Carter Bankshares, Inc. 10-Q

ITEM 2. 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 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 $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 . 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 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 $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. 49 Table of Contents CARTER BANKSHARES, INC. ITEM 2. 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. Management believes the ACL is adequate to absorb expected losses inherent in the loan portfolio. See the sections of this MD&A titled “Provision for Credit Losses,” “Credit Quality” and “Allowance for Credit Losses” for information about the factors that impacted the ACL and the provision for credit losses. The Company remains well capitalized. 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) September 30, 2023 December 31, 2022 $ Change U.S. Treasury Securities $ 13,104 $ 17,866 $ (4,762) U.S. Government Agency Securities 47,742 49,764 (2,022) Residential Mortgage-Backed Securities 97,562 103,685 (6,123) Commercial Mortgage-Backed Securities 33,328 34,675 (1,347) Other Commercial Mortgage-Backed Securities 21,104 22,399 (1,295) Asset Backed Securities 137,075 141,383 (4,308) Collateralized Mortgage Obligations 163,306 176,622 (13,316) States and Political Subdivisions 222,644 228,146 (5,502) Corporate Notes 57,524 61,733 (4,209) Total Debt Securities $ 793,389 $ 836,273 $ (42,884) The Company invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the ALCO to diversify and reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. 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 $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. 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. 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. 50 Table of Contents CARTER BANKSHARES, INC. ITEM 2. 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. Our portfolio consists of 49.9% of securities issued by United States government sponsored entities and carry an implicit government guarantee. States and political subdivisions comprise 28.1% 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. 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 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. 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 increase in unrealized losses for the first nine months of 2023. The effects were generally greater for longer maturity bonds, such as municipal bonds. On the other hand, floating rate bonds largely held consistent values, as those interest rates adjust in line with Federal Reserve interest rate hikes. 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 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. The Basel rules also permit most banking organizations to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels. 51 Table of Contents CARTER BANKSHARES, INC. ITEM 2. 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) September 30, 2023 December 31, 2022 Commercial Commercial Real Estate $ 1,688,947 $ 1,470,562 Commercial and Industrial 264,329 309,792 Total Commercial Loans 1,953,276 1,780,354 Consumer Residential Mortgages 738,368 657,948 Other Consumer 36,487 44,562 Total Consumer Loans 774,855 702,510 Construction 377,576 353,553 Other 305,233 312,496 Total Portfolio Loans 3,410,940 3,148,913 Loans Held-for-Sale — — Total Loans $ 3,410,940 $ 3,148,913 Our loan portfolio represents our most significant source of interest income. The risk that borrowers are unable to pay such obligations is inherent in the loan portfolio. 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 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 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. 52 Table of Contents CARTER BANKSHARES, INC. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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 September 30, 2023 September 30, 2023 September 30, 2023 December 31, 2022 % of Gross Loans % of RBC 1. Hospitality, agriculture & energy $ 301,913 $ 309,107 $ (7,194) 8.85 % 62.12 % 2. Retail real estate & food services 53,905 55,625 (1,720) 1.58 % 11.09 % 3. Industrial & retail real estate 40,351 41,725 (1,374) 1.18 % 8.30 % 4. Multifamily development 40,000 40,000 — 1.17 % 8.23 % 5. Retail real estate 39,448 37,679 1,769 1.16 % 8.12 % 6. Hospitality 37,633 35,255 2,378 1.10 % 7.74 % 7. Non-Owner Occupied/Commercial Real Estate 33,903 17,308 16,595 1.00 % 6.98 % 8. Multifamily & student housing 33,033 33,998 (965) 0.97 % 6.80 % 9. Hospitality 32,661 33,587 (926) 0.96 % 6.72 % 10. Multifamily / Construction Real Estate 32,000 24,000 8,000 0.94 % 6.58 % Top Ten (10) Relationships $ 644,847 $ 628,284 $ 16,563 18.91 % 132.68 % Total Gross Loans $ 3,410,940 $ 3,148,913 $ 262,027 % of Total Gross Loans 18.91 % 19.95 % (1.04) % Concentration (25% of RBC) $ 121,508 $ 120,863 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 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. When concentrations exist in certain segments, this risk is mitigated by reviewing the relevant economic indicators and internal risk rating trends of the loans in these segments. The Company established transaction, relationship and specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk-based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk-based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio and are based on management’s risk tolerance relative to capital. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods. We also have policy limits on loan-to-cost for construction projects. Although leverage is important, the Company is also focused on cash flow generation and uses multiple metrics to calculate a supportable loan amount. Supportable loan amounts have generally been more challenging given the increases in commodities pricing. Unsecured loans pose higher risk for the Company due to the lack of a well-defined secondary source of repayment. Commercial unsecured loans are reserved for the best quality customers with well-established businesses that operate with low financial and operating leverage. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. 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 $6.7 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. First, we purchase mortgage loans on a short-term basis from a partner financial institution that has fully executed sales contracts to end investors. Second, we originate and close mortgages with fully executed contracts with investors to purchase shortly after closing. 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. 53 Table of Contents CARTER BANKSHARES, INC. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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. Credit Quality On a monthly basis, a Criticized Asset Committee meets to review certain watch, special mention and substandard risk rated loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to the Company. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral. On a quarterly basis, the Credit Risk Committee of the Board meets to review our loan portfolio metrics, approve segment limits, approve the adequacy of ACL, and findings from Loan Review identified in the previous quarter. Annually, this same committee approves credit related policy changes and policy enhancements as they become available. Additional credit risk management practices include continuous reviews of trends in our lending footprint and our lending policies and procedures to support sound underwriting practices, concentrations, delinquencies and annual portfolio stress testing. Our Loan Review department serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as determining the appropriateness of risk ratings for those loans reviewed and providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms. Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell. The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss. Nonperforming assets consist of nonaccrual loans and OREO. The following table summarizes nonperforming assets for the dates presented: (Dollars in Thousands) September 30, 2023 December 31, 2022 $ Change Nonaccrual Loans Commercial Real Estate $ 1,265 $ 2,304 $ (1,039) Commercial and Industrial 70 204 (134) Residential Mortgages 2,077 3,265 (1,188) Other Consumer 22 8 14 Construction 2,954 864 2,090 Other 301,913 — 301,913 Total Nonperforming Loans 308,301 6,645 301,656 Other Real Estate Owned 3,765 8,393 (4,628) Total Nonperforming Assets $ 312,066 $ 15,038 $ 297,028 Nonperforming assets increased $297.0 million to $312.1 million at September 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 nonaccrual status due to loan maturities and failure to pay in full. These nonperforming loans are 97.9% of the Company's total nonperforming loans and 96.7% of the Company's total nonperforming assets. 54 Table of Contents CARTER BANKSHARES, INC. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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: September 30, 2023 December 31, 2022 (Dollars in Thousands) Amount % of NPLs Amount % of NPLs Commercial Real Estate $ 1,265 0.4 % $ 2,304 34.7 % Commercial & Industrial 70 — % 204 3.1 % Residential Mortgages 2,077 0.7 % 3,265 49.1 % Other Consumer 22 — % 8 0.1 % Construction 2,954 1.0 % 864 13.0 % Other 301,913 97.9 % — — % Balance End of Period 308,301 100.0 % 6,645 100.0 % 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 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 $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. An overreliance on value as a primary repayment source can become compromised during real estate cycles. As a result, management has worked through these legacy credits and has installed a number of underwriting guardrails that consider the global cash flows and repayment capability of borrowers and/or guarantors, the proportion of speculation, transaction limits and introduced sensitivity analysis in order to determine supportable loan amounts. While these guardrails do not insulate the Company from credit cycles, we believe it should reduce the experience of defaults. 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. Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including loans that are at risk for becoming delinquent and early stage delinquencies in order to identify emerging patterns and potential problem loans. 55 Table of Contents CARTER BANKSHARES, INC. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Allowance for Credit Losses The following is the allocation of the ACL reserves by segment for the periods presented: 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 Commercial Real Estate $ 19,490 49.5 % $ 17,992 46.7 % Commercial & Industrial 2,987 7.8 % 3,980 9.9 % Residential Mortgages 10,619 21.6 % 8,891 20.9 % Other Consumer 971 1.1 % 1,329 1.4 % Construction 6,747 11.1 % 6,942 11.2 % Other 53,660 8.9 % 54,718 9.9 % 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 $1.1 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 Allowance for Credit Losses $ 94,474 $ 93,852 Total Portfolio Loans 3,410,940 3,148,913 Allowance for Credit Losses to Total Portfolio Loans 2.77 % 2.98 % Nonperforming Loans to Total Portfolio Loans Nonperforming Loans $ 308,301 $ 6,645 Total Portfolio Loans 3,410,940 3,148,913 Nonperforming Loans to Total Portfolio Loans 9.04 % 0.21 % Allowance for Credit Losses to Nonperforming Loans Allowance for Credit Losses $ 94,474 $ 93,852 Nonperforming Loans 308,301 6,645 Allowance for Credit Losses to Nonperforming Loans 30.64 % 1,412.37 % Net Charge-offs to Average Portfolio Loans Net Charge-offs (annualized) $ 2,651 $ 4,506 Average Total Portfolio Loans 3,285,380 2,988,785 Net Charge-offs to Average Portfolio Loans 0.08 % 0.15 % See the Credit Quality and Allowance for Credit Losses sections within this MD&A for an analysis of the factors that drove the changes in the ACL ratios presented in the previous table. 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 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 (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 56 Table of Contents CARTER BANKSHARES, INC. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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. 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, Basis of Presentation, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the ACL Policy and the discussion of these factors. Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain commercial real estate loans. The proportion of these segments affect the weighting. Third, volume changes impact the total reserve calculation. 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. For more information about the Company’s nonperforming loans and about this lending relationship, see the discussion above under “Credit Quality” in this MD&A. The following tables represent credit exposures by internally assigned risk ratings as of the periods presented: September 30, 2023 (Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Portfolio Loans Pass $ 1,686,716 $ 261,416 $ 734,589 $ 36,445 $ 374,495 $ 3,320 $ 3,096,981 Special Mention 286 2,838 527 — 62 — 3,713 Substandard 1,945 75 3,252 42 3,019 301,913 310,246 Doubtful — — — — — — — Loss — — — — — — — Total Portfolio Loans $ 1,688,947 $ 264,329 $ 738,368 $ 36,487 $ 377,576 $ 305,233 $ 3,410,940 Performing $ 1,687,682 $ 264,259 $ 736,291 $ 36,465 $ 374,622 $ 3,320 $ 3,102,639 Nonperforming 1,265 70 2,077 22 2,954 301,913 308,301 Total Portfolio Loans $ 1,688,947 $ 264,329 $ 738,368 $ 36,487 $ 377,576 $ 305,233 $ 3,410,940 December 31, 2022 (Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Portfolio Loans Pass $ 1,457,340 $ 303,893 $ 653,044 $ 44,495 $ 352,516 $ 180,745 $ 2,992,033 Special Mention 10,796 2,887 983 — 69 — 14,735 Substandard 2,426 3,012 3,921 67 968 131,751 142,145 Doubtful — — — — — — — Loss — — — — — — — Total Portfolio Loans $ 1,470,562 $ 309,792 $ 657,948 $ 44,562 $ 353,553 $ 312,496 $ 3,148,913 Performing $ 1,468,258 $ 309,588 $ 654,683 $ 44,554 $ 352,689 $ 312,496 $ 3,142,268 Nonperforming 2,304 204 3,265 8 864 — 6,645 Total Portfolio Loans $ 1,470,562 $ 309,792 $ 657,948 $ 44,562 $ 353,553 $ 312,496 $ 3,148,913 57 Table of Contents CARTER BANKSHARES, INC. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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. Additionally, refer to Note 5, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the ACL. Deposits The following table presents the composition of deposits for the periods presented: (Dollars in Thousands) September 30, 2023 December 31, 2022 $ Change % Change Noninterest-Bearing Demand $ 661,454 $ 703,334 $ (41,880) (6.0) % Interest-Bearing Demand 469,904 496,948 (27,043) (5.4) % Money Market 426,172 484,238 (58,065) (12.0) % Savings 487,105 684,287 (197,182) (28.8) % Certificates of Deposit 1,511,554 1,261,526 250,028 19.8 % Total Deposits $ 3,556,189 $ 3,630,333 $ (74,154) (2.0) % Deposits are the Company’s primary source of funds. 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 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 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. 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. 58 Table of Contents CARTER BANKSHARES, INC. ITEM 2. 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) September 30, 2023 December 31, 2022 Deposits from the Certificate of Deposit Account Registry Services ("CDARS") $ — $ 922 Noninterest-Bearing Public Funds Deposits 23,739 27,086 Interest-Bearing Public Funds Deposits 124,812 180,243 Total Deposits not Covered by Deposit Insurance (1) 396,283 493,013 Certificates of Deposits not Covered by Deposit Insurance 248,924 159,030 Deposits for Certain Directors, Executive Officers and their Affiliates 1,503 2,910 (1) These deposits are presented on an estimated basis. 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 September 30, 2023 are summarized as follows: (Dollars in Thousands) Amount Percent Three Months or Less $ 31,465 12.6 % Over Three Months Through Twelve Months 136,656 54.9 % Over Twelve Months Through Three Years 58,727 23.6 % Over Three Years 22,076 8.9 % Total $ 248,924 100.0 % Borrowings and Federal Funds Purchased Borrowings are an additional source of liquidity for the Company. 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. We manage our borrowed funds to provide a reliable source of liquidity. Information pertaining to FHLB borrowings and federal funds purchased is summarized in the following table: (Dollars in Thousands) September 30, 2023 December 31, 2022 Balance at Period End Federal Home Loan Bank Borrowings $ 514,135 $ 180,550 Federal Funds Purchased $ — $ 17,870 Average Balance during the Period Federal Home Loan Bank Borrowings $ 380,023 $ 29,849 Federal Funds Purchased $ 9,062 $ 5,711 Average Interest Rate during the Period Federal Home Loan Bank Borrowings 5.09 % 3.90 % Federal Funds Purchased 5.22 % 3.29 % Maximum Month-end Balance during the Period Federal Home Loan Bank Borrowings $ 514,135 $ 180,550 Federal Funds Purchased $ 46,965 $ 23,020 Average Interest Rate at Period End Federal Home Loan Bank Borrowings 5.29 % 4.48 % Federal Funds Purchased — % 4.65 % 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 $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. We hold FHLB stock because we are a member of the FHLB of Atlanta. 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 59 Table of Contents CARTER BANKSHARES, INC. ITEM 2. 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. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. Refer to Note 9, Federal Home Loan Bank Borrowings, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to borrowings. Liquidity and Capital Resources Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk, the Company’s Board has delegated authority to the ALCO for formulation, implementation and oversight of liquidity risk management for the Company. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and by having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. 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. The Company’s primary funding and liquidity source is a stable customer deposit base. Management believes that we have the ability to retain existing deposits and attract new deposits, mitigating any funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Company has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0% of the Company’s assets approximating $1.1 billion, subject to the amount of eligible collateral pledged, federal funds lines with six other correspondent financial institutions with an available amount of $145.0 million, access to the institutional CD market, and the brokered deposit market. In addition to the lines referenced above, the Company also has $580.4 million of unpledged available-for-sale investment securities that may be sold or pledged as collateral that can serve as an additional source of liquidity. 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 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. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. 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. 60 Table of Contents CARTER BANKSHARES, INC. ITEM 2. 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) September 30, 2023 December 31, 2022 Cash and Due From Banks, including Interest-bearing Deposits $ 55,398 $ 46,869 Unpledged Investment Securities 580,379 611,845 Excess Pledged Securities 77,400 46,305 FHLB Borrowing Availability 357,583 676,746 Unsecured Lines of Credit 145,000 127,130 Total Liquidity Sources $ 1,215,760 $ 1,508,895 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 Highly Liquid Assets to Total Assets 13.4% Highly Liquid Assets to Uninsured Deposits 150.9 % Total Available Liquidity to Uninsured Deposits 306.8 % Regulatory Capital Requirements 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 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. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulations to ensure capital adequacy require us to maintain minimum amounts and ratios. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. 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 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. We believe that we have the ability to raise additional capital, if necessary. The Basel rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels. 61 Table of Contents CARTER BANKSHARES, INC. ITEM 2. 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. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank. The following table summarizes the actual risk-based capital amounts and ratios for the Company and the Bank for the dates presented: (Dollars in Thousands) Minimum Required Basel III Well Capitalized (1) September 30, 2023 December 31, 2022 Amount Ratio Amount Ratio Carter Bankshares, Inc. Leverage Ratio 4.00 % NA $ 436,863 9.70 % $ 439,606 10.29 % Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % NA 436,863 11.20 % 439,606 12.61 % Tier 1 Capital (to Risk-weighted Assets) 8.50 % NA 436,863 11.20 % 439,606 12.61 % Total Capital (to Risk-weighted Assets) 10.50 % NA 486,032 12.46 % 483,450 13.86 % Carter Bank & Trust Leverage Ratio 4.00 % 5.00 % $ 431,516 9.59 % $ 432,711 10.13 % Common Equity Tier 1 (to Risk-weighted Assets) 7.00 % 6.50 % 431,516 11.08 % 432,711 12.42 % Tier 1 Capital (to Risk-weighted Assets) 8.50 % 8.00 % 431,516 11.08 % 432,711 12.42 % Total Capital (to Risk-weighted Assets) 10.50 % 10.00 % 480,617 12.34 % 476,496 13.68 % (1) To be “well capitalized” under the prompt corrective action framework applies to the Bank only. In December 2018, the Office of the Comptroller of the Currency, the Federal Reserve System, (“FRB”), and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the Day 1 adverse effects on regulatory capital that may result from the adoption of the new accounting standard. On March 27, 2020, the regulators issued interim final rule (“IFR”), “Regulatory Capital Rule: 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). We adopted CECL effective January 1, 2021 and elected to implement the capital transition relief over the permissible three-year period. Contractual Obligations 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 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. 62 Table of Contents CARTER BANKSHARES, INC.