What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2024-03-08 compared with 2023-03-10 · 360 added, 341 removed, 611 unchanged (53% of the section changed)

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The Company’s common stock trades on NASDAQ, under the ticker symbol “CARE.” As of the close of business on March 4, 2024, we had 2,160 shareholders of record.

On October 14, 2016, prior to the Reorganization, the board of directors of the Bank (the "Bank Board") determined that it was prudent not to declare a quarterly cash dividend on the Bank's common stock beginning in the fourth quarter of 2016.

Notwithstanding the Bank’s prior practice of paying a quarterly cash dividend on its common stock, the Bank Board believed this decision was necessary and appropriate as the Bank committed, and now the Company commits, additional resources to assist with regulatory compliance, preserve capital during the COVID-19 pandemic, and make significant investments in new technology and human resources.

In October 2016, prior to the Reorganization, the board of directors of the Bank (the "Bank Board") determined that it was prudent not to declare a quarterly cash dividend on the Bank's common stock beginning in the fourth quarter of 2016.

Notwithstanding the Bank’s prior practice of paying a quarterly cash dividend on its common stock, the Bank Board believed this decision was necessary and appropriate as the Bank committed, and now the Company commits, additional resources to assist with regulatory compliance, and making significant investments in new technology and human resources.

The Bank Board paid a special one-time cash dividend of $0.14 per share on March 3, 2020.

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Repurchases of Shares of Common Stock

On June 28, 2022, the Company announced that its Board authorized, effective August 1, 2022, a common share repurchase program to purchase up to 750,000 shares of the Company’s common stock in the aggregate over a period of twelve months, subject to non-objection from the Federal Reserve Bank of Richmond, which was received in July 2022 (the “Current Program”).

The Current Program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Exchange Act.

On March 29, 2023, the Company announced that its Board of Directors (the “Board”) authorized, effective May 1, 2023, a common share repurchase program to purchase up to 1,000,000 shares of the Company’s common stock in the aggregate over a period of twelve months, (the “2023 Program”) subject to receipt of non-objection from the Federal Reserve Bank of Richmond, which was received on April 24, 2023.

The 2023 Program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended.

The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion.

The actual means and timing of any shares purchased under the Current Program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements.

The Current Program is authorized through August 1, 2023, although it may be modified or terminated by the Board at any time.

The Current Program does not obligate the Company to purchase any particular number of shares.

Previously on December 13, 2021, the Company announced that its Board authorized, effective December 10, 2021, a common share repurchase program to purchase up to 2,000,000 shares of the Company’s common stock in the aggregate over a period of twelve months (the “Prior Program”).

The Prior Program authorized the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 promulgated under the Exchange Act.

The Prior Program permitted management to repurchase shares of the Company’s common stock from time to time at management’s discretion.

The Prior Program was originally authorized through December 9, 2022, did not obligate the Company to purchase any particular number of shares, and was exhausted as of April 28, 2022.

The actual means and timing of any shares purchased under the 2023 Program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements.

The 2023 Program is authorized through May 1, 2024, although it may be modified or terminated by the Board at any time.

The 2023 Program does not obligate the Company to purchase any particular number of shares, and was exhausted as of August 31, 2023.

During the year ended December 31, 2023, 1,000,000 shares of common stock had been repurchased under this program at a total cost of $14.2 million, or an average price of $14.16 per share.

Previously on June 28, 2022, the Company announced that its Board authorized, effective August 1, 2022, a common share repurchase program to purchase up to 750,000 shares of the Company’s common stock in the aggregate over a period of twelve months, subject to non-objection from the Federal Reserve Bank of Richmond, which was received in July 2022 (the “2022 Program”).

The 2022 Program authorized the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Exchange Act.

The authorization permitted management to repurchase shares of the Company’s common stock from time to time at management’s discretion.

The 2022 Program was originally authorized through August 1, 2023, did not obligate the Company to purchase any particular number of shares, and was exhausted as of March 10, 2023.

The 2021 Program was originally authorized through December 9, 2022, did not obligate the Company to purchase any particular number of shares, and was exhausted as of April 28, 2022.

CARTER BANKSHARES, INC.

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The following table provides information regarding the Company’s purchases of our common stock during the quarter ended December 31, 2023.

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs (1)

Period Total number of shares purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan (1)

10/10/2023 - 10/31/2023 — $— — —

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12/01/2023 - 12/31/2023 — — — —

Total 153,560 $18.20 153,560

(1) The number shown represents, as of the end of each period, the approximate number of Common Stock shares that may yet be purchased under publicly-announced share repurchase plan authorizations.

The shares may be purchased, from time-to-time, depending on market conditions.

(1) The Company had no purchases of our common stock during the quarter ended December 31, 2023 as the 2023 Program was fully exhausted as of August 31, 2023.

Five-Year Cumulative Total Return

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• Explanation of Use of Non-GAAP Financial Measures

• Critical Accounting Policies and Estimates

• Our Business

• Critical Accounting Estimates

• Our Business & Strategy

• Results of Operations and Financial Condition

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Interest and dividend income (GAAP) per the Consolidated Statements of Income is reconciled to interest and dividend income adjusted on an FTE basis, yield on interest earning assets (GAAP) is reconciled to yield on interest earning assets adjusted on an FTE basis, net interest income (GAAP) is reconciled to net interest income adjusted on an FTE basis and net interest margin (GAAP) is reconciled to net interest margin adjusted on an FTE basis in the "Results of Operations and Financial Condition - Net Interest Income" section of this MD&A for the years ended 2023, 2022 and 2021.

Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more relevant than financial results determined in accordance with GAAP, nor is it necessarily comparable with similar non-GAAP measures which may be presented by other companies.

CARTER BANKSHARES, INC.

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

Critical Accounting Estimates

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While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.

Management will periodically assess what adjustments are necessary to qualitatively adjust the ACL based on their assessment of current expected credit losses and other economic factors.

Various regulatory agencies also review the allowance for credit losses as an integral part of their examination process.

The Company periodically engages a third party to validate the model.

We believe the level of the allowance for credit losses is appropriate as recorded in the consolidated financial statements as of December 31, 2023.

As future events cannot be determined with precision, actual results could differ significantly from our estimates.

The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources.

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(the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.5 billion at December 31, 2023.

The Company conducts its business solely through the Bank, an insured, Virginia state-chartered bank.

The Company provides a full range of financial services with retail, and commercial banking products and insurance.

Our common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE.”

The Company is the parent company of its wholly owned subsidiary, Carter Bank & Trust (the “Bank”).

The Bank is a Federal Deposit Insurance Corporation, (“FDIC”) insured, Virginia state-chartered bank, which operates 65 branches in Virginia and North Carolina.

The Company provides a full range of financial services with retail, and

CARTER BANKSHARES, INC.

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

commercial banking products and insurance.

Our common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE”.

The Company earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers.

The Company incurs expenses for the cost of deposits, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

For the 2023-2025 fiscal year periods, the Company will be focusing on refining and enhancing the Bank’s guiding principles to better align with the future of the Company.

A new mission, vision, and set of core values are in development and the Company expects to rollout this plan in 2023.

The Company’s current mission is to strive to be the preferred lifetime financial partner for its customers and shareholders, and the employer of choice in the communities the Company is privileged to serve.

The vision and purpose of the Company is to enrich lives and enhance communities today, to build a better tomorrow, with values of loyalty, care, optimism, trustworthiness and innovation.

The Company’s Board of Directors and management believe that the Bank is at a turning point in its evolution and transformation.

The Company’s focus will shift from restructuring the balance sheet to pursuing a growth strategy that focuses on organic growth.

Another area of focus will be to consider opportunistic acquisitions that the Company believes will fit with its strategic vision.

Our focus continues to be on loan and deposit growth, as well as, implementing opportunities to increase fee income while closely monitoring our operating expenses.

The Company is focused on executing this strategy to successfully build our new brand and grow our business in our current markets as well as new markets.

The Company incurs expenses for the cost of deposits, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and income tax provision.

Beginning in 2023, and continuing into 2024 and 2025, the Company is focusing on refining and enhancing its brand image and position in the markets it serves.

To strengthen and further shape the culture of the Company, a new set of guiding principles were introduced to associates in June 2023.

The guiding principles include a new purpose statement:

To create opportunities for more people and businesses to prosper ;

supported by our new set of core values:

Build Relationships, Earn Trust and Take Ownership.

We believe these new guiding principles will help create alignment to support future growth by empowering our associates and igniting a passion for the Company.

The Company’s goal is to shift from restructuring the balance sheet to pursuing a prudent growth strategy when appropriate.

We believe this strategy will be primarily targeted at organic growth, but will also consider opportunistic acquisitions that fit this strategic vision.

We believe that the Bank’s strong capital and liquidity positions support this strategy.

In addition to loan and deposit growth, the Company will seek to increase fee income while closely monitoring operating expenses.

The Company is focused on executing this strategy to successfully build our new brand and grow our business in our current markets as well as any new markets we may enter.

As part of executing this strategy, the Company continues to dedicate significant resources to resolving the Company’s nonaccrual loans, the significant majority of which are related to a single large lending relationship that the Company placed on nonaccrual status in the second quarter of 2023 due to loan maturities and failure to pay in full, in a manner that best protects the Company, the Bank and shareholders.

The Company is also dedicating significant resources to resolving pending litigation related to this single large lending relationship in a manner that best protects the Company, the Bank and shareholders.

Results of Operations and Financial Condition

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2023 Highlights

• Net interest income increased $28.7 million, or 25.9%, to $139.9 million for the full year 2022 compared to $111.2 million for the full year 2021 primarily due an increase of 61 basis points in the yield on earning assets due to the rising interest rate environment and by a reduction of nine basis points in funding costs;

• The provision for credit losses decreased $0.9 million to $2.4 million for the year ended December 31, 2022, compared to the full year ended December 31, 2021;

• Total noninterest income decreased $7.2 million to $21.7 million for the full year 2022 compared to $28.9 million for the full year 2021 due primarily to a reduction in gains on sales of securities;

• Total noninterest expense decreased $5.3 million to $97.0 million for the full year 2022 compared to $102.3 million for the full year 2021 primarily resulting from our retail branch optimization project and the reversal of tax credit amortization due to an in-service date extension to 2023;

• Provision for income taxes increased $7.5 million to $11.6 million for the full year 2022 compared to $4.1 million for the full year 2021.

Balance Sheet Highlights (period-end balances, December 31, 2022 compared to December 31, 2021 )

• The securities portfolio decreased $86.1 million and is currently 19.9% of total assets compared to 22.3% of total assets.

The decrease is due to the Company’s strategy of redeploying securities maturities into higher yielding loan growth and the continued decline in fair value due to rising market interest rates;

• Total portfolio loans increased $336.8 million, or 12.0%, primarily due to consistent loan growth in 2022 ;

• The portfolio loans to deposit ratio was 86.7%, compared to 76.0%, since deposits decreased;

• Total deposits decreased $68.2 million to $3.6 billion at December 31, 2022 compared to December 31, 2021 ;

• Net interest income decreased $17.6 million, or 12.6%, to $122.3 million for the year ended December 31, 2023 compared to the same period in 2022 primarily due to an increase of 156 basis points in funding costs and the $30.0 million year-to-date negative impact of placing the Bank’s largest lending relationship in nonaccrual status during the second quarter of 2023, partially offset by an increase of 59 basis points in the yield on earning assets due to the higher interest rate environment;

• The provision for credit losses increased $3.1 million to $5.5 million for the year ended December 31, 2023, compared to the same period in 2022;

• Total noninterest income decreased $3.4 million to $18.3 million for the year ended December 31, 2023 compared to the same period in 2022;

• Total noninterest expense increased $8.5 million to $105.5 million for the year ended December 31, 2023 compared to the same period in 2022;

• Provision for income taxes decreased $6.3 million to $5.3 million for the year ended December 31, 2023 compared to the same period in 2022.

CARTER BANKSHARES, INC.

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

Balance Sheet Highlights (period-end balances, December 31, 2023 compared to December 31, 2022 )

• The securities portfolio decreased $57.3 million and is currently 17.3% of total assets compared to 19.9% of total assets;

• Total portfolio loans increased $357.0 million, or 11.3%, primarily due to loan growth in the commercial real estate (“CRE”), residential mortgage and construction segments during the year ended December 31, 2023;

• The portfolio loans to deposit ratio was 94.2%, compared to 86.7%, due to loan growth;

• Nonperforming loans as a percentage of total portfolio loans were 8.83% compared to 0.21% at December 31, 2022.

The significant increase is due to loans contained in the Other segment with an aggregate principal balance of $301.9 million that were placed into nonaccrual status due to loan maturities and failure to pay in full during the second quarter of 2023.

These loans comprise 97.5% of nonperforming loans at December 31, 2023;

• Total deposits increased $89.4 million or 2.5% to $3.7 billion at December 31, 2023 due to increases of $29.4 million in money market accounts and $325.1 million in CDs, offset by a total decrease of $265.1 million in noninterest-bearing demand, interest-bearing demand and savings accounts;

• The ACL to total portfolio loans ratio was 2.77% compared to 2.98%.

The ACL on portfolio loans totaled $93.9 million at December 31, 2022, compared to $95.9 million with the decrease driven by declines in the other segment due to principal pay-downs, offset by loan growth and increased qualitative reserves;

• During 2022, the Company repurchased 2,587,361 shares totaling $42.9 million under its stock repurchase program at a weighted average cost of $16.59.

There were 132,232 shares available for repurchase at December 31, 2022 under the current repurchase program.

The ACL on portfolio loans totaled $97.1 million at December 31, 2023, compared to $93.9 million at December 31, 2022.

The Company reported net income of $23.4 million , or $1.00 diluted earnings per share for the year ended December 31, 2023 compared to net income of $50.1 million , or $2.03 diluted earnings per share, for the year ended December 31, 2022 .

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Allowance for Credit Losses to Total Portfolio Loans 2.77 % 2.98 % 3.41 %

Nonperforming Loans to Total Portfolio Loans 8.83 % 0.21 % 0.26 %

Net Interest Income

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Refer to the “Explanation of Use of Non-GAAP Financial Measures” above for additional discussion regarding the non-GAAP measures used in this Annual Report on Form 10-K.

The following table reconciles interest and dividend income (GAAP), yield on interest-earning assets (GAAP), net interest margin (GAAP) and net interest income per the Consolidated Statements of Income (Loss) to interest and dividend income on an FTE basis (non-GAAP), yield on interest-earning assets on an FTE basis (non-GAAP), net interest margin on an FTE basis (non-GAAP) and net interest income on an FTE basis (non-GAAP), respectively, for the periods presented:

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

basis (non-GAAP), yield on interest-earning assets on an FTE basis (non-GAAP), net interest margin on an FTE basis (non-GAAP) and net interest income on an FTE basis (non-GAAP), respectively, for the periods presented:

(Dollars in Thousands) Years Ended December 31,

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Yield on Interest-earning Assets (FTE) (Non-GAAP) 4.60 % 4.01 % 3.41 %

Net Interest Income 139,928 111,183 105,115

Net Interest Income (GAAP) 122,310 139,928 111,183

Tax Equivalent Adjustment 1,004 1,143 1,492

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Net Interest Margin (FTE) (Non-GAAP) 2.87 % 3.51 % 2.84 %

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Average Balance Sheet and Net Interest Income Analysis (FTE)

Total net interest income increased $28.7 million, or 25.9% to $139.9 million for the year ended December 31, 2022 compared to the same period in 2021.

The increase for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to an increase in average interest-earning assets of $52.0 million and higher interest rate yields on interest-earning assets of 61 basis points due to the rising interest rate environment during fiscal year 2022.

Net interest income, on an FTE basis (non-GAAP), increased $28.4 million, or 25.2%, to $141.1 million for the year ended December 31, 2022 compared to $112.7 million for the same period in 2021.

The increases in net interest income, on an FTE basis (non-GAAP), was driven by an increase in interest income of $25.9 million and lower interest expense of $2.5 million for the year ended December 31, 2022 when compared to the same period in 2021.

Net interest margin increased 68 basis points to 3.48% for the year ended December 31, 2022 compared to 2.80% for the same period in 2021.

Net interest margin, on an FTE basis (non-GAAP), increased 67 basis points to 3.51% for the year ended December 31, 2022 compared to 2.84% for the same period in 2021.

The Company continues to focus on the expansion of net interest income and net interest margin.

The full year of 2022 was positively impacted by an increase in the yield on loans and investment securities due to the rising interest rate environment as well as the continued decline in funding costs.

The full year of 2022 was also positively impacted by enhanced pricing on loans related to one large credit relationship.

Certain of these loans may not be renewed at maturity and/or may not otherwise impact the net interest income and net interest margin as significantly in future periods.

In addition, rising market interest rates may begin to increase the Company’s funding costs in future periods.

Total net interest income decreased $17.6 million, or 12.6% to $122.3 million for the year ended December 31, 2023 compared to the same period in 2022.

The decrease for the year ended December 31, 2023 compared to the same period in 2022 was a result of the higher funding costs in 2023 as a result of the higher interest rate environment and the $30.0 million negative impact on interest income during the year ended December 31, 2023 related to the Company placing its largest lending relationship with an aggregate principal balance of $301.9 million on nonaccrual status in the second quarter of 2023.

These decreases were partially offset by higher yields on new loan originations and investment securities.

Net interest income, on an FTE basis (non-GAAP), decreased $17.8 million, or 12.6%, to $123.3 million for the year ended December 31, 2023 compared to $141.1 million for the same period in 2022.

The decreases in net interest income, on an FTE basis (non-GAAP), was driven by higher interest expense of $53.9 million for the year ended December 31, 2023 when compared to the same period in 2022, offset by an increase in interest income of $36.1 million.

Net interest margin decreased 63 basis points to 2.85% for the year ended December 31, 2023 compared to 3.48% for the same period in 2022.

Net interest margin, on an FTE basis (non-GAAP), decreased 64 basis points to 2.87% for the year ended December 31, 2023 compared to 3.51% for the same period in 2022.

The Company’s net interest income and net interest margin will continue to be negatively impacted in future periods by the Company’s largest lending relationship being placed on nonaccrual status until it is ultimately resolved.

During 2023, there has been more pressure on our cost of funds due to the shift from non-maturing deposits to higher yielding money market and certificates of deposits and higher-cost borrowings, which has negatively impacted our net interest margin.

We believe this trend is beginning to stabilize and will continue to stabilize in the coming quarters.

Our balance sheet is currently exhibiting characteristics of a slightly liability sensitive balance sheet due to the short-term nature of our deposit portfolio.

Specifically, 75.9% of our time deposit portfolio will mature and reprice over the next twelve months which gives us flexibility to manage the structure and pricing of our deposit portfolio to reduce funding costs, should the Federal Open Market Committee (“FOMC”) begin cutting short-term rates during 2024.

During the year ended December 31, 2023, the Company’s yield on earning assets continued to benefit from the higher interest rate environment.

However, the impacts of higher yields on earning assets may not be sufficient to offset the negative impacts of increased funding costs in the higher rate environment and the negative impacts on interest income related to the Company’s largest lending relationship being placed in nonaccrual status.

Positively impacting the year ended December 31, 2023 was the asset sensitivity of our balance sheet for the majority of the year.

Yields on a large portion of our loan and securities portfolios adjusted upward as rates rise at a quicker rate than the rates on our deposits and other funding sources adjusted upward during the recent rising interest rate cycle.

Yields on our loan

CARTER BANKSHARES, INC.

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

portfolio consist of 24.8% floating rates and 41.9% variable rates, while 47.2% of the securities portfolio is floating rate and adjust as interest rates increase.

This positively impacts revenue and helps mitigate increased funding costs.

The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the years ended December 31:

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Interest income, on an FTE basis (non-GAAP), increased $36.1 million, or 22.4%, for 2023 compared to 2022.

The change was primarily due to increases in average interest-earning assets of $52.0 million for 2022, and higher interest rate yields on interest-earning assets of 60 basis points compared to 2021 due to the rising interest rate environment in fiscal year 2022.

Average interest-bearing deposits with banks decreased $143.7 million in 2022, and the average rate paid increased 53 basis points for 2022 compared to 2021 as funds were deployed into higher yielding loans and securities.

The change was primarily due to increases in average interest-earning assets of $270.2 million for 2023, and higher interest rate yields on interest-earning assets of 59 basis points compared to 2022 due to the higher interest rate environment in fiscal year 2023.

These changes were offset by the negative impact of $30.0 million to interest income for the year ended December 31, 2023 related to the Company placing its largest lending relationship on nonaccrual status, as noted above.

Average interest-bearing deposits with banks decreased $30.4 million in 2023, and the average rate paid increased 455 basis points for 2023 compared to 2022 as funds were deployed into higher yielding loans.

Average loan balances increased $335.9 million primarily influenced by the consistent loan growth in 2023 as compared to 2022.

The average rate earned on loans increased 54 basis points for 2022 compared to 2021 primarily due to increased short-term interest rates during 2022.

Loans provide the greatest impact on interest income and the yield on earning assets as they have the largest balance and the highest yield within major earning asset categories.

The average rate earned on loans increased 24 basis points for the year ended December 31, 2023 compared to the same period in 2022 despite the negative impact caused by the Company placing its largest lending relationship on nonaccrual status, as noted above.

At December 31, 2023, the loan portfolio was comprised of 24.8% floating rate loans which reprice monthly, 41.9% variable rate loans that reprice at least once during the life of the loan and 33.3% fixed rate loans that do not reprice during the life of the loan.

Average investment securities increased $147.8 million and the average rate earned increased 53 basis points for 2022 compared to 2021.

The change in investment securities is the result of active balance sheet management to deploy excess cash combined with the continued decline in fair value.

Average investment securities decreased $52.4 million and the average rate earned increased 125 basis points for 2023 compared to 2022.

The change in investment securities is the result of active balance sheet management to deploy the proceeds from securities maturities and principal payments into higher yielding loans, rather than reinvesting those proceeds back into the securities portfolio.

The portfolio has been diversified as to bond types, maturities, and interest rate structures.

As of December 31, 2023, the securities portfolio was comprised of 47.2% variable rate securities with approximately 99.3% that will reprice at least once over the next 12 months.

Having a significant percentage of variable rate securities is an important strategy during times of rising interest rates because fixed-rate bond prices generally fall when interest rates increase, which can result in unrealized losses.

We believe having a significant percentage of variable rate securities is an important strategy during times of rising interest rates because fixed-rate bond prices generally fall when interest rates increase, which can result in unrealized losses.

However, variable rate securities do not carry as much interest rate risk so there is much less price volatility.

This variable rate structure is expected to limit the impact of rising rates on the Company’s unrealized losses on debt securities.

Interest expense decreased $2.5 million for 2022 compared to 2021.

The decrease was primarily due to the intentional runoff of higher cost certificates of deposits (“CDs”) in 2021 and the first half of 2022.

Interest expense on deposits decreased $3.6 million for 2022 compared to 2021 primarily due to the decline in the average balance of CDs and the reduction in average rates paid on CDs.

The decrease of $212.9 million or 14.3% in the average balance of CDs for 2022 compared to 2021 was primarily due to the aforementioned intentional runoff of these higher cost CDs.

The average balances on our interest-bearing core deposits, including money market accounts, interest-bearing demand accounts and savings accounts increased by $137.9 million, $75.6 million and $57.3 million, respectively, for the year ended December 31, 2022, compared to the same period in 2021.

The average rates paid on interest-bearing demand accounts increased eight basis points for the year ended December 31, 2022 and the average rate paid on money market accounts increased six basis points for the year ended December 31, 2022, when compared to the same period in 2021.

The average rates paid on savings accounts for the year ended December 31, 2022 compared to the same period in 2021 remained unchanged.

Overall, the cost of interest-bearing liabilities decreased nine basis points for 2022 compared to 2021.

Due to historically low market interest rates during 2021 and the first half of 2022, the Company was able to migrate away from higher rate CDs and grow lower yielding, more liquid products.

During the second half of 2022 market interest rates increased quickly providing new incentives for customers to seek out higher yielding CDs.

This variable rate strategy is expected to limit the impact of rising rates on the Company’s unrealized losses on debt securities.

Interest expense increased $53.9 million for 2023 compared to 2022.

The increase was primarily due to increases in the cost of all interest-bearing liability categories, except savings accounts, in the higher rate environment.

Also contributing to the increased interest expense was the shift to higher cost deposits and borrowings due to a decline and change in mix of deposits and the Company’s use of higher-cost borrowings to fund growth in the loan portfolio, including a $97.8 million decline in average interest-bearing deposits for the year ended December 31, 2023 compared to the same period in 2022.

Interest expense on deposits increased $34.0 million for 2023 compared to 2022 primarily due to the rates on these deposits increasing 119 basis points to 1.81%.

The increase in rates for the year ended December 31, 2023 compared to the same period last year included interest-bearing demand deposits up by 24 basis points, money market accounts up by 163 basis points, and CDs up by 169 basis points, in response to competitive pressures from higher market rates compared to the same period in 2022.

The average balance on borrowings increased $374.6 million for the year ended December 31, 2023 compared to the year ended 2022.

The cost of borrowings increased 121 basis points for the year ended December 31, 2023 compared to the same period in 2022, largely due to increased balances and the higher interest rate environment.

CARTER BANKSHARES, INC.

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Total Interest-Bearing Deposits 1,489 32,523 34,012 (1,873) (1,757) (3,630)

Federal Home Loan Bank Borrowings 19,157 502 19,659 188 — 188

Federal Funds Purchased 50 130 180 53 797 850

FHLB Borrowings 53 797 850 (56) 8 (48)

Other Borrowings 21 (16) 5 133 (1) 132

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(3) Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.

Provision (Recovery) for Credit Losses

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

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

The Company adopted ASU 2016-03 on January 1, 2021, and increased the ACL by $64.5 million, for the Day 1 adjustment which included $61.6 million to the ACL and $2.9 million related to the life-of-loan reserve on unfunded loan commitments.

Provision for Credit Losses

The Company recognizes provision for the ACL based on the difference between the existing balance of ACL reserves and the ACL reserve balance necessary to adequately absorb expected credit losses associated with the Company’s financial instruments.

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

The ACL as a percentage of total portfolio loans was 2.77% at December 31, 2023 and 2.98% at December 31, 2022.

The provision (recovery) for credit losses decreased $0.9 million to $2.4 million for the year ended 2022 compared to year ended 2021.

The decrease for the full year of 2022 was primarily driven by the release of $7.0 million of reserves that were allocated to the other segment due to principal pay-downs, partially offset by strong loan growth, increased qualitative reserves of $3.0 million, and net charge-offs of $4.5 million.

The increase in qualitative reserves were factors attributable to the residential mortgage and commercial construction portfolios.

Project costs continue to escalate due to supply chain and labor disruptions as well as increased material costs.

Supply chain and labor disruptions cause the overall construction duration to increase, increasing interest costs to the borrower.

The Bank has observed a handful of significant cost overruns on Commercial Real Estate, (“CRE”) projects.

To date, these cost overruns have either been funded by the borrower and/or project sponsors or

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

partially funded by the Bank within acceptable underwriting guidelines.

The Company continues to monitor these trends by diligently collecting data on commercial construction projects and analyzing risk presented to the Company’s loan portfolio.

A provision of $0.5 million was recorded in 2022 related to the provision for unfunded commitments primarily related to increases in construction commitments.

The provision for credit losses increased $3.1 million to $5.5 million for the year ended 2023 compared to $2.4 million for the year ended 2022.

The increase in the provision for credit losses was primarily driven by loan growth.

The provision for unfunded commitments for the full year 2023 was a provision of $0.9 million compared to a provision of $0.5 million for the full year 2022, an increase of $0.4 million primarily due to an increase in construction commitments.

Net charge-offs were $2.3 million for the full year 2023 compared to $4.5 million for the full year 2022.

During 2022, net charge-offs were primarily included in the commercial and industrial, (“C&I”), and other consumer segments.

Net charge-offs of $23.1 million during the full year 2021 was primarily attributable to the resolution of five problem relationships, in which the majority of losses were anticipated and previously reserved.

During 2023, net charge-offs were concentrated in the other consumer loan segment.

As a percentage of average portfolio loans, on an annualized basis, net charge-offs were 0.07% and 0.15% for the years ended 2023 and 2022, respectively.

See the “Allowance for Credit Losses” section of this MD&A for additional details regarding our charge-offs.

Nonperforming loans (“NPLs”) decreased at December 31, 2022 by $0.8 million, or 10.2% to $6.6 million compared to $7.4 million at December 31, 2021.

The decrease was primarily due to a significant reduction of our largest NPL relationship in addition to pay-downs on other existing NPLs, all offset by a new NPL in the amount of $1.2 million.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Nonperforming loans (“NPLs”) increased at December 31, 2023 by $302.9 million to $309.5 million compared to $6.6 million at December 31, 2022.

During the second quarter of 2023, the Company placed commercial loans that reside in the Other segment of the Company’s loan portfolio, relating to a single 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.

In connection with our adoption of Topic 326 “Financial Instruments – Credit Losses” on January 1, 2021, the bank segmented this relationship in the CECL model, along with select other loans, into a segment labeled Other.

As of December 31, 2023 and December 31, 2022, those Other segment reserves were $54.4 million and $54.7 million, respectively.

As of December 31, 2023, the Company utilized discounted cash flow valuation techniques to evaluate the current condition of certain of the borrowers’ operating businesses, those borrowers’ capacity to repay and scenarios through which the Company may ultimately resolve this nonaccrual relationship, which resulted in individually evaluated reserves related to that single lending relationship.

The bank established a reserve of $51.3 million for this relationship as of January 1, 2021 with the adoption of CECL.

As a result of the discounted cash flow analysis and the reserves that were established for this relationship as of December 31, 2022, the classification of these commercial loans in nonaccrual status did not have a significant impact on the Company’s provision for credit losses during the year ended December 31, 2023.

NPLs as a percentage of total portfolio loans were 8.83% at December 31, 2023 compared to 0.21% at December 31, 2022.

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Discussion of net interest income for the year ended December 31, 2021 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis,” under the heading “Net Interest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 1 , which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Net Interest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

Noninterest Income

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(Dollars in Thousands) 2023 2022 $ Change % Change

Gain on Sales of Securities, net $ 46 $ 6,869 $ (6,823) (99.3) %

(Losses) Gains on Sales of Securities, net $ (1,521) $ 46 $ (1,567) NM

Service Charges, Commissions and Fees 7,155 7,168 (13) (0.2) %

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Bank Owned Life Insurance Income 1,381 1,357 24 1.8 %

Gains on Sales and Write-downs of Bank Premises, net 73 — 73 NM

Other Real Estate Owned Income 50 90 (40) (44.4) %

Gains on Sales and Write-downs of Bank Premises, net — 73 (73) (100.0) %

Commercial Loan Swap Fee Income 139 774 (635) (82.0) %

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Total Noninterest Income $ 18,278 $ 21,718 $ (3,440) (15.8) %

Total noninterest income decreased $7.2 million, or 24.8%, to $21.7 million for the year ended December 31, 2022 when compared to December 31, 2021.

The decrease was primarily related to declines of $6.8 million in net security gains for the year ended December 31, 2022 when compared to December 31, 2021.

The decline in security gains during 2022 was due to the rising interest rate environment resulting in lower securities prices in the market that discouraged sales.

Changes in total noninterest income for the year ended December 31, 2022 also included a decrease of $1.6 million in commercial loan swap fee income due to the timing and demand for this product in the current rising interest rate environment.

Offsetting the decreases were increases of $0.5 million in other noninterest income related to the unwind of two completed historic tax credit partnerships, a $0.5 million increase in service charges on deposit accounts primarily driven by volume, and $0.2 million in debit card interchange fees driven by higher customer activity.

NM - percentage not meaningful

For the full year 2023, total noninterest income was $18.3 million, a decrease of $3.4 million, or 15.8%, from the full year 2022.

The decrease was primarily related to net losses on sales of securities of $1.5 million, a decrease of $1.6 million in other noninterest income, a decrease of $0.6 million in commercial loan swap fee income, as well as a decrease of $0.1 million in gains on sales and write-downs of bank premises, net.

These decreases were offset by an increase of $0.4 million in debit card interchange fees due to higher volume during 2023.

The net losses on sales of securities were driven by the sale of approximately $30.0 million of available-for-sale securities during the fourth quarter of 2023 to reposition the securities portfolio and reinvest the proceeds in higher earning assets.

The decrease within other noninterest income related to the unwind of two completed historic tax credit partnerships, which resulted in a gain of $1.2 million during the fourth quarter of 2022 and lower fair value adjustment of our interest rate swap contracts with commercial customers.

The decrease in commercial loan swap fee income was due to the changing interest rate environment.

Discussion of noninterest income for the year ended December 31, 2021 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis,” under the heading “Noninterest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Noninterest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

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Professional and Legal Fees 6,210 5,818 392 6.7 %

Data Processing Expense 4,051 3,758 293 7.8 %

Data Processing 3,920 4,051 (131) (3.2) %

Losses on Sales and Write-downs of Other Real Estate Owned, net 1,100 432 668 154.6 %

Losses on Sales and Write-downs of Bank Premises, net — 231 (231) (100.0) %

Debit Card Expense 2,875 2,750 125 4.5 %

Tax Credit Amortization — 621 (621) (100.0) %

Other Real Estate Owned Expense 343 407 (64) (15.7) %

Other 9,756 8,854 902 10.2 %

Total Noninterest Expense $ 105,466 $ 97,001 $ 8,465 8.7 %

Total noninterest expense decreased $5.3 million to $97.0 million for the full year 2022, when compared to the full year 2021.

For the full year 2022 the most significant decrease for the period was a decline of $3.2 million in losses on sales and write-downs of other real estate owned (“OREO”), net, due to nonrecurring write-downs related to closed bank branches in 2021.

Also impacting the decrease was a $1.8 million decrease in salaries and employee benefits, $1.1 million decrease in tax credit amortization, $0.4 million decrease in telephone expenses and $0.2 million decrease in losses on sales and write-downs of bank premises, net.

Offsetting these decreases were increases of $0.6 million in professional and legal fees, $0.5 million in advertising expenses and $0.3 million in data processing expenses.

The decrease in salaries and employee benefits related to lower salaries of $1.3 million, lower medical expenses of $1.7 million, the impact from our retail branch optimization project, offset by a $1.0 million one-time inflationary bonus for associates in 2022.

The decrease in tax credit amortization was primarily due to reversing amortization expense as a result of updated information from the developer which extended the in-service date to 2023 for one of the Company’s historic tax credit partnerships during the third quarter of 2022.

The $0.4 million decline in telephone expenses is due to the implementation of a new telephone system during 2022.

The increases for the full year 2022 compared to the same period of 2021 included $0.6 million in professional and legal fees which was due to increased consulting fees in our retail and operations areas, the increase of $0.5 million in advertising expenses due to marketing efforts and timing of various promotions, as well as an increase of $0.3 million in data processing expenses related to our online banking platform.

Discussion of noninterest expense for the year ended December 31, 2020 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis,” under the heading “Noninterest Expense” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

For the full year 2023, total noninterest expense was $105.5 million, an increase of $8.5 million, or 8.7%, from the full year 2022 primarily due to higher salaries and employee benefits of $3.5 million, an increase of $2.9 million in FDIC insurance expenses, an increase of $0.9 million in other noninterest expense, an increase in losses on sales and write-downs of other real estate owned, (“OREO”), net of $0.7 million, an increase in occupancy expenses of $0.5 million, an increase in professional and legal fees of $0.4 million, and an increase in advertising expenses of $0.3 million.

Offsetting these increases was a decline in tax credit amortization of $0.6 million and a decrease on $0.1 million in data processing expenses.

The increase in salaries and employee benefits was primarily related to higher salary expense of $4.5 million due to fewer open positions in retail, job grade assessment increases and normal merit increases, increases of $0.2 million in restricted stock expense, increased Federal Insurance Contributions Act expenses of $0.4 million, offset by a decrease in medical claims of $0.3 million and lower performance based incentives of $1.4 million in 2023.

The increase in FDIC insurance expenses was due to a final rule adopted by the FDIC to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by two basis points, beginning in the first quarterly assessment period of 2023, as well as the deterioration in asset quality as a direct result of the large NPL relationship, which is a component used to determine the assessment.

The increase in other noninterest expense relates to immaterial amounts resulting from various operating and administrative expenses including business development expenses (i.e.

travel and entertainment, donations and club dues), insurance, supplies and printing, equipment rent, and software support and maintenance.

The increase in losses on sales and write-downs of OREO, net related to three legacy OREO properties that sold in the fourth quarter of 2023, and $0.5 million in write-downs on three closed retail branches.

These branches were closed in 2023, transferred to OREO and marketed for sale.

The increases in occupancy expenses primarily related to additional seasonal services performed during the year ended 2023.

The increase in professional and legal fees relates to higher legal expenses incurred from the large NPL relationship and new consulting engagements.

Advertising expenses increased due to marketing initiatives during the full year 2023.

The decline in tax credit amortization was due to the early adoption of Accounting Standard Update 2023-02 Investments Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.

Under the proportional amortization modified retrospective basis, the amortization of tax credit investments is recorded as a component of income tax expense instead of through noninterest expense as previously recorded in 2022.

The decrease in data processing expenses related to additional expenses incurred during the full year 2022 for our online banking platform.

CARTER BANKSHARES, INC.

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

Discussion of noninterest expense for the year ended December 31, 2021 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Noninterest Expense” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

Provision for Income Taxes

The provision for income taxes increased $7.5 million to $11.6 million for the year ended December 31, 2022 compared to $4.1 million for December 31, 2021.

Pre-tax income increased $26.0 million for the year ended 2022 compared to 2021.

The provision for income taxes decreased $6.3 million to $5.3 million for the year ended December 31, 2023 compared to $11.6 million for December 31, 2022.

Pre-tax income decreased $33.0 million for the year ended 2023 compared to 2022.

Our effective tax rate was 18.6% for the year ended December 31, 2023 compared to 18.8% for December 31, 2022.

The increase in the effective tax rate is primarily due to a higher level of pre-tax income and lower level of tax-exempt interest income and updated information from the developer extending the in-service date on a new tax credit from 2022 to 2023.

The decrease in the effective tax rate for the year ended December 31, 2023 compared to the same period in 2022 was primarily related to changes in pre-tax income, partially offset by increases to the valuation allowance 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”).

Discussion of provision for income taxes for the year ended December 31, 2021 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis,” under the heading “Provision for Income Taxes” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 , which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Provision for Income Taxes” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 11, 2022, and is incorporated herein by reference.

Financial Condition

December 31, 2023

Total assets increased $70.8 million, or 1.7%, to $4.2 billion at December 31, 2022 compared to December 31, 2021 .

Federal Reserve Bank excess reserves decreased $170.9 million to $5.3 million at December 31, 2022 from $176.2 million at December 31, 2021 due to redeploying excess cash into higher yielding loans and securities.

Total portfolio loans increased $336.8 million, or 12.0%, to $3.1 billion at December 31, 2022 compared to December 31, 2021 primarily due to consistent loan growth during the year.

The variances in loan segments for portfolio loans related to increases of $200.0 million in residential mortgages, $147.3 million in CRE loans, and $70.6 million in construction loans, offset by decreases of $45.4 million in the other category, $35.6 million in C&I loans and $0.1 million in other consumer loans.

At January 1, 2021, the initial break-out of Other loans related to the adoption of Topic 326 totaled $379.9 million consisting of $140.8 million of CRE, $78.1 million of C&I, $50.8 million of Residential Mortgages and $110.2 million of Construction.

This segment of loans has unique risk attributes considered inconsistent with current underwriting standards.

The analysis applied to this segment resulted in an expected credit loss of $51.3 million at adoption.

The Company had no loans held-for-sale at December 31, 2022 and $0.2 million at December 31, 2021 .

Other real estate owned, (“OREO”), decreased $2.5 million at December 31, 2022 compared to December 31, 2021 due to sales and payments of OREO.

Closed retail bank office carrying values increased $0.1 million and have a remaining book value of $1.1 million at December 31, 2022 compared to $1.0 million at December 31, 2021.

During 2022, $1.9 million in properties were sold and two properties totaling $0.9 million were closed and moved to OREO, but remain to be sold.

OREO related to foreclosed assets decreased $2.6 million at December 31, 2022 compared to December 31, 2021.

Total assets increased $308.0 million, to $4.5 billion at December 31, 2023 compared to $4.2 billion at December 31, 2022 .

Total portfolio loans increased $357.0 million, or 11.3% to $3.5 billion at December 31, 2023 compared to December 31, 2022 primarily due to loan growth in the CRE, residential mortgage and construction segments during the year ended December 31, 2023 .

The variances in loan segments for portfolio loans related to increases of $200.1 million in commercial real estate loans, $130.0 million in residential mortgages, $82.8 million in construction loans, offset by decreases of $38.3 million in commercial and industrial (“C&I”) loans, $10.3 million in other consumer loans and $7.3 million in the other category.

The securities portfolio decreased $57.3 million and is currently 17.3% of total assets at December 31, 2023 compared to 19.9% of total assets at December 31, 2022 .

The decrease is due to the Company’s strategy of redeploying securities maturities into higher yielding loan growth, as well as the continued decline in fair value due to rising interest rates.

The decrease is due to $92.2 million in security sales, curtailments and maturities deployed into higher yielding loan growth or to curtail wholesale funding, partially offset by security purchases of $24.9 million and the positive changes in fair value of securities during 2023.

As of December 31, 2023 , the securities portfolio was comprised of 47.2% variable rate securities with approximatel y 99.3% that will re price at least once over the next 12 months.

At December 31, 2023 , total gross unrealized gains in the available-for-sale portfolio were $0.7 million, offset by $92.3 million of gross unrealized losses.

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

Total deposits decreased $68.2 million to $3.6 billion at December 31, 2022 compared to December 31, 2021 .

The decreases included $82.8 million decrease in CDs due to the intentional runoff of higher cost CDs, a decline of $44.6 million in noninterest-bearing demand accounts and a decrease of $6.3 million in savings accounts.

These decreases were offset by an increase of $44.3 million in interest-bearing demand accounts and an increase of $21.2 million in money market accounts.

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 $11.9 million to $21.6 million at December 31, 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 decreased $5.9 million at December 31, 2023 compared to December 31, 2022 due to the sale of one OREO property in June 2023.

During the year ended 2023, the Bank closed three retail banking offices and moved $1.4 million at fair value to OREO.

These properties are currently being marketed for sale.

Closed retail bank offices had a book value of $2.3 million at December 31, 2023 and $1.1 million at December 31, 2022.

Total deposits increased $89.4 million to $3.7 billion at December 31, 2023 compared to December 31, 2022 .

The increase primarily related to an increase of $325.1 million in certificate of deposits (“CDs”) and an increase of $29.4 million in money market accounts offset by declines of $265.1 million in savings and demand deposits due to customers migrating to higher-yielding CD products driven by high market interest rates.

At December 31, 2023 , noninterest-bearing deposits comprised 18.4% of total deposits compared to 19.4% at December 31, 2022 .

CDs comprised 34.7% of total deposits at December 31, 2022 and 36.3% at December 31, 2021.

The decline in deposit balances can be attributed to the competitive market given the rising interest rate environment.

CDs comprised 42.6% and 34.7% of total deposits at December 31, 2023 and December 31, 2022 , respectively.

As of December 31, 2023 , based on assumptions that the Bank uses to prepare its regulatory call report, approximately 82.6% of our total deposits of $3.7 billion were insured under standard FDIC insurance coverage limits, and approximately 17.4% of our total deposits were uninsured deposits over the standard FDIC

CARTER BANKSHARES, INC.

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

Total capital decreased by $79.0 million or 19.4% to $328.6 million at December 31, 2022 compared to $407.6 million at December 31, 2021 .

The decrease in equity was primarily due to a $87.3 million, net of tax, decrease in other comprehensive loss due to declines in the fair value of available-for-sale securities, a $42.9 million decrease related to the repurchase of common stock through December 31, 2022 , partially offset by net income of $50.1 million for the year ended December 31, 2022 that was retained by the Company.

The remaining difference of $1.1 million is related to stock-based compensation expense during 2022.

insurance coverage limit.

The Company’s deposit base is diversified and granular and is comprised of approximately 78.9% of retail deposits.

Total capital of $351.2 million at December 31, 2023 , reflects an increase of $22.6 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 $23.4 million for the year ended December 31, 2023 , other comprehensive income of $14.2 million increased due to changes in fair value of investment securities, an increase of $1.5 million related to restricted stock activity during the year, as well as, the transitional adjustment of $0.1 million, net of tax for the adoption of ASU 2023-02.

Offsetting these increases was a decrease of $16.6 million related to the repurchase of common stock and the 1% excise tax on stock repurchases.

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

General reserves as a percentage of total portfolio loans were 1.22% at December 31, 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 release of $7.0 million of reserves that were allocated to the other segment due to principal pay-downs, throughout 2022, partially offset by strong loan growth, increased qualitative reserves of $3.0 million, and net charge-offs of $4.5 million.

The decrease in the general reserves as a percentage of total portfolio loans was primarily driven by the largest lending relationship’s movement from the general pool to the individually evaluated loans 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.

Our Tier 1 capital ratio decreased to 12.61% at December 31, 2022 compared to 14.21% at December 31, 2021 .

Our leverage ratio was 10.29% at December 31, 2022 , compared to 10.62% at December 31, 2021 and total risk-based capital ratio was 13.86% at December 31, 2022 compared to 15.46% at December 31, 2021 .The decrease is primarily related to the aforementioned repurchase of common stock of $42.9 million through December 31, 2022 .

We adopted Current Expected Credit Losses (“CECL”) effective January 1, 2021 and elected to implement the regulatory agencies’ capital transition relief over the permissible three-year period.

The Tier 1 capital ratio decreased to 11.08% at December 31, 2023 compared to 12.61% at December 31, 2022 .

The leverage ratio was 9.48% at December 31, 2023 , compared to 10.29% at December 31, 2022 and the total risk-based capital ratio was 12.34% at December 31, 2023 compared to 13.86% at December 31, 2022 .

The decrease is related to the aforementioned repurchase of common stock of $16.6 million and the 1% excise tax on stock repurchases and loan growth during the year ended December 31, 2023 .

Another significant factor driving the ratios downward was the Company placing the above mentioned large lending relationship on nonaccrual status, which resulted in a $30.0 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 December 31, 2023 .

The Bank’s Tier 1 capital ratio was 10.99% at December 31, 2023 compared to 12.42% at December 31, 2022 .

The Bank’s leverage ratio was 9.41% at December 31, 2023 compared to 10.13% at December 31, 2022 .

The Bank’s total risk-based capital ratio was 12.25% at December 31, 2023 compared to 13.68% at December 31, 2022 .

CARTER BANKSHARES, INC.

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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 the Company.

Security purchases are subject to the Company’s Investment Policy approved annually by the Board and administered through ALCO and the Company’s treasury function.

The securities portfolio decreased $86.1 million at December 31, 2022 compared to December 31, 2021.

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 $57.3 million to $779.0 million at December 31, 2023 compared to $836.3 million at December 31, 2022.

Securities comprise 17.3% of total assets at December 31, 2023 compared to 19.9% at December 31, 2022.

T he decrease is due to the Company’s strategy of redeploying securities maturities into higher yielding loan growth, as well as the continued decline in fair value due to rising interest rates.

We have further diversified the securities portfolio as to bond types, maturities and interest rate structures.

The decrease is primarily due to $92.2 million in security sales, curtailments and maturities deployed into higher yielding loan growth or to curtail wholesale funding, partially offset by security purchases of $24.9 million and the positive changes in fair value of securities during 2023.

As of December 31, 2023, the securities portfolio was comprised of 47.2% variable rate securities with approximately 99.3% that will reprice at least once over the next 12 months.

At December 31, 2023, total gross unrealized gains in the available-for-sale portfolio were $0.7 million offset by $92.3 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.

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, and not related to the credit quality of these securities.

Our portfolio consists of 49.2% of securities issued by United States government sponsored entities and carry an implicit government guarantee.

States and political subdivisions comprise 29.8% of the portfolio and largely general obligation or

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 48.7% of securities issued by United States government

CARTER BANKSHARES, INC.

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

essential purpose revenue bonds, which have performed very well historically over all business cycles, and are rated AA and AAA.

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

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-year and 10-year Treasury securities).

This portion of the Treasury yield curve has moved significantly upward over the past year, driving unrealized losses on these securities higher.

Although the Federal Reserve continues its 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 improve yields on certain of the Company’s variable rate securities within the next six to twelve months.

sponsored entities and carry an implicit government guarantee.

States and political subdivisions comprise 28.5% 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.

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

The Company believes that the Federal Reserve System, (“FRB”) is at or near the end of its aggressive strategy of raising short-term interest rates to combat inflation.

Some market information indicates that the FRB may start lowering short-term interest rates in 2024.

Changes in short-term interest rates can affect the yield on floating rate securities.

Therefore, yields on floating rate securities may begin to fall should the FRB begin lowering short rates.

Changes in intermediate and long-term interest rates, which are market driven, affect the market value of fixed rate securities with similar maturities.

Thus, the Company expects that market values on the Bank’s intermediate and long-term maturity holdings will continue to fluctuate in large part driven by treasury yield changes.

At December 31, 2023 the 5-year and 10-year U.S.

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

Therefore, this increase of 273 and 236 basis points, respectively in the intermediate part of the yield curve largely caused the reduction in bond prices for fixed rate bonds in that maturity range.

The flatness in 10-year treasury yields was neutral to bond market values, while the decrease of 15 basis points in the 5-year treasury in the intermediate part of the yield curve helped drive the decrease in unrealized losses for the year ended December 31, 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 cost basis of the investment will be reduced and the resulting loss will be recognized in net income in the period the credit related impairment is identified, while any non-credit loss will be recognized in other comprehensive loss.

At December 31, 2022 and December 31, 2021, the Company had no credit related net investment impairment losses.

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

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.

The following table sets forth the maturities of securities at December 31, 2023 and the weighted average yields of such securities.

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Amount Yield Amount Yield Amount Yield Amount Yield

Treasury Securities $ — — % $ 14,080 1.46 % $ 3,786 1.35 % $ — — %

Government Agency Securities $ — — % $ 2,898 6.07 % $ 40,929 5.77 % $ — — %

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(2) Securities not due at a single maturity date

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

At December 31, 2023 the Company had no held-to-maturity securities;

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Therefore, the duration on these securities is short, generally less than one year, and will therefore not be as sensitive to interest rate changes.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Refer to Note 4, Investment Securities, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our securities.

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

Total portfolio loans increased $336.8 million, or 12.0% to $3.1 billion at December 31, 2022 compared to $2.8 billion at December 31, 2021 with strong production in our CRE, residential mortgage and construction portfolios.

We experienced a decline in total loans during 2021 primarily due to large commercial loan payoffs, $62.2 million of loan sales and mortgage refinancing sold in the secondary markets.

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

The Bank experienced strong growth in the residential mortgage loan portfolio during 2022.

However, given the expectation of continued higher mortgage rates next year, we expect more modest growth during future periods.

At December 31, 2022, the loan portfolio was comprised of 26.8% floating rate loans which reprice monthly, 41.2% variable rate loans that reprice at least once during the life of the loan, of which a majority of this loan population has one or more repricing events remaining before maturity, and 32.0% fixed rate loans.

The Company carefully monitors the loan portfolio, including the potential impact on repayment capacity that our borrowers may experience given the interest rate environment.

Our exposure to the hospitality industry at December 31, 2022 equated to approximately $360.4 million, or 11.4%, of total portfolio loans.

These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows.

Beginning in the second quarter of 2021, we observed improvements in occupancy and the average daily rates for our hotel clients following sharp declines as a result of the pandemic.

However, our clients continue to face challenges with respect to labor, which we believe impedes their ability to turnover rooms resulting in occupancy constraints.

This has caused, or may cause, them to operate with lower levels of liquidity and an inability to reserve for capital improvements and could adversely affect their ability to pay property expenses, capital improvements and/or repay existing indebtedness.

Contractual payments have been restored since the expiration of our deferral program on June 30, 2021.

These developments, together with the current economic conditions, generally, may adversely impact the value of real estate

Total portfolio loans increased $357.0 million, or 11.3%, to $3.5 billion at December 31, 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 experienced more modest growth in 2023 compared to 2022.

At December 31, 2023, the loan portfolio was comprised of 24.8% floating rates which reprice monthly, 41.9%, variable rates that reprice at least once during the life of the loan and the remaining 33.3% 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.

Total CRE represented 47.7% of total portfolio loans at December 31, 2023 compared to 46.7% at December 31, 2022.

The Company’s CRE loan portfolio is concentrated predominantly in North Carolina, Virginia, South Carolina, West Virginia and Georgia within the retail, multifamily, hospitality, warehouse and office metrics.

CARTER BANKSHARES, INC.

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

collateral in hospitality and other commercial real estate exposure.

As a result, our financial condition, capital levels and results of operations could be adversely affected.

The following table presents the Company's CRE breakout by segment, the segment amounts included in special mention and substandard and the related percentages by segment to total CRE and total portfolio loans as of the periods indicated:

(Dollars in Thousands) CRE Portfolio CRE Balance in Special Mention/Substandard Risk Rating % of Each Segment to Total CRE Loans % of Each Segment to Total Portfolio Loans CRE Portfolio CRE Balance in Special Mention/Substandard Risk Rating % of Each Segment to Total CRE Loans % of Each Segment to Total Portfolio Loans

Commercial Real Estate

Retail $ 396,831 $ 62 23.8 % 11.3 % $ 319,557 $ 155 21.7 % 10.1 %

Multifamily 386,123 — 23.1 % 11.0 % 289,667 9,964 19.7 % 9.2 %

Warehouse 373,812 — 22.4 % 10.7 % 264,705 85 18.0 % 8.4 %

Hospitality 289,553 72 17.3 % 8.3 % 308,856 — 21.0 % 9.8 %

Office 222,160 1,349 13.3 % 6.3 % 225,930 2,898 15.4 % 7.2 %

Other 2,152 119 0.1 % 0.1 % 61,847 120 4.2 % 2.0 %

Total CRE Loans $ 1,670,631 $ 1,602 100.0 % 47.7 % $ 1,470,562 $ 13,222 100.0 % 46.7 %

CRE loans represent a portfolio concentration risk.

The majority of our CRE loans are made in the above noted geographies and granted to experienced developers and sponsors with loan guaranty structures that provide recourse to individuals with access to financial resources.

We believe our knowledge of CRE and our operating knowledge at the local and regional level of these markets allows us to effectively manage concentration risk.

Our operating knowledge at the local and regional level is derived from our front-line connection to the customer and our understanding of their business model.

We also have access to research tools that inform us about market statistics such as occupancy, lease growth rates and new construction starts.

This data is reviewed frequently by our credit officers and disseminated to our lenders.

The bank’s underwriting process includes multiple shock scenarios primarily focused on cash flow and leverage in order to determine a supportable loan amount.

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, we seek to mitigate this risk 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 targets for various categories of real estate loans with respect to debt service coverage ratios, 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 also focuses on cash flow generation and employs stress testing to calculate a supportable loan amount.

Aggregate commitments to our top 10 credit relationships were $636.7 million at December 31, 2023.

The largest relationship of the top 10 represents 47.4% of the aggregate commitments of our top 10 credit relationships.

The Other segment represents 47.4% of the top 10 credit relationships and the Company has since transferred its largest lending relationship of $301.9 million to nonaccrual during the second quarter of 2023, as described in more detail below under “Credit Quality” in this MD&A.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Top Ten (10) Relationships 12/31/2022 12/31/2021 Change 2022 % of Gross Loans 2022 % of RBC

For the Periods Ending

Dollars in Thousands 12/31/2023 12/31/2022 Change 2023 % of Gross Loans 2023 % of RBC

Hospitality, Agriculture & Energy $ 301,913 $ 309,107 $ (7,194) 8.61 % 62.26 %

Retail Real Estate & Food Services 53,576 55,625 (2,049) 1.53 % 11.05 %

Industrial & retail real estate 41,725 45,653 (3,928) 1.32 % 8.63 %

Multifamily Development 40,000 40,000 — 1.14 % 8.25 %

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Hospitality 37,502 35,255 2,247 1.07 % 7.73 %

Industrial & Retail Real Estate 33,885 41,725 (7,840) 0.97 % 6.99 %

Non-Owner Occupied / Commercial Real Estate 33,752 17,308 16,444 0.96 % 6.96 %

Multifamily & student housing 32,747 33,998 (1,251) 0.94 % 6.75 %

Special / limited use 33,736 33,736 — 1.07 % 6.98 %

Hospitality 32,328 33,587 (1,259) 0.92 % 6.66 %

Multifamily development 31,790 29,389 2,401 1.01 % 6.58 %

Multifamily / Commercial Real Estate 32,000 24,000 8,000 0.91 % 6.60 %

Top Ten (10) Relationships 636,675 628,284 8,391 18.16 % 131.29 %

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Unfunded commitments on commercial operating lines of credit was 53.7% at December 31, 2023 and 49.7% 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.

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.

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

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 December 31, 2022 and $0.2 million at December 31, 2021.

The following tables present the maturity schedule of portfolio loan types at December 31, 2023:

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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 policies and policy enhancements as they become available.

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 review the 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 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

Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due.

Loans past due 90 days are automatically transferred to nonaccrual status.

Management reserves the right to exercise discretion at the individual loan level.

For example, we may elect to transfer a loan to nonaccrual regardless of the delinquency status if we believe the collection in full of both principal and interest to be unlikely.

We may also elect to retain a loan that is 90 or more days’ delinquent in accrual status if we believe the loan is well secured and in the process of collection.

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.

CARTER BANKSHARES, INC.

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

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.

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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.

The following tables represent credit exposures by internally assigned risk ratings as of December 31, 2022 and 2021:

December 31, 2022

(Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total

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

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

Performing Loans $ 1,468,258 $ 309,588 $ 654,683 $ 44,554 $ 352,689 $ 312,496 $ 3,142,268

Nonaccrual Loans 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

December 31, 2021

(Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total

Pass $ 1,314,576 $ 337,294 $ 453,894 $ 44,554 $ 281,241 $ 185,247 $ 2,616,806

Special Mention 5,260 8 553 — 604 3,281 9,706

Substandard 3,416 8,074 3,541 112 1,102 169,372 185,617

Total Portfolio Loans $ 1,323,252 $ 345,376 $ 457,988 $ 44,666 $ 282,947 $ 357,900 $ 2,812,129

Performing Loans $ 1,319,915 $ 344,925 $ 455,437 $ 44,593 $ 281,962 $ 357,900 $ 2,804,732

Nonaccrual Loans 3,337 451 2,551 73 985 — 7,397

Total Portfolio Loans $ 1,323,252 $ 345,376 $ 457,988 $ 44,666 $ 282,947 $ 357,900 $ 2,812,129

At December 31, 2022 and December 31, 2021, the Company had no loans that were risk rated as doubtful.

Special mention and substandard loans at December 31, 2022 decreased $38.4 million to $156.9 million compared to $195.3 million at December 31, 2021, with an increase of $5.0 million in special mention and a decrease of $43.4 million in substandard.

The largest variance in special mention was primarily related to a CRE project totaling $9.9 million that was downgraded, offset by the payment in full on two CRE projects totaling $6.0 million and an upgraded credit to pass status in the amount of $1.5 million.

In addition to CRE, the Company downgraded a syndicated C&I loan totaling $2.9 million.

The decrease in substandard loans primarily related to the Other loan segment due to principal paydowns during 2022.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

Nonperforming assets consist of nonaccrual loans and OREO.

The following table summarizes nonperforming assets for the dates presented:

(Dollars in Thousands) December 31,

Nonperforming Loans

(Dollars in Thousands) December 31, 2023 December 31, 2022 Change

Nonaccrual Loans

Commercial Real Estate $ 1,324 $ 2,304 $ (980)

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Construction 2,904 864 2,040

Other 301,913 — 301,913

Total Nonperforming Loans 309,535 6,645 302,890

3 unchanged sentences

Nonperforming Assets to Total Portfolio Loans plus Other Real Estate Owned 8.89 % 0.48 %

Nonperforming assets decreased $3.3 million, or 17.9% to $15.0 million at December 31, 2022 compared to December 31, 2021.

The decrease was primarily due to a $2.5 million decrease in OREO, driven primarily by sales and payments.

Closed retail bank offices have a remaining book value of $1.1 million at December 31, 2022 compared to $1.0 million at December 31, 2021.

During 2022, six branch closures were completed and moved to OREO as part of our branch network optimization project that aligns with our strategic goals to enhance franchise value and improve operating efficiency.

Nine properties were sold totaling $1.9 million sold and two properties totaling $0.9 million were closed, but remain to be sold.

Organic OREO decreased $2.6 million at December 31, 2022 compared to December 31, 2021.

NPLs decreased by $0.8 million at December 31, 2022 compared to December 31, 2021.

NPLs as a percentage of total portfolio loans were 0.21% at December 31, 2022 compared to 0.26% at December 31, 2021.

Past Company legacy underwriting standards relied heavily on loan to value and did not necessarily consider the income characteristics of the borrower.

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 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, it should reduce the experience of defaults.

Despite economic uncertainty, increased costs and interest rates, credit quality remains favorable.

There were no nonaccrual loans related to loans held-for-sale at December 31, 2022 and December 31, 2021, respectively.

Refer to Note 6, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our nonperforming loans and OREO.

Nonperforming assets increased $297.0 million to $312.0 million at December 31, 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 97.5% of the Company's total nonperforming loans and 96.8% of the Company's total nonperforming assets.

Based on analyses of the credit relationship and various discounted cash flow valuation techniques utilized in the alternative modeling, which resulted in a valuation allowance with respect to these loans of $54.3 million at December 31, 2023, representing 18.0% of these loans aggregate principal amount.

At December 31, 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.

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 December 31, 2023, the Company utilized discounted cash flow valuation techniques to estimate the timing and magnitude of potential recoveries resulting from various collection processes.

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:

December 31, 2023 December 31, 2022

(Dollars in Thousands) Amount % of NPLs Amount % of NPLs

Commercial Real Estate $ 1,324 0.4 % $ 2,304 34.7 %

Commercial and Industrial 52 — % 204 3.1 %

Residential Mortgages 3,283 1.1 % 3,265 49.1 %

Other Consumer 59 — % 8 0.1 %

Construction 2,904 1.0 % 864 13.0 %

Other 301,913 97.5 % — — %

Balance End of Period $ 309,535 100.0 % $ 6,645 100.0 %

CARTER BANKSHARES, INC.

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

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 t he information contained in Part II, Item 8.

Financial Statements and Supplementary Data – Note 18, “Commitments and Contingencies,” under the heading “Legal Proceedings” of this Annual Report on Form 10-K.

Closed retail bank offices have a remaining book value of $2.3 million at December 31, 2023 and $1.1 million at December 31, 2022, and are recorded in OREO on the Company’s balance sheet.

During the year ended 2023, the Bank closed three retail banking offices and moved $1.4 million at fair value to OREO.

These properties were marketed for sale as of December 31, 2023.

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.

The following table summarizes past due loans for the dates presented:

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Total Loans 30 to 89 Days Past Due $ 6,032 $ 4,837

Portfolio loans past due 30 to 89 days and still accruing increased $3.2 million to $4.8 million at December 31, 2022 compared to December 31, 2021, primarily in the construction segment due to two relationships with an aggregate principal balance of $2.9 million at December 31, 2022.

Portfolio loans past due 30 to 89 days and still accruing increased $1.2 million to $6.0 million at December 31, 2023 compared to December 31, 2022, primarily in the residential mortgage segment.

There were no loans during the year ended December 31, 2023 and December 31, 2022 that were past due more than 90 days and still accruing.

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.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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

The following tables represent credit exposures by internally assigned risk ratings as of December 31, 2023 and 2022:

December 31, 2023

(Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total

Pass $ 1,669,029 $ 268,622 $ 784,090 $ 34,202 $ 433,321 $ 3,300 $ 3,192,564

Special Mention 278 2,837 525 — 60 — 3,700

Substandard 1,324 52 3,314 75 2,968 301,913 309,646

Total Portfolio Loans $ 1,670,631 $ 271,511 $ 787,929 $ 34,277 $ 436,349 $ 305,213 $ 3,505,910

Performing Loans $ 1,669,307 $ 271,459 $ 784,646 $ 34,218 $ 433,445 $ 3,300 $ 3,196,375

Nonaccrual Loans 1,324 52 3,283 59 2,904 301,913 309,535

Total Portfolio Loans $ 1,670,631 $ 271,511 $ 787,929 $ 34,277 $ 436,349 $ 305,213 $ 3,505,910

December 31, 2022

(Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total

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

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

Performing Loans $ 1,468,258 $ 309,588 $ 654,683 $ 44,554 $ 352,689 $ 312,496 $ 3,142,268

Nonaccrual Loans 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

At December 31, 2023 and December 31, 2022, the Company had no loans that were risk rated as doubtful.

Special mention and substandard loans at December 31, 2023 increased $156.5 million to $313.3 million compared to December 31, 2022, with an increase of $167.5 million in substandard and a decrease of $11.0 million in special mention.

The increase of $167.5 million in substandard loans is primarily related to the above mentioned $301.9 million nonaccrual lending relationship in the other loan category.

The $301.9 million of loans related to the Bank’s largest lending relationship was nonperforming and rated as substandard at December 31, 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.

The decrease of $11.0 million in special mention is primarily due to the upgrade of a CRE credit totaling $9.9 million to a pass rating.

Troubled Debt Restructuring Disclosures Prior to Our Adoption of ASU No.

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2022-02, the Company accounted for Troubled Debt Restructuring (“TDR”) as a loan which, for economic or legal reasons related to a borrower’s financial difficulties, granted a concession to the borrower that we would not otherwise grant.

The Company strives to identify borrowers in financial difficulty early and work with them to modify terms and conditions before their loan defaults and/or is transferred to nonaccrual status.

The Company strived to identify borrowers in financial difficulty early and work with them to modify terms and conditions before their loan defaults and/or is transferred to nonaccrual status.

Modified terms that might have been considered a TDR generally included extension of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar characteristics, reductions in contractual interest rates or principal deferment.

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Refer to Note 1, Summary of Significant Accounting Polices, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to ASU No.

Generally, the Company individually evaluates all loans experiencing financial difficulty, with a commitment greater than or equal to $1.0 million for individually evaluated loan reserves.

In addition, the Company may individually evaluate credits that have complex loan structures, even if the commitment is less than $1.0 million.

Nonaccrual loans can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

Generally, the Company individually evaluates all loans that are nonaccrual or considered a restructured loan, with a commitment equal to $1.0 million or greater and/or based on management’s discretion;

for individually evaluated loan reserves.

CARTER BANKSHARES, INC.

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

In addition, the Company may individually evaluate credits that have complex loan structures, even if the commitment is less than $1.0 million.

Allowance for Credit Losses

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Allowance for Credit Losses to Total Portfolio Loans 2.77% 2.98% 3.41%

Total net charge-offs decreased to $4.5 million for the year ended December 31, 2022 compared to $23.1 million for the year ended December 31, 2021 primarily in the CRE segment.

Total net charge-offs decreased to $2.3 million for the year ended December 31, 2023 compared to $4.5 million for the year ended December 31, 2022 primarily in the C&I segment.

The largest charge-off in 2022 was $3.4 million on a purchased syndicated C&I loan in the amount of $4.9 million, which was previously reserved for $2.6 million, transferred to held-for-sale in the third quarter of 2022 in the amount of $1.5 million and then sold in the fourth quarter of 2022.

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The following is the allocation of the ACL balance by segment as of December 31 for the years presented below:

(Dollars in Thousands) Amount % of Loans Amount % of Loans

(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 $ 19,873 47.7 % $ 17,992 46.7 %

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Balance End of Year $ 97,052 100.0 % $ 93,852 100.0 %

The declines in the other segment were primarily due to principal pay-downs during 2022.

The increase in the ACL was primarily due to increases in the CRE, residential mortgage and construction segments as a result of loan growth in these segments during 2023.

The ACL was $97.1 million, or 2.77%, of total portfolio loans at December 31, 2023 compared to $93.9 million, or 2.98% of total portfolio loans at December 31, 2022.

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Net Charge-offs to Average Portfolio Loans 0.07 % 0.15 %

The provision (recovery) for credit losses, which includes a provision (recovery) 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 over the life of loans as of the balance sheet date.

The provision for credit losses decreased $0.9 million to $2.4 million for the year ended 2022 compared to the same period in 2021.

The reductions in the Other segment reserves due to principal paydowns were partially offset by charge-offs in 2022 and reserves associated with loan growth.

The provision (recovery) for unfunded commitments increased $1.8 million to $0.5 million for the year ended 2022 when compared to a recovery of $1.3 million for the year ended 2021 due to the level of construction commitments as well as changes in reserve rates.

The reserve for unfunded commitments is largely comprised of unfunded commitments related to real estate construction loans.

There are three basic factors that influence the reserve rates associated with unfunded commitments for construction loans.

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 $3.1 million to $5.5 million for the year ended 2023 compared to the same period in 2022.

The increase in the provision for credit losses was primarily driven by loan growth, net charge-offs and an increase in the other segment reserve related to the large NPL relationship.

The provision for unfunded commitments increased $0.4 million to $0.9 million for the year ended 2023 when compared to a provision of $0.5 million for the year ended 2022.

The increase was primarily due to an increase in construction commitments.

The reserve for unfunded commitments is largely comprised of unfunded commitments related to real estate construction loans and pressure on the reserve rates.

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

First, the reserve rate is extrapolated from the reserve rates calculated for certain commercial real estate funded loans within the ACL model.

These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts, average portfolio life, etc.

Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to

Refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional

CARTER BANKSHARES, INC.

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

Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to the ACL Policy and the discussion of these factors.

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 CRE loans.

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Third, volume changes impact the total reserve calculation.

As a percentage of average total portfolio loans, net charge-offs were 0.15% for the year ended December 31, 2022 compared to 0.79% for the same period in 2021.

At December 31, 2022 NPLs decreased $0.8 million at December 31, 2022 since December 31, 2021.

As a percentage of average portfolio loans net charge-offs were 0.07% for the year ended 2023 and 0.15% for the same period in 2022.

At December 31, 2023 NPLs increased $302.9 million at December 31, 2023 since December 31, 2022.

NPLs as a percentage of total portfolio loans were 8.83% and 0.21% as of December 31, 2023 and December 31, 2022, respectively.

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The daily average balance of deposits and rates paid on deposits are summarized in the following table for the years ended December 31:

(Dollars in Thousands) Average

Balance Rate Average

(Dollars in Thousands) Average Balance Rate Average Balance Rate

Noninterest-Bearing Demand $ 680,889 — $ 716,645 —

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Savings 544,938 0.11 % 720,682 0.10 %

Certificates of Deposit 1,271,548 1.14 % 1,484,436 1.31 %

Certificate of Deposits 1,428,646 2.83 % 1,271,548 1.14 %

Total Interest-Bearing Deposits 2,904,956 1.81 % 3,002,797 0.62 %

Total Average Deposits $ 3,585,845 1.47 % $ 3,719,442 0.50 %

For the year ended December 31, 2022, t otal average deposits grew $37.5 million, including an increase in average money market accounts of $137.9 million, or 36.0%, an increase in average interest-bearing deposits of $75.5 million, or 18.3%, and an increase in average savings accounts of $57.3 million, or 8.6%.

The increases were partially offset by a managed decrease in average CDs of $212.9 million, or 14.3% due to the intentional runoff of higher cost CDs, through the first half of the year, and a decline in average noninterest-bearing demand deposits of $20.3 million.

Due to historically low market interest rates during 2021 and the first half of 2022, the Company was able to migrate away from higher rate CDs and grow lower yielding, more liquid products.

During the second half of 2022, market interest rates increased quickly providing new incentives for customers to seek out higher yielding CDs.

For the year ended December 31, 2023, t otal average deposits declined $133.6 million, which included decreases in average savings accounts of $175.7 million, or 24.4%, a decrease in money market accounts of $72.9 million, or 14.0%, a decline in average noninterest-bearing demand deposits of $35.8 million and a decrease in average interest-bearing deposits of $6.3 million, or 1.3% offset by an average increase in CDs of $157.1 million, or 12.4%.

The decrease in average deposits was primarily due to the banking industry disruption in March 2023 and inflationary pressures on customers.

Additionally, customers preferences have shifted to higher-yielding deposit products as interest rates increased.

The following table presents additional information about our year-end deposits:

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Certificates of Deposits not Covered by Deposit Insurance 304,968 159,030

Deposits from Certain Directors, Executive Officers and their Affiliates 2,910 3,032

Deposits for Certain Directors, Executive Officers and their Affiliates 1,799 2,910

(1) These deposits are presented on an estimated basis.

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

Maturities of CDs over $250,000 or more not covered by deposit insurance at December 31, 2022 are summarized as follows:

Maturities of CDs over $250,000 or more, excluding brokered deposits, not covered by deposit insurance at December 31, 2023 are summarized as follows:

(Dollars in Thousands) Amount Percent

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Federal Funds Purchased — 17,870 —

Average Balance during Period

Average Balance during the Period

Federal Home Loan Bank Borrowings $ 402,675 $ 29,849 $ 25,986

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Federal Funds Purchased — % 4.65 % — %

The Company had $180.6 million FHLB borrowings at December 31, 2022 and $7.0 million at December 31, 2021 an increase of $173.6 million.

The Company had $17.9 million in overnight federal funds purchased at December 31, 2022 and had no outstanding overnight federal funds purchased at December 31, 2021.

The Company had $393.4 million of FHLB borrowings at December 31, 2023 an increase of $212.9 million compared to December 31, 2022.

The Company had no overnight federal funds purchased at December 31, 2023 and had $17.9 million outstanding 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, deposit growth and capital considerations.

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The Company held FHLB of Atlanta stock of $21.6 million and $9.7 million at December 31, 2023 and December 31, 2022, respectively.

Dividends recorded on this restricted stock were $154 thousand and $121 thousand for the years ended December 31, 2022 and December 31, 2021, respectively.

Dividends recorded on this restricted stock were $1.5 million and $0.2 million for the years ended December 31, 2023 and December 31, 2022, respectively.

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

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The following table summarizes ratios for the Company and Bank for December 31:

Common Equity Tier 1

Leverage Ratio

Carter Bankshares, Inc.

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Carter Bank and Trust 9.41 % 10.13 %

Common Equity Tier 1

Carter Bankshares, Inc.

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Carter Bank and Trust 10.99 % 12.42 %

Total Risk-Based Capital Ratio

Carter Bankshares, Inc.

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Carter Bank and Trust 10.99 % 12.42 %

Leverage Ratio

Total Risk-Based Capital Ratio

Carter Bankshares, Inc.

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Carter Bank and Trust 12.25 % 13.68 %

Total shareholders’ equity decreased by $79.0 million to $328.6 million at December 31, 2022 compared to $407.6 million at December 31, 2021.

The decrease was primarily due to $87.3 million, net of tax, decrease in other comprehensive loss due to changes in the fair value of available-for-sale securities and $42.9 million related to the repurchase of common stock, partially offset by net income of $50.1 million.

The remaining difference of $1.1 million is related to stock-based compensation during the year ended December 31, 2022.

Total capital of $351.2 million at December 31, 2023 , reflects an increase of $22.6 million compared to $328.6 million at December 31, 2022 .

Offsetting these increases was a decrease of $16.6 million related to the repurchase of common stock and the 1% excise tax on stock repurchases.

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

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AND SUBSIDIARIES

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

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.

In December 2018, the Office of the Comptroller of the Currency, (the “OCC”), the Federal Reserve System, (“FRB”), and the Federal Deposit Insurance Corporation, (“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.

Refer to Note 20, Capital Adequacy, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our capital.

Contractual Obligations

Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent contractual liabilities for which we cannot reasonably predict future payments.

The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments.

The following table presents, as of December 31, 2022, significant fixed and determinable contractual obligations to third parties by payment date:

Payments Due In

(Dollars in Thousands) Less Than

One Year One to

Years Three to

Five Years More Than

five Years Total

Deposits without a Stated Maturity (1)

$ 2,368,807 $ — $ — $ — $ 2,368,807

Certificates of Deposits (1)

637,771 487,827 134,345 1,583 1,261,526

Federal Home Loan Bank Borrowings 180,550 — — — 180,550

Federal Funds Purchased 17,870 — — — 17,870

Operating and Capital Leases 675 1,287 1,247 9,975 13,184

Purchase Obligations 4,674 8,719 8,089 2,983 24,465

Total $ 3,210,347 $ 497,833 $ 143,681 $ 14,541 $ 3,866,402

(1) Excludes Interest

Lease contracts are described in Note 8, Premises and Equipment, of the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Purchase obligations primarily represent obligations under agreement with a third-party data processing vendor and communications charges.

Off-Balance Sheet Arrangements

In the normal course of business, the Company offers our customers lines of credit and letters of credit to meet their financing objectives.

The undrawn or unfunded portion of these facilities do not represent outstanding balances and therefore are not reflected in our financial statements as loans receivable.

The Company provides lines of credit to our clients to memorialize the commitment to finance the completion of construction projects and revolving lines of credit to operating companies to finance their working capital needs.

Lines of credit for construction projects represent $373.2 million, or 59.2% and $283.9 million, or 55.3% of the commitments to extend credit identified in the table below at December 31, 2022 and December 31, 2021, respectively.

The Company provides letters of credit, generally, for the benefit or our customers to provide assurance to various municipalities that construction projects will be completed according to approved plans and specifications.

These instruments involve elements of credit and interest rate risk and our exposure to credit loss, in the event the customer does not satisfy the

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

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-K

Item 5. Market for Registrant’s Common Equity