Carter Bankshares, Inc. (CARE)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist readers in understanding Carter Bankshares, Inc.’s operations, financial condition, and current business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, The Company’s Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this Quarterly Report on Form 10-Q. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods. The MD&A includes the following sections:

•Important Note Regarding Forward-Looking Statements

•Explanation of Use of Non-GAAP Financial Measures

•Critical Accounting Estimates

•Overview and Strategy

•Results of Operations and Financial Condition

◦Earnings Summary

◦Financial Condition

◦Liquidity and Capital Resources

◦Contractual Obligations

◦Off-Balance Sheet Arrangements

This section reviews the Company’s financial condition and results of operations and highlights material changes in its financial condition and results of operations as of and for the three and six month periods ended June 30, 2026 and June 30, 2025. Certain prior period amounts have been reclassified to conform to the current period presentation. In addition, certain tables may include additional periods to illustrate trends within the Company’s consolidated financial statements and related disclosures.

The results of operations presented in the consolidated financial statements are not necessarily indicative of future results.

Important Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include statements relating to the financial consequences of the Loan Sale Transaction, Insurance Transaction and Portfolio Repositioning, including the expected enhancement of future earnings, asset yields, and net interest income from the Portfolio Repositioning, our expansion in the Carolinas and the anticipated results of such expansion, our financial condition, market conditions, results of operations, plans, including our strategic plan, brand strategy, and guiding principles and the anticipated results of the foregoing, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, loan pipeline and nonaccrual and nonperforming loans (“NPL”). Forward looking statements are typically identified by words or phrases such as “will likely result,” “expect,” “anticipate,” “estimate,” “forecast,” “project,” “intend,” “believe,” “assume,” “strategy,” “trend,” “plan,” “outlook,” “outcome,” “continue,” “remain,” “potential,” “opportunity,” “comfortable,” “current,” “position,” “maintain,” “sustain,” “seek,” “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may.

These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company’s control. Although the Company believes the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Actual results may differ significantly from those expressed in or implied by these forward-looking statements. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements including, but not limited to the effects of:

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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

•inflation, market and monetary fluctuations;

•changes in trade policies, tariffs, monetary and fiscal policies and laws of the U.S. government and the related impacts on economic conditions and financial markets, and changes in policies of the Federal Reserve, FDIC and U.S. Department of the Treasury;

•changes in accounting policies, practices, or guidance, for example, our adoption of Current Expected Credit Losses (“CECL”) methodology, including potential volatility in the Company’s operating results due to application of the CECL methodology;

•cyber-security threats, attacks or events;

•rapid technological developments and changes, including emerging issues related to the development and use of artificial intelligence that could give rise to legal or regulatory action or increase cybersecurity threats;

•our ability to resolve our nonperforming assets and our ability to secure collateral on loans that have entered nonaccrual status due to loan maturities and failure to pay in full;

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

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

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

•an insufficient allowance for credit losses;

•the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other geopolitical conflicts or public health events (such as pandemics), and of any governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on macroeconomic conditions; the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth;

•a change in spreads on interest-earning assets and interest-bearing liabilities;

•regulatory supervision and oversight, including our relationship with regulators and any actions that may be initiated by our regulators;

•legislation affecting the financial services industry as a whole, and the Company and the Bank, in particular and changes impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies;

•the outcome of pending and future litigation and/or governmental proceedings;

•increasing price and product/service competition;

•the ability to continue to introduce competitive new products and services on a timely, cost-effective basis;

•managing our internal growth and acquisitions;

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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

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

•material increases in costs and expenses;

•reliance on significant customer relationships;

•general economic or business conditions, including unemployment levels, supply chain disruptions, slowdowns in economic growth, government shutdowns and geopolitical instability and tensions;

•significant weakening of the local economies in which the Company operates;

•changes in customer behaviors, including consumer spending, borrowing and saving habits;

•changes in deposit flows and loan demand;

•our failure to attract or retain key associates;

•expansions or consolidations in the Company’s branch network, including that the anticipated benefits of the Company’s branch acquisitions or the Company’s branch network optimization project are not fully realized in a timely manner or at all;

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

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

Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, and any of the Company’s subsequent filings with the Securities and Exchange Commission (“SEC”). Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Company cautions you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events are expressed in or implied by a forward-looking statement may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and the Company undertakes no obligation to update, revise or clarify any forward-looking statement to reflect developments occurring after the statement is made, except as required by law.

Explanation of Use of Non-GAAP Financial Measures

In addition to results presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), management uses, and this quarterly report contains or references, certain non-GAAP financial measures, including interest and dividend income, yield on interest earning assets, net interest income, and net interest margin on a fully taxable equivalent (“FTE”) basis. These non-GAAP measures should be read along with the accompanying tables that provide reconciliations of GAAP to non-GAAP financial measures.

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

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

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

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

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

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ITEM 7. 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 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.

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. 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.

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.

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 believes that presenting interest and dividend income, yield on interest earning assets, net interest income, and net interest margin on an FTE basis improves comparability between income derived from taxable and tax-exempt sources and is consistent with industry practice. Accordingly, GAAP measures presented in the Consolidated Statements of Income are reconciled to their corresponding FTE amounts, including:

•interest and dividend income,

•yield on interest earning assets,

•net interest income, and

•net interest margin.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 7. 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.

While management believes these non-GAAP measures provide meaningful supplemental information, they should not be considered as an alternative to GAAP results, as more relevant than financial results prepared in accordance with GAAP, or as necessarily comparable to similarly titled measures used by other companies. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of the Company’s financial condition or results of operations as reported under GAAP. Investors are encouraged to review the Company’s GAAP financial results and all other relevant information when evaluating its performance and financial condition.

Critical Accounting Estimates

The 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. 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. 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. 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 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.

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. 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. 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 also periodically evaluates the need for qualitative adjustments to the ACL based on emerging risks, economic uncertainty, and other factors not fully captured in the quantitative model, including potential variances in key economic indices.

The ACL “base-case” estimate is derived using economic forecasts from widely recognized third-party sources. 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.

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.

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.

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CARTER BANKSHARES, INC. AND SUBSIDIARIES

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

The Company’s Business and Strategy

Carter Bankshares, Inc. (the “Company”) is a financial holding company, as of October 27, 2025, headquartered in Martinsville, Virginia with assets of $4.9 billion at December 31, 2025. 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. 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”). In connection with the Branch Purchase, the Bank acquired $55.9 million in deposits, along with cash, personal property, and other fixed assets associated with the branch locations, and welcomed ten associates to its team. No loans were acquired as part of the Branch Purchase. The Branch Purchase closed during the second quarter of 2025.

The Company earns revenue primarily from interest on loans and investment securities and from fees charged for financial services provided to customers. Expenses consist principally of funding costs, the provision for credit losses, compensation and benefits, occupancy and equipment, technology and data processing, regulatory assessments, and other operating expenses.

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. 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. 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 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. 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. 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. 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 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. As part of executing this strategy, the Company continues to dedicate significant resources to the resolution of the Company’s nonaccrual loans, the significant majority of which are related to a single large credit relationship tha

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