend of $0.14 per share on March 3, 2020.
Added
See “Supervision and Regulation—Dividend Limitations.” Repurchases of Shares of Common Stock 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.
Removed
Repurchases of Shares of Common Stock On March 29, 2023, the Company's Board of Directors authorized a share repurchase program (the “2023 Program”), effective May 1, 2023, after the expiration of a previous repurchase program that was fully exhausted as of March 10, 2023.
Added
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.
Removed
The 2023 Program authorized the repurchase of 1,000,000 shares of common stock and the Company fully exhausted the 2023 Program on August 31, 2023. The Company’s Board of Directors did not authorize a new repurchase program during the year ended December 31, 2024.
Added
On February 2, 2026, the Company announced that the Board authorized a repurchase program to purchase up to $10.0 million of the Company’s common stock in the aggregate over a period of twelve months beginning February 11, 2026.
Removed
Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Carter Bankshares, Inc . 1 100.00 45.52 65.35 70.44 63.56 74.69 NASDAQ Composite Index 100.00 144.92 177.06 119.45 172.77 223.87 S&P U.S.
Added
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.
Removed
BMI Banks Index 100.00 87.24 118.61 98.38 107.32 143.68 1 An investment in Carter Bankshares, Inc. prior to November 2020 represents an investment in Carter Bank and Trust. 36 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 6. [RESERVED] ITEM 7.
Added
The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion.
Removed
The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.
Added
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.
Removed
Over time, these estimates, assumptions and judgments may prove to be inaccurate or vary from actual results and may significantly affect our reported results and financial position for the periods presented or in future periods.
Added
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. The following table provides information regarding the Company’s purchases of our common stock during the quarter ended December 31, 2025.
Removed
We have identified the following critical accounting estimate: Allowance for Credit Losses (“ACL”) The ACL represents an amount which, in management's judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience.
Added
AND SUBSIDIARIES ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES - (continued) 2 The 2025 Program was fully utilized on October 30, 2025, and consequently, as of the end of each period, no more shares of the Company’s common stock could be purchased under the 2025 Plan.
Removed
Determination of an appropriate ACL is inherently complex and includes the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management. Management believes it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP.
Added
Period Ending Index 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 Carter Bankshares, Inc . 100.00 143.56 154.76 139.65 164.09 183.40 NASDAQ Composite Index 100.00 122.18 82.43 119.22 154.48 187.14 S&P U.S. BMI Banks Index 100.00 135.97 112.77 123.02 164.70 211.47 45 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 6. [RESERVED] ITEM 7.
Removed
However, the determination of the ACL involves significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. Management uses available information for the periods presented to estimate expected future losses.
Added
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. 46 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Removed
Management will periodically assess the appropriateness of qualitatively adjusting the ACL based on their assessment of current expected credit losses and other economic factors. Principally, these adjustments are centered on potential variances to current economic indices. Various regulatory agencies also review the allowance for credit losses as an integral part of their examination process.
Added
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.
Removed
Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio. For the year ended December 31, 2024 the range of outcomes would produce a 56.3% reduction or a 85.5% increase in reserves based on the best and worst case scenarios, respectively.
Added
Actual results may differ from these estimates, and such differences could be material to the Company’s financial condition or results of operations in the period in which they become known. Management considers the determination of the allowance for credit losses to be a critical accounting estimate.
Removed
The Company provides a full range of financial services with retail, and 38 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) commercial banking products and insurance. The Company’s common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE”.
Added
This estimate is made in accordance with GAAP and requires significant judgment, including the use of subjective and complex assumptions regarding economic conditions, borrower behavior, and credit risk.
Removed
The Company is closely monitoring all developments that may impact collateral values or potential recoveries on its nonperforming loans, including claims that may be asserted by other purported creditors. As previously disclosed, during the second quarter of 2024, a federal court lawsuit filed against the Company and the Bank by West Virginia Governor James C.
Added
The ACL is determined based on an evaluation of the loan portfolio’s current risk characteristics, historical loss experience, current conditions, reasonable and supportable forecasts of future economic conditions, and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset in accordance with GAAP.
Removed
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The Company tendered a payment (the “Settlement Payment”) in consideration of the voluntary dismissal of the GLAS Trust Lawsuit.
Added
Management reviews the adequacy of the ACL on a quarterly basis and believes the allowance recorded as of December 31, 2025 reflects the best estimate of expected credit losses based on information available at that time. Management believes it uses all relevant and available information to estimate expected future credit losses; however, actual losses may differ from those estimates.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Average Balance Sheet and Net Interest Income Analysis (FTE) The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the years ended December 31: (Dollars in Thousands) 2024 2023 2022 Average Balance Income/ Expense Yield/Rate Average Balance Income/ Expense Yield/Rate Average Balance Income/ Expense Yield/Rate ASSETS Interest-Bearing Deposits with Banks $ 44,250 $ 2,289 5.17 % $ 20,414 $ 1,066 5.22 % $ 50,797 $ 341 0.67 % Tax-Free Investment Securities 2 11,759 340 2.89 % 27,271 803 2.94 % 30,109 877 2.91 % Taxable Investment Securities 828,437 29,510 3.56 % 900,972 30,804 3.42 % 950,557 20,330 2.14 % Total Securities 840,196 29,850 3.55 % 928,243 31,607 3.41 % 980,666 21,207 2.16 % Tax-Free Loans 1, 2 103,218 3,352 3.25 % 123,847 3,978 3.21 % 144,617 4,568 3.16 % Taxable Loans 1 3,457,241 186,001 5.38 % 3,200,992 159,317 4.98 % 2,844,303 135,055 4.75 % Total Loans 3,560,459 189,353 5.32 % 3,324,839 163,295 4.91 % 2,988,920 139,623 4.67 % Federal Home Loan Bank Stock 13,696 1,012 7.39 % 20,342 1,456 7.16 % 3,251 154 4.74 % Total Interest-Earning Assets 4,458,601 $ 222,504 4.99 % 4,293,838 $ 197,424 4.60 % 4,023,634 $ 161,325 4.01 % Noninterest Earning Assets 102,240 89,833 117,135 Total Assets $ 4,560,841 $ 4,383,671 $ 4,140,769 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Demand $ 583,735 $ 8,980 1.54 % $ 483,048 $ 2,729 0.56 % $ 489,298 $ 1,578 0.32 % Money Market 511,342 15,478 3.03 % 448,324 8,868 1.98 % 521,269 1,842 0.35 % Savings 399,748 548 0.14 % 544,938 586 0.11 % 720,682 742 0.10 % Certificates of Deposit 1,782,573 70,425 3.95 % 1,428,646 40,445 2.83 % 1,271,548 14,454 1.14 % Total Interest-Bearing Deposits 3,277,398 95,431 2.91 % 2,904,956 52,628 1.81 % 3,002,797 18,616 0.62 % FHLB Borrowings 222,719 11,379 5.11 % 402,675 20,822 5.17 % 29,849 1,163 3.90 % Federal Funds Purchased — — — % 7,023 368 5.24 % 5,711 188 3.29 % Other Borrowings 9,126 462 5.06 % 6,337 292 4.61 % 5,885 287 4.88 % Total Borrowings 231,845 11,841 5.11 % 416,035 21,482 5.16 % 41,445 1,638 3.95 % Total Interest-Bearing Liabilities 3,509,243 107,272 3.06 % 3,320,991 74,110 2.23 % 3,044,242 20,254 0.67 % Noninterest-Bearing Liabilities 684,033 718,113 746,117 Shareholders' Equity 367,565 344,567 350,410 Total Liabilities and Shareholders' Equity $ 4,560,841 $ 4,383,671 $ 4,140,769 Net Interest Income 2 $ 115,232 $ 123,314 $ 141,071 Net Interest Margin 2 2.58 % 2.87 % 3.51 % 1 Nonaccruing loans are included in the daily average loan amounts outstanding. 2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent.
Biggest changeMANAGEMENT’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 years ended December 31: (Dollars in Thousands) 2025 2024 2023 Average Balance Income/ Expense Yield/Rate Average Balance Income/ Expense Yield/Rate Average Balance Income/ Expense Yield/Rate ASSETS Interest-Bearing Deposits with Banks $ 64,451 $ 2,808 4.36 % $ 44,250 $ 2,289 5.17 % $ 20,414 $ 1,066 5.22 % Tax-Free Investment Securities 2 11,602 336 2.90 % 11,759 340 2.89 % 27,271 803 2.94 % Taxable Investment Securities 799,043 26,288 3.29 % 828,437 29,510 3.56 % 900,972 30,804 3.42 % Total Securities 810,645 26,624 3.28 % 840,196 29,850 3.55 % 928,243 31,607 3.41 % Commercial Real Estate 2,006,830 123,119 6.13 % 1,786,092 111,505 6.24 % 1,592,040 92,398 5.80 % Commercial & Industrial 2 216,288 12,951 5.99 % 221,032 14,660 6.63 % 259,268 15,927 6.14 % Residential Mortgages 819,697 34,988 4.27 % 809,085 34,196 4.23 % 714,733 27,365 3.83 % Other Consumer 28,141 1,522 5.41 % 30,820 2,128 6.90 % 38,602 3,071 7.96 % Construction 449,842 30,265 6.73 % 421,167 26,864 6.38 % 378,711 24,534 6.48 % Other 239,273 — — % 292,264 — — % 341,485 — — % Total Loans 1 3,760,071 202,845 5.39 % 3,560,460 189,353 5.32 % 3,324,839 163,295 4.91 % Other Restricted Stock, at Cost 9,432 616 6.53 % 13,696 1,012 7.39 % 20,342 1,456 7.16 % Total Interest-Earning Assets 4,644,599 $ 232,893 5.01 % 4,458,602 $ 222,504 4.99 % 4,293,838 $ 197,424 4.60 % Noninterest Earning Assets 124,350 102,239 89,833 Total Assets $ 4,768,949 $ 4,560,841 $ 4,383,671 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Demand $ 794,603 $ 13,602 1.71 % $ 583,735 $ 8,980 1.54 % $ 483,048 $ 2,729 0.56 % Money Market 541,250 13,641 2.52 % 511,342 15,478 3.03 % 448,324 8,868 1.98 % Savings 343,367 490 0.14 % 399,748 548 0.14 % 544,938 586 0.11 % Certificates of Deposit 1,902,757 68,451 3.60 % 1,782,573 70,425 3.95 % 1,428,646 40,445 2.83 % Total Interest-Bearing Deposits 3,581,977 96,184 2.69 % 3,277,398 95,431 2.91 % 2,904,956 52,628 1.81 % Federal Home Loan Bank Borrowings 110,944 4,648 4.19 % 222,719 11,379 5.11 % 402,675 20,822 5.17 % Federal Funds Purchased — — — % — — — % 7,023 368 5.24 % Other Borrowings 10,830 570 5.26 % 9,126 462 5.06 % 6,337 292 4.60 % Total Borrowings 121,774 5,218 4.28 % 231,845 11,841 5.11 % 416,035 21,482 5.16 % Total Interest-Bearing Liabilities 3,703,751 101,402 2.74 % 3,509,243 107,272 3.06 % 3,320,991 74,110 2.23 % Noninterest-Bearing Liabilities 660,244 684,033 718,113 Shareholders' Equity 404,954 367,565 344,567 Total Liabilities and Shareholders' Equity $ 4,768,949 $ 4,560,841 $ 4,383,671 Net Interest Income 2 $ 131,491 $ 115,232 $ 123,314 Net Interest Margin 2 2.83 % 2.58 % 2.87 % Net Interest Spread 2.27 % 1.93 % 2.37 % 1 Nonaccruing loans are included in the daily average loan amounts outstanding. 2 Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table sets forth the maturities of available-for-sale securities at December 31, 2024 and the weighted average yields of such securities.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table sets forth the maturities of available-for-sale securities at December 31, 2025 and the weighted average yields of such securities.
Discussion of provision for income taxes compared to the year ended December 31, 2023 compared to the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.
Discussion of provision for income taxes for the year ended December 31, 2024 compared to the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7.
NPLs as a percentage of total portfolio loans were 7.15% and 8.83% as of December 31, 2024 and December 31, 2023, respectively. Refer to Note 6, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our ACL.
NPLs as a percentage of total portfolio loans were 6.29% and 7.15% as of December 31, 2025 and December 31, 2024, respectively. Refer to Note 7, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 8. of this Annual Report on Form 10-K for additional information related to our ACL.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Noninterest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 , which was filed with the SEC on March 8, 2024, and is incorporated herein by reference.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Noninterest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 , which was filed with the SEC on March 7, 2025, and is incorporated herein by reference.
Discussion of net interest income compared to the year ended December 31, 2023 compared to the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.
Discussion of net interest income for the year ended December 31, 2024 compared to the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7.
The Company is closely monitoring all developments that may impact collateral values or potential recoveries on its nonperforming loans, including claims that may be asserted by other purported creditors.
The Company is closely monitoring all developments that may impact collateral values or potential recoveries on its NPLs, including claims that may be asserted by other purported creditors.
Based on analyses of the credit relationship and various discounted cash flow valuation techniques utilized in the alternative modeling, which resulted in specific reserves with respect to these loans of $30.3 million at December 31, 2024, or 12.0%, of these loans aggregate principal amount as compared to $54.3 million or 18.0% of these loans aggregate principal amount at December 31, 2023.
Based on analyses of the credit relationship and various discounted cash flow (“DCF”) valuation techniques utilized in the alternative modeling, which resulted in specific reserves with respect to these loans of $18.0 million at December 31, 2025, or 8.4% of these loans aggregate principal amount as compared to $30.3 million or 12.0% of these loans aggregate principal amount at December 31, 2024.
However, the Company cannot give any assurance as to the timing or amount of future payments or collections on such loans or that the Company will ultimately collect all amounts contractually due.
However, the Company cannot give any assurance as to the timing or amount of future payments or collections on such loans, the timing of any credit administration or collection efforts, or that the Company will ultimately collect all amounts contractually due.
There are three basic factors that influence the reserve rates associated with unfunded 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.
The reserve for unfunded commitments is largely comprised of unfunded commitments related to real estate construction loans. There are three basic factors that influence the reserve rates associated with unfunded 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.
The Company believes it is well secured based on the net carrying value of the credit relationship and it has appropriately reserved for expected credit losses with respect to all such loans based on information currently available.
The Company believes this credit is well secured based on its net carrying value and has appropriately reserved for expected credit losses with respect to all such loans based on information currently available.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Net Interest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 3 , which was filed with the SEC on March 8, 2024, and is incorporated herein by reference. 44 Table of Contents CARTER BANKSHARES, INC.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Net Interest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 , which was filed with the SEC on March 7, 2025, and is incorporated herein by reference. 53 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Credit Quality On a monthly basis, a Criticized Asset Committee meets to review certain watch, special mention and substandard risk rated loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to the Company.
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.
Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain CRE loans. The proportion of these segments affect the weighting. Third, volume changes impact the total reserve calculation. At December 31, 2024 nonperforming loans (“NPLs”) decreased $50.2 million at December 31, 2024 since December 31, 2023.
Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain CRE loans. The proportion of these segments affect the weighting. Third, volume changes impact the total reserve calculation. At December 31, 2025, NPLs decreased $15.4 million since December 31, 2024.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Provision for Income Taxes” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 3 , which was filed with the SEC on March 8, 2024, and is incorporated herein by reference. 52 Table of Contents CARTER BANKSHARES, INC.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Provision for Income Taxes” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 , which was filed with the SEC on March 7, 2025, and is incorporated herein by reference.
As the borrowers on these loans operate in the hospitality, agriculture, and energy sectors, this credit relationship is secured by, among other collateral, commercial real estate properties in these sectors including but not limited to top-tier hospitality 57 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
As the borrowers on these loans operate in the hospitality, agriculture, and energy sectors, this credit relationship is secured by, among other collateral, commercial real estate properties in these sectors including but not limited to top-tier hospitality properties.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Discussion of noninterest income compared to the year ended December 31, 2023 compared to the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) insurance commission income, reflecting lower activity levels compared to the prior year. Discussion of noninterest income for the year ended December 31, 2024 compared to the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7.
Refer to Note 13, Federal Home Loan Bank Borrowings and Federal Funds Purchased, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our borrowings. 63 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Refer to Note 15, Federal Home Loan Bank Borrowings and Federal Funds Purchased, in the Notes to Consolidated Financial Statements in Item 8. of this Annual Report on Form 10-K for additional information related to our borrowings.
Refer to Note 6, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our nonperforming loans and OREO. 59 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Refer to Note 7, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 8. of this Annual Report on Form 10-K for additional information related to our NPLs and OREO.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Noninterest Expense” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 3 , which was filed with the SEC on March 8, 2024, and is incorporated herein by reference. 47 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Condition and Results of Operations,” under the heading “Noninterest Expense” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 , which was filed with the SEC on March 7, 2025, and is incorporated herein by reference.
Purchase obligations primarily represent obligations under agreement with our third-party data processing provider. Off-Balance Sheet Arrangements In the normal course of business, the Company offers our customers lines of credit and letters of credit to meet their financing objectives.
Purchase obligations primarily consist of commitments under agreements with the Company’s third-party data processing provider. Off-Balance Sheet Arrangements In the normal course of business, the Company provides customers with lines of credit and letters of credit to meet financing needs.
At December 31, 2024, total gross unrealized gains in the available-for-sale portfolio were $0.1 million offset by $82.4 million of gross unrealized losses. At December 31, 2023, total gross unrealized gains in the available-for-sale portfolio were $0.7 million offset by $92.3 million of gross unrealized losses.
Total gross unrealized gains in the available-for-sale portfolio were $0.4 million at December 31, 2025, offset by $54.2 million of gross unrealized losses, compared to gross unrealized gains of $0.1 million and gross unrealized losses of $82.4 million at December 31, 2024.
As of December 31, 2024, the securities portfolio was comprised of 43.5% variable rate securities with approximately 84.6% that will reprice at least once over the next 12 months.
As of December 31, 2025, the securities portfolio was comprised of 36.3% variable rate securities with approximately 94.9% that will reprice at least once over the next 12 months.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) FHLB Borrowings and Federal Funds Purchased Information pertaining to FHLB borrowings and federal funds purchased at December 31 are summarized in the table below: (Dollars in Thousands) 2024 2023 2022 Balance at Period End Federal Home Loan Bank Borrowings $ 70,000 $ 393,400 $ 180,550 Federal Funds Purchased — — 17,870 Average Balance during the Period Federal Home Loan Bank Borrowings $ 222,719 $ 402,675 $ 29,849 Federal Funds Purchased — 7,023 5,711 Average Interest Rate during the Period Federal Home Loan Bank Borrowings 5.11 % 5.17 % 3.90 % Federal Funds Purchased — % 5.24 % 3.29 % Maximum Month-end Balance during the Period Federal Home Loan Bank Borrowings $ 403,000 $ 525,135 $ 180,550 Federal Funds Purchased — 46,965 23,020 Average Interest Rate at Period End Federal Home Loan Bank Borrowings 4.02 % 5.20 % 4.48 % Federal Funds Purchased — % — % 4.65 % Borrowings are an additional source of liquidity for the Company.
FHLB Borrowings and Federal Funds Purchased Information pertaining to FHLB borrowings and federal funds purchased at December 31 are summarized in the table below: (Dollars in Thousands) 2025 2024 2023 Balance at Period End Federal Home Loan Bank Borrowings $ 178,500 $ 70,000 $ 393,400 Federal Funds Purchased — — — Average Balance during the Period Federal Home Loan Bank Borrowings $ 110,944 $ 222,719 $ 402,675 Federal Funds Purchased — — 7,023 Average Interest Rate during the Period Federal Home Loan Bank Borrowings 4.19 % 5.11 % 5.17 % Federal Funds Purchased — % — % 5.24 % Maximum Month-end Balance during the Period Federal Home Loan Bank Borrowings $ 178,500 $ 403,000 $ 525,135 Federal Funds Purchased — — 46,965 Average Interest Rate at Period End Federal Home Loan Bank Borrowings 3.89 % 4.02 % 5.20 % Federal Funds Purchased — % — % — % Borrowings represent an additional source of liquidity for the Company.
The (recovery) provision for credit losses decreased $10.5 million to a recovery of $5.0 million for the year ended December 31, 2024 when compared to the same period in 2023.
The (recovery) for credit losses was a (recovery) of $(3.6) million for the year ended December 31, 2025 compared to a (recovery) for credit losses of $(5.0) million for the same period in 2024.
As of December 31, 2024, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 81.6% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits, and approximately 18.4% of our total 48 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Based on the assumptions used in preparing regulatory call reports, approximately 81.3% of our total deposits of $4.2 billion were insured under standard FDIC insurance coverage limits at December 31, 2025, while approximately 18.7% were uninsured, compared to approximately 81.6% insured and 18.4% uninsured at December 31, 2024. 70 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table summarizes the credit quality ratios and their components as of December 31 for the years presented below: (Dollars in Thousands) 2024 2023 Allowance for Credit Losses to Total Portfolio Loans Allowance for Credit Losses $ 75,600 $ 97,052 Total Portfolio Loans 3,624,826 3,505,910 Allowance for Credit Losses to Total Portfolio Loans 2.09 % 2.77 % Nonperforming Loans to Total Portfolio Loans Nonperforming Loans $ 259,349 $ 309,535 Total Portfolio Loans 3,624,826 3,505,910 Nonperforming Loans to Total Portfolio Loans 7.15 % 8.83 % Allowance for Credit Losses to Nonperforming Loans Allowance for Credit Losses $ 75,600 $ 97,052 Nonperforming Loans 259,349 309,535 Allowance for Credit Losses to Nonperforming Loans 29.15 % 31.35 % Net Charge-offs to Average Portfolio Loans Net Charge-offs $ 16,413 $ 2,300 Average Total Portfolio Loans 3,560,297 3,324,757 Net Charge-offs to Average Portfolio Loans 0.46 % 0.07 % The (recovery) provision for credit losses, which includes a (recovery) provision for losses on loans and a (recovery) provision on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date.
The following table summarizes the credit quality ratios and their components as of December 31 for the years presented below: (Dollars in Thousands) 2025 2024 Allowance for Credit Losses to Total Portfolio Loans Allowance for Credit Losses $ 71,491 $ 75,600 Total Portfolio Loans 3,879,560 3,624,826 Allowance for Credit Losses to Total Portfolio Loans 1.84 % 2.09 % Nonperforming Loans to Total Portfolio Loans Nonperforming Loans $ 243,982 $ 259,349 Total Portfolio Loans 3,879,560 3,624,826 Nonperforming Loans to Total Portfolio Loans 6.29 % 7.15 % Allowance for Credit Losses to Nonperforming Loans Allowance for Credit Losses $ 71,491 $ 75,600 Nonperforming Loans 243,982 259,349 Allowance for Credit Losses to Nonperforming Loans 29.30 % 29.15 % Net Charge-offs to Average Portfolio Loans Net Charge-offs $ 472 $ 16,413 Average Total Portfolio Loans 3,759,496 3,560,297 Net Charge-offs to Average Portfolio Loans 0.01 % 0.46 % The (recovery) provision for credit losses, which includes a (recovery) provision for losses on loans and a (recovery) provision on unfunded commitments, is a (recovery) or charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date.
On a quarterly basis, the Credit Risk Committee of the Board meets to review our loan portfolio metrics, approve segment limits, approve the adequacy of ACL, and review the findings from Loan Review identified in the previous quarter. Annually, this same committee approves credit related policy changes and policy enhancements as they become available.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table presents information regarding the (recovery) provision for credit losses and net charge-offs: (Dollars in Thousands) Twelve months ended December 31, 2024 2023 $ Change (Recovery) Provision for Credit Losses $ (5,039) $ 5,500 $ (10,539) (Recovery) Provision for Unfunded Commitments (7) 901 (908) Total (Recovery) Provision for Credit Losses on Loans (5,046) 6,401 (11,447) Provision for Securities — — — Total (Recovery) Provision for Credit Losses $ (5,046) $ 6,401 $ (11,447) Net Loan Charge-offs $ 16,413 $ 2,300 $ 14,113 Net Loan Charge-offs / Average Portfolio Loans 0.46 % 0.07 % The (recovery) provision for credit losses decreased $10.5 million for the year ended December 31, 2024 compared to the same period in 2023.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table presents information regarding the recovery for credit losses and net charge-offs: (Dollars in Thousands) Twelve months ended December 31, 2025 2024 $ Change Recovery for Credit Losses $ (3,637) $ (5,039) $ 1,402 Recovery for Unfunded Commitments (194) (7) (187) Total Recovery for Credit Losses on Loans (3,831) (5,046) 1,215 Provision for Securities — — — Total Recovery for Credit Losses $ (3,831) $ (5,046) $ 1,215 Net Loan Charge-offs $ 472 $ 16,413 $ (15,941) Net Loan Charge-offs / Average Portfolio Loans 0.01 % 0.46 % The (recovery) for credit losses was $(3.6) million for the year ended December 31, 2025, compared to a (recovery) of $(5.0) million for the same period in 2024.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) properties. When evaluating the net carrying value of this credit relationship at December 31, 2024, the Company utilized discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.
When evaluating the net carrying value of this credit relationship at December 31, 2025, the Company utilized DCF valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.
(Recovery) provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb expected life-of-loan losses in the loan portfolio, after giving consideration to charge-offs and recoveries for the period. 45 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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. 54 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Loan Composition The following table summarizes our loan portfolio as of the periods presented: December 31, (Dollars in Thousands) 2024 2023 2022 2021 2020 Commercial Commercial Real Estate $ 1,869,831 $ 1,670,631 $ 1,470,562 $ 1,323,252 $ 1,453,799 Commercial and Industrial 230,483 271,511 309,792 345,376 557,164 Total Commercial Loans 2,100,314 1,942,142 1,780,354 1,668,628 2,010,963 Consumer Residential Mortgages 777,471 787,929 657,948 457,988 472,170 Other Consumer 28,908 34,277 44,562 44,666 57,647 Total Consumer Loans 806,379 822,206 702,510 502,654 529,817 Construction 462,930 436,349 353,553 282,947 406,390 Other 255,203 305,213 312,496 357,900 — Total Portfolio Loans 3,624,826 3,505,910 3,148,913 2,812,129 2,947,170 Loans Held-for-Sale — — — 228 25,437 Loans Held-for-Sale in Connection with Sale of Bank Branches, at the lower of cost or fair value — — — — 9,835 Total Loans $ 3,624,826 $ 3,505,910 $ 3,148,913 $ 2,812,357 $ 2,982,442 Our loan portfolio represents our most significant source of interest income.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Loan Composition The following table summarizes our loan portfolio as of the periods presented: December 31, (Dollars in Thousands) 2025 2024 2023 2022 2021 Commercial Commercial Real Estate $ 2,114,314 $ 1,869,831 $ 1,670,631 $ 1,470,562 $ 1,323,252 Commercial and Industrial 231,921 230,483 271,511 309,792 345,376 Total Commercial Loans 2,346,235 2,100,314 1,942,142 1,780,354 1,668,628 Consumer Residential Mortgages 822,141 777,471 787,929 657,948 457,988 Other Consumer 28,416 28,908 34,277 44,562 44,666 Total Consumer Loans 850,557 806,379 822,206 702,510 502,654 Construction 465,613 462,930 436,349 353,553 282,947 Other 217,155 255,203 305,213 312,496 357,900 Total Portfolio Loans 3,879,560 3,624,826 3,505,910 3,148,913 2,812,129 Loans Held-for-Sale 339 — — — 228 Total Loans $ 3,879,899 $ 3,624,826 $ 3,505,910 $ 3,148,913 $ 2,812,357 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Securities The following table presents the composition of available-for-sale securities for the periods presented: (Dollars in Thousands) 2024 2023 $ Change U.S.
Securities The following table presents the composition of available-for-sale securities for the periods presented: (Dollars in Thousands) 2025 2024 $ Change U.S.
Discussion of noninterest expense compared to the year ended December 31, 2023 compared to the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.
Discussion of noninterest expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial 56 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through (recovery) provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes.
If any impairment of securities were determined to be credit related, the Company would recognize an ACL through 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.
For a discussion of the risk factors relevant to our business and operations, please refer to Part I, Item 1A, “Risk Factors,” contained in this Annual Report on Form 10-K for the year ended December 31, 2024.
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,” in this Annual Report on Form 10-K for the year ended December 31, 2025.
The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as determining the appropriateness of risk ratings for those loans reviewed and providing input to the loan risk rating process.
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.
During the second quarter of 2023, the Company placed $301.9 million of commercial loans that reside in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest credit relationship, on nonaccrual status due to loan maturities and failure to pay in full. These loans remained on nonaccrual status at both December 31, 2024 and December 31, 2023.
During the second quarter of 2023, the Company placed $301.9 million of commercial loans within the Other segment related to its largest lending relationship on nonaccrual status due to loan maturities and failure to pay in full.
Additional credit risk management practices include continuous reviews of trends in our lending footprint and our lending policies and procedures to support sound underwriting practices, concentrations, delinquencies and annual portfolio stress testing.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table provides detail of liquidity sources as of December 31: (Dollars in Thousands) 2024 2023 Cash and Due From Banks, including Interest-bearing Deposits $ 131,171 $ 54,529 Unpledged Investment Securities 418,350 563,537 Excess Pledged Securities 33,022 61,774 FHLB Borrowing Availability 735,294 480,266 Collateralized Lines of Credit 45,000 — Unsecured Lines of Credit Availability 30,000 50,000 Total Liquidity Sources $ 1,392,837 $ 1,210,106 The following table provides total liquidity sources and ratios as of December 31: (Dollars in Thousands) 2024 2023 Total Liquidity Sources $ 1,392,837 $ 1,210,106 Highly Liquid Assets 1 to Total Assets 10.9 % 12.8 % Highly Liquid Assets 1 to Uninsured Deposits 66.8 % 89.4 % Total Available Liquidity to Uninsured Deposits 182.6 % 187.0 % 1 Highly liquid assets consist of $91.6 million in Federal Reserve Board excess reserves and interest-bearing deposits in other financial institutions and $418.3 million in unpledged securities.
The following table provides detail of liquidity sources as of December 31: (Dollars in Thousands) 2025 2024 Cash and Due From Banks, including Interest-bearing Deposits $ 105,163 $ 131,171 Unpledged Investment Securities 402,220 418,350 Excess Pledged Securities 33,443 33,022 FHLB Borrowing Availability 609,392 735,294 Collateralized Lines of Credit 45,000 45,000 Unsecured Lines of Credit Availability 30,000 30,000 Total Liquidity Sources $ 1,225,218 $ 1,392,837 The following table provides total liquidity sources and ratios as of December 31: (Dollars in Thousands) 2025 2024 Total Liquidity Sources $ 1,225,218 $ 1,392,837 Highly Liquid Assets 1 to Total Assets 9.7 % 10.9 % Highly Liquid Assets 1 to Uninsured Deposits 59.8 % 66.8 % Total Available Liquidity to Uninsured Deposits 155.7 % 182.6 % 1 Highly liquid assets consist of $68.2 million in Federal Reserve Board excess reserves and interest-bearing deposits in other financial institutions, loans held for sale of $0.3 million and $402.2 million in unpledged securities. 74 Table of Contents CARTER BANKSHARES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Allowance for Credit Losses The following summarizes our allowance for credit loss experience at December 31 for each of the years presented: (Dollars in Thousands) 2024 2023 2022 Balance Beginning of Year $ 97,052 $ 93,852 $ 95,939 (Recovery) Provision for Credit Losses (5,039) 5,500 2,419 Charge-offs: Commercial Real Estate — — — Commercial and Industrial 40 63 3,436 Residential Mortgages 32 203 46 Other Consumer 1,759 2,665 1,677 Construction 157 42 — Other 15,000 — — Total Charge-offs 16,988 2,973 5,159 Recoveries: Commercial Real Estate — — — Commercial and Industrial 49 88 1 Residential Mortgages 31 110 99 Other Consumer 495 475 404 Construction — — 149 Other — — — Total Recoveries 575 673 653 Total Net Charge-offs 16,413 2,300 4,506 Balance End of Year $ 75,600 $ 97,052 $ 93,852 Net Charge-offs to Average Portfolio Loans 0.46% 0.07% 0.15% Allowance for Credit Losses to Total Portfolio Loans 2.09% 2.77% 2.98% Net charge-offs were $16.4 million and $2.3 million for the years ended December 31, 2024 and December 31, 2023, respectively.
Allowance for Credit Losses The following is the allocation of the ACL balance by segment at December 31 for each of the years presented: (Dollars in Thousands) 2025 2024 2023 Balance Beginning of Year $ 75,600 $ 97,052 $ 93,852 (Recovery) Provision for Credit Losses (3,637) (5,039) 5,500 Charge-offs: Commercial Real Estate — — — Commercial and Industrial 7 40 63 Residential Mortgages — 32 203 Other Consumer 879 1,759 2,665 Construction 1 157 42 Other — 15,000 — Total Charge-offs 887 16,988 2,973 Recoveries: Commercial Real Estate — — — Commercial and Industrial 6 49 88 Residential Mortgages 14 31 110 Other Consumer 394 495 475 Construction 1 — — Other — — — Total Recoveries 415 575 673 Total Net Charge-offs 472 16,413 2,300 Balance End of Year $ 71,491 $ 75,600 $ 97,052 Net Charge-offs to Average Portfolio Loans 0.01% 0.46% 0.07% Allowance for Credit Losses to Total Portfolio Loans 1.84% 2.09% 2.77% The following table presents the net charge-offs by average portfolio loan segments for the years ended December 31: (Dollars in Thousands) 2025 2024 2023 Commercial Real Estate — % — % — % Commercial and Industrial — % — % (0.01) % Residential Mortgages — % — % 0.01 % Other Consumer 1.72 % 4.10 % 5.67 % Construction — % 0.04 % 0.01 % Other — % 5.13 % — % Total 0.01 % 0.46 % 0.07 % Net charge-offs were $0.5 million and $16.4 million for the years ended December 31, 2025 and December 31, 2024.
While these guardrails do not insulate the Company from credit cycles, management believes it should reduce the experience of defaults. Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments.
While these guardrails do not eliminate exposure to credit cycles, management believes they reduce the risk of default. 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.
As a percentage of average portfolio loans, net loan charge-offs were 0.46% and 0.07% for the years ended 2024 and 2023, respectively. For information regarding the $15.0 million principal charge-off related to the Other segment of the loan portfolio, see the “Our Business and Strategy” section of this MD&A.
During the year ended December 31, 2024, net loan charge-offs were significantly impacted by the $15.0 million principal charge-off related to the Other segment of the loan portfolio. For information regarding the $15.0 million principal charge-off related to the Other segment of the loan portfolio, see the “The Company’s Business and Strategy” section of this MD&A.
The collateral for the Company’s CRE loans are geographically concentrated predominantly in North Carolina, Virginia, South Carolina, West Virginia and Georgia and within the retail/restaurant, warehouse, hospitality, multifamily, and office metrics. 53 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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. 61 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Contractual Obligations In the normal course of business, we have entered into contractual obligations that represent future cash commitments and liabilities under agreements with third parties and exclude contingent contractual liabilities for which we cannot reasonably predict future payments. The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments.
Contractual Obligations In the normal course of business, the Company enters into contractual obligations that represent future cash commitments under agreements with third parties. These obligations exclude contingent contractual liabilities for which the timing or amount of future payments cannot be reasonably estimated.
The following table presents additional information about our year-end deposits: (Dollars in Thousands) 2024 2023 Deposits from the Certificate of Deposit Account Registry Services ("CDARS") $ — $ — Noninterest-Bearing Public Funds Deposits 55,385 51,506 Interest-Bearing Public Funds Deposits 125,342 127,100 Total Deposits not Covered by Deposit Insurance 1 762,937 647,154 Certificates of Deposits not Covered by Deposit Insurance 297,938 304,968 Deposits for Certain Directors, Executive Officers and their Affiliates 2,305 1,799 1 These deposits are presented on an estimated basis.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table presents additional information about our year-end deposits: (Dollars in Thousands) 2025 2024 Noninterest-Bearing Public Funds Deposits 33,220 55,385 Interest-Bearing Public Funds Deposits 137,600 125,342 Total Deposits not Covered by Deposit Insurance 1 787,114 762,937 Certificates of Deposits not Covered by Deposit Insurance 310,723 297,938 Deposits for Certain Directors, Executive Officers and their Affiliates 3,207 2,305 1 These deposits are presented on an estimated basis.
Maturities of CDs over $250,000 or more, excluding brokered deposits, not covered by deposit insurance at December 31, 2024 are summarized as follows: (Dollars in Thousands) Amount Percent Three Months or Less $ 147,310 49.5 % Over Three Months Through Twelve Months 127,032 42.6 % Over Twelve Months Through Three Years 22,165 7.4 % Over Three Years 1,431 0.5 % Total $ 297,938 100.0 % Refer to Note 12, Deposits, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our deposits. 62 Table of Contents CARTER BANKSHARES, INC.
Maturities of CDs over $250,000 or more, excluding brokered deposits, not covered by deposit insurance at December 31, 2025 are summarized as follows: (Dollars in Thousands) Amount Percent Three Months or Less $ 108,879 35.0 % Over Three Months Through Six Months 72,884 23.5 % Over Six Months Through Twelve Months 65,384 21.0 % Over Twelve Months 63,576 20.5 % Total $ 310,723 100.0 % Refer to Note 14, Deposits, in the Notes to Consolidated Financial Statements in Item 8. of this Annual Report on Form 10-K for additional information related to our deposits.
The undrawn or unfunded portion of these facilities do not represent outstanding balances and therefore are not reflected in our financial statements as loans receivable. The Company provides lines of credit to our clients to memorialize the commitment to finance the completion of construction projects and revolving lines of credit to operating companies to finance their working capital needs.
The undrawn and unfunded portions of these facilities do not represent outstanding balances and, accordingly are not reflected as loans receivable in the consolidated financial statements. Lines of credit are primarily used to support construction financing commitments and revolving working capital needs of operating companies.
Net interest income decreased $7.9 million, or 6.4% to $114.5 million for the year ended December 31, 2024 compared to the same period in 2023. Net interest income, on an FTE basis (non-GAAP), decreased $8.1 million, or 6.6%, to $115.2 million for the year ended December 31, 2024 compared to $123.3 million for the same period in 2023.
Net interest income increased to $130.8 million for the year ended December 31, 2025, compared to $114.5 million for the year ended December 31, 2024. On an FTE basis (non-GAAP), net interest income increased to $131.5 million for the year ended December 31, 2025, compared to $115.2 million for the year ended December 31, 2024.
Refer to Note 21, Capital Adequacy, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our capital.
AND SUBSIDIARIES ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Refer to Note 6, Loans and Loans Held-for-Sale, in the Notes to Consolidated Financial Statements in Item 8. of this Annual Report on Form 10-K for additional information related to our loans.
Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms. Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due.
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.
Special mention and substandard loans at December 31, 2024 decreased $39.1 million compared to December 31, 2023, with a decrease of $42.4 million in substandard and an increase of $3.3 million in special mention.
The levels of special mention and substandard loans at December 31, 2025, compared to December 31, 2024, reflected an increase of $4.6 million in special mention and a decrease of $16.7 million in substandard loans.
States and political subdivisions comprise 30.8% of the portfolio and are largely general obligations or essential purpose revenue bonds, which have performed very well historically over all business cycles, and are rated AA and AAA. We have the ability to hold these securities to maturity and expect full recovery of the amortized cost.
States and political subdivision securities comprise 33.9% and are largely general obligations and essential purpose revenue bonds, which have historically performed well across economic cycles and are predominantly rated AA and AAA. The Company has the ability and intent to hold these securities to maturity and expects to recover the full amortized cost of these investments.
During 2024, the Company purchased $10.0 million of equity securities. The equity securities consist of our investment in a market-rate, NASDAQ listed mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States.
During 2024, the Company purchased $10.0 million of equity securities consisting of an investment in a market-rate, NASDAQ listed mutual fund that invests primarily in high quality fixed income securities, principally government agency obligations.
Refer to the accompanying Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for the expected timing of such payments as of December 31, 2024 .
The Company’s contractual obligations include arrangements that may require future cash payments, the expected timing of which is disclosed in the accompanying notes to consolidated financial statements in Item 8. of this Annual Report on Form 10-K as of December 31, 2025 .
Because letters of credit are expected to expire without being drawn upon, these commitments do not necessarily represent future cash requirements of the Company.
Because letters of credit are expected to expire without being drawn, they do not necessarily represent future cash requirements. Due to the short-term nature of these arrangements and the credit quality of counterparties, the Company has not estimated the fair value of these off-balance sheet commitments.
The following table summarizes our top 10 relationships and a description of industries represented for the periods presented: For the Periods Ending Dollars in Thousands 12/31/2024 12/31/2023 Change 2024 % of Gross Loans 2024 % of RBC 1. Hospitality, Agriculture & Energy $ 251,982 $ 301,913 $ (49,931) 6.95 % 50.32 % 2.
The following table summarizes the Company’s top 10 credit relationships and the industries represented as of the dates presented: For the Periods Ending Dollars in Thousands 12/31/2025 12/31/2024 Change 2025 % of Gross Loans 2025 % of RBC 1. Hospitality, Agriculture & Energy $ 214,020 $ 251,982 $ (37,962) 5.52 % 41.66 % 2.
The following table summarizes past due loans for the dates presented: (Dollars in Thousands) December 31, 2024 2023 Loans 30 to 89 Days Past Due Commercial Commercial Real Estate $ 2,642 $ 319 Commercial and Industrial 180 39 Total Commercial Loans 2,822 358 Consumer Residential Mortgages 917 1,881 Other Consumer 306 405 Total Consumer Loans 1,223 2,286 Construction 783 3,388 Other — — Total Loans 30 to 89 Days Past Due $ 4,828 $ 6,032 There were no loans during the year ended December 31, 2024 and December 31, 2023 that were past due more than 90 days and still accruing.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table summarizes past due loans for the dates presented: (Dollars in Thousands) December 31, 2025 December 31, 2024 Change Loans 30 to 89 Days Past Due Commercial Commercial Real Estate $ 3 $ 2,642 $ (2,639) Commercial and Industrial 159 180 (21) Total Commercial Loans 162 2,822 (2,660) Consumer Residential Mortgages 1,899 917 982 Other Consumer 267 306 (39) Total Consumer Loans 2,166 1,223 943 Construction 908 783 125 Other — — — Total Loans 30 to 89 Days Past Due $ 3,236 $ 4,828 $ (1,592) There were no portfolio loans past due more than 90 days and still accruing at December 31, 2025 or December 31, 2024.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table presents the Company's CRE loan portfolio breakout by collateral type, loan amounts for each collateral type included in special mention and substandard and the related percentages by segment to the collateral types as of the periods presented: December 31, 2024 (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 $ 415,624 $ 122 $ — $ 55,093 $ — $ 470,839 $ 451 18.5 % Warehouse 405,333 493 — 53,990 — 459,816 3,865 18.1 % Hospitality 288,505 — — 14,647 51,552 354,704 51,552 13.9 % Multifamily 286,203 — — 105,677 — 391,880 4,516 15.4 % Office 221,445 — — 7,468 508 229,421 1,080 9.0 % Land 771 — — 114,344 57,925 173,040 57,975 6.8 % Single Family 25,630 — 50,334 37,622 13,367 126,953 13,445 5.0 % Country Club 3,393 — — — 45,002 48,395 45,002 1.9 % Long-term Care 30,474 — — 17,492 — 47,966 — 1.9 % Other 197,655 389 — 36,964 7,628 242,636 12,159 9.5 % Total $ 1,875,033 $ 1,004 $ 50,334 $ 443,297 $ 175,982 $ 2,545,650 $ 190,045 100.0 % December 31, 2023 (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 $ 380,285 $ 129 $ — $ 46,241 $ 3,300 $ 429,955 $ 62 18.2 % Warehouse 324,548 514 53 48,674 — 373,789 72 15.9 % Hospitality 288,323 — — 1,229 51,552 341,104 51,552 14.5 % Multifamily 258,676 — — 127,447 — 386,123 — 16.4 % Office 217,228 — — 4,424 508 222,160 1,857 9.4 % Land 1,153 — — 119,188 92,648 212,989 93,581 9.0 % Single Family 5,770 14 47,205 13,194 13,367 79,550 13,439 3.4 % Country Club — — — — 45,002 45,002 45,002 1.9 % Long-term Care 20,172 — — 7,250 — 27,422 — 1.2 % Other 201,353 444 127 34,932 — 236,856 22,941 10.1 % Total $ 1,697,508 $ 1,101 $ 47,385 $ 402,579 $ 206,377 $ 2,354,950 $ 228,506 100.0 % CRE loans represent a portfolio concentration risk.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following table presents 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: 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 % December 31, 2024 (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 $ 415,624 $ 122 $ — $ 55,093 $ — $ 470,839 $ 451 18.5 % Warehouse 405,333 493 — 53,990 — 459,816 3,865 18.1 % Hospitality 288,505 — — 14,647 51,552 354,704 51,552 13.9 % Multifamily 286,203 — — 105,677 — 391,880 4,516 15.4 % Office 221,445 — — 7,468 508 229,421 1,080 9.0 % Land 771 — — 114,344 57,925 173,040 57,975 6.8 % Single Family 25,630 — 50,334 37,622 13,367 126,953 13,445 5.0 % Country Club 3,393 — — — 45,002 48,395 45,002 1.9 % Long-term Care 30,474 — — 17,492 — 47,966 — 1.9 % Other 197,655 389 — 36,964 7,628 242,636 12,159 9.5 % Total $ 1,875,033 $ 1,004 $ 50,334 $ 443,297 $ 175,982 $ 2,545,650 $ 190,045 100.0 % CRE loans represent a concentration of credit risk within the loan portfolio.
At December 31, 2024 and December 31, 2023, the Company had no credit related impairment. The Basel rules permit most banking organizations to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.
At December 31, 2025 and December 31, 2024, 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 majority of unused commitments are for construction projects that will be drawn as the construction progresses toward completion. Total utilization was 53.8% at December 31, 2024 and 53.8% at December 31, 2023. Unfunded commitments on commercial operating lines of credit was 53.8% at December 31, 2024 and 53.7% at December 31, 2023.
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 53.2% at December 31, 2025, compared to 53.8% at December 31, 2024. Utilization of commercial operating lines of credit was 52.8% at December 31, 2025, compared to 53.8% at December 31, 2024.
The following is the allocation of the ACL balance by segment as of December 31 for the years presented below: 2024 2023 (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 $ 20,146 51.6 % $ 19,873 47.7 % Commercial & Industrial 2,791 6.4 % 3,286 7.7 % Residential Mortgages 10,389 21.4 % 10,879 22.5 % Other Consumer 682 0.8 % 868 1.0 % Construction 11,297 12.8 % 7,792 12.4 % Other 30,295 7.0 % 54,354 8.7 % Balance End of Year $ 75,600 100.0 % $ 97,052 100.0 % The ACL was $75.6 million, or 2.09%, of total portfolio loans at December 31, 2024 compared to $97.1 million, or 2.77%, of total portfolio loans at December 31, 2023. 60 Table of Contents CARTER BANKSHARES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) impacted by the $15.0 million principal charge-off related to the Other segment of the loan portfolio, discussed in more detail above under “(Recovery) Provision for Credit Losses” and “The Company’s Business and Strategy.” The following is the allocation of the ACL balance by segment as of December 31 for the years presented below: 2025 2024 (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 $ 22,526 54.5 % $ 20,146 51.6 % Commercial & Industrial 2,790 6.0 % 2,791 6.4 % Residential Mortgages 12,449 21.2 % 10,389 21.4 % Other Consumer 638 0.7 % 682 0.8 % Construction 15,020 12.0 % 11,297 12.8 % Other 18,068 5.6 % 30,295 7.0 % Balance End of Year $ 71,491 100.0 % $ 75,600 100.0 % The ACL was $71.5 million, or 1.84%, of total portfolio loans at December 31, 2025 compared to $75.6 million, or 2.09%, of total portfolio loans at December 31, 2024.
Total portfolio loans increased $118.9 million, or 3.4%, to $3.6 billion at December 31, 2024 compared to December 31, 2023 with production primarily in our CRE and construction loan portfolios. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations.
CRE loans represented 54.5% of total portfolio loans at December 31, 2025, compared to 51.6% at December 31, 2024. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant exposure.
Noninterest Income Years Ended December 31, (Dollars in Thousands) 2024 2023 $ Change % Change Gains (Losses) on Sales of Securities, net $ 68 $ (1,521) $ 1,589 104.5 % Service Charges, Commissions and Fees 7,393 7,155 238 3.3 % Debit Card Interchange Fees 7,843 7,828 15 0.2 % Insurance Commissions 3,685 1,945 1,740 89.5 % Bank Owned Life Insurance Income 1,473 1,381 92 6.7 % Commercial Loan Swap Fee Income — 139 (139) (100.0) % Other 906 1,351 (445) (32.9) % Total Noninterest Income $ 21,368 $ 18,278 $ 3,090 16.9 % For the year ended December 31, 2024, total noninterest income was $21.4 million, an increase of $3.1 million, or 16.9%, from the same period in 2023.
Noninterest Income Years Ended December 31, (Dollars in Thousands) 2025 2024 $ Change % Change Gains (Losses) on Sales of Securities, net $ 46 $ 68 $ (22) (32.4) % Service Charges, Commissions and Fees 7,312 7,393 (81) (1.1) % Debit Card Interchange Fees 7,935 7,843 92 1.2 % Insurance Commissions 2,728 3,685 (957) (26.0) % Bank Owned Life Insurance Income 1,511 1,473 38 2.6 % Other 2,872 906 1,966 217.0 % Total Noninterest Income $ 22,404 $ 21,368 $ 1,036 4.8 % Total noninterest income increased $1.0 million, or 4.8%, for the year ended December 31, 2025, compared to the same period in 2024.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Capital Resources The following table summarizes ratios for the Company and the Bank at December 31: 2024 2023 Leverage Ratio Carter Bankshares, Inc. 9.56 % 9.48 % Carter Bank and Trust 9.42 % 9.41 % Common Equity Tier 1 Carter Bankshares, Inc. 10.88 % 11.08 % Carter Bank and Trust 10.72 % 10.99 % Tier 1 Ratio Carter Bankshares, Inc. 10.88 % 11.08 % Carter Bank and Trust 10.72 % 10.99 % Total Risk-Based Capital Ratio Carter Bankshares, Inc. 12.13 % 12.34 % Carter Bank and Trust 11.98 % 12.25 % Total capital of $384.3 million at December 31, 2024, reflects an increase of $33.1 million compared to December 31, 2023.
Capital Resources The following table summarizes ratios for the Company and the Bank at December 31: 2025 2024 Leverage Ratio Carter Bankshares, Inc. 9.43 % 9.56 % Carter Bank and Trust 9.01 % 9.42 % Common Equity Tier 1 Carter Bankshares, Inc. 10.70 % 10.88 % Carter Bank and Trust 10.23 % 10.72 % Tier 1 Ratio Carter Bankshares, Inc. 10.70 % 10.88 % Carter Bank and Trust 10.23 % 10.72 % Total Risk-Based Capital Ratio Carter Bankshares, Inc. 11.95 % 12.13 % Carter Bank and Trust 11.49 % 11.98 % Total capital increased to $419.7 million at December 31, 2025, up $35.4 million from December 31, 2024.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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: 2024 Compared to 2023 2023 Compared to 2022 (Dollars in Thousands) Volume 3 Rate 3 Increase/ (Decrease) Volume 3 Rate 3 Increase/ (Decrease) Interest Earned on: Interest-Bearing Deposits with Banks $ 1,233 $ (10) $ 1,223 $ (316) $ 1,041 $ 725 Tax-free Investment Securities 2 (448) (15) (463) (83) 9 (74) Taxable Investment Securities (2,548) 1,254 (1,294) (1,111) 11,585 10,474 Total Securities (2,996) 1,239 (1,757) (1,194) 11,594 10,400 Tax-free Loans 1, 2 (670) 44 (626) (666) 76 (590) Taxable Loans 1 13,266 13,418 26,684 17,526 6,736 24,262 Total Loans 12,596 13,462 26,058 16,860 6,812 23,672 Federal Home Loan Bank Stock (490) 46 (444) 1,187 115 1,302 Total Interest-Earning Assets $ 10,343 $ 14,737 $ 25,080 $ 16,537 $ 19,562 $ 36,099 Interest Paid on: Interest-Bearing Demand $ 675 $ 5,576 $ 6,251 $ (20) $ 1,171 $ 1,151 Money Market 1,385 5,225 6,610 (293) 7,319 7,026 Savings (177) 139 (38) (188) 32 (156) Certificates of Deposit 11,546 18,434 29,980 1,990 24,001 25,991 Total Interest-Bearing Deposits 13,429 29,374 42,803 1,489 32,523 34,012 Federal Home Loan Bank Borrowings (9,197) (246) (9,443) 19,157 502 19,659 Federal Funds Purchased (184) (184) (368) 50 130 180 Other Borrowings 138 32 170 21 (16) 5 Total Borrowings (9,243) (398) (9,641) 19,228 616 19,844 Total Interest-Bearing Liabilities $ 4,186 $ 28,976 $ 33,162 $ 20,717 $ 33,139 $ 53,856 Change in Net Interest Margin $ 6,157 $ (14,239) $ (8,082) $ (4,180) $ (13,577) $ (17,757) 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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: 2025 Compared to 2024 2024 Compared to 2023 (Dollars in Thousands) Volume 3 Rate 3 Increase/ (Decrease) Volume 3 Rate 3 Increase/ (Decrease) Interest Earned on: Interest-Bearing Deposits with Banks $ 922 $ (403) $ 519 $ 1,233 $ (10) $ 1,223 Tax-free Investment Securities 2 (5) 1 (4) (448) (15) (463) Taxable Investment Securities (1,022) (2,200) (3,222) (2,548) 1,254 (1,294) Total Securities (1,027) (2,199) (3,226) (2,996) 1,239 (1,757) Commercial Real Estate 13,572 (1,958) 11,614 11,788 7,319 19,107 Commercial & Industrial 2 (309) (1,400) (1,709) (2,471) 1,204 (1,267) Residential Mortgages 452 340 792 3,822 3,009 6,831 Other Consumer (174) (432) (606) (570) (373) (943) Construction 1,885 1,516 3,401 2,713 (383) 2,330 Other — — — — — — Total Loans 1 15,426 (1,934) 13,492 15,282 10,776 26,058 Other Restricted Stock, at Cost (288) (108) (396) (490) 46 (444) Total Interest-Earning Assets $ 15,033 $ (4,644) $ 10,389 $ 13,029 $ 12,051 $ 25,080 Interest Paid on: Interest-Bearing Demand $ 3,523 $ 1,099 $ 4,622 $ 675 $ 5,576 $ 6,251 Money Market 866 (2,703) (1,837) 1,385 5,225 6,610 Savings (79) 21 (58) (177) 139 (38) Certificates of Deposit 4,565 (6,539) (1,974) 11,546 18,434 29,980 Total Interest-Bearing Deposits 8,875 (8,122) 753 13,429 29,374 42,803 Federal Home Loan Bank Borrowings (4,954) (1,777) (6,731) (9,197) (246) (9,443) Federal Funds Purchased — — — (184) (184) (368) Other Borrowings 89 19 108 138 32 170 Total Borrowings (4,865) (1,758) (6,623) (9,243) (398) (9,641) Total Interest-Bearing Liabilities $ 4,010 $ (9,880) $ (5,870) $ 4,186 $ 28,976 $ 33,162 Change in Net Interest Margin $ 11,023 $ 5,236 $ 16,259 $ 8,843 $ (16,925) $ (8,082) 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.
The Company has unsecured facilities with three other correspondent financial institutions totaling $30.0 million, a fully secured facility with one other correspondent financial institution totaling $45.0 million, and access to the institutional CD market, and the brokered deposit market. The Company did not have outstanding borrowings on these fed funds lines as of December 31, 2024.
The Company also maintains unsecured borrowing facilities with three correspondent banks totaling $30.0 million and a fully secured facility with one other correspondent bank totaling $45.0 million. There were no outstanding borrowings under these facilities at December 31, 2025. The Company also had access to the institutional CD and brokered deposit markets.
We may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative. The Company’s investment securities with intermediate and long-term maturities were the largest driver of these gross unrealized losses, as the market values of these securities are significantly impacted by the Treasury yield curve for similar durations (i.e., 5- and 10-year Treasury securities).
The Company may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative. Unrealized losses were concentrated primarily in securities with intermediate and long-term maturities, whose market values are most sensitive to movements in the U.S. Treasury yield curve, particularly the five year and ten year maturities.
The following tables represent credit exposures by internally assigned risk ratings as of December 31, 2024 and 2023: December 31, 2024 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total Pass $ 1,860,313 $ 227,412 $ 772,514 $ 28,888 $ 458,223 $ 3,221 $ 3,350,571 Special Mention 2,460 — 92 — 4,479 — 7,031 Substandard 7,058 3,071 4,865 20 228 251,982 267,224 Total Portfolio Loans $ 1,869,831 $ 230,483 $ 777,471 $ 28,908 $ 462,930 $ 255,203 $ 3,624,826 Performing Loans $ 1,868,655 $ 229,405 $ 772,606 $ 28,888 $ 462,702 $ 3,221 $ 3,365,477 Nonaccrual Loans 1,176 1,078 4,865 20 228 251,982 259,349 Total Portfolio Loans $ 1,869,831 $ 230,483 $ 777,471 $ 28,908 $ 462,930 $ 255,203 $ 3,624,826 December 31, 2023 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total Pass $ 1,669,029 $ 268,622 $ 784,090 $ 34,202 $ 433,321 $ 3,300 $ 3,192,564 Special Mention 278 2,837 525 — 60 — 3,700 Substandard 1,324 52 3,314 75 2,968 301,913 309,646 Total Portfolio Loans $ 1,670,631 $ 271,511 $ 787,929 $ 34,277 $ 436,349 $ 305,213 $ 3,505,910 Performing Loans $ 1,669,307 $ 271,459 $ 784,646 $ 34,218 $ 433,445 $ 3,300 $ 3,196,375 Nonaccrual Loans 1,324 52 3,283 59 2,904 301,913 309,535 Total Portfolio Loans $ 1,670,631 $ 271,511 $ 787,929 $ 34,277 $ 436,349 $ 305,213 $ 3,505,910 At December 31, 2024 and December 31, 2023, the Company had no loans that were risk rated as doubtful.
The following tables represent credit exposures by internally assigned risk ratings as of December 31, 2025 and 2024: 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 December 31, 2024 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total Pass $ 1,860,313 $ 227,412 $ 772,514 $ 28,888 $ 458,223 $ 3,221 $ 3,350,571 Special Mention 2,460 — 92 — 4,479 — 7,031 Substandard 7,058 3,071 4,865 20 228 251,982 267,224 Total Portfolio Loans $ 1,869,831 $ 230,483 $ 777,471 $ 28,908 $ 462,930 $ 255,203 $ 3,624,826 Performing Loans $ 1,868,655 $ 229,405 $ 772,606 $ 28,888 $ 462,702 $ 3,221 $ 3,365,477 Nonaccrual Loans 1,176 1,078 4,865 20 228 251,982 259,349 Total Portfolio Loans $ 1,869,831 $ 230,483 $ 777,471 $ 28,908 $ 462,930 $ 255,203 $ 3,624,826 At December 31, 2025 and December 31, 2024, the Company had no loans classified as doubtful.
Closed retail bank offices had a book value of $0.7 million at December 31, 2024 and $2.3 million at December 31, 2023, and are included in OREO on the Consolidated Balance Sheets. The ACL was 2.09% of total portfolio loans at December 31, 2024 compared to 2.77% as of December 31, 2023.
Closed retail bank offices, recorded in OREO on the Consolidated Balance Sheets, had a book value of $0.1 million at December 31, 2025 compared to $0.7 million at December 31, 2024. During the year ended December 31, 2025, the Bank transferred three closed retail branch properties to OREO.
The (recovery) provision for unfunded commitments decreased $0.9 million for the year ended December 31, 2024 compared to the same period in 2023. The decrease was due to decreased commitments in construction loans in 2024. The reserve for unfunded commitments is largely comprised of unfunded commitments related to real estate construction loans and pressure on the reserve rates.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The (recovery) provision for unfunded commitments decreased $0.2 million for the year ended December 31, 2025 compared to the same period in 2024. The decline was due to decreased unfunded commitments in construction loans in 2025.
Noninterest Expense (Dollars in Thousands) Years Ended December 31, 2024 2023 $ Change % Change Salaries and Employee Benefits $ 57,908 $ 55,856 $ 2,052 3.7 % Occupancy Expense, net 15,608 14,028 1,580 11.3 % FDIC Insurance Expense 6,200 4,904 1,296 26.4 % Other Taxes 3,559 3,292 267 8.1 % Advertising Expense 2,540 1,693 847 50.0 % Telephone Expense 1,393 1,842 (449) (24.4) % Professional and Legal Fees 5,675 6,210 (535) (8.6) % Data Processing 4,919 3,920 999 25.5 % Debit Card Expense 3,423 2,875 548 19.1 % Other 8,777 10,846 (2,069) (19.1) % Total Noninterest Expense $ 110,002 $ 105,466 $ 4,536 4.3 % For the year ended December 31, 2024, total noninterest expense was $110.0 million, an increase of $4.5 million, or 4.3%, from the same period in 2023.
Noninterest Expense (Dollars in Thousands) Years Ended December 31, 2025 2024 $ Change % Change Salaries and Employee Benefits $ 57,743 $ 57,908 $ (165) (0.3) % Occupancy Expense, net 17,620 15,608 2,012 12.9 % FDIC Insurance Expense 5,843 6,200 (357) (5.8) % Other Taxes 3,612 3,559 53 1.5 % Advertising Expense 3,171 2,540 631 24.8 % Telephone Expense 1,216 1,393 (177) (12.7) % Professional and Legal Fees 6,877 5,675 1,202 21.2 % Data Processing 5,698 4,919 779 15.8 % Debit Card Expense 4,192 3,423 769 22.5 % Other 11,082 8,777 2,305 26.3 % Total Noninterest Expense $ 117,054 $ 110,002 $ 7,052 6.4 % Noninterest expense totaled $117.1 million for the year ended December 31, 2025, representing an increase of $7.1 million, or 6.4% compared to 2024.
This strategy gives us flexibility to manage the structure and pricing of our deposit and borrowing portfolios to reduce future funding costs should the Federal Open Market Committee (“FOMC”) continue cutting short-term rates in the future.
Specifically, 71.7% of our CD portfolio and 77.6% of our outstanding FHLB borrowings will mature and reprice over the next 12 months. This strategy gives the Company flexibility to manage the structure and pricing of its deposit and borrowing portfolios to reduce future funding costs should the FOMC continue cutting short-term rates in the future.
Government Agency Securities 26,950 43,827 (16,877) Residential Mortgage-Backed Securities 96,153 99,150 (2,997) Commercial Mortgage-Backed Securities 21,587 31,163 (9,576) Other Commercial Mortgage-Backed Securities 21,970 21,856 114 Asset Backed Securities 118,521 140,006 (21,485) Collateralized Mortgage Obligations 148,588 161,533 (12,945) States and Political Subdivisions 221,181 222,108 (927) Corporate Notes 63,450 59,360 4,090 Total $ 718,400 $ 779,003 $ (60,603) The balances and average rates of our available-for-sale securities portfolio are presented below as of December 31: (Dollars in Thousands) 2024 2023 Balance Weighted- Average Yield Balance Weighted- Average Yield U.S.
Government Agency Securities 19,375 26,950 (7,575) Residential Mortgage-Backed Securities 76,773 96,153 (19,380) Commercial Mortgage-Backed Securities 25,122 21,587 3,535 Other Commercial Mortgage-Backed Securities 24,254 21,970 2,284 Asset Backed Securities 94,797 118,521 (23,724) Collateralized Mortgage Obligations 161,820 148,588 13,232 States and Political Subdivisions 234,224 221,181 13,043 Corporate Notes 55,247 63,450 (8,203) Total $ 691,612 $ 718,400 $ (26,788) The balances and average rates of our available-for-sale securities portfolio are presented below as of December 31: (Dollars in Thousands) 2025 2024 Balance Weighted-Average Yield 1, 2 Balance Weighted-Average Yield 1, 2 U.S.
Changes in intermediate and long-term interest rates, which are market driven, affect the market value of fixed rate securities with similar maturities. The Company expects that market values on the Bank’s intermediate and long-term maturity holdings will continue to fluctuate in large part driven by treasury yield changes. At December 31, 2024 the 5-year and 10-year U.S.
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.
If the Federal Reserve continues reducing short-term interest rates, the Bank may consider changes to this interest rate mix strategy going forward. Interest expense for the year ended December 31, 2024 increased $33.2 million, or 44.7%, to $107.3 million compared to the same period in 2023.
If the Federal Reserve continues reducing short-term interest rates, the Bank may consider changes to this interest rate mix strategy going forward. Average interest-bearing liabilities increased to $3.7 billion in 2025 from $3.5 billion in 2024, primarily due to growth in interest-bearing deposits.
Loans past due 30 to 89 days or more and still accruing decreased $1.2 million to $4.8 million at December 31, 2024 compared to $6.0 million at December 31, 2023, primarily in the residential mortgage and construction 58 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Loans past due 30 to 89 days and still accruing decreased by $1.6 million to $3.2 million at December 31, 2025, compared to $4.8 million at December 31, 2024.
The Company’s investment in the mutual fund is eligible for investment credit under the CRA. 51 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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. 59 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including loans that are at risk for becoming delinquent and early stage delinquencies in order to identify emerging patterns and potential problem loans.
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. 66 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
A department independent of our lending group monitors construction commitments of $1.0 million or greater and/or based on management’s discretion. Lines of credit to operating companies to finance working capital include a maturity date and may include various financial covenants.
A department independent of the lending function monitors construction commitments of $1.0 million or greater, based on management’s discretion. Lines of credit to operating companies typically include stated maturity dates and may be subject to financial covenants. The Company issues letters of credit primarily to assure municipalities that construction projects will be completed in accordance with approved plans and specifications.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years Ended December 31, (Dollars in Thousands) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholder's Equity Balance January 1, 2022 $ 26,431 $ 143,988 $ 235,475 $ 1,702 $ 407,596 Net Income — — 50,118 — 50,118 Other Comprehensive Loss, Net of Tax — — — (87,318) (87,318) Repurchase of Common Stock (2,587,361 shares) (2,587) (40,340) — — (42,927) Forfeiture of Restricted Stock (14,141 shares) (14) (142) — — (156) Issuance of Restricted Stock (127,355 shares) 127 (127) — — — Recognition of Restricted Stock Compensation Expense — 1,314 — — 1,314 Balance December 31, 2022 $ 23,957 $ 104,693 $ 285,593 $ (85,616) $ 328,627 Cumulative Effect of the Adoption of ASU 2023-02 — — 106 — 106 Balance at January 1, 2023 23,957 104,693 285,699 (85,616) 328,733 Net Income — — 23,384 — 23,384 Other Comprehensive Income, Net of Tax — — — 14,177 14,177 1% Excise Tax on Stock Buybacks — (153) — — (153) Repurchase of Common Stock (1,132,232 shares) (1,132) (15,284) — — (16,416) Forfeiture of Restricted Stock (5,333 shares) (5) (38) — — (43) Issuance of Restricted Stock (137,097 shares) 137 (137) — — — Recognition of Restricted Stock Compensation Expense — 1,561 — — 1,561 Balance December 31, 2023 $ 22,957 $ 90,642 $ 309,083 $ (71,439) $ 351,243 Net Income — — 24,523 — 24,523 Other Comprehensive Income, Net of Tax — — — 6,918 6,918 Forfeiture of Restricted Stock (15,244 shares) (16) (107) — — (123) Issuance of Restricted Stock (128,115 shares) 128 (128) — — — Recognition of Restricted Stock Compensation Expense — 1,752 — — 1,752 Balance December 31, 2024 $ 23,069 $ 92,159 $ 333,606 $ (64,521) $ 384,313 See accompanying notes to audited Consolidated Financial Statements. 74 Table of Contents CARTER BANKSHARES, INC.
Biggest changeFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years Ended December 31, (Dollars in Thousands) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholder's Equity Balance December 31, 2022 $ 23,957 $ 104,693 $ 285,593 $ (85,616) $ 328,627 Cumulative Effect of the Adoption of ASU 2023-02 — — 106 — 106 Balance at January 1, 2023 $ 23,957 $ 104,693 $ 285,699 $ (85,616) $ 328,733 Net Income — — 23,384 — 23,384 Other Comprehensive Income, Net of Tax — — — 14,177 14,177 1% Excise Tax on Stock Buybacks — (153) — — (153) Repurchase of Common Stock (1,132,232 shares) (1,132) (15,284) — — (16,416) Forfeiture of Restricted Stock (5,333 shares) (5) (38) — — (43) Issuance of Restricted Stock (137,097 shares) 137 (137) — — — Recognition of Restricted Stock Compensation Expense — 1,561 — — 1,561 Balance December 31, 2023 $ 22,957 $ 90,642 $ 309,083 $ (71,439) $ 351,243 Net Income — — 24,523 — 24,523 Other Comprehensive Income, Net of Tax — — — 6,918 6,918 Forfeiture of Restricted Stock (15,244 shares) (16) (107) — — (123) Issuance of Restricted Stock (128,115 shares) 128 (128) — — — Recognition of Restricted Stock Compensation Expense — 1,752 — — 1,752 Balance December 31, 2024 $ 23,069 $ 92,159 $ 333,606 $ (64,521) $ 384,313 Net Income — — 31,362 — 31,362 Other Comprehensive Income, Net of Tax — — — 22,361 22,361 1% Excise Tax on Stock Buybacks — (181) — — (181) Repurchase of Common Stock (1,124,690 shares) (1,125) (18,875) — — (20,000) Forfeiture of Restricted Stock (23,670 shares) (23) (206) — — (229) Issuance of Restricted Stock (162,192 shares) 162 (162) — — — Recognition of Restricted Stock Compensation Expense — 2,071 — — 2,071 Balance December 31, 2025 $ 22,083 $ 74,806 $ 364,968 $ (42,160) $ 419,697 See accompanying notes to audited Consolidated Financial Statements. 83 Table of Contents CARTER BANKSHARES, INC.
December 31, 2024 December 31, 2023 Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income 200 1.9% (1.1)% 100 1.1% (0.3)% -100 2.1% 2.4% -200 4.6% 4.4% -300 6.8% 5.6% -400 6.6% 6.7% The results from the earnings simulation imply that the Company’s balance sheet is slightly liability sensitive balance sheet at December 31, 2024 and December 31, 2023.
December 31, 2025 December 31, 2024 Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income 200 (1.0) % 1.9 % 100 (0.3) % 1.1 % -100 3.1 % 2.1 % -200 6.2 % 4.6 % -300 6.1 % 6.8 % -400 4.8 % 6.6 % The results from the earnings simulation imply that the Company’s balance sheet is liability sensitive at December 31, 2025 and December 31, 2024.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (continued) The following tables reflect the earnings simulation results for the periods presented utilizing a forecasted static balance sheet over the next twelve months. All percentage changes presented are within prescribed ranges set by ALCO.
AND SUBSIDIARIES ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following tables reflect the earnings simulation results at the dates presented utilizing a forecasted static balance sheet over the next twelve months. All percentage changes presented are within prescribed ranges set by ALCO.
December 31, 2024 December 31, 2023 Change in Interest Rate (basis points) % Change in Economic Value of Equity % Change in Economic Value of Equity 200 (8.3) % (4.7) % 100 (3.3) % (1.8) % -100 2.4 % 0.9 % -200 3.8 % 0.5 % -300 2.9 % (2.7) % -400 (1.9) % (10.9) % 69 Table of Contents CARTER BANKSHARES, INC.
December 31, 2025 December 31, 2024 Change in Interest Rate (basis points) % Change in Economic Value of Equity % Change in Economic Value of Equity 200 (7.9) % (8.3) % 100 (3.1) % (3.3) % -100 2.0 % 2.4 % -200 2.6 % 3.8 % -300 (0.4) % 2.9 % -400 (9.9) % (1.9) % 78 Table of Contents CARTER BANKSHARES, INC.
Economic Value of Equity Modeling Economic value of equity simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. The ALM calculates the economic value of equity based on discounted cash flow analysis.
Economic Value of Equity Modeling Economic value of equity simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. The ALM calculates the economic value of equity based on DCF analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31, (Dollars in Thousands) 2024 2023 2022 Net Income $ 24,523 $ 23,384 $ 50,118 Other Comprehensive Income (Loss): Net Unrealized Gains (Losses) on Securities Available-for-Sale: Net Unrealized Gains (Losses) Arising during the Period 9,270 16,370 (111,542) Reclassification Adjustment for (Gains) Losses included in Net Income (68) 1,521 (46) Tax Effect (2,284) (3,714) 24,270 Net Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) 6,918 14,177 (87,318) Other Comprehensive Income (Loss): 6,918 14,177 (87,318) Comprehensive Income (Loss) $ 31,441 $ 37,561 $ (37,200) See accompanying notes to audited Consolidated Financial Statements. 73 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, (Dollars in Thousands) 2025 2024 2023 Net Income $ 31,362 $ 24,523 $ 23,384 Other Comprehensive Income: Net Unrealized Gains on Securities Available-for-Sale: Net Unrealized Gains Arising during the Period 28,633 9,270 16,370 Reclassification Adjustment for (Gains) Losses included in Net Income (46) (68) 1,521 Tax Effect (6,226) (2,284) (3,714) Net Unrealized Gains Recognized in Other Comprehensive Income 22,361 6,918 14,177 Other Comprehensive Income: 22,361 6,918 14,177 Comprehensive Income $ 53,723 $ 31,441 $ 37,561 See accompanying notes to audited Consolidated Financial Statements. 82 Table of Contents CARTER BANKSHARES, INC.
The liability sensitive position at December 31, 2024 is due to a variety of factors which include 1) higher than market rate unfunded loan commitments that were originated during 2024 with fixed rates that are assumed to draw down, or convert to funded loan balances during the next twelve months, 2) shortening maturities of the time deposit portfolio due to shorter term time deposit promotional campaigns in response to the recent inverted yield curve, and 3) more aggressive non maturing deposit betas utilized in a rates down environment versus a rates up environment based on bank specific non maturing deposit rate beta assumptions observed during the most recent rate cycle.
The liability sensitive position at December 31, 2025 is due to a variety of factors which include 1) higher than market rate unfunded loan commitments that were originated during 2024 and early 2025 with fixed rates that are assumed to draw down, or convert to funded loan balances, during the next twelve months, 2) shortened maturities of the time deposit portfolio due to shorter term time deposit promotional campaigns in response to the inversion in the shorter end of the yield curve where financial institutions typically offer time deposit products (overnight out to five years) that began early in the first quarter of 2023 and continues today, and 3) more aggressive non maturing deposit betas utilized in a rates down environment versus a rates up environment based on bank specific non-maturing deposit rate beta assumptions observed during the most recent rate cycle.
The above table indicates that, in a rising interest rate environment, the Company is positioned to have a small increase in net interest income for the same asset and liability mix due to the balance sheet composition, related maturity structures, and repricing correlations to market interest rates for assets and liabilities.
The above table indicates that as of December 31, 2025, in a rising interest rate environment, the Company is positioned to have a small decrease in net interest income due to the balance sheet composition, related maturity structures, and repricing correlations to market interest rates for assets and liabilities.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements Consolidated Balance Sheets 71 Consolidated Statements of Income 72 Consolidated Statements of Comprehensive Income (Loss) 73 Consolidated Statements of Changes in Shareholders’ Equity 74 Consolidated Statements of Cash Flows 75 Notes to Consolidated Financial Statements 77 Report of Crowe LLP, Independent Registered Public Accounting Firm (PCAOB ID 173 ), on Consolidated Financial Statements and Effectiveness of Internal Controls Over Financial Reporting 125 70 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements Consolidated Balance Sheets 80 Consolidated Statements of Income 81 Consolidated Statements of Comprehensive Income (Loss) 82 Consolidated Statements of Changes in Shareholders’ Equity 83 Consolidated Statements of Cash Flows 84 Notes to Consolidated Financial Statements 86 Report of Crowe LLP, Independent Registered Public Accounting Firm (PCAOB ID 173 ), on Consolidated Financial Statements and Effectiveness of Internal Controls Over Financial Reporting 138 79 Table of Contents CARTER BANKSHARES, INC.
SHAREHOLDERS’ EQUITY Common Stock, Par Value $1.00 Per Share, Authorized 100,000,000 Shares; Outstanding - 23,069,175 shares at December 31, 2024, and 22,956,304 shares at December 31, 2023 23,069 22,957 Additional Paid-in Capital 92,159 90,642 Retained Earnings 333,606 309,083 Accumulated Other Comprehensive Loss (64,521) (71,439) Total Shareholders’ Equity 384,313 351,243 Total Liabilities and Shareholders’ Equity $ 4,659,189 $ 4,512,539 See accompanying notes to audited Consolidated Financial Statements. 71 Table of Contents CARTER BANKSHARES, INC.
SHAREHOLDERS’ EQUITY Common Stock, Par Value $1.00 Per Share, Authorized 100,000,000 Shares; Outstanding - 22,083,007 shares at December 31, 2025, and 23,069,175 shares at December 31, 2024 22,083 23,069 Additional Paid-in Capital 74,806 92,159 Retained Earnings 364,968 333,606 Accumulated Other Comprehensive Loss (42,160) (64,521) Total Shareholders’ Equity 419,697 384,313 Total Liabilities and Shareholders’ Equity $ 4,851,922 $ 4,659,189 See accompanying notes to audited Consolidated Financial Statements. 80 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (Dollars in Thousands) 2024 2023 2022 OPERATING ACTIVITIES Net Income $ 24,523 $ 23,384 $ 50,118 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (Recovery) Provision for Credit Losses, including (Recovery) Provision for Unfunded Commitments (5,046) 6,401 2,928 Origination of Loans Held-for-Sale (8,953) (6,758) (8,047) Proceeds From Loans Held-for-Sale 9,091 6,867 10,184 Depreciation/Amortization of Bank Premises and Equipment 7,055 6,248 6,063 Provision for Deferred Taxes 2,689 368 3,630 Net Amortization of Securities 3,592 6,354 5,749 Tax Credit Amortization 517 2,101 621 Gains on Sales of Loans Held-for-Sale (138) (109) (396) (Gains) Losses on Sales of Securities, net (68) 1,521 (46) Unrealized Gain on Equity Securities (41) — — Commercial Loan Swap Derivative Loss (Income) 12 219 (605) Increase in the Value of Life Insurance Contracts (1,473) (1,381) (1,357) Balance Sheet Hedge Fair Value Adjustment 125 — — Recognition of Restricted Stock Compensation Expense 1,752 1,561 1,314 Decrease (Increase) in Other Assets 1,614 (3,849) (2,914) Increase in Other Liabilities 1,687 3,803 3,549 Net Cash Provided By Operating Activities 36,938 46,730 70,791 INVESTING ACTIVITIES Securities Available-for-Sale: Proceeds from Sales 17,953 43,323 19,777 Proceeds from Maturities, Redemptions, and Pay-downs 63,454 48,901 84,693 Purchases (15,126) (24,938) (135,634) Purchase of Equity Securities (10,000) — — Purchase of Bank Premises and Equipment, Net (8,133) (9,798) (5,890) Proceeds from Sales of Bank Premises and Equipment, net — — 408 Redemption (Purchase) of Federal Home Loan Bank Stock, net 15,139 (11,886) (7,388) Loan Originations, net (135,888) (359,407) (342,877) Proceeds from Sales and Payments of Other Real Estate Owned 4,199 6,794 4,840 Net Cash Used In Investing Activities (68,402) (307,011) (382,071) FINANCING ACTIVITIES Net Change in Demand, Money Markets and Savings Accounts 93,787 (235,748) 14,649 Increase (Decrease) in Certificates of Deposits 337,719 325,125 (82,792) Proceeds from Federal Home Loan Bank Borrowings 1,870,000 3,441,685 300,550 Repayments on Federal Home Loan Bank Borrowings (2,193,400) (3,228,835) (127,000) (Repayments) Proceeds from Federal Funds Purchased, net — (17,870) 17,870 Repurchase of Common Stock — (16,416) (42,927) Net Cash Provided By Financing Activities 108,106 267,941 80,350 Net Increase (Decrease) in Cash and Cash Equivalents 76,642 7,660 (230,930) Cash and Cash Equivalents at Beginning of Period 54,529 46,869 277,799 Cash and Cash Equivalents at End of Period $ 131,171 $ 54,529 $ 46,869 See accompanying notes to audited Consolidated Financial Statements. 75 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (Dollars in Thousands) 2025 2024 2023 OPERATING ACTIVITIES Net Income $ 31,362 $ 24,523 $ 23,384 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (Recovery) Provision for Credit Losses, including (Recovery) Provision for Unfunded Commitments (3,831) (5,046) 6,401 Origination of Loans Held-for-Sale (29,524) (8,953) (6,758) Proceeds From Loans Held-for-Sale 29,342 9,091 6,867 Depreciation/Amortization of Bank Premises and Equipment 7,859 7,055 6,248 Provision for Deferred Taxes 2,171 2,689 368 Net Amortization of Securities 3,172 3,592 6,354 Tax Credit Amortization 649 517 2,101 Gains on Sales of Loans Held-for-Sale (157) (138) (109) (Gains) Losses on Sales of Securities, net (46) (68) 1,521 Unrealized Gain on Equity Securities (250) (41) — Commercial Loan Swap Derivative Loss 107 12 219 Increase in the Value of Life Insurance Contracts (1,511) (1,473) (1,381) Gain on Bank Owned Life Insurance Death Benefit (1,882) — — 1035 Exchange Fee on Bank Owned Life Insurance 660 — — Balance Sheet Hedge Fair Value Adjustment 140 125 — Recognition of Restricted Stock Compensation Expense 2,071 1,752 1,561 Decrease (Increase) in Other Assets 1,859 1,614 (3,849) (Decrease) Increase in Other Liabilities (2,329) 1,687 3,803 Net Cash Provided By Operating Activities 39,862 36,938 46,730 INVESTING ACTIVITIES Securities Available-for-Sale: Proceeds from Sales 19,010 17,953 43,323 Proceeds from Maturities, Redemptions, and Paydowns 96,923 63,454 48,901 Purchases (63,684) (15,126) (24,938) Purchase of Equity Securities — (10,000) — Purchase of Bank Premises and Equipment, Net (8,055) (8,133) (9,798) Net Cash Acquired from Branch Purchase 53,573 — — (Purchase) Redemption of Other Restricted Stock, net (10,343) 15,139 (11,886) Loan Originations, net (255,303) (135,888) (359,407) Proceeds from Death Benefit on Bank Owned Life Insurance 3,077 — — Proceeds from Surrender of BOLI Policies 7,273 — — Proceeds from Sales and Payments of Other Real Estate Owned 1,618 4,199 6,794 Net Cash Used In Investing Activities (155,911) (68,402) (307,011) FINANCING ACTIVITIES Net Change in Demand, Money Markets and Savings Accounts 29,811 93,787 (235,748) (Decrease) Increase in Certificates of Deposits (28,270) 337,719 325,125 Proceeds from Federal Home Loan Bank Borrowings 610,000 1,870,000 3,441,685 Repayments on Federal Home Loan Bank Borrowings (501,500) (2,193,400) (3,228,835) Repayments from Federal Funds Purchased, net — — (17,870) Repurchase of Common Stock (20,000) — (16,416) Net Cash Provided By Financing Activities 90,041 108,106 267,941 Net (Decrease) Increase in Cash and Cash Equivalents (26,008) 76,642 7,660 Cash and Cash Equivalents at Beginning of Period 131,171 54,529 46,869 Cash and Cash Equivalents at End of Period $ 105,163 $ 131,171 $ 54,529 See accompanying notes to audited Consolidated Financial Statements. 84 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (Dollars in Thousands Except per Share Data) 2024 2023 2022 INTEREST INCOME Loans, including fees Taxable $ 186,001 $ 159,317 $ 135,055 Non-Taxable 2,648 3,143 3,609 Investment Securities Taxable 29,510 30,804 20,330 Non-Taxable 269 634 693 Federal Reserve Bank Excess Reserves 2,204 1,002 312 Interest on Bank Deposits 85 64 29 Dividend Income 1,012 1,456 154 Total Interest Income 221,729 196,420 160,182 Interest Expense Interest Expense on Deposits 95,431 52,628 18,616 Interest Expense on Federal Funds Purchased — 368 188 Interest on Other Borrowings 11,841 21,114 1,450 Total Interest Expense 107,272 74,110 20,254 NET INTEREST INCOME 114,457 122,310 139,928 (Recovery) Provision for Credit Losses (5,039) 5,500 2,419 (Recovery) Provision for Unfunded Commitments (7) 901 509 Net Interest Income After (Recovery) Provision for Credit Losses 119,503 115,909 137,000 NONINTEREST INCOME Gains (Losses) on Sales of Securities, net 68 (1,521) 46 Service Charges, Commissions and Fees 7,393 7,155 7,168 Debit Card Interchange Fees 7,843 7,828 7,427 Insurance Commissions 3,685 1,945 1,961 Bank Owned Life Insurance Income 1,473 1,381 1,357 Commercial Loan Swap Fee Income — 139 774 Other 906 1,351 2,985 Total Noninterest Income 21,368 18,278 21,718 NONINTEREST EXPENSE Salaries and Employee Benefits 57,908 55,856 52,399 Occupancy Expense, net 15,608 14,028 13,527 FDIC Insurance Expense 6,200 4,904 2,015 Other Taxes 3,559 3,292 3,319 Advertising Expense 2,540 1,693 1,434 Telephone Expense 1,393 1,842 1,781 Professional and Legal Fees 5,675 6,210 5,818 Data Processing 4,919 3,920 4,051 Debit Card Expense 3,423 2,875 2,750 Tax Credit Amortization — — 621 Other 8,777 10,846 9,286 Total Noninterest Expense 110,002 105,466 97,001 Income Before Income Taxes 30,869 28,721 61,717 Income Tax Provision 6,346 5,337 11,599 Net Income $ 24,523 $ 23,384 $ 50,118 Earnings per Common Share: Basic Earnings per Common Share $ 1.06 $ 1.00 $ 2.03 Diluted Earnings per Common Share $ 1.06 $ 1.00 $ 2.03 Average Shares Outstanding-Basic 22,817,149 23,240,543 24,595,789 Average Shares Outstanding-Diluted 22,817,149 23,240,543 24,595,789 See accompanying notes to audited Consolidated Financial Statements. 72 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (Dollars in Thousands Except per Share Data) 2025 2024 2023 INTEREST INCOME Loans, including fees Taxable $ 199,986 $ 186,001 $ 159,317 Non-Taxable 2,259 2,648 3,143 Investment Securities Taxable 26,288 29,510 30,804 Non-Taxable 265 269 634 Federal Reserve Bank Excess Reserves 2,540 2,204 1,002 Interest on Bank Deposits 268 85 64 Dividend Income 616 1,012 1,456 Total Interest Income 232,222 221,729 196,420 Interest Expense Interest Expense on Deposits 96,184 95,431 52,628 Interest Expense on Federal Funds Purchased — — 368 Interest on Other Borrowings 5,218 11,841 21,114 Total Interest Expense 101,402 107,272 74,110 NET INTEREST INCOME 130,820 114,457 122,310 (Recovery) Provision for Credit Losses (3,637) (5,039) 5,500 (Recovery) Provision for Unfunded Commitments (194) (7) 901 Net Interest Income After (Recovery) Provision for Credit Losses 134,651 119,503 115,909 NONINTEREST INCOME Gains (Losses) on Sales of Securities, net 46 68 (1,521) Service Charges, Commissions and Fees 7,312 7,393 7,155 Debit Card Interchange Fees 7,935 7,843 7,828 Insurance Commissions 2,728 3,685 1,945 Bank Owned Life Insurance Income 1,511 1,473 1,381 Commercial Loan Swap Fee Income — — 139 Other 2,872 906 1,351 Total Noninterest Income 22,404 21,368 18,278 NONINTEREST EXPENSE Salaries and Employee Benefits 57,743 57,908 55,856 Occupancy Expense, net 17,620 15,608 14,028 FDIC Insurance Expense 5,843 6,200 4,904 Other Taxes 3,612 3,559 3,292 Advertising Expense 3,171 2,540 1,693 Telephone Expense 1,216 1,393 1,842 Professional and Legal Fees 6,877 5,675 6,210 Data Processing 5,698 4,919 3,920 Debit Card Expense 4,192 3,423 2,875 Other 11,082 8,777 10,846 Total Noninterest Expense 117,054 110,002 105,466 Income Before Income Taxes 40,001 30,869 28,721 Income Tax Provision 8,639 6,346 5,337 Net Income $ 31,362 $ 24,523 $ 23,384 Earnings per Common Share: Basic Earnings per Common Share $ 1.38 $ 1.06 $ 1.00 Diluted Earnings per Common Share $ 1.38 $ 1.06 $ 1.00 Average Shares Outstanding-Basic 22,456,705 22,817,149 23,240,543 Average Shares Outstanding-Diluted 22,456,705 22,817,149 23,240,543 See accompanying notes to audited Consolidated Financial Statements. 81 Table of Contents CARTER BANKSHARES, INC.
Results for the economic value of equity modeling are driven primarily by the shape of the underlying yield curves and option-adjusted spreads used to discount the projected cash flows of assets and liabilities, and the assumed life span of the assets and liabilities being discounted. The following tables reflect the economic value of equity analyses results for the periods presented.
Results for the economic value of equity modeling are driven primarily by the shape of the underlying yield curves and option-adjusted spreads used to discount the projected cash flows of assets and liabilities, and the assumed life span of the assets and liabilities being discounted. 77 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7A.
The Company uses the same assumptions in the economic value of equity simulation model as in the earnings simulation model. The economic value of equity simulation model uses instantaneous rate shocks to the balance sheet.
The change in net economic value of equity over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The Company uses the same assumptions in the economic value of equity simulation model as in the earnings simulation model. The economic value of equity simulation model uses instantaneous rate shocks to the balance sheet.
However, in a declining interest rate environment, the Company is positioned to have a slightly more advantageous increase in net interest income for the same reasons discussed above.
In a declining interest rate environment, the Company is positioned to have an increase in net interest income driven by the same factors discussed above and below.
Due to the FOMC’s recent action taken at their last three scheduled meetings of 2024 to reduce the Fed Funds Target Rate range by 100 bps from 5.25% - 5.50% to 4.25% - 4.50% coupled with current rate forecasts that imply that the FOMC is unlikely to increase the Fed Funds Target Rate during 2025, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position nor does it project a probable interest rate environment for the foreseeable future.
Due to the FOMC’s recent actions to reduce the Fed Funds Target Rate by 25 bps during each of its September 2025, October 2025 and December 2025 meetings and the current rate forecast that implies the FOMC may continue to reduce the Fed Funds Target Rate during 2026, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position or project a probable interest rate environment for the foreseeable future.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED BALANCE SHEETS (Dollars in Thousands Except per Share Data) December 31, 2024 December 31, 2023 ASSETS Cash and Due From Banks, including Interest-Bearing Deposits of $91,563 at December 31, 2024 and $14,853 at December 31, 2023 $ 131,171 $ 54,529 Securities Available-for-Sale, at Fair Value (amortized cost of $800,741 and $870,546, respectively) 718,400 779,003 Equity Securities 10,041 — Portfolio Loans 3,624,826 3,505,910 Allowance for Credit Losses (75,600) (97,052) Portfolio Loans, net 3,549,226 3,408,858 Bank Premises and Equipment, net 74,329 73,707 Other Real Estate Owned, net 659 2,463 Federal Home Loan Bank Stock, at Cost 6,487 21,626 Bank Owned Life Insurance 59,588 58,115 Other Assets 109,288 114,238 Total Assets $ 4,659,189 $ 4,512,539 LIABILITIES Deposits: Noninterest-Bearing Demand $ 634,436 $ 685,218 Interest-Bearing Demand 726,947 481,506 Money Market 512,162 513,664 Savings 355,506 454,876 Certificates of Deposit 1,924,370 1,586,651 Total Deposits 4,153,421 3,721,915 Federal Home Loan Bank Borrowings 70,000 393,400 Reserve for Unfunded Loan Commitments 3,186 3,193 Other Liabilities 48,269 42,788 Total Liabilities 4,274,876 4,161,296 Commitment and Contingencies - see NOTE 18.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED BALANCE SHEETS (Dollars in Thousands Except Share Data) December 31, 2025 December 31, 2024 ASSETS Cash and Due From Banks, including Interest-Bearing Deposits of $68,227 at December 31, 2025 and $91,563 at December 31, 2024 $ 105,163 $ 131,171 Securities Available-for-Sale, at Fair Value (amortized cost of $745,366 and $800,741, respectively) 691,612 718,400 Equity Securities 10,291 10,041 Loans Held-for-Sale 339 — Portfolio Loans 3,879,560 3,624,826 Allowance for Credit Losses (71,491) (75,600) Portfolio Loans, net 3,808,069 3,549,226 Bank Premises and Equipment, net 72,497 74,329 Goodwill 1,193 — Core Deposit Intangible 940 — Other Real Estate Owned, net 142 659 Other Restricted Stock, at Cost 16,830 6,487 Bank Owned Life Insurance 44,811 59,588 Other Assets 100,035 109,288 Total Assets $ 4,851,922 $ 4,659,189 LIABILITIES Deposits: Noninterest-Bearing Demand $ 620,473 $ 634,436 Interest-Bearing Demand 808,171 726,947 Money Market 553,964 512,162 Savings 326,182 355,506 Certificates of Deposit 1,902,099 1,924,370 Total Deposits 4,210,889 4,153,421 Federal Home Loan Bank Borrowings 178,500 70,000 Reserve for Unfunded Loan Commitments 2,992 3,186 Other Liabilities 39,844 48,269 Total Liabilities 4,432,225 4,274,876 Commitment and Contingencies - see NOTE 20 .
All percentage changes presented are within prescribed ranges set by management.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (continued) The following tables reflect the economic value of equity analyses results at the dates presented. All percentage changes presented are within prescribed ranges set by management.
Removed
The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value of equity over different rate environments is an indication of the longer-term earnings capability of the balance sheet.
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions, market risk arises primarily from interest rate risk inherent in lending, investment, and deposit-taking activities.
Added
Interest rate risk can arise from timing differences in the repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time, depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve, where interest rates increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S.
Added
Treasuries and SOFR (basis risk). Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change.
Added
Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value. However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity, and solvency.
Added
The Company’s ALCO is responsible for reviewing the interest rate sensitivity position of the institution, establishing policies to monitor and limit exposure to this type of risk, and employing strategies to ensure our asset-liability structure produces the maximum yield-cost spread available based on current market conditions.
Added
The Company’s Investment / Interest Rate Risk Committee, a committee of the Board of Directors, reviews and approves the policies established by ALCO. Earnings Simulation Modeling The ALCO uses an asset liability model (“ALM”) to forecast earning simulations that measure the sensitivity of net interest income to changes in interest rates.
Added
The ALM calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that support the ALM process.
Added
The ALCO derives the assumptions used in the ALM from historical trends and management’s outlook, including expected loan growth, loan prepayment rates, deposit growth rates, changes to deposit product betas and non-maturity deposit decay rates, and projected yields and rates. The ALM assumes that all maturities, calls, and prepayments in the securities portfolio are reinvested in like instruments.
Added
These assumptions may not be realized and unanticipated events and circumstances may also occur that cause the assumptions to be inaccurate. The ALM also does not take into account any future actions management may take to mitigate the impact of unforeseen interest rate changes.
Added
A sensitivity analysis for deposit betas, deposit decay rates and loan prepayment speeds is performed at least annually within the ALM to help ALCO better understand the impact of these critical assumptions on the ALM results. The ALCO reviews the assumptions of the ALM at least quarterly and periodically adjusts the ALM assumptions when deemed appropriate.
Added
The ALCO also uses different interest rate scenarios and shifts in yield curve shapes to measure the sensitivity of earnings to various interest rate environments. Interest rates on unique asset and liability accounts move differently when the short-term market rate changes. These differences are reflected in the different rate scenarios utilized by the ALM.
Added
For earning simulations, our policy guidelines limit the change in net interest income over a 12-month and 24-month horizon using rate shocks of +/- 100, 200, 300, 400 basis points and for non-parallel yield curve shift scenarios. We have temporarily suspended the + 300 and + 400 basis point rate shock analyses.
Added
Due to the FOMC’s recent actions to reduce the Fed Funds Target Rate by 25 bps during each of its September 2025, October 2025 and December 2025 meetings and the current rate forecast that implies the FOMC may continue to reduce the Fed Funds Target Rate during 2026, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position or project a probable interest rate environment for the foreseeable future. 76 Table of Contents CARTER BANKSHARES, INC.

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