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 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:

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 nine month periods ended September 30, 2025 and September 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

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 we believe 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. 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:

Current wording

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 we believe 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:

Previous wording

•general economic or business conditions, including unemployment levels, supply chain disruptions and slowdowns in economic growth;

Current wording

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

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 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.

Current wording

In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), our 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. This quarterly report and the accompanying tables discuss financial measures that we believe are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period-to-period in a meaningful manner. Management also 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 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.

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 as 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 that 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 $4.8 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”.

Current wording

Carter Bankshares, Inc. (the “Company”) is a financial holding company, as of October 27, 2025, headquartered in Martinsville, Virginia with assets of $4.8 billion at September 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’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

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 $228.6 million as of September 30, 2025. 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 $6.5 million and $8.8 million during the three months ended September 30, 2025 and 2024, respectively, and by $20.0 million and $27.2 million during the nine months ended September 30, 2025 and 2024, respectively, or by $85.2 million in the aggregate.

Previous wording

◦Total noninterest income increased $1.2 million to $11.8 million for the six months ended June 30, 2025 compared to the same period in 2024;

Current wording

◦Total noninterest income increased $1.2 million to $17.2 million for the nine months ended September 30, 2025 compared to the same period in 2024;

Previous 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;

Current wording

•The available-for-sale securities portfolio increased $9.5 million and is currently 15.0% of total assets compared to 15.4% of total assets;

Previous 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;

Current wording

•Total portfolio loans increased $210.8 million, or 7.8%, on an annualized basis, due to loan growth during the nine months ended September 30, 2025;

Previous wording

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

Current wording

•The portfolio loans to deposit ratio was 91.1%, compared to 87.3%;

Previous 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%.;

Current wording

•At September 30, 2025, nonperforming loans decreased by $0.7 million to $258.6 million compared to December 31, 2024. Nonperforming loans as a percentage of total portfolio loans were 6.74% compared to 7.15%;

Previous 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;

Current wording

•The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 1.92% compared to 2.09%. The ACL on portfolio loans totaled $73.8 million at September 30, 2025, compared to $75.6 million at December 31, 2024;

Previous 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

Current wording

•Total deposits increased $56.9 million, or 1.8%, on an annualized basis, to $4.2 billion at September 30, 2025, compared to December 31, 2024; and

Previous wording

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

Current wording

•FHLB borrowings increased $105.5 million to $175.5 million at September 30, 2025 compared to $70.0 million at December 31, 2024.

Previous 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.

Current wording

The Company reported net income of$5.4 million, or $0.24 diluted earnings per share, and$22.9 million, or $1.00 diluted earnings per share for thethree and nine months ended September 30, 2025, respectively, compared to net income of$5.6 million, or $0.24 diluted earnings per share, and$16.2 million, or $0.70 diluted earnings per share, for thethree and nine months ended September 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 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.

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 are implemented, within prescribed ALCO risk parameters, to produce what the Company believes is an acceptable level of net interest income.

Previous wording

Net interest income (GAAP) increased $4.3 million, or 15.2% and $6.0 million, or 10.6% for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Net interest income, on an FTE basis (non-GAAP), increased $4.2 million, or 15.0%, and $5.9 million, or 10.4% for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Net interest margin (GAAP) increased 25 basis points and 18 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024. Net interest margin, on an FTE basis (non-GAAP), also increased 26 basis points and 18 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024. The increases resulted from higher yields on average earning assets of four and six basis points and funding costs that declined 30 and 20 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024. During the six months ended June 30, 2025, $1.3 billion of CDs matured and repriced from an average rate of 4.29% to an average rate of 3.47%.

Current wording

Net interest income (GAAP) increased $4.9 million, or 17.1% and $10.9 million, or 12.8% for the three and nine months ended September 30, 2025 compared to the same periods in 2024, respectively. Net interest income, on an FTE basis (non-GAAP), increased $4.9 million, or 16.9%, and $10.8 million, or 12.6% for the three and nine months ended September 30, 2025 compared to the same periods in 2024, respectively. Net interest margin (GAAP) increased 28 basis points and 21 basis points for the three and nine months ended September 30, 2025 compared to the same periods in 2024. Net interest margin, on an FTE basis (non-GAAP), also increased 28 basis points and 21 basis points for the three and nine months ended September 30, 2025 compared to the same periods in 2024. The increases were driven by a five basis point decrease in the yields on average earning assets during the three month period, a three basis point increase in yields on average earnings assets for the nine month period, and declines in funding costs of 45 and 28 basis points for the three and nine months ended September 30, 2025 compared to the same periods in 2024. For the three and nine months ended September 30, 2025, lower interest-bearing funding costs were positively impacted by the Federal Reserve’s reduction of short-term interest rates by 25 basis points during the third quarter of 2025, as well as by cumulative reductions of 100 basis points implemented between September 2024 to December 2024. During the nine months ended September 30, 2025, $1.4 billion of CDs matured and repriced from an average rate of 4.22% to an average rate of 3.50%.

Previous 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.

Current wording

Interest and dividend income (GAAP) increased $2.6 million and $7.7 million for the three and nine months ended September 30, 2025 compared to the same periods in 2024. Interest and dividend income, on an FTE basis (non-GAAP), increased $2.5 million and $7.6 million for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024, primarily resulting from average loan growth of $228.8 million and $191.2 million for the three and nine months ended September 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 $20.6 million and $30.2 million in average interest-bearing deposits with banks during the three and nine months ended September 30, 2025, respectively, partially offset by decreases of $13.9 million and $27.6 million in average investment securities and decreases of $2.3 million and $8.1 million in average FHLB stock for the three and nine months ended September 30, 2025 compared to the same periods in 2024, respectively.

Previous 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.

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 September 30, 2025, the securities portfolio was comprised of 39.7% variable rate securities with approximately 90.4% that will reprice at least once over the next 12 months. We believe having a balanced mix of floating and fixed rate securities is an important strategy during any economic cycle. The two structures behave differently when interest rates change, therefore providing a hedge. In times of rising interest rates, fixed rate bond market prices generally fall, which can result in unrealized losses, while floating rate bonds generally increase in yield and hold constant market prices. In times of falling interest rates, fixed rate bond market prices generally increase, which can result in unrealized gains, while floating rate bonds generally decrease in yield and hold constant on market price. The bank considers short- and intermediate-term interest rates, and the likelihood of directional change, to fine tune its weighting between the two structures.

Previous wording

Interest expense decreased $1.1 million and $0.9 million for the three and six months ended June 30, 2025 compared to the same periods in 2024. Average interest-bearing deposits increased $389.1 million and $418.2 million, of which $196.1 million was brokered deposits, for the three and six months ended June 30, 2025, respectively. compared to the same periods in 2024. Average borrowings decreased $172.1 million and $233.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024, primarily due to increased deposit balances. Overall, the cost of interest-bearing liabilities decreased 30 and 20 basis points for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024.

Current wording

Interest expense decreased $2.3 million and $3.2 million for the three and nine months ended September 30, 2025 compared to the same periods in 2024. Average interest-bearing deposits increased $276.6 million and $370.7 million, of which $196.1 million was brokered deposits, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. Average borrowings decreased $50.5 million and $171.7 million for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024, primarily due to increased deposit balances. Overall, the cost of interest-bearing liabilities decreased 45 and 28 basis points for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024.

Previous 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.

Current 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, 68.6% of our CD portfolio and 77.2% 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 Company recognizes (recovery) provision for credit losses based on the difference between the existing balance of ACL reserves and the ACL reserve balance necessary to adequately absorb expected credit losses associated with the Company’s financial instruments. Similarly, the Company recognizes (recovery) provision for unfunded commitments based on the difference between the existing balance of reserves for unfunded commitments and the reserve balance for unfunded commitments necessary to adequately absorb expected credit losses associated with those commitments. (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.

Current wording

The Company recognizes provision (recovery) for credit losses based on the difference between the existing balance of ACL reserves and the ACL reserve balance necessary to adequately absorb expected credit losses associated with the Company’s financial instruments. Similarly, the Company recognizes provision (recovery) for unfunded commitments based on the difference between the existing balance of reserves for unfunded commitments and the reserve balance for unfunded commitments necessary to adequately absorb expected credit losses associated with those commitments. Provision (recovery) 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.

Previous wording

The following table presents information regarding the (recovery) provision for credit losses and net charge-offs for the periods presented:

Current wording

The following table presents information regarding the provision (recovery) for credit losses and net charge-offs for the periods presented:

Previous 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.

Current wording

The provision (recovery) for credit losses was an expense of $2.9 million and a recovery of $(1.5) million for the three and nine months ended September 30, 2025, respectively, compared to a recovery for credit losses of $(432) thousand and an expense of $75 thousand for the same periods in 2024, respectively. The changes compared to the same periods in 2024 were primarily driven by $3.8 million in general reserves established for higher new loan volume during the third quarter of 2025, along with the establishment of a $1.2 million specific reserve on an existing CRE relationship that has been in nonaccrual status since the first quarter of 2025 as a result of an updated appraisal. The increases were partially offset by a reduction in the Other segment reserve, resulting from a lower reserve rate from 13.13% at September 30, 2024 to 9.49% at September 30, 2025, offset by lower curtailment payments during the three and nine months ended September 30, 2025 compared to the same periods in 2024.

Previous wording

The recovery for unfunded commitments was a recovery of $335 thousand and a recovery of $449 thousand for the three and six months ended June 30, 2025, respectively, compared to recoveries of $236 thousand and $279 thousand for the same periods in 2024, respectively. The changes compared to the same periods in 2024 were primarily due to decreased unfunded commitments in construction loans.

Current wording

The provision (recovery) for unfunded commitments was an expense of $335 thousand and a recovery of $(114) thousand for the three and nine months ended September 30, 2025, respectively, compared to an expense of $191 thousand and a recovery of $(88) thousand for the same periods in 2024, respectively. The changes compared to the same periods in 2024 were primarily due to increased unfunded commitments in construction loans.

Previous wording

The recovery for unfunded commitments was a recovery of $449 thousand for the six months ended June 30, 2025 compared to a recovery of $279 thousand for the same period in 2024. The change compared to the same period in 2024 was primarily due to decreased unfunded commitments in construction loans during the six months ended June 30, 2025. The reserve for unfunded commitments is largely comprised of unfunded commitments related to real estate construction loans and pressure on the reserve rates. 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. These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts, average portfolio life, etc. Refer to Note 1, Summary of Significant Accounting Policies, in Item 8. Financial Statements and Supplementary Data for our ACL Policy, contained in our Annual Report on Form 10-K for the year ended December 31, 2024. 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.

Current wording

The reserve for unfunded commitments is largely comprised of unfunded commitments related to real estate construction loans and pressure on the reserve rates. 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. These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts, average portfolio life, etc. Refer to Note 1, Summary of Significant Accounting Policies, in Item 8. Financial Statements and Supplementary Data for our ACL Policy, contained in our Annual Report on Form 10-K for the year ended December 31, 2024. 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.

Previous 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.

Current wording

The most significant increase compared to the nine months ended September 30, 2024 was the$1.8 million increase in other noninterest income, primarily driven by a $1.9 million gain on a BOLI death benefit recorded in the first quarter of 2025.

Previous 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.

Current wording

The increases in other noninterest expense was due primarily due to activity on four OREO branch properties, as previously discussed, and $0.5 million in 1035 exchange fees, as a result of the early surrender and transfer to new carriers of the Company’s BOLI policies, both of which were recorded in the second quarter of 2025. As discussed above, the increase in occupancy expense, net, for the nine months ended September 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 first nine months of 2025 related to the launching of the new brand refresh that commenced in the fourth quarter of 2024. Similar to the variance above, the increase in professional and legal fees was driven by costs associated with the Branch Purchase, as well as various consulting expenses primarily due to project management. The increase in data processing expenses related primarily to general inflationary cost increases for existing and new service agreements in the beginning of the year. Debit card expenses increased during the period primarily due to higher credit card billing fees and elevated debit card fraud losses. As discussed previously, while base salaries increased during the nine months ended September 30, 2025, total salary expenses decreased due to higher salary cost deferrals of $5.0 million associated with higher loan growth, which reduced the amount of salary expense recognized in the nine months ended September 30, 2025. The decrease in FDIC insurance expense was primarily due to the curtailment payments which have reduced the outstanding balance of the aforementioned large nonperforming credit relationship from $301.9 million at September 30, 2024 to $228.6 million at September 30, 2025, which is a component used to determine the assessment.

Previous 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”).

Current wording

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 BOLI.

Previous wording

Total assets increased $124.9 million, to $4.8 billion at June 30, 2025 compared to December 31, 2024. Total portfolio loans increased $122.3 million, or 6.8%, on an annualized basis, at June 30, 2025 compared to December 31, 2024, primarily due to growth in the commercial real estate (“CRE”) and residential mortgage portfolios, partially offset by the aforementioned curtailment payments in the Other segment. The available-for-sale securities portfolio increased $36.8 million and is currently 15.8% of total assets at June 30, 2025 compared to 15.4% of total assets at December 31, 2024. The increase is due to new security purchases during the first six months of 2025.

Current wording

Total assets increased $180.9 million, to $4.8 billion at September 30, 2025 compared to December 31, 2024. Total portfolio loans increased $210.8 million, or 7.8%, on an annualized basis, at September 30, 2025 compared to December 31, 2024, due to growth in the commercial real estate (“CRE”), residential mortgage, construction and other consumer portfolios, partially offset by the aforementioned curtailment payments in the Other segment and a decrease in the commercial and industrial loan (“C&I”) portfolio. The available-for-sale securities portfolio increased $9.5 million and is currently 15.0% of total assets at September 30, 2025 compared to 15.4% of total assets at December 31, 2024. The increase is due to new security purchases and the positive change in unrealized losses, partially offset by normal paydowns, amortizations and calls during the first nine months of 2025.

Previous 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.

Current wording

During the nine months ended September 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

Total deposits increased $68.8 million to $4.2 billion at June 30, 2025 compared to December 31, 2024. Total deposits included $55.9 million related to the Branch Purchase that the Company completed during the second quarter of 2025. Deposits increased primarily due to growth in interest-bearing demand accounts and money market accounts, partially offset by decreases in CDs and savings accounts. FHLB borrowings increased $43.5 million at June 30, 2025 compared to December 31, 2024. The Company had no outstanding federal funds purchased at June 30, 2025 and December 31, 2024.

Current wording

Total deposits increased $56.9 million to $4.2 billion at September 30, 2025 compared to December 31, 2024. Total deposits included $55.9 million related to the Branch Purchase that the Company completed during the second quarter of 2025. Deposits increased due to growth in interest-bearing demand accounts and money market accounts, partially offset by decreases in noninterest-bearing demand accounts, savings accounts and CDs. FHLB borrowings increased $105.5 million at September 30, 2025 compared to December 31, 2024 due to loan growth. The Company had no outstanding federal funds purchased at September 30, 2025 and December 31, 2024.

Previous 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.

Current wording

The securities portfolio increased $9.5 million at September 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 nine months ended September 30, 2025, there were new security purchases totaling $58.6 million and a positive change in unrealized losses of $23.6 million, partially offset by normal paydowns, amortization and calls of $72.7 million during the first nine months of 2025. Securities comprised 15.0% of total assets at September 30, 2025 compared to 15.4% at December 31, 2024. As of September 30, 2025, the securities portfolio was comprised of 39.7% variable rate securities with approximately 90.4% that will reprice at least once over the next 12 months.

Previous 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.

Current wording

At September 30, 2025, total gross unrealized gains in the available-for-sale portfolio were $0.4 million, offset by $59.1 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.

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 45.1% 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.

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 45.9% of securities issued by United States government sponsored entities and carry an implicit government guarantee. States and political subdivisions comprise 32.0% 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 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 nine 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 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.

Current wording

At September 30, 2025 the 5-year and 10-year U.S. Treasury yields were 3.74% and 4.16%, respectively. At December 31, 2024, those same bond yields were 4.38% and 4.58%, respectively. Therefore, these decreases of 64 basis points and 42 basis points, respectively in the intermediate part of the yield curve largely caused the reduction in unrealized losses for the first nine months of 2025. The effects were generally greater for longer maturity bonds, such as municipal bonds. Conversely, floating rate bonds largely held consistent values, as those interest rates adjust in line with Federal Reserve interest rate changes.

Previous wording

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. At June 30, 2025 and December 31, 2024, the Company had no credit related impairment.

Current wording

Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through provision (recovery) 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. At September 30, 2025 and December 31, 2024, the Company had no credit related impairment.

Previous 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.

Current wording

Total portfolio loans increased $210.8 million, or 7.8% on an annualized basis, at September 30, 2025 compared to December 31, 2024 with production due to growth in the CRE, residential mortgage, construction and other consumer portfolios, partially offset by declines in the Other segment due to $23.4 million curtailment payments made during the nine months ended September 30, 2025 and a decline in the C&I portfolio. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations. At September 30, 2025, the loan portfolio was comprised of 24.2% floating rates which reprice monthly, 38.1% variable rates that reprice at least once during the life of the loan and the remaining 37.7% 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.