Carter Bankshares, Inc.

Previous wording

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., its operations, and its present business environment, and its consolidated results of operations and financial condition and highlights material changes in its financial condition and results of operations as of and for the three month periods ended March 31, 2025 and March 31, 2024. The MD&A is provided as a supplement to, and should be read in conjunction with, The Company’s Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this Quarterly Report on Form 10-Q. Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods. The MD&A includes the following sections:

Current wording

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., its operations, and its present business environment, and its consolidated results of operations and financial condition 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, 2025 and June 30, 2024. The MD&A is provided as a supplement to, and should be read in conjunction with, The Company’s Consolidated Financial Statements and the accompanying notes thereto contained in Item 1 of this Quarterly Report on Form 10-Q. Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods. The MD&A includes the following sections:

Previous wording

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 include statements that relate to our financial condition, market conditions, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality and nonaccrual and nonperforming loans. 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.

Current wording

This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include statements relating to our financial condition, market conditions, results of operations, plans, including our strategic plan, brand strategy, and guiding principles and the anticipated results of the foregoing, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality and nonaccrual and nonperforming loans. 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.

Previous wording

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

Current wording

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

Previous wording

•the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other military conflicts (such as the ongoing war between Russia and Ukraine) or public health events and of any governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on 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;

Current wording

•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, and of any governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on 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;

Previous wording

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, 2024, 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. We caution 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 we undertake no obligation to update, revise or clarify any forward-looking statement to reflect developments occurring after the statement is made.

Current wording

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, 2024, 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. We caution 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 we undertake 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.

Previous wording

In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), management uses, and this quarterly 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. 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. 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. 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.

Current wording

In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), management uses, and this quarterly report contains or 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. Management believes these measures provide information useful to investors in understanding the Company’s underlying business, operational performance and performance trends as these measures facilitate comparisons with the performance of other companies in the financial services industry. 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. 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.

Previous wording

Although management believes that this non-GAAP financial measure enhances investors’ understanding of its 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.

Current wording

Although management believes that these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP or considered to be more relevant than financial results determined in accordance with GAAP, nor are they necessarily comparable with similar non-GAAP measures which may be presented by other companies. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

Previous wording

Carter Bankshares, Inc. (the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.7 billion at March 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 65 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”.

Current wording

Carter Bankshares, Inc. (the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.8 billion at June 30, 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”.

Previous wording

The Company has entered into a definitive purchase and assumption agreement to acquire two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston Salem, North Carolina, from First Reliance Bank. The Company expects this transaction to close during the second quarter of 2025.

Current wording

At the close of business on May 23, 2025, the Company completed the acquisition of two leased branch facilities and the deposits associated therewith, located in Mooresville, North Carolina and Winston-Salem, North Carolina, from First Reliance Bank (the “Branch Purchase”). In the Branch Purchase, the Bank acquired $55.9 million of deposits, as well as cash, personal property and other fixed assets related to the branch locations purchased, and welcomed 10 new associates to its team. The Branch Purchase did not include any loans.

Previous wording

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. 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. 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. 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. 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 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.

Current wording

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. 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, with a focus on innovating brand experiences to exceed expectations and to 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 in 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 the new brand identity 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.

Previous wording

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. 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 that the Company placed on nonaccrual status in the second quarter of 2023, in a manner that best protects the Company, the Bank and shareholders. 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.

Current wording

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 that the Company placed on nonaccrual status in the second quarter of 2023, in a manner that best protects the Company, the Bank and shareholders.

Previous wording

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 $245.1 million as of March 31, 2025. Since placement of these loans, now reduced to judgements, on nonaccrual status during the second quarter of

Current wording

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 $235.5 million as of June 30, 2025. Since placement of these loans, now reduced to judgements, on nonaccrual status during the second quarter of

Previous wording

2023, interest income has been negatively impacted by $6.8 million and $9.3 million during the three months ended March 31, 2025 and 2024, respectively, or by $71.9 million in the aggregate.

Current wording

2023, interest income has been negatively impacted by $6.7 million and $9.1 million during the three months ended June 30, 2025 and 2024, respectively, and by $13.5 million and $18.4 million during the six months ended June 30, 2025 and 2024, respectively, or by $78.6 million in the aggregate.

Previous wording

•Total noninterest income increased $1.9 million to $6.9 million for the three months ended March 31, 2025 compared to the same period in 2024;

Current wording

•Total noninterest expense increased $1.9 million to $29.3 million for the three months ended June 30, 2025 compared to the same period in 2024; and

Previous wording

•Total noninterest expense increased $1.8 million to $28.0 million for the three months ended March 31, 2025 compared to the same period in 2024; and

Current wording

◦Provision for income taxes increased $1.8 million to $4.3 million for the six months ended June 30, 2025 compared to the same period in 2024.

Previous wording

•The available-for-sale securities portfolio increased $27.0 million and is currently 15.9% of total assets compared to 15.4% of total assets;

Current wording

•The available-for-sale securities portfolio increased $36.8 million and is currently 15.8% of total assets compared to 15.4% of total assets;

Previous wording

•Total portfolio loans increased $62.7 million, or 7.0%, on an annualized basis, due to loan growth during the three months ended March 31, 2025;

Current wording

•Total portfolio loans increased $122.3 million, or 6.8%, on an annualized basis, due to loan growth during the six months ended June 30, 2025;

Previous wording

•The portfolio loans to deposit ratio was 87.8%, compared to 87.3%;

Current wording

•The portfolio loans to deposit ratio was 88.7%, compared to 87.3%;

Previous wording

•At March 31, 2025, nonperforming loans increased by $2.1 million to $261.4 million compared to December 31, 2024. Nonperforming loans as a percentage of total portfolio loans were 7.09% compared to 7.15%. The increase during the quarter was primarily due to a CRE relationship, consisting of four loans, that transferred to nonperforming loan (“NPL”) status totaling $9.4 million offset by $6.9 million of curtailment payments during the first quarter of 2025 made by the Bank’s largest nonperforming credit relationship that was initially placed on nonaccrual status during the second quarter of 2023;

Current wording

•At June 30, 2025, nonperforming loans decreased by $8.8 million to $250.6 million compared to December 31, 2024. Nonperforming loans as a percentage of total portfolio loans were 6.69% compared to 7.15%.;

Previous wording

•The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 1.99% compared to 2.09%. The ACL on portfolio loans totaled $73.5 million at March 31, 2025, compared to $75.6 million at December 31, 2024;

Current wording

•The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 1.90% compared to 2.09%. The ACL on portfolio loans totaled $71.0 million at June 30, 2025, compared to $75.6 million at December 31, 2024;

Previous wording

•Total deposits increased $47.5 million, or 4.6%, on an annualized basis, to $4.2 billion at March 31, 2025, compared to December 31, 2024; and

Current wording

•Total deposits increased $68.8 million, or 3.3%, on an annualized basis, to $4.2 billion at June 30, 2025, compared to December 31, 2024; and

Previous wording

•FHLB borrowings decreased $15.0 million to $55.0 million at March 31, 2025 compared to $70.0 million at December 31, 2024.

Current wording

•FHLB borrowings increased $43.5 million to $113.5 million at June 30, 2025 compared to $70.0 million at December 31, 2024.

Previous wording

The Company reported net income of$9.0 million, or $0.39 diluted earnings per share for thethree months ended March 31, 2025 compared to net income of$5.8 million, or $0.25 diluted earnings per share, for thethree months ended March 31, 2024.

Current wording

The Company reported net income of$8.5 million, or $0.37 diluted earnings per share, and$17.5 million, or $0.76 diluted earnings per share for thethree and six months ended June 30, 2025, respectively, compared to net income of$4.8 million, or $0.21 diluted earnings per share, and$10.6 million, or $0.46 diluted earnings per share, for thethree and six months ended June 30, 2024, respectively.

Previous wording

Our principal source of revenue is net interest income. 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. 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.

Current wording

Our principal source of revenue is net interest income. 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 balances of interest-earning assets and interest-bearing liabilities, as well as changes in interest rates and spreads. 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.

Previous wording

Interest income increased to $56.0 million for the three months ended March 31, 2025 from $54.0 million compared to the same period in 2024. Interest income, on an FTE basis (non-GAAP), increased $1.9 million, or 3.6%, to $56.2 million for the three months ended March 31, 2025 compared to $54.3 million for the same period in 2024, resulting from average loan growth of $159.5 million, primarily due to growth in taxable loans. Average interest-earning assets increased primarily due to growth in average loans of $141.5 million and an increase of $43.3 million in average interest-bearing deposits with banks during the three months ended March 31, 2025, and was partially offset by a decrease of $45.8 million in average investment securities and a decrease of $13.9 million in average FHLB stock.

Current wording

Interest and dividend income (GAAP) increased $3.2 million and $5.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024. Interest and dividend income, on an FTE basis (non-GAAP), increased $3.1 million and $5.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024, primarily resulting from average loan growth of $202.2 million and $172.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Average interest-earning assets increased primarily due to growth in average loans and increases of $26.9 million and $35.1 million in average interest-bearing deposits with banks during the three and six months ended June 30, 2025, respectively, partially offset by decreases of $23.4 million and $34.6 million in average investment securities and decreases of $8.2 million and $11.0 million in average FHLB stock for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

Previous wording

The change in average investment securities is the result of active balance sheet management to deploy the proceeds from securities maturities and principal curtailments into higher yielding loans, rather than reinvesting those proceeds back into the securities portfolio. The portfolio has been diversified as to bond types, maturities, and interest rate structures. As of March 31, 2025, the securities portfolio was comprised of 42.5% variable rate securities with approximately 85.5% that will reprice at least once over the next 12 months. We believe having a balanced mix of variable and fixed rate securities is an important strategy, especially during times of rising interest rates because fixed-rate bond prices generally fall when interest rates increase, which can result in unrealized losses. However, variable rate securities do not carry as much interest rate risk as fixed rate securities, so there is much less price volatility. This variable rate strategy has limited the impact of past upward shifts in the yield curve on the Company’s unrealized losses on debt securities. If the Federal Reserve continues reducing short-term interest rates, the Bank may consider changes to this interest rate mix strategy going forward.

Current wording

The change in average investment securities and average loans is the result of active balance sheet management to deploy the proceeds from securities maturities and principal curtailments into higher yielding loans, rather than reinvesting those proceeds back into the securities portfolio. The portfolio has been diversified as to bond types, maturities, and interest rate structures. As of June 30, 2025, the securities portfolio was comprised of 41.8% variable rate securities with approximately 89.4% that will reprice at least once over the next 12 months. We believe having a balanced mix of variable and fixed rate securities is an important strategy, especially during times of rising interest rates because fixed-rate bond prices generally fall when interest rates increase, which can result in unrealized losses. However, variable rate securities do not carry as much interest rate risk as fixed rate securities, so there is much less price volatility. This variable rate strategy has limited the impact of past upward shifts in the yield curve on the Company’s unrealized losses on debt securities. If the Federal Reserve continues reducing short-term interest rates, the Bank may consider changes to this interest rate mix strategy going forward.

Previous wording

Our balance sheet is currently exhibiting characteristics of a slightly liability sensitive position due to the short-term nature of our deposit portfolio and FHLB borrowings. Specifically, 73.5% of our CD portfolio and 54.5% of our outstanding FHLB borrowings will mature and reprice over the next twelve months. 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.

Current wording

Our balance sheet is currently exhibiting characteristics of a liability sensitive position due to the short-term nature of our deposit portfolio and FHLB borrowings. Specifically, 70.5% of our CD portfolio and 100.0% of our outstanding FHLB borrowings will mature and reprice over the next twelve months. 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.

Previous wording

The (recovery) provision for credit losses decreased $2.0 million for the three months ended March 31, 2025 compared to the same period in 2024. The decrease was primarily driven by a decline in the Other loan segment reserve rate, specifically the Company’s largest credit relationship, from 12.01% to 11.05% and $6.9 million of curtailment payments during the three months ended March 31, 2025 and loan growth.

Current wording

The (recovery) provision for credit losses was a recovery of 2.3 million and a recovery of 4.4 million for the three and six months ended June 30, 2025, respectively, compared to a provision for credit losses of $491 thousand and $507 thousand for the same periods in 2024, respectively. The changes compared to the same periods in 2024 were primarily driven by a decline in the Other segment reserve rate, specifically the Company’s largest credit relationship, higher curtailment payments during the three and six months ended June 30, 2025 compared to the same periods in 2024, partially offset by loan growth during the three and six months ended June 30, 2025.

Previous wording

For the three months ended March 31, 2025, total noninterest income was $6.9 million, an increase of $1.9 million, or 36.8%, from the same period in 2024. The most significant increase was primarily related to other noninterest income as a result of a $1.9 million gain on a BOLI death benefit. Also impacting other noninterest income, was an increase of $0.1 million on the community development fund due to higher market values during the three months ended March 31, 2025. Offsetting other noninterest income compared to thethree months ended March 31, 2024 was a decline of $0.3 million in insurance commissions due lower activity in thethree months ended March 31, 2025.

Current wording

For the three months ended June 30, 2025 total noninterest income decreased $0.6 million, or 11.3% and, for the six months ended June 30, 2025, total noninterest income increased $1.2 million, or 11.6% compared to the same periods in 2024. The most significant decreases compared to the three months ended June 30, 2024 were$0.3 million in other noninterest income and $0.2 million in insurance commissions due to lower activity during thethree months ended June 30, 2025. The most significant increase during the six months ended June 30, 2025 was related to other noninterest income as a result of a $1.9 million gain on a bank owned life insurance (“BOLI”) death benefit recorded in the first quarter of 2025. Partially offsetting the increase in other noninterest income compared to thesix months ended June 30, 2024 was a decline of$0.5 million in insurance commissions due to lower activity in thesix months ended June 30, 2025.

Previous wording

The significant increases in other noninterest expense are related to a $0.3 million 1035 exchange fee recorded in the first quarter of 2025 as a direct result of the early surrender and transfer to a new carrier of one of the Company’s BOLI policies and a gain of $0.3 million on two closed offices sold in the first quarter of 2024. The increase in occupancy expense was due to new software licenses and additional maintenance contracts during the three months ended March 31, 2025. The increase in advertising expenses primarily related to contributions made during the first quarter of 2025, as well as, additional expenses in the current quarter related to the launching of the new brand refresh that occurred in the fourth quarter of 2024. The increase in data processing expenses relates primarily to general inflationary cost increases for existing and new service agreements in the beginning of the year.

Current wording

During the six months ended June 30, 2025, other noninterest expenses increased $1.7 million, occupancy expenses increased $1.2 million, advertising expenses increased $0.7 million and data processing expenses increased $0.7 million, partially offset by decreases of $0.7 million in salaries and employee benefits and $0.4 million in FDIC insurance expense. The primary increase in other noninterest expense was due to the above mentioned 1035 exchange fees, which increased $0.5 million year-to-date, as a result of the early surrender and transfer to new carriers of the Company’s BOLI policies. As discussed above, the increase in occupancy expense, net, for the six months ended June 30, 2025 was primarily due to additional software and maintenance expenses and higher depreciation expense. The increase in advertising expenses primarily related to contributions made during the first quarter of 2025, as well as additional expenses incurred during the six months of 2025 related to the launching of the new brand refresh that commenced in the fourth quarter of 2024. The increase in data processing expenses relates primarily to general inflationary cost increases for existing and new service agreements in the beginning of the year. The decreases in salaries and employee benefits primarily resulted from higher deferred compensation costs due to increased loan volume and the effects of a new cost study in the third quarter of 2024. This decrease was partially offset by higher medical expenses, annual merit increases and higher incentive costs during the six months ended June 30, 2025. The decrease in FDIC insurance expense was primarily due to the aforementioned curtailment payments which have reduced the outstanding balance of the aforementioned large nonperforming credit relationship from $301.9 million at June 30, 2024 to $235.5 million at June 30, 2025, which is a component used to determine the assessment.

Previous wording

The provision for income taxes increased $0.8 million to $2.2 million for the three months ended March 31, 2025 compared to $1.4 million for three months ended March 31, 2024. Pre-tax income increased $3.9 million for the three months ended March 31, 2025 compared to the same period in 2024, primarily due to recording a $2.0 million recovery to the (recovery) provision for credit losses in the first quarter of 2025, as well as, a gain of $1.9 million for a BOLI death benefit in first quarter of 2025. The effective tax rate was 19.6% for the three months ended March 31, 2025 compared to 19.7% for the same period in 2024. The slight decrease in the effective tax rate for the three months ended March 31, 2025 compared to the same period in 2024 was primarily related to BOLI tax-free income related to the $1.9 million death benefit received in the first quarter of 2025, offset by the increase in pre-tax income. The Company ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest income, tax credit projects and bank owned life insurance (“BOLI”).

Current wording

The provision for income taxes increased $1.0 million and $1.8 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Pre-tax income increased $4.7 million and $8.6 million for the three and six months ended June 30, 2025 compared to the same periods in 2024. The increase for the three and six months ended June 30, 2025 compared to the same periods in 2024 primarily related to an increase of $4.3 million and $6.0 million, respectively in net interest income, recording recoveries of $2.3 million and $4.4 million, respectively to the (recovery) provision for credit losses, as well as, a tax-exempt gain of $1.9 million for a BOLI death benefit recorded in first quarter of 2025. The effective tax rate was 19.9% and 19.8% for the three and six months ended June 30, 2025 compared to 18.9% and 19.3% for the same periods in 2024. The Company ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest income, tax credit projects and bank owned life insurance (“BOLI”).

Previous wording

During the first quarter of 2025, the Company initiated a 1035 exchange of $10.5 million in BOLI in order to transfer the proceeds to a new insurance carrier and take advantage of enhanced credit ratings and better yields due to improving BOLI markets. The exchange was an opportunity to retire below market yielding BOLI assets and reinvest the proceeds from the exchange into higher yielding BOLI related assets on the balance sheet.

Current wording

During the six months ended June 30, 2025, the Company initiated a 1035 exchange of $20.7 million in BOLI in order to transfer the proceeds to new insurance carriers and take advantage of enhanced credit ratings and better yields due to improving BOLI markets. The exchange was an opportunity to retire below market yielding BOLI assets and reinvest the proceeds from the exchange into higher yielding BOLI related assets on the balance sheet.

Previous wording

The securities portfolio increased $27.0 million to $745.4 million at March 31, 2025 compared to $718.4 million at December 31, 2024. Securities comprise 15.9% of total assets at March 31, 2025 compared to 15.4% at December 31, 2024. The increase is due to ongoing maturities, principal curtailments, purchases and sales of available-for-sale securities and changes in market values driven by fluctuations in intermediate treasury yields. During the three months ended March 31, 2025, there were new security purchases totaling $33.7 million, partially offset by normal paydowns and maturities. Liquidity generated by the securities portfolio was primarily deployed into higher yielding loans. As of March 31, 2025, the securities portfolio was comprised of 42.5% variable rate securities with approximately 85.5% that will reprice at least once over the next 12 months.

Current wording

The securities portfolio increased $36.8 million at June 30, 2025 compared to December 31, 2024, primarily due to purchases and changes in market values driven by fluctuations in intermediate treasury yields. During the six months ended June 30, 2025, there were new security purchases totaling $53.3 million, partially offset by normal paydowns and maturities. Securities comprise 15.8% of total assets at June 30, 2025 compared to 15.4% at December 31, 2024. As of June 30, 2025, the securities portfolio was comprised of 41.8% variable rate securities with approximately 89.4% that will reprice at least once over the next 12 months.

Previous wording

At March 31, 2025, total gross unrealized gains in the available-for-sale portfolio were $0.1 million offset by $72.1 million of gross unrealized losses. 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.

Current wording

At June 30, 2025, total gross unrealized gains in the available-for-sale portfolio were $0.3 million, offset by $67.0 million of gross unrealized losses. 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.

Previous wording

The unrealized losses on debt securities are believed to be temporary primarily because these unrealized losses are due to reductions in market value caused by upward movement in interest rates since the securities purchase (as applicable), and not related to the credit quality of these securities. Our portfolio consists of 45.3% of securities issued by United States government sponsored entities and carry an implicit government guarantee. States and political subdivisions comprise 30.4% 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. We may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative.

Current wording

The unrealized losses on debt securities are believed to be temporary primarily because these unrealized losses are due to reductions in market value caused by upward movement in interest rates since the securities purchase (as applicable), and not related to the credit quality of these securities. Our portfolio consists of 45.1% of securities issued by United States government sponsored entities and carry an implicit government guarantee. States and political subdivisions comprise 30.3% 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. We may occasionally sell securities to take advantage of market opportunities or as part of a strategic initiative.

Previous wording

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). This portion of the Treasury yield curve has moved lower over the past three months, driving unrealized losses on outstanding securities lower. Changes in short-term interest rates can affect the yield on floating rate securities. Yields on floating rate securities will fall as the Federal Reserve Board (“FRB”) lowers short-term rates. 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.

Current wording

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). This portion of the Treasury yield curve has moved lower over the past three months, driving unrealized losses on outstanding securities lower. Changes in short-term interest rates can affect the yield on floating rate securities. Yields on floating rate securities will fall as the Federal Reserve Board lowers short-term rates. 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.

Previous wording

At March 31, 2025 the 5-year and 10-year U.S. Treasury yields were 3.96% and 4.23%, respectively. At December 31, 2024, those same bond yields were 4.38% and 4.58%, respectively. Therefore, these decreases of 42 bps and 35 bps, respectively in the intermediate part of the yield curve largely caused the reduction in unrealized losses for the first quarter of 2025. The effects were generally greater for longer maturity bonds, such as municipal bonds. On the other hand, floating rate bonds largely held consistent values, as those interest rates adjust in line with Federal Reserve interest rate hikes.

Current wording

At June 30, 2025 the 5-year and 10-year U.S. Treasury yields were 3.79% and 4.24%, respectively. At December 31, 2024, those same bond yields were 4.38% and 4.58%, respectively. Therefore, these decreases of 59 bps and 34 bps, respectively in the intermediate part of the yield curve largely caused the reduction in unrealized losses for the six months of 2025. The effects were generally greater for longer maturity bonds, such as municipal bonds. On the other hand, floating rate bonds largely held consistent values, as those interest rates adjust in line with Federal Reserve interest rate changes.

Previous wording

Total portfolio loans increased $62.7 million, or 7.0%, on an annualized basis, to $3.7 billion at March 31, 2025 compared to December 31, 2024 with production primarily in our CRE, Commercial and Industrial and residential mortgage loan portfolios. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations. At March 31, 2025, the loan portfolio was comprised of 25.0% floating rates which reprice monthly, 39.1%, variable rates that reprice at least once during the life of the loan and the remaining 35.9% are fixed rate loans. The Company continues to carefully monitor the loan portfolio during 2025, including in light of market conditions that impact our borrowers and the interest rate environment.

Current wording

Total portfolio loans increased $122.3 million, or 6.8% on an annualized basis, at June 30, 2025 compared to December 31, 2024 with production primarily in our CRE and residential mortgage loan portfolios, partially offset by a decline in the Other segment due to $16.4 million curtailment payments made during the first half of 2025. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations. At June 30, 2025, the loan portfolio was comprised of 25.3% floating rates which reprice monthly, 38.4% variable rates that reprice at least once during the life of the loan and the remaining 36.3% are fixed rate loans. The Company continues to carefully monitor the loan portfolio during 2025, including in light of market conditions that impact our borrowers and the interest rate environment.

Previous wording

Total CRE represented 52.0% of total portfolio loans at March 31, 2025 compared to 51.6% at December 31, 2024. 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 industries.

Current wording

Total CRE represented 53.4% of total portfolio loans at June 30, 2025 compared to 51.6% at December 31, 2024. 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 industries.

Previous wording

CRE loans represent a portfolio concentration risk. The majority of our CRE loans are made in the above noted geographies and granted to experienced developers and sponsors with loan guaranty structures that provide recourse to individuals with access to financial resources. We believe our knowledge of CRE and our operating knowledge at the local and regional level of these markets allows us to effectively manage concentration risk. Our operating knowledge at the local and regional level is derived from our front-line connection to the customer and our understanding of their business model. We also have access to research tools that inform us about market statistics such as occupancy, lease growth rates and new construction starts. This data is reviewed frequently by our credit officers and disseminated to our lenders. The Bank’s underwriting process includes multiple shock scenarios primarily focused on cash flow and leverage in order to determine a supportable loan amount.

Current wording

CRE loans represent a portfolio concentration risk. The majority of our CRE loans are made in the above noted geographies and granted to experienced developers and sponsors with loan guaranty structures that provide recourse to individuals with access to financial resources. We believe our knowledge of CRE and our operating knowledge at the local and regional levels of these markets allows us to effectively manage concentration risk. Our operating knowledge at the local and regional levels is derived from our front-line connection to the customer and our understanding of their business model. We also have access to research tools that inform us about market statistics such as occupancy, lease growth rates and new construction starts. This data is reviewed frequently by our credit officers and disseminated to our lenders. The Bank’s underwriting process includes multiple shock scenarios primarily focused on cash flow and leverage in order to determine a supportable loan amount.