What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-08-03 · 149 added, 160 removed, 343 unchanged (47% of the section changed)

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

Provision for Income Taxes

The provision for income taxes decreased $4.2 million and $2.8 million to $0.8 million and $5.3 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022.

Pre-tax income decreased $15.0 million and $12.0 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022.

The effective tax rate was 17.7% and 17.4% for the three and nine months ended September 30, 2023 compared to 25.8% and 19.1% for the same periods in 2022.

The decrease in the effective tax rate for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily related to changes in pre-tax income, partially offset by higher levels of tax credits in 2023.

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”).

Financial Condition

June 30, 2023

Total assets increased $179.5 million, to $4.4 billion at June 30, 2023 compared to $4.2 billion at December 31, 2022.

Total portfolio loans increased $181.5 million, or 11.6% on an annualized basis, to $3.3 billion at June 30, 2023 compared to December 31, 2022 primarily due to loan growth in the CRE, residential mortgage and construction segments during the six months ended June 2023.

The variances in loan segments for portfolio loans related to increases of $172.0 million in commercial real estate loans, $49.9 million in residential mortgages, $3.2 million in construction loans, offset by decreases of $30.6 million in C&I loans, $7.2 million in the other category and $5.8 million in other consumer loans.

The securities portfolio decreased $14.9 million and is currently 18.7% of total assets at June 30, 2023 compared to 19.9% of total assets at December 31, 2022.

The decrease is due to $42.0 million in security sales, curtailments and maturities deployed into higher yielding loan growth, offset by $24.9 million in purchases of small business administration bonds during the six months ended June 30, 2023.

As of June 30, 2023, the securities portfolio was comprised of 46.9% variable rate securities with approximately 99.4% that will reprice at least once over the next 12 months.

At June 30, 2023, total gross unrealized gains in the available-for-sale portfolio were $0.9 million, offset by $105.8 million of gross unrealized losses.

September 30, 2023

Total assets increased $247.6 million, to $4.5 billion at September 30, 2023 compared to $4.2 billion at December 31, 2022.

Total portfolio loans increased $262.0 million, or 11.1% on an annualized basis, to $3.4 billion at September 30, 2023 compared to December 31, 2022 primarily due to loan growth in the CRE, residential mortgage and construction segments during the nine months ended September 30, 2023.

The variances in loan segments for portfolio loans related to increases of $218.4 million in commercial real estate loans, $80.4 million in residential mortgages, $24.0 million in construction loans, offset by decreases of $45.5 million in C&I loans, $8.1 million in other consumer loans and $7.2 million in the other category.

The securities portfolio decreased $42.9 million and is currently 17.8% of total assets at September 30, 2023 compared to 19.9% of total assets at December 31, 2022.

The decrease is due to $54.0 million in maturities, curtailments and security sales deployed into higher yielding loan growth, offset by $24.9 million in purchases of small business administration bonds during the nine months ended September 30, 2023.

As of September 30, 2023, the securities portfolio was comprised of 47.3% variable rate securities with approximately 99.4% that will reprice at least once over the next 12 months.

At September 30, 2023, total gross unrealized gains in the available-for-sale portfolio were $0.9 million, offset by $120.5 million of gross unrealized losses.

Refer to the “Securities Activity” section below for further discussion of unrealized losses in the available-for-sale securities portfolio.

Federal Home Loan Bank (“FHLB”) stock, at cost increased $9.7 million to $19.4 million at June 30, 2023 compared to $9.7 million at December 31, 2022.

Federal Home Loan Bank (“FHLB”) stock, at cost increased $17.6 million to $27.4 million at September 30, 2023 compared to December 31, 2022.

The increase is due to the FHLB requirement to hold a specified level of stock based upon level of borrowings .

Other real estate owned (“ OREO”) decre ase d $5.0 million at June 30, 2023 compared to December 31, 2022 due to the sale of one OREO property in June 2023.

Closed retail bank offices had a book value of $1.0 million at June 30, 2023 and $1.1 million at December 31, 2022.

Total deposits decreased $53.3 million to $3.6 billion at June 30, 2023 compared to December 31, 2022.

OREO decre ase d $4.6 million at September 30, 2023 compared to December 31, 2022 due to the sale of one OREO property in June 2023.

During the third quarter of 2023, the Bank closed two retail banking offices and moved $1.1 million at fair value to OREO.

These properties are currently being marketed for sale.

Closed retail bank offices had a book value of $2.1 million at September 30, 2023 and $1.1 million at December 31, 2022.

Total deposits decreased $74.2 million to $3.6 billion at September 30, 2023 compared to December 31, 2022.

The decrease related to a decline of $324.2 million in savings, money market and demand deposits due to customers migrating to higher-yielding CD products driven by rising market interest rates.

At June 30, 2023, noninterest-bearing deposits comprised 19.2% of total deposits compared to 19.4% at December 31, 2022 and 18.8% at June 30, 2022.

CDs comprised 40.6%, 34.7% and 33.6% of total deposits at June 30, 2023, December 31, 2022 and June 30, 2022, respectively.

As of June 30, 2023, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 88.3% of our total deposits of $3.6 billion were insured under standard FDIC insurance coverage limits, and approximately 11.7% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit.

At September 30, 2023, noninterest-bearing deposits comprised 18.6% of total deposits compared to 19.4% at December 31, 2022 and 19.3% at September 30, 2022.

CDs comprised 42.5%, 34.7% and 33.5% of total deposits at September 30, 2023, December 31, 2022 and September 30, 2022, respectively.

As of September 30, 2023, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 88.9% of our total deposits of $3.6 billion were insured under standard FDIC insurance coverage limits, and approximately 11.1% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit.

The Company’s deposit base is diversified and granular and is comprised of approximately 79.2% of retail deposits.

Total capital of $344.2 million at June 30, 2023, reflects an increase of $15.6 million as compared to $328.6 million at December 31, 2022.

The increase in total capital from December 31, 2022 is primarily due to a $3.6 million improvement in other comprehensive income due to changes in fair value of investment securities and net income of $21.6 million for the six months ended June 30, 2023, as well as, the transitional adjustment of $0.1 million, net of tax for the adoption of ASU 2023-02 less $10.4 million related to the repurchase of common stock.

The remaining difference of $0.7 million is related to restricted stock activity for the six months ended June 30, 2023.

The ACL was 2.83% of total portfolio loans at June 30, 2023 compared to 2.98% as of December 31, 2022.

General reserves as a percentage of total portfolio loans were 1.21% at June 30, 2023 compared to 2.96% at December 31, 2022.

Total capital of $330.6 million at September 30, 2023, reflects an increase of $2.0 million compared to $328.6 million at December 31, 2022.

The increase in total capital from December 31, 2022 is primarily due to net income of $25.3 million for the nine months ended September 30, 2023, offset by $16.4 million related to the repurchase of common stock, a $7.9 million decrease in other comprehensive (loss) income due to changes in fair value of investment securities, as well as, the transitional adjustment of $0.1 million, net of tax for the adoption of ASU 2023-02.

The remaining difference of $1.1 million is related to restricted stock activity for the nine months ended September 30, 2023.

CARTER BANKSHARES, INC.

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

The ACL was 2.77% of total portfolio loans at September 30, 2023 compared to 2.98% as of December 31, 2022.

General reserves as a percentage of total portfolio loans were 1.20% at September 30, 2023 compared to 2.96% at December 31, 2022.

The decrease in the general reserves as a percentage of total portfolio loans was primarily driven by the largest lending relationships movement from the general pool to the individually evaluated pool due to the transfer to nonaccrual during the second quarter of 2023 offset by loan growth.

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The Company remains well capitalized.

The Tier 1 capital ratio decreased to 11.46% at June 30, 2023 compared to 12.61% at December 31, 2022.

The leverage ratio was 10.02% at June 30, 2023, compared to 10.29% at December 31, 2022 and the total risk-based capital ratio was 12.72% at June 30, 2023 compared to 13.86% at December 31, 2022.

The decrease is related to the aforementioned repurchase of common stock of $10.4 million through June 30, 2023 and loan growth during the six months ended June 30, 2023.

Another significant factor driving the ratios downward was the above mentioned large lending relationship movement to nonaccrual with the $11.3 million negative impact on interest income, combined with the movement of nonaccrual assets to higher risk rating categories.

CARTER BANKSHARES, INC.

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

The Bank also remained well capitalized as of June 30, 2023.

The Bank’s Tier 1 Capital ratio was 11.34% at June 30, 2023 compared to 12.42% at December 31, 2022.

The Bank’s leverage ratio was 9.76% at June 30, 2023 compared to 10.13% at December 31, 2022.

The Bank’s Total Risk-Based Capital ratio was 12.60% at June 30, 2023 compared to 13.68% at December 31, 2022.

The Tier 1 capital ratio decreased to 11.20% at September 30, 2023 compared to 12.61% at December 31, 2022.

The leverage ratio was 9.70% at September 30, 2023, compared to 10.29% at December 31, 2022 and the total risk-based capital ratio was 12.46% at September 30, 2023 compared to 13.86% at December 31, 2022.

The decrease is related to the aforementioned repurchase of common stock of $16.4 million through September 30, 2023 and loan growth during the nine months ended September 30, 2023.

Another significant factor driving the ratios downward was the above mentioned large lending relationship movement to nonaccrual status with the $20.6 million year-to-date negative impact on interest income, combined with the movement of nonaccrual assets to higher risk rating categories.

The Bank also remained well capitalized as of September 30, 2023.

The Bank’s Tier 1 Capital ratio was 11.08% at September 30, 2023 compared to 12.42% at December 31, 2022.

The Bank’s leverage ratio was 9.59% at September 30, 2023 compared to 10.13% at December 31, 2022.

The Bank’s Total Risk-Based Capital ratio was 12.34% at September 30, 2023 compared to 13.68% at December 31, 2022.

Securities Activity

The following table presents the composition of available-for-sale securities:

(Dollars in Thousands) June 30, 2023 December 31, 2022 $ Change

(Dollars in Thousands) September 30, 2023 December 31, 2022 $ Change

Treasury Securities $ 13,104 $ 17,866 $ (4,762)

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Security purchases are subject to our investment policy that is approved annually by our Board and administered through ALCO and our treasury function.

The securities portfolio decreased $14.9 million to $821.4 million at June 30, 2023 compared to $836.3 million at December 31, 2022.

Securities comprise 18.7% of total assets at June 30, 2023 compared to 19.9% at December 31, 2022.

As of June 30, 2023, the securities portfolio was comprised of 46.9% variable rate securities with approximately 99.4% that will reprice at least once over the next 12 months.

At June 30, 2023 total gross unrealized gains in the available-for-sale portfolio were $0.9 million, offset by $105.8 million of gross unrealized losses.

The securities portfolio decreased $42.9 million to $793.4 million at September 30, 2023 compared to $836.3 million at December 31, 2022.

Securities comprise 17.8% of total assets at September 30, 2023 compared to 19.9% at December 31, 2022.

As of September 30, 2023, the securities portfolio was comprised of 47.3% variable rate securities with approximately 99.4% that will reprice at least once over the next 12 months.

At September 30, 2023 total gross unrealized gains in the available-for-sale portfolio were $0.9 million, offset by $120.5 million of gross unrealized losses.

At December 31, 2022, total gross unrealized gains in the available-for-sale portfolio were $0.3 million offset by $109.7 million of gross unrealized losses.

CARTER BANKSHARES, INC.

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

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.

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We have the ability to hold these securities to maturity and expect full recovery of the amortized cost.

From time to time we may sell securities to take advantage of market opportunities or as part of a strategic initiative.

The Company’s investment securities with intermediate and long-term maturities were the largest driver of these gross unrealized losses, as the market values of these securities are significantly impacted by the Treasury yield curve for similar durations (i.e., 5- and 10-year Treasury securities).

This portion of the Treasury yield curve has moved slightly downward over the past three months, driving unrealized losses on these securities lower.

This portion of the Treasury yield curve has moved slightly higher over the past three months, driving unrealized losses on these securities higher.

Although the Federal Reserve is in the middle of an aggressive effort to raise short-term interest rates to combat inflation, the Company does not expect higher short-term rates to adversely impact the fair values of the Company’s investment securities to the same extent as increases in longer-term rates.

CARTER BANKSHARES, INC.

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

The Company expects that higher short-term rates may continue to improve yields on certain of the Company’s variable rate securities over the next six to twelve months.

At June 30, 2023 the 5-year and 10-year U.S.

The Company expects that higher short-term rates may continue to improve yields on certain of the Company’s variable rate securities over the next several quarters.

At September 30, 2023 the 5-year and 10-year U.S.

Treasury yields were 4.60% and 4.59%, respectively.

At December 31, 2022, those same bond yields were 3.99% and 3.88%, respectively.

The decrease of seven basis points in the 10-year treasury was offset by the increase in the 5-year treasury in the intermediate part of the yield curve which drove the reduction in unrealized losses for the first six months of 2023.

The decrease of seven basis points in the 10-year treasury was offset by the increase in the 5-year treasury in the intermediate part of the yield curve which drove the increase in unrealized losses for the first nine months of 2023.

The effects were generally greater for longer maturity bonds, such as municipal bonds.

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Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through 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, 2023 and December 31, 2022, the Company had no credit related net investment impairment losses.

At September 30, 2023 and December 31, 2022, the Company had no credit related impairment.

Refer to Note 3, Investment Securities, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our securities.

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The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.

CARTER BANKSHARES, INC.

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

Loan Composition

The following table summarizes our loan portfolio for the periods presented:

(Dollars in Thousands) June 30, 2023 December 31, 2022

(Dollars in Thousands) September 30, 2023 December 31, 2022

Commercial Real Estate $ 1,688,947 $ 1,470,562

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Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay.

For a discussion of the risk factors relevant to our business and operations, please refer to Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2022, and Part II, Item 1A, “Risk Factors,” contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2023 and this Quarterly Report on Form 10-Q.

Total portfolio loans increased $181.5 million, or 11.6%, on an annualized basis, to $3.3 billion at June 30, 2023 compared to December 31, 2022 with strong production primarily in our CRE and residential mortgage portfolios.

For a discussion of the risk factors relevant to our business and operations, please refer to Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2022, and Part II, Item 1A, “Risk Factors,” contained in our Quarterly Report on Form 10-Q for the periods ended March 31, 2023, June 30, 2023 and this Quarterly Report on Form 10-Q.

Total portfolio loans increased $262.0 million, or 11.1%, on an annualized basis, to $3.4 billion at September 30, 2023 compared to December 31, 2022 with strong production primarily in our CRE, residential mortgage and construction portfolios.

The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations.

Given the continued rising rate environment our mortgage portfolio is experiencing more modest growth in 2023.

At June 30, 2023, the loan portfolio was comprised of 25.3% floating rates which reprice monthly, 41.6%, variable rates that reprice at least once during the life of the loan and the remaining 33.1% are fixed rate loans.

The Company is carefully monitoring the loan portfolio during 2023, including in light of market conditions that impact our borrowers and the interest rate environment.

At September 30, 2023, the loan portfolio was comprised of 24.5% floating rates which reprice monthly, 41.3%, variable rates that reprice at least once during the life of the loan and the remaining 34.2% are fixed rate loans.

The Company continues to carefully monitor the loan portfolio during 2023, including in light of market conditions that impact our borrowers and the interest rate environment.

Aggregate commitments to our top 10 credit relationships were $644.8 million at September 30, 2023.

The Other segment represents 46.8% of the top 10 credit relationships and $301.9 million has since transferred to nonaccrual during the second quarter of 2023, as described in more detail below under “Credit Quality” in this MD&A.

CARTER BANKSHARES, INC.

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

Aggregate commitments to our top 10 credit relationships were $638.3 million at June 30, 2023.

The Other segment represents 47.3% of the top 10 credit relationships and $301.9 million has since transferred to nonaccrual during the second quarter of 2023, as described in more detail below under “Credit Quality” in this MD&A.

The following table summarizes our top 10 relationships and a description of industries represented for the periods presented:

Dollars in Thousands For the Periods Ending Change June 30, 2023 June 30, 2023

June 30, 2023 December 31, 2022 % of Gross Loans % of RBC

Dollars in Thousands For the Periods Ending Change September 30, 2023 September 30, 2023

September 30, 2023 December 31, 2022 % of Gross Loans % of RBC

Hospitality, agriculture & energy $ 301,913 $ 309,107 $ (7,194) 8.85 % 62.12 %

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Retail real estate 39,448 37,679 1,769 1.16 % 8.12 %

Hospitality 37,633 35,255 2,378 1.10 % 7.74 %

Non-Owner Occupied/Commercial Real Estate 33,903 17,308 16,595 1.00 % 6.98 %

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Multifamily / Construction Real Estate 32,000 24,000 8,000 0.94 % 6.58 %

Multifamily Development 31,521 31,790 (269) 0.95 % 6.47 %

Top Ten (10) Relationships $ 644,847 $ 628,284 $ 16,563 18.91 % 132.68 %

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Concentration (25% of RBC) $ 121,508 $ 120,863

Unfunded commitments on lines of credit were $592.8 million at June 30, 2023 as compared to $512.7 million at December 31, 2022.

Unfunded commitments on lines of credit were $595.9 million at September 30, 2023 as compared to $512.7 million at December 31, 2022.

The majority of unused commitments are for construction projects that will be drawn as the construction completes.

Total utilization was 49.8% at June 30, 2023 and 52.2% at December 31, 2022.

Unfunded commitments on commercial operating lines of credit was 49.0% at June 30, 2023 and 51.7% at December 31, 2022.

Total utilization was 51.9% at September 30, 2023 and 52.2% at December 31, 2022.

Unfunded commitments on commercial operating lines of credit was 51.4% at September 30, 2023 and 51.7% at December 31, 2022.

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry while actively managing concentrations.

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The Company significantly increased the standards for consumer unsecured lending by adjusting upward the required qualifying Fair Isaac Corporation (“FICO”) scores and restricting loan amounts at lower FICO scores.

Deferred costs and fees included in the portfolio balances above were $6.6 million and $8.2 million at June 30, 2023 and December 31, 2022, respectively.

Discounts on purchased 1-4 family loans included in the portfolio balances above were $146.6 thousand and $161.2 thousand at June 30, 2023 and December 31, 2022, respectively.

Deferred costs and fees included in the portfolio balances above were $6.7 million and $8.2 million at September 30, 2023 and December 31, 2022, respectively.

Discounts on purchased 1-4 family loans included in the portfolio balances above were $140.0 thousand and $161.2 thousand at September 30, 2023 and December 31, 2022, respectively.

From time to time, we have mortgage loans held-for-sale derived from two sources.

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Second, we originate and close mortgages with fully executed contracts with investors to purchase shortly after closing.

We then hold these mortgage

We then hold these mortgage loans from both sources until funded by the investor, typically a two-week period.

There were no mortgage loans held-for-sale at September 30, 2023 and December 31, 2022, respectively.

CARTER BANKSHARES, INC.

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

loans from both sources until funded by the investor, typically a two-week period.

There were $173.2 thousand and zero mortgage loans held-for-sale at June 30, 2023 and December 31, 2022, respectively.

Refer to Note 4, Loans and Loans Held-for-Sale, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our loans.

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The following table summarizes nonperforming assets for the dates presented:

(Dollars in Thousands) June 30, 2023 December 31, 2022 $ Change

(Dollars in Thousands) September 30, 2023 December 31, 2022 $ Change

Nonaccrual Loans

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Total Nonperforming Assets $ 312,066 $ 15,038 $ 297,028

Nonperforming assets increased $299.1 million to $314.1 million at June 30, 2023 compared to December 31, 2022.

During the second quarter of 2023, the Company placed commercial loans that resided in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest lending relationship which has an aggregate principal amount of $301.9 million, on

Nonperforming assets increased $297.0 million to $312.1 million at September 30, 2023 compared to December 31, 2022.

These nonperforming loans are 97.9% of the Company's total nonperforming loans and 96.7% of the Company's total nonperforming assets.

CARTER BANKSHARES, INC.

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

nonaccrual status due to loan maturities and failure to pay in full.

These nonperforming loans are 97.2% of the Company's total nonperforming loans and 96.1% of the Company's total nonperforming assets.

Based on analyses of the credit relationship and various cash flow assumptions in the alternative modeling the Company established specific reserves with respect to these loans of $53.6 million at June 30, 2023, representing 17.8%, of these loans aggregate principal amount.

At June 30, 2023, all of the Bank’s loans related to this lending relationship are on nonaccrual status.

Based on analyses of the credit relationship and various cash flow assumptions in the alternative modeling the Company established individually evaluated loan reserves with respect to these loans of $53.6 million at September 30, 2023, representing 17.8%, of these loans aggregate principal amount.

At September 30, 2023, all of the Bank’s loans related to this lending relationship are on nonaccrual status.

The Company believes it is well secured based on the net carrying value of the credit relationship and appropriately reserved for potential losses with respect to all such loans based on information currently available.

The Company utilized various cash flow assumptions in the alternative modeling which resulted in a valuation allowance of $53.6 million at September 30, 2023.

As the borrowers on these loans operate in the hospitality, agriculture, and energy sectors, this credit relationship is secured by, among other collateral, commercial real estate properties in these sectors including but not limited to top-tier hospitality properties.

When evaluating the net carrying value of this credit relationship at September 30, 2023, the Company utilized discounted cash flow valuation techniques to evaluate the current condition of certain of the borrowers’ operating businesses and those borrowers’ capacity to repay.

That evaluation resulted in the Company establishing a valuation allowance of $53.6 million at September 30, 2023.

The following is an analysis of nonperforming loans by loan portfolio segment for the dates presented, and each segment’s relative contribution to total nonperforming loans:

June 30, 2023

December 31, 2022

September 30, 2023 December 31, 2022

(Dollars in Thousands)

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308,301 100.0 % 6,645 100.0 %

The Company utilized various cash flow assumptions in the alternative modeling which resulted in a valuation allowance of $53.6 million at June 30, 2023.

When evaluating the net carrying value of this credit relationship at June 30, 2023, the Company utilized discounted cash flow valuation techniques to evaluate the current condition of certain of the borrowers’ operating businesses and those borrowers’ capacity to repay.

That evaluation resulted in the Company establishing a valuation allowance of $53.6 million at June 30, 2023.

The Company has initiated collection processes with respect to such loans and intends to explore all alternatives for repayment.

However, we cannot give any assurance as to the timing or amount of future payments or collections on such loans.

However, we cannot give any assurance as to the timing or amount of future payments or collections on such loans or that we will ultimately collect all amounts contractually due under the terms of such loans.

For a discussion of collection proceedings with respect to these loans, see Part II, Item 1, “Legal Proceedings” of this Quarterly Report on Form 10-Q.

Closed retail bank offices have a remaining book value of $1.0 million at June 30, 2023 and $1.1 million at December 31, 2022, and are recorded in OREO on the Company’s balance sheet.

Closed retail bank offices have a remaining book value of $2.1 million at September 30, 2023 and $1.1 million at December 31, 2022, and are recorded in OREO on the Company’s balance sheet.

During the third quarter of 2023, the Bank closed two retail banking offices and moved $1.1 million at fair value to OREO.

These properties are currently being marketed for sale.

Past Company legacy underwriting standards relied heavily on loan to value and did not necessarily consider the income characteristics of the borrower or the repayment capacity of collateral with respect to speculative land financing.

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While these guardrails do not insulate the Company from credit cycles, we believe it should reduce the experience of defaults.

At both June 30, 2023 and December 31, 2022, respectively, the Company’s loans held-for-sale were all accruing.

Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments.

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The following is the allocation of the ACL reserves by segment for the periods presented:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(Dollars in Thousands) Amount % of Loans in each Category to Total Portfolio Loans Amount % of Loans in each Category to Total Portfolio Loans

6 unchanged sentences

Balance End of Period $ 94,474 100.0 % $ 93,852 100.0 %

The decline in the ACL attributable to the other segment was primarily due to $1.3 million of principal pay-downs during the six months ended June 30, 2023 that occurred during the first quarter of 2023.

The ACL was $94.1 million, or 2.83%, of total portfolio loans at June 30, 2023 compared to $93.9 million, or 2.98%, of total portfolio loans at December 31, 2022.

The following table summarizes the credit quality ratios and their components as of June 30, 2023 and December 31, 2022:

(Dollars in Thousands) June 30, 2023 December 31, 2022

The decline in the ACL attributable to the other segment was primarily due to $1.1 million of principal pay-downs during the nine months ended September 30, 2023 that occurred during the first quarter of 2023.

The ACL was $94.5 million, or 2.77%, of total portfolio loans at September 30, 2023 compared to $93.9 million, or 2.98%, of total portfolio loans at December 31, 2022.

The following table summarizes the credit quality ratios and their components as of September 30, 2023 and December 31, 2022:

(Dollars in Thousands) September 30, 2023 December 31, 2022

Allowance for Credit Losses to Total Portfolio Loans

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The provision for credit losses, which includes a provision for losses on loans and on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date.

The provision for credit losses decreased $1.7 million and $0.9 million for the three and six months ended June 30, 2023, respectively, when compared to the same periods in 2022.

The decrease for the three and six months ended June 30, 2023 in the provision for credit losses was primarily driven by the release of specific reserves on three loans, offset by loan growth and increased reserves due to the above mentioned loan entering nonaccrual status.

The provision for credit losses increased $1.2 million and $0.2 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022.

The increase for the three and nine months ended September 30, 2023 in the provision for credit losses was primarily driven by loan growth and net charge-offs, offset by the release of specific reserves on two loans.

For more information about the Company’s provision for credit losses, see the discussion above under “Provision for Credit Losses” in this MD&A.

The provision for unfunded commitments increased $0.1 million and $0.4 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022 related to increases in real estate construction and increased pressure on the reserve rate.

There are three basic factors that influence the reserve rates associated with unfunded commitments for real

The (recovery) provision for unfunded commitments decreased $0.3 million and increased $0.1 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022 related to changes in real estate

CARTER BANKSHARES, INC.

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

estate construction loans.

construction and pressure on the reserve rate.

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.

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Third, volume changes impact the total reserve calculation.

Net charge-offs were $0.6 million and $1.2 million for the three and six months ended June 30, 2023, respectively, compared to $0.2 million and $0.4 million for the same period in 2022.

During the first three and six months of 2023, net charge-offs were primarily recognized in the other consumer segment.

As a percentage of average portfolio loans, on an annualized basis, net charge-offs were 0.08% for both the three and six months ended June 30, 2023 and 0.03% for both the same periods of 2022, respectively.

At June 30, 2023, nonperforming loans increased $304.1 million to $310.7 million since December 31, 2022.

Nonperforming loans as a percentage of total portfolio loans were 9.33% and 0.21% as of June 30, 2023 and December 31, 2022, respectively.

Net charge-offs were $0.8 million and $2.0 million for the three and nine months ended September 30, 2023, respectively, compared to $3.7 million and $4.1 million for the same period in 2022.

During the three and nine months ended September 30, 2023, net charge-offs were primarily recognized in the other consumer segment.

During the three months ended September 30, 2022, the Company charged-down $3.4 million on a $4.9 million purchased syndicated C&I loan and transferred $1.5 million to held-for-sale.

As a percentage of average portfolio loans, on an annualized basis, net charge-offs were 0.09% and 0.08% for the three and nine months ended 2023 and 0.49% and 0.19% for the same periods in 2022, respectively.

At September 30, 2023, nonperforming loans increased $301.7 million to $308.3 million since December 31, 2022.

Nonperforming loans as a percentage of total portfolio loans were 9.04% and 0.21% as of September 30, 2023 and December 31, 2022, respectively.

Nonperforming loans increased during the second quarter of 2023 as the Company placed commercial loans that were in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest lending relationship which has an aggregate principal amount of $301.9 million, on nonaccrual status due to loan maturities and failure to pay in full.

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The following tables represent credit exposures by internally assigned risk ratings as of the periods presented:

June 30, 2023

September 30, 2023

(Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Portfolio Loans

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Total Portfolio Loans $ 1,470,562 $ 309,792 $ 657,948 $ 44,562 $ 353,553 $ 312,496 $ 3,148,913

Special mention, substandard and doubtful loans at June 30, 2023 increased $158.8 million to $315.7 million compared to $156.9 million at December 31, 2022.

The decrease of $11.0 million in special mention is primarily due to the upgrade of a $9.8 million credit to a pass rating.

The increase of $169.8 million in substandard loans is primarily related to the above mentioned large nonaccrual lending relationship in the other loan category.

The $301.9 million of loans related to the Bank’s

CARTER BANKSHARES, INC.

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

largest lending relationship were nonperforming and rated as substandard as of June 30, 2023.

Special mention, substandard and doubtful loans at September 30, 2023 increased $157.1 million to $314.0 million compared to $156.9 million at December 31, 2022.

The decrease of $11.0 million in special mention is primarily due to the upgrade of a CRE credit totaling $9.8 million to a pass rating.

The increase of $168.1 million in substandard loans is primarily related to the above mentioned large nonaccrual lending relationship in the other loan category.

The $301.9 million of loans related to the Bank’s largest lending relationship were nonperforming and rated as substandard at September 30, 2023.

At December 31, 2022 the largest lending relationship in the other segment loans were all accruing and totaled $309.1 million of which, $177.3 million of those loans were pass-rated and $131.8 million of those loans were substandard-rated.

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The following table presents the composition of deposits for the periods presented:

(Dollars in Thousands) June 30,

(Dollars in Thousands) September 30,

2023 December 31,

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The Company believes that the deposit base is stable and that the Company has the ability to attract new depositors while diversifying the deposit composition.

Total deposits at June 30, 2023 decreased $53.3 million, or 1.5%, from December 31, 2022.

Total deposits at September 30, 2023 decreased $74.2 million, or 2.04%, from December 31, 2022.

The decrease related to a decline of $324.2 million in demand, money market and savings deposits, offset by an increase of $250.0 million in CDs, which was primarily due to customers migrating between deposit products as interest rates have risen.

At June 30, 2023, noninterest-bearing deposits comprised 19.2% of total deposits compared to 19.4% at December 31, 2022 and 18.8% at June 30, 2022.

CDs comprised 40.6%, 34.7% and 33.6% of total deposits at June 30, 2023, December 31, 2022 and June 30, 2022, respectively.

At September 30, 2023, noninterest-bearing deposits comprised 18.6% of total deposits compared to 19.4% at December 31, 2022 and 19.3% at September 30, 2022.

CDs comprised 42.5%, 34.7% and 33.5% of total deposits at September 30, 2023, December 31, 2022 and September 30, 2022, respectively.

The Company’s deposit base is diversified and granular and is comprised of approximately 79.2% of retail deposits.

At September 30, 2023 and December 31, 2022, total brokered deposits (excluding the CDARS and ICS two-way) were $20.0 million and zero, respectively.

CARTER BANKSHARES, INC.

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

The following table presents additional information in relation to deposits:

(Dollars in Thousands) June 30,

(Dollars in Thousands) September 30,

2023 December 31,

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This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements.

Maturities of CDs over $250,000 or more not covered by deposit insurance at June 30, 2023 are summarized as follows:

Maturities of CDs over $250,000 or more not covered by deposit insurance at September 30, 2023 are summarized as follows:

(Dollars in Thousands) Amount Percent

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Total $ 248,924 100.0 %

CARTER BANKSHARES, INC.

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

Borrowings and Federal Funds Purchased

Borrowings are an additional source of liquidity for the Company.

We had $407.1 million FHLB borrowings at June 30, 2023 and $180.6 million at December 31, 2022.

The Company had $7.9 million overnight federal funds purchased at June 30, 2023 and $17.9 million in overnight federal funds purchased at December 31, 2022.

We had $514.1 million FHLB borrowings at September 30, 2023 and $180.6 million at December 31, 2022.

The Company had no overnight federal funds purchased at September 30, 2023 and $17.9 million in overnight federal funds purchased at December 31, 2022.

The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan growth, investment securities, deposits and capital considerations.

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Information pertaining to FHLB borrowings and federal funds purchased is summarized in the following table:

(Dollars in Thousands) June 30, 2023 December 31, 2022

(Dollars in Thousands) September 30, 2023 December 31, 2022

Balance at Period End

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Federal Funds Purchased — % 4.65 %

The Company held FHLB of Atlanta stock of $19.4 million and $9.7 million at June 30, 2023 and December 31, 2022, respectively.

The Company held FHLB of Atlanta stock of $27.4 million and $9.7 million at September 30, 2023 and December 31, 2022, respectively.

The increase in FHLB stock was due to increased borrowings.

Dividends recorded on restricted stock were $315.6 thousand and $555.4 thousand for the three and six months ended June 30, 2023, respectively, compared to $22.1 thousand and $41.7 thousand for the same periods in 2022.

Dividends recorded on restricted stock were $415.3 thousand and $970.7 thousand for the three and nine months ended September 30, 2023, respectively, compared to $24.5 thousand and $66.2 thousand for the same periods in 2022.

The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

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The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered.

Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB.

Stock in the FHLB is non-marketable and is

CARTER BANKSHARES, INC.

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

redeemable at the discretion of the FHLB.

Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise.

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If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

CARTER BANKSHARES, INC.

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

The Company’s primary funding and liquidity source is a stable customer deposit base.

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Please refer to the Liquidity Sources table below for available funding with the FHLB and our unsecured lines of credit with correspondent banks.

As of June 30, 2023, approximately 88.3% of our total deposits of $3.6 billion were insured under standard FDIC insurance coverage limits, and approximately 11.7% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit.

As of September 30, 2023, approximately 88.9% of our total deposits of $3.6 billion were insured under standard FDIC insurance coverage limits, and approximately 11.1% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets.

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ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high.

At June 30, 2023, the Bank had $611.3 million in highly liquid assets, which consisted of Federal Reserve Board Excess Reserves and interest-bearing deposits in other financial institutions of $8.4 million, $602.7 million in unpledged securities and $173.2 thousand in loans held-for-sale.

This resulted in highly liquid assets to total assets ratio of 13.9% at June 30, 2023.

Total available liquidity to uninsured deposits was 324.5% at June 30, 2023.

As of June 30, 2023, the Company has approximately $322.3 million in par value of securities that are eligible to be pledged under the Bank Term Funding Program (“BTFP”), but the Bank has not borrowed under or otherwise accessed the BTFP.

At September 30, 2023, the Bank had $597.8 million in highly liquid assets, which consisted of Federal Reserve Board Excess Reserves and interest-bearing deposits in other financial institutions of $17.4 million, $580.4 million in unpledged securities.

This resulted in highly liquid assets to total assets ratio of 13.4% at September 30, 2023.

Total available liquidity to uninsured deposits was 306.8% at September 30, 2023.

As of September 30, 2023, the Company has approximately $322.3 million in par value of securities that are eligible to be pledged under the Bank Term Funding Program (“BTFP”), but the Bank has not borrowed under or otherwise accessed the BTFP.

CARTER BANKSHARES, INC.

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

The following table provides detail of liquidity sources as of the periods presented:

(Dollars in Thousands) June 30, 2023 December 31, 2022

(Dollars in Thousands) September 30, 2023 December 31, 2022

Cash and Due From Banks, including Interest-bearing Deposits $ 55,398 $ 46,869

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Total Liquidity Sources $ 1,215,760 $ 1,508,895

The following table provides total liquidity sources and ratios as of June 30, 2023:

(Dollars in Thousands) June 30, 2023

The following table provides total liquidity sources and ratios as of September 30, 2023:

(Dollars in Thousands) September 30, 2023

Total Liquidity Sources $ 1,215,760

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Regulatory Capital Requirements

Total capital of $344.2 million at June 30, 2023, reflects an increase of $15.6 million as compared to $328.6 million at December 31, 2022.

The increase in total capital from December 31, 2022 is primarily due to a $3.6 million improvement in other comprehensive income due to changes in fair value of investment securities and net income of $21.6 million for the six months ended June 30, 2023, as well as, the transitional adjustment of $0.1 million, net of tax for the adoption of ASU 2023-02, less $10.4 million related to the Company’s repurchase of common stock.

The remaining difference of $0.7 million is related to restricted stock activity for the six months ended June 30, 2023.

Total capital of $330.6 million at September 30, 2023, reflects an increase of $2.0 million compared to $328.6 million at December 31, 2022.

The increase in total capital from December 31, 2022 is primarily due to net income of $25.3 million for the nine months ended September 30, 2023 offset by $16.4 million related to the repurchase of common stock, a $7.9 million decrease in other comprehensive income due to changes in fair value of investment securities, as well as, the transitional adjustment of $0.1 million, net of tax for the adoption of ASU 2023-02.

The remaining difference of $1.1 million is related to restricted stock activity for the nine months ended September 30, 2023.

The Company and the Bank are subject to various capital requirements administered by the federal banking regulators.

Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

Under capital adequacy guidelines

CARTER BANKSHARES, INC.

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

and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

At June 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.

At September 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification that management believes have changed the institution’s category.

At June 30, 2023, the Bank continues to maintain its capital position with a leverage ratio of 9.76% as compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 11.34% compared to the regulatory guideline of 6.50% to be well-capitalized.

At September 30, 2023, the Bank continues to maintain its capital position with a leverage ratio of 9.59% as compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 11.08% compared to the regulatory guideline of 6.50% to be well-capitalized.

The Bank’s risk-based Tier 1 and Total Capital ratios were 11.08% and 12.34%, respectively, which places the Bank above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00% and 10.00%, respectively.

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The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.

CARTER BANKSHARES, INC.

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

The Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios.

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Capitalized (1)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Amount Ratio Amount Ratio

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On March 27, 2020, the regulators issued interim final rule (“IFR”), “Regulatory Capital Rule:

Revised Transition of the Current Expected Credit

CARTER BANKSHARES, INC.

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

Losses Methodology for Allowances” in response to the disrupted economic activity from the spread of COVID-19.

Revised Transition of the Current Expected Credit Losses Methodology for Allowances” in response to the disrupted economic activity from the spread of COVID-19.

The IFR maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

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Contractual Obligations

As of June 30, 2023, there have been no material changes outside the ordinary course of business to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, there have been no material changes outside the ordinary course of business to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 ( the “2022 Annual Report”).

Off-Balance Sheet Arrangements

As of June 30, 2023, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis," under the heading "Off-Balance Sheet Arrangements" in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital.

For financial institutions, market risk primarily reflects exposures to changes in interest rates.

Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels.

Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change.

Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value.

However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity, and solvency.

Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.

The ALCO utilizes an asset liability model (“ALM”) to monitor and manage market risk by simulating various rate shock scenarios and analyzing the results of the rate shocks on the Company’s projected net interest income (“NII”) and economic value of equity (“EVE”).

The rate shock scenarios used in the ALM span over multiple time horizons and yield curve shapes and include parallel and non-parallel shifts to ensure the ALCO can mitigate future earnings and market value fluctuations due to changes in market interest rates.

Within the context of the ALM, NII rate shock simulations explicitly measure the exposure to earnings from changes in market rates of interest over a defined time horizon.

These robust simulations include assumptions of how the balance sheet will react in different rate environments including loan prepayment speeds, the average life of non-maturing deposits, and how sensitive each interest-earning asset and interest-bearing liability is to changes in the market rates (betas).

Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios.

Reviewing these various measures provides us with a more comprehensive view of our interest rate risk profile.

NII rate shock simulation results are compared to a base case NII result to provide an estimate of the impact that simulated market rate changes may have on 12 months and 24 months of pretax NII.

The base case earnings scenario together with various rate shock earning scenarios are modeled utilizing both a static and growth balance sheet.

A static balance sheet is a no-growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread over a prescribed index.

Parallel rate shock analyses assume an immediate parallel shift in market interest rates across all horizons of the yield curve and also include management’s assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market, and savings) and changes in the prepayment behavior of loans and securities with embedded optionality.

Our policy guidelines limit the change in pretax NII over a 12-month horizon using rate shocks of +/- 100, 200, 300, and 400 basis points.

We have temporarily

As of September 30, 2023, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Off-Balance Sheet Arrangements" in the Company’s 2022 Annual Report.

CARTER BANKSHARES, INC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis