Carter Bankshares, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES (continued) Previously Disclosed Material Weakness As previously disclosed in Part II, Item 9A “Controls and Procedures” of the Bank’s Form 10-K for the period ended December 31, 2019, a material weakness was identified in the Bank’s internal control over financial reporting resulting from ineffective internal controls over the valuation and existence of complex collateral associated with two collateral-dependent impaired loans. We relied on stale appraisal information in order to support the underlying assumptions and methodologies to determine fair value and existence of the complex collateral. The appraisals were incomplete and did not adequately support the valuation and existence of the complex collateral. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Remediation of Previously Disclosed Material Weakness During the fourth quarter of 2019, management concluded that the controls regarding the completeness and accuracy of the valuation of impaired loans, including calculations and supporting information were not operating effectively. The Bank relied on stale appraisal information to support the underlying assumptions and methodologies to determine fair value and existence of unique, complex collateral in a singular, limited situation. As of December 31, 2020, management had successfully remediated this material weakness. The remediation included obtaining an updated appraisal from an industry expert qualified to support the valuation and existence of the complex collateral associated with the two collateral-dependent impaired loans. Changes in Internal Control Over Financial Reporting No other changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION On December 15, 2020, the Bank adopted an unfunded, nonqualified deferred compensation plan, called the Nonqualified Deferred Compensation Plan, to provide (i) key employees of the Bank, including all of the Company’s named executive officers (beginning after the date of adoption) the opportunity to defer to a later year on a pre-tax basis certain compensation without being subject to the dollar limits that apply to these employees under the Bank’s tax-qualified integrated profit-sharing plan and (ii) the Bank’s non-employee directors (beginning in January 2022) the opportunity to defer to a later year on a pre-tax basis certain director fees. The compensation and fees (and related earnings) deferred under this plan are held in a grantor trust until paid to the participants and remain subject to the claims of the creditors of the Bank and Company until paid to the participants. 146 CARTER BANKSHARES, INC. AND SUBSIDIARIES PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Except as set forth below, the information required by Part III, Item 10 of Form 10-K is incorporated herein from the sections entitled – “Delinquent Section 16(a) Reports”, “Proposal 1 -- Election of Directors,” “Executive Officers of the Registrant,” “Corporate Governance --Audit Committee,” and, "Corporate Governance - Director Qualifications and Nominations: Board Diversity" in our proxy statement relating to our June 23, 2021 annual meeting of shareholders. Code of Ethics The Company has adopted a Code of Conduct (the “Code”) that applies to its directors, executive officers and employees and is available on the Company’s website at www.CBTCares.com under “Investor.” The Company intends to provide any required disclosure of any amendment to or waiver of the Code that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on www.CBTCares.com under “Investor” promptly following the amendment or waiver. The Company may elect to disclose any such amendment or waiver in a Current Report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to the Company’s website is not incorporated by reference in this Report and should not be considered part of this or any other report that we file or furnish to the SEC. ITEM 11. EXECUTIVE COMPENSATION The information required by Part III, Item 11 of Form 10-K is incorporated herein from the sections entitled “Compensation Discussion and Analysis,” “Executive Compensation,” “Director Compensation,” “Corporate Governance -- Compensation Committee Interlocks and Insider Participation,” “Corporate Governance - The Company Board’s Role in Risk Oversight” and “Compensation and Benefits Committee Report” in our proxy statement relating to our June 23, 2021 annual meeting of shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Except as set forth below, the information required by Part III, Item 12 of Form 10-K is incorporated herein from the sections entitled “Principal Beneficial Owners of Carter Bankshares Inc. Common Stock” and “Beneficial Ownership of Carter Bankshares, Inc. Common Stock by Directors and Officers” in our proxy statement relating to our June 23, 2021 annual meeting of shareholders. 147 CARTER BANKSHARES, INC. AND SUBSIDIARIES PART III Equity Compensation Plan Information The following table provides summary information as of December 31, 2020 related to the Carter Bankshares, Inc. Amended and Restated 2018 Omnibus Equity Plan, the only equity compensation plan under which the Company’s securities are authorized for issuance. (a) (b) (c) Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) Equity compensation plan approved by shareholders 1,872,720 Equity compensation plans not approved by shareholders Total 1,872,720 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Part III, Item 13 of Form 10-K is incorporated herein from the sections entitled “Related Person Transactions” and “Corporate Governance -- Director Independence” in our proxy statement relating to our June 23, 2021 annual meeting of shareholders. 148 CARTER BANKSHARES, INC. AND SUBSIDIARIES PART III ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Part III, Item 14 of Form 10-K is incorporated herein from the section entitled “Proposal 2: Ratification of the Selection of Independent Registered Public Accounting Firm for Fiscal Year 2021” in our proxy statement relating to our June 23, 2021 annual meeting of shareholders. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this Report . Consolidated Financial Statements: The following consolidated financial statements are included in Part II, Item 8 of this Report. No financial statement schedules are being filed because the required information is inapplicable or is presented in the Consolidated Financial Statements or related notes. Consolidated Balance Sheets 85 Consolidated Statements of (Loss) Income 86 Consolidated Statements of Comprehensive (Loss) Income 87 Consolidated Statements of Changes in Shareholders’ Equity 88 Consolidated Statements of Cash Flows 89 Notes to Consolidated Financial Statements 91 Report of Crowe LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements and Effectiveness of Internal Controls Over Financial Reporting 140 Report of Yount, Hyde & Barbour, Independent Registered Public Accounting Firm, on Consolidated Financial Statements 144 149 CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES – (continued) (b) Exhibits 2.1 Agreement and Plan of Reorganization by and among Carter Bank & Trust, Carter Bankshares, Inc. and CBT Merger Sub, Inc., dated November 9, 2020 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020) 3.1 Articles of Incorporation of Carter Bankshares, Inc., effective October 7, 2020 (incorporated by reference to Exhibit 3.1 the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020) 3.2 Bylaws of Carter Bankshares, Inc., as adopted October 28, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020) 4.1 Description of Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020) 10.1* Amended and Restated Employment Agreement, dated and effective as of November 20, 2020, by and between Carter Bankshares, Inc., Carter Bank & Trust and Wendy S. Bell (filed herewith) 10.2* Amended and Restated Employment Agreement, dated and effective as of November 20, 2020, by and between Carter Bankshares, Inc., Carter Bank & Trust and Litz Van Dyke (filed herewith) 10.3* Amended and Restated Employment Agreement, dated and effective as of November 20, 2020, by and between Carter Bankshares, Inc., Carter Bank & Trust and Phyllis Q. Karavatakis (filed herewith) 10.4* Amended and Restated Employment Agreement, dated and effective as of November 20, 2020, by and between Carter Bankshares, Inc., Carter Bank & Trust and Jane Ann Davis (filed herewith) 10.5* Amended and Restated Employment Agreement, dated and effective as of November 20, 2020, by and between Carter Bankshares, Inc., Carter Bank & Trust and Bradford N. Langs (filed herewith) 10.6* Amended and Restated Employment Agreement, dated and effective as of November 20, 2020, by and between Carter Bankshares, Inc., Carter Bank & Trust and Matthew M. Speare (filed herewith) 10.7* Carter Bankshares, Inc. Amended and Restated 2018 Omnibus Equity Incentive Plan, effective November 20, 2020 (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 3, 2020) 10.7.1* Form of Time-Based Restricted Stock Agreement (for employee) for use after November 20, 2020 under the Carter Bankshares, Inc. Amended and Restated 2018 Omnibus Equity Incentive Plan (filed herewith) 10.7.2* Form of Time-Based Restricted Stock (for non-employee director) for use after November 20, 2020 under the Carter Bankshares, Inc. Amended and Restated 2018 Omnibus Equity Incentive Plan (filed herewith) 150 CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES – (continued) 10.8* Carter Bankshares, Inc. Amended and Restated Annual Incentive Plan as amended and restated February 18, 2021 (filed herewith) 10.9* Amended and Restated Change of Control Severance Agreement, dated and effective as of November 20, 2020, by and between Carter Bankshares, Inc., Carter Bank & Trust and Arthur Loran Adams (filed herewith) 10.10* Amended and Restated Change of Control Severance Agreement, dated and effective as of November 20, 2020 by and between Carter Bankshares, Inc., Carter Bank & Trust and Tony E. Kallsen (filed herewith) 10.11* Carter Bank & Trust Nonqualified Deferred Compensation Plan (executive component) - Virginia Bankers Association Model Plan (for executives) as restated as of January 1, 2018 and incorporating all amendments through November 1, 2020 (filed herewith) 10.11.1* Adoption Agreement for Virginia Bankers Association Model Plan (for executives) as restated as of January 1, 2018 and updated January 1, 2020 (filed herewith) 10.11.2* 162(m) Amendment to Virginia Bankers Association Model Plan (for executives) adopted November 13, 2020 (filed herewith) 10.12* Carter Bank & Trust Nonqualified Deferred Compensation Plan (director component) - Virginia Bankers Association Model Plan (for directors) as restated as of January 1, 2018 and incorporating all amendments through November 1, 2020 (filed herewith) 10.12.1* Adoption Agreement for Virginia Bankers Association Model Plan (for directors) as restated as of January 1, 2018 and updated January 1, 2020 (filed herewith) 21.1 Subsidiaries of Carter Bankshares, Inc. (filed herewith) 23.1 Consent of Crowe LLP (filed herewith) 23.2 Consent of Yount, Hyde & Barbour, P.C. (filed herewith) 31.1 Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith) 31.2 Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith) 32.1 Certification by principal executive officer pursuant to 18 U.S.C. §1350 (filed herewith) 32.2 Certification by principal financial officer pursuant to 18 U.S.C. §1350 (filed herewith) * Denotes management contract. ITEM 16. FORM 10-K SUMMARY None. 151 CARTER BANKSHARES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARTER BANKSHARES, INC. (Registrant) By: /s/ Litz H. Van Dyke Name: Litz H. Van Dyke Title: Chief Executive Officer (Principal Executive Officer) Date: March 12, 2021 By: /s/ Wendy S. Bell Name: Wendy S. Bell Title: Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 12, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ James W. Haskins By: /s/ Litz H. Van Dyke Name: James W. Haskins Name: Litz H. Van Dyke Title: Chairman of the Board Title: Director and Chief Executive Officer Date: March 12, 2021 Date: March 12, 2021 By: /s/ Phyllis Q. Karavatakis By: /s/ Michael R. Bird Name: Phyllis Q. Karavatakis Name: Michael R. Bird Title: Vice Chairman of the Board Title: Director Date: March 12, 2021 Date: March 12, 2021 By: /s/ Kevin S. Bloomfield By: /s/ Robert M. Bolton Name: Kevin S. Bloomfield Name: Robert M. Bolton Title: Director Title: Director Date: March 12, 2021 Date: March 12, 2021 By: /s/ Robert W. Conner By: /s/ Gregory W. Feldmann Name: Robert W. Conner Name: Gregory W. Feldmann Title: Director Title: Director Date: March 12, 2021 Date: March 12, 2021 152 CARTER BANKSHARES, INC. AND SUBSIDIARIES By: /s/ Chester A. Gallimore By: /s/ Charles E. Hall Name: Chester A. Gallimore Name: Charles E. Hall Title: Director Title: Director Date: March 12, 2021 Date: March 12, 2021 By: /s/ Lanny A. Kyle, O.D. By: /s/ E. Warren Matthews Name: Lanny A. Kyle, O.D. Name: E. Warren Matthews Title: Director Title: Director Date: March 12, 2021 Date: March 12, 2021 By: /s/ Catharine L. Midkiff By: /s/ Joseph E. Pigg Name: Catharine L. Midkiff Name: Joseph E. Pigg Title: Director Title: Director Date: March 12, 2021 Date: March 12, 2021 By: /s/ Elizabeth Lester Walsh Name: Elizabeth Lester Walsh Title: Director Date: March 12, 2021 153