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What changed in Carter Bankshares, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Carter Bankshares, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+539 added−464 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-10)

Top changes in Carter Bankshares, Inc.'s 2023 10-K

539 paragraphs added · 464 removed · 241 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

40 edited+151 added−8 removed106 unchanged
Biggest changeBUSINESS - (continued) Insurance of Accounts, Assessments and Regulation by the FDIC Deposits with the Bank are insured through the Deposit Insurance Fund (“DIF”) of the FDIC. As a DIF-insured institution, the Bank is subject to FDIC rules and regulations as administrator of the DIF. The Dodd-Frank Act made permanent the current standard maximum deposit insurance amount of $250,000.
Biggest changeAs a DIF-insured institution, the Bank is subject to FDIC rules and regulations as administrator of the DIF. The Dodd-Frank Act made permanent the current standard maximum deposit insurance amount of $250,000. The FDIC coverage applies per depositor, per insured depository 13 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
As of December 31, 2022, the Bank was considered “well capitalized.” Incentive Compensation The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities with at least $1 billion in total consolidated assets, that encourage inappropriate risks by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.
As of December 31, 2023, the Bank was considered “well capitalized.” Incentive Compensation The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities with at least $1 billion in total consolidated assets, that encourage inappropriate risks by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.
Banking Acquisitions; Changes in Control The BHCA and related regulations require, among other things, the prior approval of the FRB in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company.
BUSINESS - (continued) Banking Acquisitions; Changes in Control The BHCA and related regulations require, among other things, the prior approval of the FRB in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company.
BUSINESS - (continued) Brokered Deposits Section 29 of the FDIA and FDIC regulations generally limit the ability of any bank to accept, renew or roll over any brokered deposit unless it is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” On December 15, 2020, the FDIC issued rules to revise brokered deposit regulations in light of modern deposit-taking methods.
Brokered Deposits Section 29 of the FDIA and FDIC regulations generally limit the ability of any bank to accept, renew or roll over any brokered deposit unless it is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” On December 15, 2020, the FDIC issued rules to revise brokered deposit regulations in light of modern deposit-taking methods.
As of December 31, 2022, the Bank has not elected to apply the CBLRF, but the Bank continues to assess the potential impact of opting in to CBLRF as part of its ongoing capital management and planning processes. Dividend Limitations The Company is a legal entity that is separate and distinct from the Bank.
As of December 31, 2023, the Bank has not elected to apply the CBLRF, but the Bank continues to assess the potential impact of opting in to CBLRF as part of its ongoing capital management and planning processes. Dividend Limitations The Company is a legal entity that is separate and distinct from the Bank.
On September 29, 2022, FinCEN issued a final rule to implement the beneficial ownership reporting requirements of the CTA, which will be effective January 1, 2024. The Company and the Bank will continue to monitor regulatory developments related to the CTA and will continue to assess the ultimate impact of the CTA on the Company and the Bank.
On September 29, 2022, FinCEN issued a final rule to implement the beneficial ownership reporting requirements of the CTA, which became effective January 1, 2024. The Company and the Bank continue to monitor regulatory developments related to the CTA and will continue to assess the ultimate impact of the CTA on the Company and the Bank.
BUSINESS - (continued) Application of Supervisory Guidance to the Company and the Bank On March 31, 2021, the Federal Reserve issued a final rule outlining and confirming the use of supervisory guidance for regulated institutions, including bank holding companies like the Company.
Application of Supervisory Guidance to the Company and the Bank On March 31, 2021, the Federal Reserve issued a final rule outlining and confirming the use of supervisory guidance for regulated institutions, including bank holding companies like the Company.
As of December 31, 2022, the Company and the Bank met all capital adequacy requirements under the Basel III Final Rules.
As of December 31, 2023, the Company and the Bank met all capital adequacy requirements under the Basel III Final Rules.
As of December 31, 2022 and 2021, the Bank qualified as a “well capitalized” institution. Refer to Note 20, Capital Adequacy, of the Notes to Consolidated Financial Statements in Part II, Item 8, of this Annual Report on Form 10-K.
As of December 31, 2023 and 2022, the Bank qualified as a “well capitalized” institution. Refer to Note 21, Capital Adequacy, of the Notes to Consolidated Financial Statements in Part II, Item 8, of this Annual Report on Form 10-K.
Each regulatory capital classification is subject to certain adjustments and limitations, as implemented by the Basel III Final Rules. The Basel III Final Rules also establish risk weightings that are applied to many classes of assets held by community banks, importantly including applying higher risk weightings to certain commercial real estate loans. 12 Table of Contents CARTER BANKSHARES, INC.
Each regulatory capital classification is subject to certain adjustments and limitations, as implemented by the Basel III Final Rules. The Basel III Final Rules also establish risk weightings that are applied to many classes of assets held by community banks, importantly including applying higher risk weightings to certain commercial real estate loans.
To the 14 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) best knowledge of the Bank, it is meeting its obligations under the CRA. The Bank received a rating of “satisfactory” on its most recent CRA examination dated February 1, 2021.
To the 14 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) best knowledge of the Bank, it is meeting its obligations under the CRA. The Bank received a rating of “satisfactory” on its most recent CRA examination dated October 23, 2023.
At December 31, 2022, the Bank owned $9.7 million of FHLB stock. Consumer Protection The Consumer Financial Protection Bureau (the “CFPB”) is the federal regulatory agency responsible for implementing, examining and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets and, to a lesser extent, smaller institutions.
At December 31, 2023, the Bank owned $21.6 million of FHLB stock. Consumer Protection The Consumer Financial Protection Bureau (the “CFPB”) is the federal regulatory agency responsible for implementing, examining and enforcing compliance with federal consumer financial laws for institutions with more than $10 billion of assets and, to a lesser extent, smaller institutions.
A bank (and its subsidiaries) may not lend money to, or engage in other covered transactions with, its non-bank affiliates if the aggregate amount of covered transactions outstanding involving the bank, plus the proposed transaction, exceeds the following limits: (a) in the case of any one such affiliate, the aggregate amount of covered transactions of the bank and its subsidiaries cannot exceed 10 percent of the bank’s capital stock and surplus; and (b) in the case of all affiliates, the aggregate amount of covered transactions of the bank and its subsidiaries cannot exceed 20 percent of the bank’s capital stock and surplus.
BUSINESS - (continued) engage in other covered transactions with, its non-bank affiliates if the aggregate amount of covered transactions outstanding involving the bank, plus the proposed transaction, exceeds the following limits: (a) in the case of any one such affiliate, the aggregate amount of covered transactions of the bank and its subsidiaries cannot exceed 10 percent of the bank’s capital stock and surplus; and (b) in the case of all affiliates, the aggregate amount of covered transactions of the bank and its subsidiaries cannot exceed 20 percent of the bank’s capital stock and surplus.
As of December 31, 2022, the Company’s exposure to loans secured by commercial purpose real estate, including investment real estate loans related to hospitality, retail and multifamily apartments (but excluding construction) equated to $1.6 billion, or 50.6% of its total loan portfolio.
As of December 31, 2023, the Company’s exposure to loans secured by commercial purpose real estate, including investment real estate loans related to hospitality, retail and multifamily apartments (but excluding construction) equated to $1.8 billion, or 51.2% of its total loan portfolio.
In addition, Virginia law requires the prior approval of the SCC for (i) the acquisition by a Virginia bank holding company of more than 5% of the voting shares of a Virginia bank or a Virginia bank holding company, or (ii) the acquisition by any other person of control of a Virginia bank holding company or a Virginia bank. 11 Table of Contents CARTER BANKSHARES, INC.
In addition, Virginia law requires the prior approval of the SCC for (i) the acquisition by a Virginia bank holding company of more than 5% of the voting shares of a Virginia bank or a Virginia bank holding company, or (ii) the acquisition by any other person of control of a Virginia bank holding company or a Virginia bank.
AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) The Basel III Final Rules also include a requirement that banks and bank holding companies maintain additional capital (the “capital conservation buffer”).
The Basel III Final Rules also include a requirement that banks and bank holding companies maintain additional capital (the “capital conservation buffer”).
Alternatively, a mortgage lender can originate “qualified mortgages,” which are generally defined as mortgage loans without negative amortization, interest-only payments, balloon payments, terms exceeding 30 years, and points and fees paid by a consumer equal to or less than 3% of the total loan amount.
Alternatively, a mortgage lender can originate “qualified mortgages,” which are generally defined as mortgage loans without 15 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) negative amortization, interest-only payments, balloon payments, terms exceeding 30 years, and points and fees paid by a consumer equal to or less than 3% of the total loan amount.
Community Bank Leverage Ratio As a result of the EGRRCPA, the federal banking agencies issued a rule in September 2019 that permits qualifying banks with less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio applied using less complex leverage calculations (the “Community Bank Leverage Ratio Framework” or “CBLRF”).
Community Bank Leverage Ratio As a result of the EGRRCPA, Qualifying banks with less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio applied using less complex leverage calculations (the “Community Bank Leverage Ratio Framework” or “CBLRF”).
These rules require a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking 17 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) organization determines that a cyber-incident has occurred.
These rules require a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber-incident has occurred.
The Basel III Final Rules and capital conservation buffer require: • a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the minimum CET1 ratio, effectively resulting in a required ratio of CET1 to risk-weighted assets of at least 7%); • a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (effectively resulting in a required Tier 1 capital ratio of 8.5%); • a minimum ratio of total capital (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (effectively resulting in a required total capital ratio of 10.5%); and • a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average total assets, subject to certain adjustments and limitations.
The Basel III Final Rules and capital conservation buffer require: • a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the minimum CET1 ratio, effectively resulting in a required ratio of CET1 to risk-weighted assets of at least 7%); • a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (effectively resulting in a required Tier 1 capital ratio of 8.5%); • a minimum ratio of total capital (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (effectively resulting in a required total capital ratio of 10.5%); and 12 Table of Contents CARTER BANKSHARES, INC.
In March 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”), which went into effect on January 1, 2023.
Data privacy and data protection are areas of increasing state legislative focus. In March 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”), which went into effect on January 1, 2023.
The Company is also subject to various laws and regulations that attempt to combat money laundering and terrorist financing. The Bank Secrecy Act (the “BSA”) requires all financial institutions to, among other things, create a system of controls designed to prevent money laundering and the financing of terrorism, and imposes recordkeeping and reporting requirements.
The Bank Secrecy Act (the “BSA”) requires all financial institutions to, among other things, create a system of controls designed to prevent money laundering and the financing of terrorism, and imposes recordkeeping and reporting requirements.
If the Company or the Bank fails to meet the expectations set forth in this regulatory guidance, the Company or the Bank could be subject to various regulatory actions and any remediation efforts may require significant resources of the Company or the Bank.
If the 17 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) Company or the Bank fails to meet the expectations set forth in this regulatory guidance, the Company or the Bank could be subject to various regulatory actions and any remediation efforts may require significant resources of the Company or the Bank.
AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) Certain Transactions by Insured Banks with their Affiliates There are statutory restrictions related to the extent bank holding companies and their non-bank subsidiaries may borrow, obtain credit from or otherwise engage in “covered transactions” with their insured depository institution (i.e., banking) subsidiaries.
Certain Transactions by Insured Banks with their Affiliates There are statutory restrictions related to the extent bank holding companies and their non-bank subsidiaries may borrow, obtain credit from or otherwise engage in “covered transactions” with their insured depository institution (i.e., banking) subsidiaries. In general, an “affiliate” of a bank includes the bank’s parent holding company and any subsidiary thereof.
Certain exceptions may apply to the requirement to deliver an annual privacy notice based on how a financial institution limits sharing of nonpublic personal information, and whether the institution’s disclosure practices or policies have changed in certain ways since the last privacy notice that was delivered. Data privacy and data protection are areas of increasing state legislative focus.
Certain exceptions may apply to the requirement to deliver an annual privacy notice based on how a financial institution limits sharing 16 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) of nonpublic personal information, and whether the institution’s disclosure practices or policies have changed in certain ways since the last privacy notice that was delivered.
Risks Related to Credit A large percentage of the Company’s commercial loans are secured by real estate, and an adverse change in the real estate market or in economic conditions more generally may result in losses and adversely affect our profitability.
A large percentage of the Company’s commercial loans are secured by real estate, and an adverse change in the real estate market or in economic conditions more generally may result in losses and adversely affect our profitability. Approximately 92.4% of the Company’s commercial loan portfolio as of December 31, 2023, was comprised of loans secured by real estate.
Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits, and rates received on loans and investment securities and paid on deposits.
Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits, and rates received on loans and investment securities and paid on deposits. Federal Reserve monetary policies have 18 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
Repayment of these loans is dependent on the success of the borrower’s underlying business and/or the borrower’s ability to generate leases in order to receive sufficient cash flow to service its debts.
Repayment of these loans is dependent on the success of the borrower’s underlying business and/or the borrower’s ability to generate leases in order to receive sufficient cash flow to service its debts. The financial and credit risk associated with these loans is a result of several 21 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
As a result, the Company’s profitability and financial condition could be negatively impacted by an adverse change in the real estate market.
The value of the Company's collateral could be impaired by changes in demand, rental rates and capitalization rates and could be insufficient to recover outstanding principal and interest. As a result, the Company’s profitability and financial condition could be negatively impacted by an adverse change in the real estate market.
Federal Reserve monetary policies have had a significant effect on the operating results of community banks, including us, in the past and are expected to do so in the future. 18 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
BUSINESS - (continued) had a significant effect on the operating results of community banks, including us, in the past and are expected to do so in the future.
The Bank predominantly originates mortgage loans that comply with Regulation Z’s “qualified mortgage” rules. 15 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
The Bank predominantly originates mortgage loans that comply with Regulation Z’s “qualified mortgage” rules.
If a default occurs on a loan secured by real estate that is less valuable than originally estimated, the Company may not be able to recover the outstanding balance of the loan. The Company’s level of credit risk is elevated due to the concentration of commercial real estate loans and commercial real estate construction loans in its portfolio.
If a default occurs on a loan secured by real estate that is less valuable than originally estimated, the Company may not be able to recover the outstanding balance of the loan. Appraisal valuations can be impacted by changes in the equilibrium between supply and demand, changes in occupancy, lease rates and capitalization rates.
Approximately 86.3% of the Company’s commercial loan portfolio as of December 31, 2022, was comprised of loans secured by real estate. An adverse change in the economy affecting occupancy and/or rental rates in the investment real estate market areas we serve could increase the likelihood of defaults.
An adverse change in the economy affecting occupancy and/or rental rates in the investment real estate market areas we serve could increase the likelihood of defaults. Real estate collateral securing the Company's loans are a secondary source of repayment in the event of unremedied defaults.
The VCDPA also imposes data protection assessment requirements and authorizes the Attorney 16 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) General of Virginia to enforce the VCDPA, but does not provide a private right of action for consumers.
The VCDPA also imposes data protection assessment requirements and authorizes the Attorney General of Virginia to enforce the VCDPA, but does not provide a private right of action for consumers. The Bank is exempt from the VCDPA, but certain third party vendors of the Bank are or will be subject to the VCDPA.
We do not expect that any of these laws, regulations or policies will materially affect the ability of the Company or the Bank to pay dividends. 13 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
We do not expect that any of these laws, regulations or policies will materially affect the ability of the Company or the Bank to pay dividends. Insurance of Accounts, Assessments and Regulation by the FDIC Deposits with the Bank are insured through the Deposit Insurance Fund (“DIF”) of the FDIC.
The FDIC is authorized to prohibit any DIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat to the insurance fund. Also, the FDIC may initiate enforcement actions against banks after first giving the institution’s primary regulatory authority an opportunity to take such action.
Also, the FDIC may initiate enforcement actions against banks after first giving the institution’s primary regulatory authority an opportunity to take such action.
The Bank is exempt from the VCDPA, but certain third party vendors of the Bank are or will be subject to the VCDPA. The Company and the Bank are monitoring for the potential negative effects on the products and services provided by these vendors.
The Company and the Bank are monitoring for the potential negative effects on the products and services provided by these vendors. The Company is also subject to various laws and regulations that attempt to combat money laundering and terrorist financing.
The FDIC coverage applies per depositor, per insured depository institution, for each account ownership category. The FDIC is authorized to conduct examinations of and to require reporting by DIF-insured institutions.
BUSINESS - (continued) institution, for each account ownership category. The FDIC is authorized to conduct examinations of and to require reporting by DIF-insured institutions. The FDIC is authorized to prohibit any DIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat to the insurance fund.
The financial and credit risk associated with these loans is a result of several factors, including, but not limited to, macroeconomic conditions affecting supply, demand and property valuations, as well as larger balances in a smaller population of loans. The ongoing adverse economic effects of the COVID-19 pandemic could potentially exacerbate the financial and credit risk associated with these loans.
RISK FACTORS - (continued) factors, including, but not limited to, macroeconomic conditions affecting supply, demand and property valuations, as well as larger balances in a smaller population of loans. The Company’s exposure to hospitality at December 31, 2023 equated to approximately $341.1 million, or 9.7% of its total loan portfolio.
In general, an “affiliate” of a bank includes the bank’s parent holding company and any subsidiary thereof. However, an “affiliate” does not generally include the bank’s operating subsidiaries.
However, an “affiliate” does not generally include the bank’s operating subsidiaries. A bank (and its subsidiaries) may not lend money to, or 11 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1.
Removed
ITEM 1. BUSINESS - (continued) The Bank is subject to supervision, regulation and examination by the Bureau and the Bank’s primary federal regulator, the FDIC.
Added
AND SUBSIDIARIES ITEM 1. BUSINESS - (continued) • a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average total assets, subject to certain adjustments and limitations.
Removed
Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends.
Added
In July 2023, the Federal Reserve Board and the FDIC issued proposed rules to implement the final components of the Basel III agreement, often known as the “Basel III endgame.” These proposed rules contain provisions that apply to banks with $100 billion or more in total assets and that will significantly alter how those banks calculate risk-based assets.
Removed
The system of supervision and regulation applicable to the Bank establishes a comprehensive framework for its operations and is intended primarily for the protection of the FDIC’s deposit insurance funds and the depositors. The Bank is not a member of the Federal Reserve System.
Added
These proposed rules do not apply to holding companies or banks with less than $100 billion in assets, such as the Company and the Bank, but the final impacts of these rules cannot yet be predicted. The comment window for these proposed rules closed on November 30, 2023.
Removed
In response to the COVID-19 pandemic, federal banking agencies adopted a final rule in late August 2020 that allowed the Company to phase in the impact of adopting the Current Expected Credit Losses (“CECL”) methodology up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.
Added
In November 2023, the FDIC issued a final rule to implement a special DIF assessment following the FDIC’s use of the “systemic risk” exception to the least-cost resolution test in connection with the failures and resolutions of Silicon Valley Bank and Signature Bank.
Removed
The Company adopted the CECL methodology effective January 1, 2021. Refer to “Capital Resources” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), of this Annual Report on Form 10-K for information regarding the impact of this final rule on the Company’s regulatory capital.
Added
Banks with less than $5 billion of uninsured deposits, such as the Bank, are exempt from this special assessment.
Removed
Real estate collateral securing the Company's loans are a secondary source of repayment in the event of unremedied defaults. The value of the Company's collateral could be impaired by changes in demand, rental rates and capitalization rates and could be insufficient to recover outstanding principal and interest.
Added
On October 24, 2023, the federal bank regulatory agencies jointly issued a final rule to modernize CRA regulations consistent with the following key goals: (1) to encourage banks to expand access to credit, investment, and banking services in low to moderate incoming communities; (2) to adapt to changes in the banking industry, including internet and mobile banking and the growth of non-branch delivery systems; (3) to provide greater clarity and consistency in the application of the CRA regulations, including adoption of a new metrics-based approach to evaluating bank retail lending and community development financing; and (4) to tailor CRA evaluations and data collection to bank size and type, recognizing that differences in bank size and business models may impact CRA evaluations and qualifying activities.
Removed
In addition, a potential downturn in economic conditions could exacerbate the financial and credit risks associated with these loans. The Company’s exposure to hospitality at December 31, 2022 equated to approximately $360.4 million, or 11.4% of its total loan portfolio.
Added
Most of the final CRA rule’s requirements will be applicable beginning January 1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027.
Removed
These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. In 2020 and 2021, the COVID-19 pandemic significantly impacted demand for both leisure and business travel resulting in overall declines in occupancy and room rates. The Company offered an assistance 20 Table of Contents CARTER BANKSHARES, INC.
Added
The Bank is evaluating the expected impact of the modified CRA regulations, but currently does not anticipate any material impact to its business, operations or financial condition due to the modified CRA regulations.
Added
Risks Related to Credit Nonperforming assets can take significant time to resolve and may adversely affect the Company’s results of operations and financial condition, and could result in further losses in the future. As of December 31, 2023, our nonperforming loans totaled $309.5 million, or 8.83%, of the Company’s loan portfolio.
Added
The Company’s policy is to place loans 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.
Added
While the Company generally seeks to reduce or resolve problem assets through, among other methods, loan workouts, restructurings, or sales of the loans or underlying collateral, decreases in the value of the underlying collateral, decreases in the respective borrowers’ financial condition, profitability, or operating performance, or efforts by the respective borrowers’ to delay or avoid legal processes may inhibit such reduction or resolution efforts which, in turn, could adversely impact the Company’s business, financial condition and results of operations.
Added
The Company’s nonperforming assets adversely affect its business, financial condition and results of operations in various ways.
Added
The Company does not record interest income on nonaccrual loans or OREO; thus nonperforming assets adversely affect the Company’s net income and returns on assets and equity, increase the Company’s loan administration costs and adversely affects the Company’s results of operations and efficiency ratio.
Added
The resolution of nonperforming assets requires significant time commitments from management which can adversely impact the Company’s and Bank’s other strategic and operational priorities.
Added
If the Bank takes collateral in foreclosure and via a similar proceeding, the Bank is required to mark the collateral to its then-fair market value, which may result in a loss, and the Bank will incur legal and other expenses, which may be significant, in connection with the foreclosure and sale process.
Added
Nonperforming loans and OREO can also increase the Company’s and the Bank’s risk profile and the level of regulatory capital that their respective banking regulators believe is appropriate.
Added
Nonperforming loans and OREO also can adversely impact the Company’s liquidity available with secondary liquidity sources, as the Bank is not able to pledge nonperforming loans and OREO as collateral for borrowings from these sources.
Added
FDIC expense has increased significantly due to the deterioration in asset quality as a direct result of one large nonperforming loan relationship, which is a component used to determine the assessment.
Added
During the second quarter of 2023, the Company placed in nonaccrual status certain commercial loans in the Other segment of the Company’s loan portfolio, all relating to the Bank’s largest lending relationship, that have an aggregate principal amount of $301.9 million.
Added
Because the Company placed these loans on nonaccrual status, the Company was unable to accrue approximately $30.0 million of interest income related to these loans as of December 31, 2023. The Company’s level of credit risk is elevated due to relationship exposure to the Company’s largest lending relationship.
Added
As of December 31, 2023, the Company’s largest lending relationship operates in the hospitality, agriculture and energy sectors and had loans outstanding with an aggregate principal amount of $301.9 million. All such loans are classified in the Other segment of the Company’s loan portfolio.
Added
During the second quarter of 2023, the Company placed these loans on nonaccrual status due to loan maturities and failure to pay in full. This lending relationship comprises 96.8% of the Company’s nonperforming assets and 97.5% of the Company’s nonperforming loans and 8.6% of total portfolio loans at December 31, 2023. 20 Table of Contents CARTER BANKSHARES, INC.
Added
AND SUBSIDIARIES ITEM 1A. RISK FACTORS - (continued) The Company has initiated collection processes with respect to such loans and intends to explore all alternatives for repayment or recovery.
Added
Although 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, we cannot give any assurance as to the timing or amount of future payments or collections on such loans or that the Company will ultimately collect all amounts contractually due under the terms of such loans.
Added
Further deterioration of this lending relationship, including adverse changes in the financial condition of the respective borrowers or guarantors, potential claims by other creditors of the respective borrowers, further litigation with the respective borrowers or guarantors or adverse changes in the value of collateral that secures this lending relationship, could require the Company to increase its allowance for loan losses or result in significant losses to the Company, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Added
The Company’s CRE loan portfolio is concentrated predominantly in North Carolina and Virginia, within the retail, multifamily, hospitality, warehouse and office metrics. As a result of this concentration of the company’s loan portfolio, it may be more sensitive, as compared to more diversified institutions, to future disruptions in and deterioration of this market.
Added
Appraisals can also be impacted by the information available to the appraiser, including age of industry, market or borrower information, by access to property that is the subject of the appraisal, and by changing economic, industry or market conditions.
Added
The bank updates appraisals in connection with defined extensions of credit, which includes but is not limited to requests for additional loan funding, material changes to the loan’s amortization or material extensions of the maturity date.
Added
Additionally, the bank will generally update appraisals when the loan is considered collateral dependent and is either subject to Individually Evaluated Loan status or prior to the completion of a foreclosure initiating a collection process.
Added
The Company’s level of credit risk is elevated due to the concentration of commercial real estate loans and commercial real estate construction loans in its portfolio.
Added
These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. The Company’s exposure to commercial real estate construction loans at December 31, 2023 equated to approximately $500.0 million, or 14.3% of total portfolio loans. Construction loans are inherently risky.
Added
These risks include, but are not limited to, potential adverse changes in material costs resulting in cost overruns, and the potential that the general contractors develop financial stress and are unable to complete projects and the speculative nature of lease up risk.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

17 edited+1 added−116 removed28 unchanged
Biggest changeThe Company and the Bank are each subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital, which each must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines.
Biggest changeRegulatory capital standards may require the Company and the Bank to maintain higher levels of capital and liquidity, which could adversely affect its return on equity and otherwise affect its business. The Company and the Bank are each subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital, which each must maintain.
Such litigation and claims could involve large amounts in controversy and substantial legal costs necessary for the Company’s defense or to recover amounts owed to the Company, and substantial legal liability, which may or may not be insured, against the Company could materially and adversely impact the Company’s financial condition and results of operations.
Such litigation and claims have involved and could involve large amounts in controversy and substantial legal costs necessary for the Company’s defense or to recover amounts owed to the Company, and substantial legal liability, which may or may not be insured, against the Company could materially and adversely impact the Company’s financial condition and results of operations.
Even if the Company has insurance coverage for certain claims or legal or administrative actions against it, the Company’s insurance may not cover all claims that may be asserted against it in legal or administrative actions or costs that it may incur defending such actions, and any claims asserted against it, regardless of merit or eventual outcome, may harm the Company’s reputation.
Even if the Company has insurance coverage for certain claims or legal or administrative actions against it, the Company’s insurance may not cover all claims that may be asserted against it in legal or administrative actions or costs that it may incur defending such actions, and any claims asserted against it, regardless of merit or eventual outcome, may harm the Company’s reputation which may harm the Company’s business.
RISK FACTORS - (continued) Increased scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks.
Increased scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks.
The capital adequacy standards applicable to the Company and the Bank impose stricter capital requirements and leverage limits than the requirements to which the Company and the Bank were subject in the past.
The Basel III capital adequacy standards applicable to the Company and the Bank impose stricter capital requirements and leverage limits than the requirements to which the Company and the Bank were subject in the past.
Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in the Company having to lengthen the term of its funding, restructure its business models, and/or increase its holdings of liquid assets.
Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III capital adequacy standards could result in the Company having to lengthen the term of its funding, restructure its business models, and/or increase its holdings of liquid assets.
ESG-related costs, including with respect to compliance with any additional regulatory or disclosure requirements or expectations, could adversely impact our results of operations. 30 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.
ESG-related costs, including with respect to compliance with any additional regulatory or disclosure requirements or expectations, could adversely impact our results of operations. 30 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
For example, a tightening of the money supply by the FRB could reduce the demand for a borrower's products and services. This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on our financial condition and results of operations. 29 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
For example, a tightening of the money supply by the FRB could reduce the demand for a borrower's products and services. This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on our financial condition and results of operations.
In addition, regulators may require the Company to maintain higher levels of regulatory capital based on the Company’s condition, risk profile, or growth plans or conditions in the banking industry or economy.
From time to time, regulators implement changes to these regulatory capital adequacy guidelines. In addition, regulators may require the Company to maintain higher levels of regulatory capital based on the Company’s condition, risk profile, or growth plans or conditions in the banking industry or economy.
Common stock is equity and is subordinate to the Company’s existing and future indebtedness and effectively subordinated to all the indebtedness and other non-equity claims against the Bank. 26 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A. RISK FACTORS - (continued) Shares of the Company’s common stock are equity interests and do not constitute indebtedness.
Common stock is equity and is subordinate to the Company’s existing and future indebtedness and effectively subordinated to all the indebtedness and other non-equity claims against the Bank. Shares of the Company’s common stock are equity interests and do not constitute indebtedness.
Should the ultimate judgments or settlements and/or costs incurred in any litigation exceed any applicable insurance coverage, they could have a material adverse effect on the Company’s financial condition and results of operation for any period. Our risk management framework may not be effective in mitigating risk and loss.
Should the ultimate judgments or settlements and/or costs incurred in any litigation exceed any applicable insurance coverage, they could have a material adverse effect on the Company’s financial condition and results of operation for any period. Litigation may also divert management resources, which may adversely impact the Company’s business and results of operations.
For example, we currently derive a portion of our noninterest income from consumer overdraft fees, which have recently come under scrutiny by banking regulators and politicians.
ITEM 1A. RISK FACTORS - (continued) noninterest income from consumer overdraft fees, which have recently come under scrutiny by banking regulators and politicians.
RISK FACTORS - (continued) Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could have a material adverse effect on our results of operation and financial condition.
If the Company and the Bank fail to meet these minimum capital guidelines and/or other regulatory requirements, the Company’s financial condition would be materially and adversely affected. Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could have a material adverse effect on our results of operation and financial condition.
Furthermore, the Company’s right to participate in a distribution of assets upon the Bank’s liquidation or reorganization is subject to the prior claims of the Bank’s creditors, including holders of any depositors of the Bank or any debt issued by the Bank. Risks Related to Our Business Strategy Our profitability depends significantly on economic conditions.
Furthermore, the Company’s right to participate in a distribution of assets upon the Bank’s liquidation or reorganization is subject to the prior claims of the Bank’s creditors, including holders of any depositors of the Bank or any debt issued by the Bank. 31 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.
The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition, and results of operations . Risks Related to Owning Our Stock The market price of our common stock may fluctuate significantly in response to a number of factors.
RISK FACTORS - (continued) Risks Related to Owning Our Stock The market price of our common stock may fluctuate significantly in response to a number of factors.
The Company may be involved in a variety of litigation and other actions, which may have a material adverse effect on its financial condition, results of operation or business.
Claims and litigation against the Company could result in significant expenses or losses or damage to our reputation, which may have a material adverse effect on its financial condition, results of operation or business. The Company operates in a business, legal and regulatory environment that exposes the Company to potential significant litigation risk.
The Company operates in a business, legal and regulatory environment that exposes the Company to potential significant litigation risk, and the Company may be involved from time to time in a variety of litigation arising out of its business.
The Company may be involved from time to time in a variety of litigation arising out of its business, and the 29 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A. RISK FACTORS - (continued) outcome of litigation and other legal matters is frequently uncertain.
Removed
ITEM 1A. RISK FACTORS - (continued) program that deferred payments in order to alleviate the financial pressures related to depressed revenues caused by the COVID-19 pandemic. The Company closely monitored these borrowers, identified underperforming operators and de-risked the portfolio through note sales.
Added
The Company is currently involved in significant pending litigation. Please 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”. Our risk management framework may not be effective in mitigating risk and loss.
Removed
During 2022, conditions in the hospitality industry, and especially leisure travel, improved despite the fact that the COVID-19 pandemic is ongoing. While we believe business travel is still depressed, but is improving, when compared to conditions prior to COVID-19, we believe borrowers focused on business travel were able to survive, in part due to the Company’s deferral programs.
Removed
These programs ended on June 30, 2021 and these borrowers have returned to contractual payments and continue to perform. Property values have generally not deteriorated and, in certain circumstances, have increased. These developments, together with widespread labor shortages and additional shocks to economic conditions could generally impact operations and property valuations in hospitality and other commercial real estate exposures.
Removed
As a result, our capital levels and results of operations could be adversely affected. The Company’s exposure to commercial real estate construction loans at December 31, 2022 equated to approximately $379.6 million, or 12.1% of total portfolio loans. Construction loans are inherently risky.
Removed
These risks include, but are not limited to, potential adverse changes in material costs resulting in cost overruns, and the potential that the general contractors develop financial stress and are unable to complete projects and the speculative nature of lease up risk.
Removed
A severe downturn in real estate could affect demand for leases, capitalization rates and property valuations, which could adversely affect our financial condition and results of operations. Our allowance for credit losses may be insufficient.
Removed
The measure of our allowance for credit losses is dependent on the interpretation and application of the CECL methodology, which the Company adopted effective January 1, 2021, and which replaced the incurred loss methodology that was used by the Company and the Bank under GAAP prior to that date.
Removed
The CECL methodology reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Accordingly, the implementation of the CECL model changed the Company’s current method of providing allowance for credit losses (“ACL”) and resulted in material changes in the Company’s accounting for credit losses on financial instruments.
Removed
The CECL model may create more volatility in the Company’s level of ACL, which, if materially increased, could adversely affect our business, financial condition, and results of operations. We will implement further enhancements or changes to our methodology, models and the underlying assumptions, estimates and assessments, as needed.
Removed
If the assumptions or estimates we use in adopting the new standard are incorrect or we need to change our underlying assumptions and estimates, there may be a material adverse impact on our results of operation and financial condition.
Removed
We maintain an ACL at a level we believe is adequate to absorb expected losses in our loan portfolio as of the corresponding balance sheet date. The process to determine the ACL uses models and assumptions that require us to make difficult and complex judgments that are often interrelated, including how borrowers will perform in changing economic and market conditions.
Removed
Also, we may fail to accurately identify the appropriate economic indicators, to accurately estimate the timing of future changes in economic or market conditions, or to estimate accurately the impacts of future changes in economic or market conditions on our borrowers.
Removed
Any of these failures could significantly impact the accuracy of our loss forecasts and allowance estimates and the sufficiency of our ACL. If the models, estimates, and assumptions we use to establish reserves or the judgments we make in extending credit to our borrowers prove inaccurate in predicting future events, we may suffer unexpected losses.
Removed
There is no guarantee that our ACL will be sufficient to address credit losses, particularly if the economic outlook deteriorates significantly and quickly. In such an event, we may need to increase our ACL, which would result in provisions for credit losses that would reduce our earnings.
Removed
Additionally, to the extent that credit losses are worse than expected, which could be caused by persistent inflation or an economic recession that negatively impacts borrowers, we may need to increase our provision for loan losses. Our real estate lending business can result in increased costs associated with Other Real Estate Owned (“OREO”).
Removed
Because we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate.
Removed
We use methods for valuing collateral for individually evaluated loans and OREO that are in compliance with Accounting Standards Codification (“ASC”) Topic 310 Receivables. The methods require the use of assumptions that are subject to change based on events impacting real estate values.
Removed
The amount that we may realize after a default is dependent upon factors outside of our control, including, but not limited to, general or local economic conditions, environmental cleanup liability, neighborhood values, interest rates, real estate tax rates, operating expenses of the mortgaged properties, and supply of 21 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
Removed
RISK FACTORS - (continued) and demand for properties. Certain expenditures associated with the ownership of income producing real estate, principally real estate taxes and maintenance costs, may adversely affect the net cash flows generated by the real estate.
Removed
Therefore, the cost of operating income-producing real property may exceed the rental income earned from such property, and we may have to advance funds to protect our investment or we may be required to dispose of the real property at a loss.
Removed
Risks Related to Our Operations and Technology A failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt the Company’s businesses, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
Removed
The Company’s operational and security systems, infrastructure, including our computer systems, data management, and internal processes, as well as those of third parties, are integral to our business.
Removed
We rely on our associates and third parties in our day-to-day and ongoing operations, who may, as a result of human error, misconduct or malfeasance, or failure or breach of third-party systems or infrastructure, expose us to risk.
Removed
We have taken measures to implement backup systems and other safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact.
Removed
In addition, our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with our own systems. The Company handles a substantial volume of customer and other financial transactions every day.
Removed
Our financial, accounting, data processing, check processing, electronic funds transfer, loan processing, online and mobile banking, backup or other operating or security systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control.
Removed
This could adversely affect our ability to process these transactions or provide these services. There could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages, natural disasters, events arising from local or larger scale political or social matters, including terrorist acts, and cyber-attacks. We continuously update these systems to support our operations and growth.
Removed
This updating entails significant costs and creates risk associated with implementing new systems and integrating them with existing ones. Operational risk exposures could adversely impact our results of operations, liquidity and financial condition, and cause reputational harm.
Removed
A cyber-attack, information or security breach, or a technology failure of ours or of a third-party could adversely affect the Company’s ability to conduct business or manage exposure to risk, resulting in the disclosure or misuse of confidential or proprietary information, increase costs to maintain and update our operational systems, security systems, and infrastructure, and adversely impact results of operations, liquidity and financial condition, as well as cause reputation harm.
Removed
The Company’s business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with whom we interact.
Removed
Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors.
Removed
Our operations rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. We rely on digital technologies, computer, database and email systems, software, and networks to conduct our operations.
Removed
In addition, to access our network, products and services, our customers and third parties may use personal mobile devices or computing devices that are outside of our network environment.
Removed
Financial services institutions have been subject to, and are likely to continue to be the target of, cyber-attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, its associates or customers or of third parties, or otherwise materially disrupt network access or business operations.
Removed
For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers.
Removed
We have not experienced material cyber security incidents in the past, but there is no assurance that we will not experience an attack in the future.
Removed
Technology failures, cyber-attacks or other information or security breaches can cause material losses or other material consequences, and e ven with all reasonable security efforts, not every system or network 22 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A. RISK FACTORS - (continued) breach can be prevented or even detected.
Removed
Furthermore, because some of our employees are working remotely from their homes, there is an increased risk of disruption to our operations because our employees’ residential networks and infrastructure may not be as secure as our office environment. In addition to external threats, insider threats also represent a risk to us.
Removed
Insiders, having legitimate access to our systems and the information contained in them, have the opportunity to make inappropriate use of the systems and information. We have policies, procedures and controls in place designed to prevent or limit this risk, but we cannot guarantee that such policies, procedures and controls fully mitigate this risk.
Removed
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents.
Removed
Any of these matters could result in loss of customers and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, damage to computers or systems of our customers and/or third parties, violation of applicable privacy laws and other laws, litigation, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs.
Removed
In addition, any of the matters described above could adversely impact our results of operations and financial condition. The Company relies on third-party providers and other suppliers for a number of services that are important to our business. An interruption or cessation of an important service by any third-party could have a material adverse effect on our business .
Removed
The Company is dependent for the majority of our technology, including our core operating system, on third-party providers. If these companies were to discontinue providing services to us, we may experience significant disruptions to our business.
Removed
In addition, each of these third parties faces the risk of a cyber-attack, information breach or loss, or technology failure and there is no assurance that they have not or will not experience a system or network breach .
Removed
If any of our third-party service providers experience such difficulties, or if there is any other disruption in our relationships with them, we may be required to find alternative sources of such services, which may not be on comparable or commercially reasonable terms.
Removed
We are dependent on these third-party providers securing their information systems, over which we have no control, and any failure to maintain performance, reliability and security of these systems could have a significant adverse effect on our financial condition or results of operations.
Removed
A breach of our third-party providers’ information systems could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of customer business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability.
Removed
Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of operations.
Removed
The Company is dependent on its management team, and the loss of its senior executive officers or other key associates could impair its relationship with its customers and adversely affect its business and financial results. We believe that our growth and future success will depend in large part on the skills of our executive officers.
Removed
We also depend upon the experience of the senior officers and other key personnel and their relationship with the communities they serve.
Removed
The loss of the services of one or more of these officers or key personnel could have an adverse impact on the business of the Company because of their skills, knowledge of the market, years of industry experience and the difficulty promptly finding qualified replacement personnel.
Removed
The success of our business strategies depends on our ability to identify and recruit individuals with experience and relationships in our primary markets. The successful implementation of our business strategy will require us to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services.
Removed
The market for qualified management personnel is competitive, which has contributed to salary and employee benefit costs that have risen and are expected to continue to rise, which may have an adverse effect on the Company’s net income (loss).
Removed
In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out our strategy is often lengthy, and we may not be able to effectively integrate these individuals into our operations. Our inability to identify, recruit 23 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 1A.
Removed
RISK FACTORS - (continued) and retain talented personnel to manage our operations effectively and in a timely manner could limit our growth or impair our ability to implement our business strategy effectively and efficiently, which could materially adversely affect our business.
Removed
Risks Related to Market Conditions, Interest Rates and Investments The Company’s business is subject to interest rate risk and fluctuations in interest rates may adversely affect its earnings and capital levels. The majority of our assets are monetary in nature and, as a result, we are subject to significant risk from changes in interest rates.
Removed
Changes in interest rates can impact our net interest income as well as the valuation of our assets and liabilities. Also, our earnings are significantly dependent on net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings.
Removed
We expect we will experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa.
Removed
In either event, if market interest rates should move contrary to our position, this “gap” will work against us and our earnings may be negatively affected.
Removed
To combat rising inflation, in April, May, June, July, September, November and December of 2022, the Federal Reserve raised the federal funds benchmark rate by 25 basis point, 50 basis points, 75 basis points, 75 basis points and 75 basis points, 75 basis points and 50 basis points, respectively, for a total of 425 basis points in 2022.
Removed
The Federal Reserve further raised the federal funds target range to 4.5% to 4.75% in February 2023.
Removed
Although further increases to the target federal funds rate by the Federal Reserve are expected in 2023 to combat recent inflationary trends, if interest rates do not rise, or if the Federal Reserve lowers the target federal funds rate to below 0%, such low rates could limit our interest rate spread and may adversely affect our business forecasts.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed2 unchanged
Biggest changeWe offer our community banking services through 66 combined depository locations in Virginia and North Carolina at December 31, 2022, 53 offices are located in Virginia and 13 are located in North Carolina. Three of these depository banking locations are held under lease contracts.
Biggest changeAs of December 31, 2023, we offer our community banking services through 65 combined depository locations in Virginia and North Carolina, and have 53 offices located in Virginia and 12 offices located in North Carolina. Three of these depository banking locations are held under lease contracts.
The leases are described in Note 8, Premises and Equipment, of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
The leases are described in Note 9, Premises and Equipment, of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+1 added−14 removed0 unchanged
Removed
ITEM 3. LEGAL PROCEEDINGS In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty.
Added
ITEM 3. LEGAL PROCEEDINGS The information contained in Part II, Item 8. Financial Statements and Supplementary Data – Note 18, “Commitments and Contingencies,” under the heading “Legal Proceedings,” is incorporated by reference into this Item 3. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES
Removed
As of December 31, 2022, the Company is not involved in any material pending or threatened legal proceedings other than proceedings occurring in the ordinary course of business. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 5.
Removed
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II Market for Common Stock and Dividends The Company’s common stock trades on NASDAQ, under the ticker symbol “CARE.” As of the close of business on March 7, 2023, we had 2,309 shareholders of record.
Removed
Dividends 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.
Removed
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.
Removed
The Bank Board paid a special one-time cash dividend of $0.14 per share on March 3, 2020.
Removed
The amount and timing of future dividends, if any, remains subject to the discretion of the Board and will depend upon a number of factors, including future earnings, financial condition, liquidity and capital requirements of the Company, applicable governmental regulations and other factors deemed relevant by the Board.
Removed
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”).
Removed
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. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion.
Removed
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.
Removed
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.
Removed
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”).
Removed
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.
Removed
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. 32 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

23 edited+36 added−10 removed20 unchanged
Biggest changeResults of Operations and Financial Condition Earnings Summary 2022 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; and • 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.
Biggest changeResults of Operations and Financial Condition Earnings Summary 2023 Highlights • 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; and • 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. 38 Table of Contents CARTER BANKSHARES, INC.
The MD&A includes the following sections: • Explanation of Use of Non-GAAP Financial Measures • Critical Accounting Policies and Estimates • Our Business • Results of Operations and Financial Condition • Capital Resources • Contractual Obligations • Off-Balance Sheet Arrangements • Liquidity • Inflation • Stock Repurchase Program This section reviews our financial condition for each of the past two years and results of operations for each of the past three years.
The MD&A includes the following sections: • Explanation of Use of Non-GAAP Financial Measures • Critical Accounting Estimates • Our Business & Strategy • Results of Operations and Financial Condition • Capital Resources • Contractual Obligations • Off-Balance Sheet Arrangements • Liquidity • Inflation • Stock Repurchase Program This section reviews our financial condition for each of the past two years and results of operations for each of the past three years.
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 2022, 2021 and 2020. 34 Table of Contents CARTER BANKSHARES, INC.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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.
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. 36 Table of Contents CARTER BANKSHARES, INC.
Years Ended December 31, PERFORMANCE RATIOS 2022 2021 2020 Return on Average Assets 1.21 % 0.76 % (1.12) % Return on Average Shareholders' Equity 14.30 % 7.92 % (9.78) % Portfolio Loans to Deposit Ratio 86.74 % 76.03 % 79.99 % Allowance for Credit Losses to Total Portfolio Loans 2.98 % 3.41 % 1.83 % Net Interest Income Our principal source of revenue is net interest income.
Years Ended December 31, PERFORMANCE RATIOS 2023 2022 2021 Return on Average Assets 0.53 % 1.21 % 0.76 % Return on Average Shareholders' Equity 6.79 % 14.30 % 7.92 % Portfolio Loans to Deposit Ratio 94.20 % 86.69 % 76.03 % 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 Our principal source of revenue is net interest income.
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.
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.
Critical Accounting Estimates The Company’s preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes.
AND SUBSIDIARIES ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Critical Accounting Estimates The Company’s preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes.
BMI Banks Index, which includes the stocks of banks, thrifts and bank and financial holding companies listed on all major exchanges (NYSE, AMEX, NASDAQ) in the S&P Global Market Intelligence’s coverage universe. Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Carter Bankshares, Inc.
BMI Banks Index, which includes the stocks of banks, thrifts and bank and financial holding companies listed on all major exchanges (NYSE, AMEX, NASDAQ) in the S&P Global Market Intelligence’s coverage universe.
The shares may be purchased, from time-to-time, depending on market conditions. Five-Year Cumulative Total Return The following chart compares the cumulative total shareholder return on our common stock with the cumulative total return of the NASDAQ Composite Index and S&P U.S.
Five-Year Cumulative Total Return The following chart compares the cumulative total shareholder return on our common stock with the cumulative total return of the NASDAQ Composite Index and S&P U.S.
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.
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 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.
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.
There were 132,232 shares available for repurchase at December 31, 2022 under the current repurchase program. The Company reported net income of $50.1 million, or $2.03 diluted earnings per share for the year ended December 31, 2022 compared to net income of $31.6 million, or $1.19 diluted earnings per share, for the year ended December 31, 2021 .
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 .
The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources. Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes.
Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes. Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio.
Our common stock trades on the Nasdaq Global Select Market under the ticker symbol “CARE.” 35 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The Company earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers.
The Company provides a full range of financial services with retail, and 37 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7. 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 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: (Dollars in Thousands) Years Ended December 31, 2022 2021 2020 Interest and Dividend Income (GAAP) $ 160,182 $ 133,897 $ 140,941 Tax Equivalent Adjustment 1,143 1,492 2,375 Interest and Dividend Income (FTE) (Non-GAAP) 161,325 135,389 143,316 Average Earning Assets 4,023,634 3,971,640 3,833,681 Yield on Interest-earning Assets (GAAP) 3.98 % 3.37 % 3.68 % Yield on Interest-earning Assets (FTE) (Non-GAAP) 4.01 % 3.41 % 3.74 % Net Interest Income 139,928 111,183 105,115 Tax Equivalent Adjustment 1,143 1,492 2,375 Net Interest Income (FTE) (Non-GAAP) $ 141,071 $ 112,675 $ 107,490 Average Earning Assets 4,023,634 3,971,640 3,833,681 Net Interest Margin (GAAP) 3.48 % 2.80 % 2.74 % Net Interest Margin (FTE) (Non-GAAP) 3.51 % 2.84 % 2.80 % 37 Table of Contents CARTER BANKSHARES, INC.
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, 2023 2022 2021 Interest and Dividend Income (GAAP) $ 196,420 $ 160,182 $ 133,897 Tax Equivalent Adjustment 1,004 1,143 1,492 Interest and Dividend Income (FTE) (Non-GAAP) 197,424 161,325 135,389 Average Earning Assets 4,293,838 4,023,634 3,971,640 Yield on Interest-earning Assets (GAAP) 4.57 % 3.98 % 3.37 % Yield on Interest-earning Assets (FTE) (Non-GAAP) 4.60 % 4.01 % 3.41 % Net Interest Income (GAAP) 122,310 139,928 111,183 Tax Equivalent Adjustment 1,004 1,143 1,492 Net Interest Income (FTE) (Non-GAAP) $ 123,314 $ 141,071 $ 112,675 Average Earning Assets 4,293,838 4,023,634 3,971,640 Net Interest Margin (GAAP) 2.85 % 3.48 % 2.80 % Net Interest Margin (FTE) (Non-GAAP) 2.87 % 3.51 % 2.84 % Average Balance Sheet and Net Interest Income Analysis (FTE) 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.
Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio. For the year ended December 31, 2022 the range of outcomes would produce a 17% reduction or a 27% increase in reserves based on the best and worst case scenarios, respectively.
For the year ended December 31, 2023 the range of outcomes would produce a 16.98% reduction or a 18.80% increase in reserves based on the best and worst case scenarios, respectively.
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.
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 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.
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 income tax provision.
(1) 100.00 85.47 135.16 61.52 88.32 95.21 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 S&P U.S. BMI Banks Index 100.00 83.54 114.74 100.10 136.10 112.89 (1) An investment in Carter Bankshares, Inc. prior to November 2020 represents an investment in Carter Bank & Trust. 33 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 6. [RESERVED] ITEM 7.
BMI Banks Index 100.00 137.36 119.83 162.92 135.13 147.41 (1) An investment in Carter Bankshares, Inc. prior to November 2020 represents an investment in Carter Bank & Trust. 35 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 6. [RESERVED] ITEM 7.
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.
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.
(the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.2 billion at December 31, 2022. 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.
(the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.5 billion at December 31, 2023. 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.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES - (continued) The following table provides information regarding the Company’s purchases of our common stock during the quarter ended December 31, 2022: 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) 10/10/2022 - 10/31/2022 — $— — 285,792 11/01/2022 - 11/30/2022 56,572 18.19 56,572 229,220 12/01/2022 - 12/31/2022 96,988 18.21 96,988 132,232 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.
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 — $— — — 11/01/2023 - 11/30/2023 — — — — 12/01/2023 - 12/31/2023 — — — — Total — $— — (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.
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.
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.
Removed
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.
Added
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II Market for Common Stock and Dividends 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.
Removed
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.
Added
Dividends 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.
Removed
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.
Added
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.
Removed
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 ; 36 Table of Contents CARTER BANKSHARES, INC.
Added
The Bank Board paid a special one-time cash dividend of $0.14 per share on March 3, 2020.
Removed
AND SUBSIDIARIES ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) • The ACL to total portfolio loans ratio was 2.98% compared to 3.41%.
Added
The amount and timing of future dividends, if any, remains subject to the discretion of the Board and will depend upon a number of factors, including future earnings, financial condition, liquidity and capital requirements of the Company, applicable governmental regulations and other factors deemed relevant by the Board.
Removed
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.
Added
Repurchases of Shares of Common Stock 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.
Removed
AND SUBSIDIARIES ITEM 7. 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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
In addition, rising market interest rates may begin to increase the Company’s funding costs in future periods. 38 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES
Added
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.
Added
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”).
Added
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.
Added
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.
Added
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 “2021 Program”).
Added
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. 34 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 5.
Added
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES - (continued) The following table provides information regarding the Company’s purchases of our common stock during the quarter ended December 31, 2023.
Added
Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Carter Bankshares, Inc .(1) 100.00 158.13 71.98 103.33 111.39 100.51 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P U.S.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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; and • The ACL to total portfolio loans ratio was 2.77% compared to 2.98%.
Added
The ACL on portfolio loans totaled $97.1 million at December 31, 2023, compared to $93.9 million at December 31, 2022.
Added
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 to interest and dividend income on an FTE 39 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Added
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.
Added
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.
Added
Our balance sheet is currently exhibiting characteristics of a slightly liability sensitive balance sheet due to the short-term nature of our deposit portfolio.
Added
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.
Added
During the year ended December 31, 2023, the Company’s yield on earning assets continued to benefit from the higher interest rate environment.
Added
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.
Added
Positively impacting the year ended December 31, 2023 was the asset sensitivity of our balance sheet for the majority of the year.
Added
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 40 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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: (Dollars in Thousands) 2022 2021 2020 Average Balance Income/ Expense Yield/Rate Average Balance Income/ Expense Yield/Rate Average Balance (3) Income/ Expense Yield/Rate ASSETS Interest-Bearing Deposits with Banks $ 50,797 $ 341 0.67 % $ 194,492 $ 271 0.14 % $ 104,526 $ 302 0.29 % Tax-Free Investment Securities (2) 30,109 877 2.91 % 34,171 1,116 3.27 % 47,364 1,567 3.31 % Taxable Investment Securities 950,557 20,330 2.14 % 798,672 12,442 1.56 % 697,408 14,264 2.05 % Total Securities 980,666 21,207 2.16 % 832,843 13,558 1.63 % 744,772 15,831 2.13 % Tax-Free Loans (1)(2) 144,617 4,569 3.16 % 189,716 5,991 3.16 % 307,023 9,739 3.17 % Taxable Loans (1) 2,844,303 135,054 4.75 % 2,751,169 115,448 4.20 % 2,672,435 117,226 4.39 % Total Loans 2,988,920 139,623 4.67 % 2,940,885 121,439 4.13 % 2,979,458 126,965 4.26 % Federal Home Loan Bank Stock 3,251 154 4.74 % 3,420 121 3.54 % 4,925 218 4.43 % Total Interest-Earning Assets 4,023,634 161,325 4.01 % 3,971,640 135,389 3.41 % 3,833,681 143,316 3.74 % Noninterest Earning Assets 117,135 170,856 276,473 Total Assets 4,140,769 4,142,496 4,110,154 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Demand 489,298 1,578 0.32 % $ 413,714 $ 1,007 0.24 % $ 321,036 $ 1,140 0.36 % Money Market 521,269 1,842 0.35 % 383,391 1,130 0.29 % 197,225 924 0.47 % Savings 720,682 742 0.10 % 663,382 682 0.10 % 599,637 632 0.11 % Certificates of Deposit 1,271,548 14,454 1.14 % 1,484,436 19,427 1.31 % 1,818,837 32,695 1.80 % Total Interest-Bearing Deposits 3,002,797 18,616 0.62 % 2,944,923 22,246 0.76 % 2,936,735 35,391 1.21 % FHLB Borrowings 29,849 1,163 3.90 % 25,986 313 1.20 % 30,628 361 1.18 % Federal Funds Purchased 5,711 188 3.29 % — — — % 55 1 1.82 % Other Borrowings 5,885 287 4.88 % 3,167 155 4.89 % 1,408 73 5.18 % Total Borrowings 41,445 1,638 3.95 % 29,153 468 1.61 % 32,091 435 1.36 % Total Interest-Bearing Liabilities 3,044,242 20,254 0.67 % 2,974,076 22,714 0.76 % 2,968,826 35,826 1.21 % Noninterest-Bearing Liabilities 746,117 769,401 667,914 Shareholders' Equity 350,410 399,019 473,414 Total Liabilities and Shareholders' Equity 4,140,769 4,142,496 4,110,154 Net Interest Income (2) $ 141,071 $ 112,675 $ 107,490 Net Interest Margin (2) 3.51 % 2.84 % 2.80 % (1) Nonaccruing loans are included in the daily average loan amounts outstanding.
Biggest changeThe 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: (Dollars in Thousands) 2023 2022 2021 Average Balance Income/ Expense Yield/Rate Average Balance Income/ Expense Yield/Rate Average Balance (3) Income/ Expense Yield/Rate ASSETS Interest-Bearing Deposits with Banks $ 20,414 $ 1,066 5.22 % $ 50,797 $ 341 0.67 % $ 194,492 $ 271 0.14 % Tax-Free Investment Securities (2) 27,271 803 2.94 % 30,109 877 2.91 % 34,171 1,116 3.27 % Taxable Investment Securities 900,972 30,804 3.42 % 950,557 20,330 2.14 % 798,672 12,442 1.56 % Total Securities 928,243 31,607 3.41 % 980,666 21,207 2.16 % 832,843 13,558 1.63 % Tax-Free Loans (1)(2) 123,847 3,978 3.21 % 144,617 4,568 3.16 % 189,716 5,991 3.16 % Taxable Loans (1) 3,200,992 159,317 4.98 % 2,844,303 135,055 4.75 % 2,751,169 115,448 4.20 % Total Loans 3,324,839 163,295 4.91 % 2,988,920 139,623 4.67 % 2,940,885 121,439 4.13 % Federal Home Loan Bank Stock 20,342 1,456 7.16 % 3,251 154 4.74 % 3,420 121 3.54 % Total Interest-Earning Assets 4,293,838 $ 197,424 4.60 % 4,023,634 $ 161,325 4.01 % 3,971,640 $ 135,389 3.41 % Noninterest Earning Assets 89,833 117,135 170,856 Total Assets $ 4,383,671 $ 4,140,769 $ 4,142,496 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Demand $ 483,048 $ 2,729 0.56 % $ 489,298 $ 1,578 0.32 % $ 413,714 $ 1,007 0.24 % Money Market 448,324 8,868 1.98 % 521,269 1,842 0.35 % 383,391 1,130 0.29 % Savings 544,938 586 0.11 % 720,682 742 0.10 % 663,382 682 0.10 % Certificates of Deposit 1,428,646 40,445 2.83 % 1,271,548 14,454 1.14 % 1,484,436 19,427 1.31 % Total Interest-Bearing Deposits 2,904,956 52,628 1.81 % 3,002,797 18,616 0.62 % 2,944,923 22,246 0.76 % FHLB Borrowings 402,675 20,822 5.17 % 29,849 1,163 3.90 % 25,986 313 1.20 % Federal Funds Purchased 7,023 368 5.24 % 5,711 188 3.29 % — — — % Other Borrowings 6,337 292 4.61 % 5,885 287 4.88 % 3,167 155 4.89 % Total Borrowings 416,035 21,482 5.16 % 41,445 1,638 3.95 % 29,153 468 1.61 % Total Interest-Bearing Liabilities 3,320,991 74,110 2.23 % 3,044,242 20,254 0.67 % 2,974,076 22,714 0.76 % Noninterest-Bearing Liabilities 718,113 746,117 769,401 Shareholders' Equity 344,567 350,410 399,019 Total Liabilities and Shareholders' Equity $ 4,383,671 $ 4,140,769 $ 4,142,496 Net Interest Income (2) $ 123,314 $ 141,071 $ 112,675 Net Interest Margin (2) 2.87 % 3.51 % 2.84 % (1) Nonaccruing loans are included in the daily average loan amounts outstanding.
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).
The Company’s investment securities with intermediate and long-term maturities were the largest driver of these gross unrealized losses, as the market values of these securities are significantly impacted by the Treasury yield curve for similar durations (i.e., 5- and 10-year Treasury securities).
This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk the Company’s Board has delegated authority to the ALCO for formulation, implementation and oversight of liquidity risk management for the Company.
This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk the Company’s Board has delegated authority to ALCO for formulation, implementation and oversight of liquidity risk management for the Company.
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.
Similarly, the Company recognizes provision (recovery) for unfunded commitments based on the difference between the existing balance of reserves for unfunded commitments and the reserve balance for unfunded commitments necessary to adequately absorb expected credit losses associated with those commitments.
Provision (Recovery) for Credit Losses 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.
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.
Management believes that we have the ability to retain existing deposits and attract new deposits, mitigating any funding dependency on other more volatile sources.
Management believes that we have the ability to retain existing deposits and attract new deposits, mitigating any potential funding dependency on other more volatile sources.
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.
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.
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.
We adopted CECL effective January 1, 2021 and elected to implement the capital transition relief over the permissible three-year period. Refer to Note 21, 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.
(2) Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent. (3) Loan and deposit balances include held-for-sale transactions in connection with sale of Bank branches. 39 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
(2) Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent. (3) Loan and deposit balances include held-for-sale transactions in connection with sale of Bank branches. 41 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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.
If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2022 and December 31, 2021, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.
If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action.
The net charge-offs of $23.1 million for the full year 2021 was primarily attributable to the resolution of five problem relationships during 2021, in which the majority of losses were anticipated and previously reserved. 54 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
The net charge-offs of $23.1 million for the full year 2021 was primarily attributable to the resolution of five problem relationships during 2021, in which the majority of losses were anticipated and previously reserved. 57 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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, 2022.
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.
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 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.
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.
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.
This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements. 56 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements. 59 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Discussion of provision for income taxes for the year ended December 31, 2020 has been omitted as such discussion was provided in Part II, Item 7.
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.
NPLs as a percentage of total portfolio loans were 0.21% and 0.26% as of 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 ACL.
NPLs as a percentage of total portfolio loans were 8.83% and 0.21% as of December 31, 2023 and December 31, 2022, 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 ACL.
Refer to Note 12, Federal Home Loan Bank Borrowings and Federal Funds Purchased, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our borrowings. 57 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Refer to Note 13, Federal Home Loan Bank Borrowings and Federal Funds Purchased, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our borrowings. 60 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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.
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.
Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.
Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss. Nonperforming assets consist of nonaccrual loans and OREO.
The Company significantly increased the standards for consumer unsecured lending by adjusting upward the required qualifying Fair Isaac Corporation (“FICO”) scores and restricting loan amounts at lower FICO scores. Deferred costs and fees included in the portfolio balances above were $8.2 million and $4.5 million at December 31, 2022 and December 31, 2021, respectively.
The Company significantly increased the standards for consumer unsecured lending by adjusting upward the required qualifying Fair Isaac Corporation (“FICO”) scores and restricting loan amounts at lower FICO scores. Deferred costs and fees included in the portfolio balances above were $7.2 million and $8.2 million at December 31, 2023 and December 31, 2022, respectively.
Banking institutions with a ratio of Common 58 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Banking institutions with a ratio of Common 61 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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. 42 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
“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. 44 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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.
Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change.
Treasuries and SOFR (basis risk). Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change.
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. 53 Table of Contents CARTER BANKSHARES, INC.
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.
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.
Purchase obligations primarily represent obligations under agreement with our third-party data processing provider. 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.
Our risk-based Tier 1 and Total Capital ratios were 12.61% and 13.86%, respectively, which places the Company above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00% and 10.00%, respectively. We believe that we have the ability to raise additional capital, if necessary.
Our risk-based Tier 1 and Total Capital ratios were 11.08% and 12.34%, respectively, which places the Company above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00% and 10.00%, respectively. We believe that we have the ability to raise additional capital, if necessary.
Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio and are based on management’s risk tolerance relative to capital. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods.
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.
The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position. The Company’s primary funding and liquidity source is a stable customer deposit base.
If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position. The Company’s primary funding and liquidity source is a stable customer deposit base.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Securities The following table presents the composition of available-for-sale securities for the periods presented: (Dollars in Thousands) 2022 2021 $ Change U.S. Treasury Securities $ 17,866 $ 4,413 $ 13,453 U.S.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Securities The following table presents the composition of available-for-sale securities for the periods presented: (Dollars in Thousands) 2023 2022 $ Change U.S. Treasury Securities $ — $ 17,866 $ (17,866) U.S.
For more details, see Note 17 - Commitments and Contingencies, in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K. Liquidity Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost.
For more details, see Note 18, Commitments and Contingencies, in Item 8 of this Annual Report on Form 10-K. Liquidity Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost.
The majority of unused commitments are for construction projects that will be drawn as the construction completes. Total utilization was 50.3% at December 31, 2022 and 52.2% at December 31, 2021. Unfunded commitments on commercial operating lines of credit was 49.7% at December 31, 2022 and 51.7% at December 31, 2021.
The majority of unused commitments are for construction projects that will be drawn as the construction completes. Total utilization was 53.8% at December 31, 2023 and 50.3% at December 31, 2022. Unfunded commitments on commercial operating lines of credit was 53.7% at December 31, 2023 and 49.7% at December 31, 2022.
“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.
Discounts on purchased 1-4 family loans included in the portfolio balances above were $161.2 thousand and $190.6 thousand at December 31, 2022 and December 31, 2021, respectively. 49 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Discounts on purchased 1-4 family loans included in the portfolio balances above were $133.4 thousand and $161.2 thousand at December 31, 2023 and December 31, 2022, respectively. 52 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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.
The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as determining the appropriateness of risk ratings for those loans reviewed and providing input to the loan risk rating process.
The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system.
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.
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.
In addition to the lines referenced above, the Company also has $611.8 million of unpledged available-for-sale investment securities as an additional source of liquidity. Please refer to the Liquidity Sources table below for available funding with the FHLB and our unsecured lines of credit with correspondent banks.
In addition to the above funding resources, the Company also has $563.5 million of unpledged available-for-sale investment securities, at fair value, as an additional source of liquidity. Please refer to the Liquidity Sources table below for available funding with the FHLB and our unsecured lines of credit with correspondent banks.
The Company continues to maintain its capital position with a leverage ratio of 10.29% as compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 12.61% compared to the regulatory guideline of 6.50% to be well-capitalized.
The Company continues to maintain its capital position with a leverage ratio of 9.48% as compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 11.08% compared to the regulatory guideline of 6.50% to be well-capitalized.
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.
Contractual Obligations In the normal course of business, we have entered into contractual obligations that 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.
Loan Composition The following table summarizes our loan portfolio as of the periods presented: December 31, (Dollars in Thousands) 2022 2021 2020 2019 2018 Commercial Commercial Real Estate $ 1,470,562 $ 1,323,252 $ 1,453,799 $ 1,365,310 $ 1,359,036 Commercial and Industrial 309,792 345,376 557,164 621,667 661,870 Total Commercial Loans 1,780,354 1,668,628 2,010,963 1,986,977 2,020,906 Consumer Residential Mortgages 657,948 457,988 472,170 514,538 397,280 Other Consumer 44,562 44,666 57,647 73,688 73,058 Total Consumer Loans 702,510 502,654 529,817 588,226 470,338 Construction 353,553 282,947 406,390 309,563 212,548 Other 312,496 357,900 — — — Total Portfolio Loans 3,148,913 2,812,129 2,947,170 2,884,766 2,703,792 Loans Held-for-Sale — 228 25,437 19,714 2,559 Loans Held-for-Sale in Connection with Sale of Bank Branches, at the lower of cost or fair value — — 9,835 — — Total Loans $ 3,148,913 $ 2,812,357 $ 2,982,442 $ 2,904,480 $ 2,706,351 Our loan portfolio represents our most significant source of interest income.
Loan Composition The following table summarizes our loan portfolio as of the periods presented: December 31, (Dollars in Thousands) 2023 2022 2021 2020 2019 Commercial Commercial Real Estate $ 1,670,631 $ 1,470,562 $ 1,323,252 $ 1,453,799 $ 1,365,310 Commercial and Industrial 271,511 309,792 345,376 557,164 621,667 Total Commercial Loans 1,942,142 1,780,354 1,668,628 2,010,963 1,986,977 Consumer Residential Mortgages 787,929 657,948 457,988 472,170 514,538 Other Consumer 34,277 44,562 44,666 57,647 73,688 Total Consumer Loans 822,206 702,510 502,654 529,817 588,226 Construction 436,349 353,553 282,947 406,390 309,563 Other 305,213 312,496 357,900 — — Total Portfolio Loans 3,505,910 3,148,913 2,812,129 2,947,170 2,884,766 Loans Held-for-Sale — — 228 25,437 19,714 Loans Held-for-Sale in Connection with Sale of Bank Branches, at the lower of cost or fair value — — — 9,835 — Total Loans $ 3,505,910 $ 3,148,913 $ 2,812,357 $ 2,982,442 $ 2,904,480 Our loan portfolio represents our most significant source of interest income.
At December 31, 2021, total gross unrealized gains in the available-for-sale portfolio were $10.0 million offset by $7.8 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.
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.
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.
We manage our borrowed funds to provide a reliable source of liquidity. The Company held FHLB of Atlanta stock of $9.7 million and $2.4 million at December 31, 2022 and December 31, 2021, 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.
We manage our borrowed funds to provide a reliable source of liquidity. 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 $1.5 million and $0.2 million for the years ended December 31, 2023 and December 31, 2022, respectively.
The following table sets forth the commitments and letters of credit as of December 31: (Dollars in Thousands) 2022 2021 Commitments to Extend Credit $ 630,619 $ 513,482 Standby Letters of Credit 25,739 27,083 Total $ 656,358 $ 540,565 Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
The following table sets forth the commitments and letters of credit as of December 31: (Dollars in Thousands) 2023 2022 Commitments to Extend Credit $ 702,301 $ 630,619 Standby Letters of Credit 19,643 25,739 Total $ 721,944 $ 656,358 Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions, market risk primarily reflects exposures to changes in interest rates.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions, market risk arises primarily from interest rate risk inherent in lending, investment, and deposit-taking activities.
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.
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.
“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. 43 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES 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.
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 50 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms. Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due.
The same credit policies are applied in granting these facilities as those used for underwriting loans. Lines of credit to finance construction projects include a construction end date, at which time the loan is expected to convert to a mini-perm loan. A department independent of our lending group monitors construction commitments of $1.0 million or more.
The same credit policies are applied in granting these facilities as those used for underwriting loans. Lines of credit to finance construction projects include a construction end date, at which time the loan is expected to convert to a mini-perm loan.
The Company typically charges an annual fee for the issuance of letters of credit. Because letters of credit are expected to expire without being drawn upon, these commitments do not necessarily represent future cash requirements of the Company.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) charges an annual fee for the issuance of letters of credit. Because letters of credit are expected to expire without being drawn upon, these commitments do not necessarily represent future cash requirements of the Company.
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.
Lines of credit for construction projects represent $452.2 million, or 64.4% and $373.2 million, or 59.2% of the commitments to extend credit identified in the table below at December 31, 2023 and December 31, 2022, respectively.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value. However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity, and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.
Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value. However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity, and solvency.
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 and 32.0% fixed rate loans that do not reprice during the life of the loan.
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.
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.
In December 2018, the Office of the Comptroller of the Currency, (the “OCC”), the FRB, and the FDIC, approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.
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. Average loan balances increased $48.0 million primarily influenced by the consistent loan growth in 2022 as compared to 2021.
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.
Treasury Securities $ 17,866 1.43 % $ 4,413 1.35 % U.S.
Treasury Securities $ — — % $ 17,866 1.43 % U.S.
Federal Home Loan Bank (“FHLB”) Borrowings and Federal Funds Purchased Information pertaining to FHLB borrowings and federal funds purchased at December 31 is summarized in the table below: (Dollars in Thousands) 2022 2021 2020 Balance at Period End Federal Home Loan Bank Borrowings $ 180,550 $ 7,000 $ 35,000 Federal Funds Purchased 17,870 — — Average Balance during Period Federal Home Loan Bank Borrowings 29,849 25,986 30,628 Federal Funds Purchased 5,711 — 55 Average Interest Rate during the Period Federal Home Loan Bank Borrowings 3.90 % 1.20 % 1.18 % Federal Funds Purchased 3.29 % — % 1.82 % Maximum Month-end Balance during the Period Federal Home Loan Bank Borrowings 180,550 35,000 35,000 Federal Funds Purchased 23,020 — — Average Interest Rate at Period End Federal Home Loan Bank Borrowings 4.48 % 1.61 % 1.13 % 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.
Federal Home Loan Bank (“FHLB”) Borrowings and Federal Funds Purchased Information pertaining to FHLB borrowings and federal funds purchased at December 31 is summarized in the table below: (Dollars in Thousands) 2023 2022 2021 Balance at Period End Federal Home Loan Bank Borrowings $ 393,400 $ 180,550 $ 7,000 Federal Funds Purchased — 17,870 — Average Balance during the Period Federal Home Loan Bank Borrowings $ 402,675 $ 29,849 $ 25,986 Federal Funds Purchased 7,023 5,711 — Average Interest Rate during the Period Federal Home Loan Bank Borrowings 5.17 % 3.90 % 1.20 % Federal Funds Purchased 5.24 % 3.29 % — % Maximum Month-end Balance during the Period Federal Home Loan Bank Borrowings $ 525,135 $ 180,550 $ 35,000 Federal Funds Purchased 46,965 23,020 — Average Interest Rate at Period End Federal Home Loan Bank Borrowings 5.20 % 4.48 % 1.61 % Federal Funds Purchased — % 4.65 % — % The Company had $393.4 million of FHLB borrowings at December 31, 2023 an increase of $212.9 million compared to December 31, 2022.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Interest income increased $26.3 million, or 19.6% for 2022 compared to 2021. Interest income, on an FTE basis (non-GAAP), increased $25.9 million, or 19.2%, for 2022 compared to 2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Interest income increased $36.2 million, or 22.6% for 2023 compared to 2022. Interest income, on an FTE basis (non-GAAP), increased $36.1 million, or 22.4%, for 2023 compared to 2022.
The ACL was $93.9 million, or 2.98%, of total portfolio loans at December 31, 2022 compared to $95.9 million, or 3.41% of total portfolio loans at December 31, 2021.
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.
The following table presents additional information about our year-end deposits: (Dollars in Thousands) 2022 2021 Deposits from the Certificate of Deposit Account Registry Services (CDARS) $ 922 $ 139 Noninterest-Bearing Public Funds Deposits 27,086 58,393 Interest-Bearing Public Funds Deposits 180,243 123,968 Total Deposits not Covered by Deposit Insurance (1) 378,175 396,626 Certificates of Deposits not Covered by Deposit Insurance 159,030 147,134 Deposits from Certain Directors, Executive Officers and their Affiliates 2,910 3,032 (1) These deposits are presented on an estimated basis.
The following table presents additional information about our year-end deposits: (Dollars in Thousands) 2023 2022 Deposits from the Certificate of Deposit Account Registry Services ("CDARS") $ — $ 922 Noninterest-Bearing Public Funds Deposits 51,506 27,086 Interest-Bearing Public Funds Deposits 127,100 180,243 Total Deposits not Covered by Deposit Insurance (1) 647,154 691,266 Certificates of Deposits not Covered by Deposit Insurance 304,968 159,030 Deposits for Certain Directors, Executive Officers and their Affiliates 1,799 2,910 (1) These deposits are presented on an estimated basis.
In addition, the Company may individually evaluate credits that have complex loan structures, even if the commitment is less than $1.0 million.
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.
See the “Credit Quality” section of this MD&A for more detail on our NPLs. Discussion of net interest income for the year ended December 31, 2020 has been omitted as such discussion was provided in Part II, Item 7.
NPLs as a percentage of total portfolio loans were 8.83% at December 31, 2023 compared to 0.21% at December 31, 2022. See the “Credit Quality” section of this MD&A for more detail on our NPLs. 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 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Allowance for Credit Losses The following summarizes our allowance for credit loss experience at December 31 for each of the years presented: (Dollars in Thousands) 2022 2021 2020 Balance Beginning of Year $ 95,939 $ 54,074 $ 38,762 Impact of CECL Adoption — 61,642 — Provision for Credit Losses 2,419 3,350 18,006 Charge-offs: Commercial Real Estate — 19,662 40 Commercial and Industrial 3,436 374 66 Residential Mortgages 46 273 258 Other Consumer 1,677 2,256 3,991 Construction — 1,859 — Other — — — Total Charge-offs 5,159 24,424 4,355 Recoveries: Commercial Real Estate — 159 707 Commercial and Industrial 1 291 2 Residential Mortgages 99 168 27 Other Consumer 404 586 737 Construction 149 93 188 Other — — — Total Recoveries 653 1,297 1,661 Total Net Charge-offs 4,506 23,127 2,694 Balance End of Year $ 93,852 $ 95,939 $ 54,074 Net Charge-offs to Average Portfolio Loans 0.15% 0.79% 0.09% Allowance for Credit Losses to Total Portfolio Loans 2.98% 3.41% 1.83% 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.
Allowance for Credit Losses The following summarizes our allowance for credit loss experience at December 31 for each of the years presented: (Dollars in Thousands) 2023 2022 2021 Balance Beginning of Year $ 93,852 $ 95,939 $ 54,074 Impact of CECL Adoption — — 61,642 Provision for Credit Losses 5,500 2,419 3,350 Charge-offs: Commercial Real Estate — — 19,662 Commercial and Industrial 63 3,436 374 Residential Mortgages 203 46 273 Other Consumer 2,665 1,677 2,256 Construction 42 — 1,859 Other — — — Total Charge-offs 2,973 5,159 24,424 Recoveries: Commercial Real Estate — — 159 Commercial and Industrial 88 1 291 Residential Mortgages 110 99 168 Other Consumer 475 404 586 Construction — 149 93 Other — — — Total Recoveries 673 653 1,297 Total Net Charge-offs 2,300 4,506 23,127 Balance End of Year $ 97,052 $ 93,852 $ 95,939 Net Charge-offs to Average Portfolio Loans 0.07% 0.15% 0.79% Allowance for Credit Losses to Total Portfolio Loans 2.77% 2.98% 3.41% 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 following table summarizes the credit quality ratios and their components as of December 31 for the years presented below: (Dollars in Thousands) 2022 2021 Allowance for Credit Losses to Total Portfolio Loans Allowance for Credit Losses $ 93,852 $ 95,939 Total Portfolio Loans 3,148,913 2,812,129 Allowance for Credit Losses to Total Portfolio Loans 2.98 % 3.41 % Nonperforming Loans to Total Portfolio Loans Nonperforming Loans $ 6,645 $ 7,397 Total Portfolio Loans 3,148,913 2,812,129 Nonperforming Loans to Total Portfolio Loans 0.21 % 0.26 % Allowance for Credit Losses to Nonperforming Loans Allowance for Credit Losses $ 93,852 $ 95,939 Nonperforming Loans 6,645 7,397 Allowance for Credit Losses to Nonperforming Loans 1,412.37 % 1,297.00 % Net Charge-offs to Average Portfolio Loans Net Charge-offs $ 4,506 $ 23,127 Average Total Portfolio Loans 2,988,785 2,927,083 Net Charge-offs to Average Portfolio Loans 0.15 % 0.79 % 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 following table summarizes the credit quality ratios and their components as of December 31 for the years presented below: (Dollars in Thousands) 2023 2022 Allowance for Credit Losses to Total Portfolio Loans Allowance for Credit Losses $ 97,052 $ 93,852 Total Portfolio Loans 3,505,910 3,148,913 Allowance for Credit Losses to Total Portfolio Loans 2.77 % 2.98 % Nonperforming Loans to Total Portfolio Loans Nonperforming Loans $ 309,535 $ 6,645 Total Portfolio Loans 3,505,910 3,148,913 Nonperforming Loans to Total Portfolio Loans 8.83 % 0.21 % Allowance for Credit Losses to Nonperforming Loans Allowance for Credit Losses $ 97,052 $ 93,852 Nonperforming Loans 309,535 6,645 Allowance for Credit Losses to Nonperforming Loans 31.35 % 1,412.37 % Net Charge-offs to Average Portfolio Loans Net Charge-offs $ 2,300 $ 4,506 Average Total Portfolio Loans 3,324,757 2,988,785 Net Charge-offs to Average Portfolio Loans 0.07 % 0.15 % 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.
Discussion of noninterest expense for the year ended December 31, 2020 has been omitted as such discussion was provided in Part II, Item 7.
AND SUBSIDIARIES ITEM 7. 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.
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.
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 floating rate securities may have a stated maturity greater than ten years, but the interest rate generally adjusts monthly. Therefore, the duration on these securities is short, generally less than one year, and will therefore not be as sensitive to interest rate changes. 47 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
At December 31, 2023, the Company held 52.8% fixed rate and 47.2% floating rate securities. The floating rate securities may have a stated maturity greater than ten years, but the interest rate generally adjusts monthly. Therefore, the duration on these securities is short, generally less than one year, and will therefore not be as sensitive to interest rate changes.
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: (Dollars in Thousands) Amount Percent Three Months or Less $ 16,002 10.1 % Over Three Months Through Twelve Months 72,505 45.6 % Over Twelve Months Through Three Years 62,836 39.5 % Over Three Years 7,687 4.8 % Total $ 159,030 100.0 % Refer to Note 11, Deposits, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our deposits.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) 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 Three Months or Less $ 94,424 31.0 % Over Three Months Through Twelve Months 109,217 35.8 % Over Twelve Months Through Three Years 80,122 26.3 % Over Three Years 21,205 6.9 % Total $ 304,968 100.0 % Refer to Note 12, Deposits, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information related to our deposits.
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 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. First, the reserve rate is extrapolated from the reserve rates calculated for certain commercial real estate funded loans within the ACL model.
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.
Government Agency Securities 49,764 4.29 % 73,534 1.37 % Residential Mortgage-Backed Securities 103,685 2.90 % 110,013 0.44 % Commercial Mortgage-Backed Securities 34,675 4.52 % 43,026 1.72 % Other Commercial Mortgage-Backed Securities 22,399 2.65 % 14,146 2.02 % Asset Backed Securities 141,383 4.04 % 151,450 1.70 % Collateralized Mortgage Obligations 176,622 3.56 % 203,881 0.69 % States and Political Subdivisions 228,146 2.38 % 262,202 2.41 % Corporate Notes 61,733 3.87 % 59,735 4.08 % Total Securities Available-for-Sale $ 836,273 3.24 % $ 922,400 1.65 % 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.
Government Agency Securities 43,827 5.79 % 49,764 4.29 % Residential Mortgage-Backed Securities 99,150 3.62 % 103,685 2.90 % Commercial Mortgage-Backed Securities 31,163 5.95 % 34,675 4.52 % Other Commercial Mortgage-Backed Securities 21,856 2.74 % 22,399 2.65 % Asset Backed Securities 140,006 4.49 % 141,383 4.04 % Collateralized Mortgage Obligations 161,533 4.39 % 176,622 3.56 % States and Political Subdivisions 222,108 2.36 % 228,146 2.38 % Corporate Notes 59,360 3.87 % 61,733 3.87 % Total Securities Available-for-Sale $ 779,003 3.73 % $ 836,273 3.24 % 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Capital Resources The following table summarizes ratios for the Company and Bank for December 31: 2022 2021 Common Equity Tier 1 Carter Bankshares, Inc. 12.61 % 14.21 % Carter Bank and Trust 12.42 % 14.04 % Tier 1 Ratio Carter Bankshares, Inc. 12.61 % 14.21 % Carter Bank and Trust 12.42 % 14.04 % Total Risk-Based Capital Ratio Carter Bankshares, Inc. 13.86 % 15.46 % Carter Bank and Trust 13.68 % 15.29 % Leverage Ratio Carter Bankshares, Inc. 10.29 % 10.62 % Carter Bank and Trust 10.13 % 10.49 % 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Capital Resources The following table summarizes ratios for the Company and Bank for December 31: 2023 2022 Leverage Ratio Carter Bankshares, Inc. 9.48 % 10.29 % Carter Bank and Trust 9.41 % 10.13 % Common Equity Tier 1 Carter Bankshares, Inc. 11.08 % 12.61 % Carter Bank and Trust 10.99 % 12.42 % Tier 1 Ratio Carter Bankshares, Inc. 11.08 % 12.61 % Carter Bank and Trust 10.99 % 12.42 % Total Risk-Based Capital Ratio Carter Bankshares, Inc. 12.34 % 13.86 % Carter Bank and Trust 12.25 % 13.68 % 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 .
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following is the allocation of the ACL balance by segment as of December 31 for the years presented below: 2022 2021 (Dollars in Thousands) Amount % of Loans Amount % of Loans Commercial Real Estate $ 17,992 46.7 % $ 17,297 47.0 % Commercial & Industrial 3,980 9.9 % 4,111 12.3 % Residential Mortgages 8,891 20.9 % 4,368 16.3 % Other Consumer 1,329 1.4 % 1,493 1.6 % Construction 6,942 11.2 % 6,939 10.1 % Other 54,718 9.9 % 61,731 12.7 % Balance End of Year $ 93,852 100.0 % $ 95,939 100.0 % The declines in the other segment were primarily due to principal pay-downs during 2022.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) The following is the allocation of the ACL balance by segment as of December 31 for the years presented below: 2023 2022 (Dollars in Thousands) Amount % of Loans in each Category to Total Portfolio Loans Amount % of Loans in each Category to Total Portfolio Loans Commercial Real Estate $ 19,873 47.7 % $ 17,992 46.7 % Commercial & Industrial 3,286 7.7 % 3,980 9.9 % Residential Mortgages 10,879 22.5 % 8,891 20.9 % Other Consumer 868 1.0 % 1,329 1.4 % Construction 7,792 12.4 % 6,942 11.2 % Other 54,354 8.7 % 54,718 9.9 % Balance End of Year $ 97,052 100.0 % $ 93,852 100.0 % 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.
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. 52 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
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 58 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7.
Discussion of noninterest income for the year ended December 31, 2020 has been omitted as such discussion was provided in Part II, Item 7.
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.
OREO related to foreclosed assets decreased $2.6 million at December 31, 2022 compared to December 31, 2021. The securities portfolio decreased $86.1 million and is currently 19.9% of total assets at December 31, 2022 compared to 22.3% of total assets at December 31, 2021.
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 .

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+9 added−3 removed0 unchanged
Biggest changeFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF INCOME (LOSS) Years Ended December 31, (Dollars in Thousands except, Per Share Data) 2022 2021 2020 INTEREST INCOME Loans, including fees Taxable $ 135,055 $ 115,448 $ 117,226 Non-Taxable 3,609 4,733 7,694 Investment Securities Taxable 20,330 12,442 14,263 Non-Taxable 693 882 1,238 FRB Excess Reserves 312 169 224 Interest on Bank Deposits 29 102 78 Dividend Income 154 121 218 Total Interest Income 160,182 133,897 140,941 Interest Expense Interest Expense on Deposits 18,616 22,246 35,391 Interest Expense on Federal Funds Purchased 188 — 1 Interest on Other Borrowings 1,450 468 434 Total Interest Expense 20,254 22,714 35,826 NET INTEREST INCOME 139,928 111,183 105,115 Provision for Credit Losses 2,419 3,350 18,006 Provision (Recovery) for Unfunded Commitments 509 (1,269) — Net Interest Income After Provision (Recovery) for Credit Losses 137,000 109,102 87,109 NONINTEREST INCOME Gain on Sales of Securities, net 46 6,869 6,882 Service Charges, Commissions and Fees 7,168 6,662 4,668 Debit Card Interchange Fees 7,427 7,226 5,857 Insurance Commissions 1,961 1,901 1,728 Bank Owned Life Insurance Income 1,357 1,380 1,400 Gains on Sales and Write-downs of Bank Premises, net 73 — — Other Real Estate Owned Income 50 90 340 Commercial Loan Swap Fee Income 774 2,416 4,051 Other 2,862 2,337 1,654 Total Noninterest Income 21,718 28,881 26,580 NONINTEREST EXPENSE Salaries and Employee Benefits 52,399 54,157 52,390 Occupancy Expense, net 13,527 13,556 13,369 FDIC Insurance Expense 2,015 2,157 2,313 Other Taxes 3,319 3,129 3,151 Advertising Expense 1,434 952 1,633 Telephone Expense 1,781 2,208 2,303 Professional and Legal Fees 5,818 5,255 5,006 Data Processing 4,051 3,758 2,648 Losses on Sales and Write-downs of Other Real Estate Owned, net 432 3,622 1,435 Losses on Sales and Write-downs of Bank Premises, net — 231 99 Debit Card Expense 2,750 2,777 2,565 Tax Credit Amortization 621 1,708 1,088 Unfunded Loan Commitment Expense — — (252) Other Real Estate Owned Expense 343 407 657 Goodwill Impairment Expense — — 62,192 Other 8,511 8,368 8,178 Total Noninterest Expense 97,001 102,285 158,775 Income (Loss) Before Income Taxes 61,717 35,698 (45,086) Income Tax Provision 11,599 4,108 772 66 Table of Contents CARTER BANKSHARES, INC.
Biggest changeFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (Dollars in Thousands Except per Share Data) 2023 2022 2021 INTEREST INCOME Loans, including fees Taxable $ 159,317 $ 135,055 $ 115,448 Non-Taxable 3,143 3,609 4,733 Investment Securities Taxable 30,804 20,330 12,442 Non-Taxable 634 693 882 Federal Reserve Bank Excess Reserves 1,002 312 169 Interest on Bank Deposits 64 29 102 Dividend Income 1,456 154 121 Total Interest Income 196,420 160,182 133,897 Interest Expense Interest Expense on Deposits 52,628 18,616 22,246 Interest Expense on Federal Funds Purchased 368 188 — Interest on Other Borrowings 21,114 1,450 468 Total Interest Expense 74,110 20,254 22,714 NET INTEREST INCOME 122,310 139,928 111,183 Provision for Credit Losses 5,500 2,419 3,350 Provision (Recovery) for Unfunded Commitments 901 509 (1,269) Net Interest Income After Provision (Recovery) for Credit Losses 115,909 137,000 109,102 NONINTEREST INCOME (Losses) Gains on Sales of Securities, net (1,521) 46 6,869 Service Charges, Commissions and Fees 7,155 7,168 6,662 Debit Card Interchange Fees 7,828 7,427 7,226 Insurance Commissions 1,945 1,961 1,901 Bank Owned Life Insurance Income 1,381 1,357 1,380 Gains on Sales and Write-downs of Bank Premises, net — 73 — Commercial Loan Swap Fee Income 139 774 2,416 Other 1,351 2,912 2,427 Total Noninterest Income 18,278 21,718 28,881 NONINTEREST EXPENSE Salaries and Employee Benefits 55,856 52,399 54,157 Occupancy Expense, net 14,028 13,527 13,556 FDIC Insurance Expense 4,904 2,015 2,157 Other Taxes 3,282 3,319 3,129 Advertising Expense 1,693 1,434 952 Telephone Expense 1,842 1,781 2,208 Professional and Legal Fees 6,210 5,818 5,255 Data Processing 3,920 4,051 3,758 Losses on Sales and Write-downs of Other Real Estate Owned, net 1,100 432 3,622 Debit Card Expense 2,875 2,750 2,777 Tax Credit Amortization — 621 1,708 Other 9,756 8,854 9,006 Total Noninterest Expense 105,466 97,001 102,285 Income Before Income Taxes 28,721 61,717 35,698 Income Tax Provision 5,337 11,599 4,108 Net Income $ 23,384 $ 50,118 $ 31,590 Earnings per Common Share: Basic Earnings per Common Share $ 1.00 $ 2.03 $ 1.19 Diluted Earnings per Common Share $ 1.00 $ 2.03 $ 1.19 Average Shares Outstanding-Basic 23,240,543 24,595,789 26,342,729 Average Shares Outstanding-Diluted 23,240,543 24,595,789 26,342,729 See accompanying notes to audited Consolidated Financial Statements. 71 Table of Contents CARTER BANKSHARES, INC.
The above table indicates that in a rising interest rate environment, the Company is positioned to have increased pretax net interest income for the same asset base due to the balance sheet composition, related maturity structures, and repricing correlations to market interest rates for assets and liabilities.
The above table indicates that, in a rising interest rate environment, the Company is positioned to have a minimum increase in net interest income for the same asset and liability mix due to the balance sheet composition, related maturity structures, and repricing correlations to market interest rates for assets and liabilities.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements Consolidated Balance Sheets 65 Consolidated Statements of Income (Loss) 66 Consolidated Statements of Comprehensive (Loss) Income 68 Consolidated Statements of Changes in Shareholders’ Equity 69 Consolidated Statements of Cash Flows 70 Notes to Consolidated Financial Statements 72 Report of Crowe LLP, Independent Registered Public Accounting Firm (PCAOB ID 173 ), on Consolidated Financial Statements and Effectiveness of Internal Controls Over Financial Reporting 118 64 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements Consolidated Balance Sheets 70 Consolidated Statements of Income 71 Consolidated Statements of Comprehensive Income (Loss) 72 Consolidated Statements of Changes in Shareholders’ Equity 73 Consolidated Statements of Cash Flows 74 Notes to Consolidated Financial Statements 76 Report of Crowe LLP, Independent Registered Public Accounting Firm (PCAOB ID 173 ), on Consolidated Financial Statements and Effectiveness of Internal Controls Over Financial Reporting 122 69 Table of Contents CARTER BANKSHARES, INC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (continued) The following tables reflect the NII rate shock analyses and EVE analyses results for the periods presented utilizing a forecasted static balance sheet over the next twelve months. All percentage changes presented are within prescribed ranges set by management.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following tables reflect the earnings simulation results for the periods presented utilizing a forecasted static balance sheet over the next twelve months. All percentage changes presented are within prescribed ranges set by ALCO.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME Years Ended December 31, (Dollars in Thousands) 2022 2021 2020 Net Income (Loss) $ 50,118 $ 31,590 $ (45,858) Other Comprehensive (Loss) Income: Net Unrealized (Losses) Gains on Securities Available-for-Sale: Net Unrealized (Losses) Gains Arising during the Period (111,542) (10,877) 26,621 Reclassification Adjustment for Gains included in Net Income (Loss) (46) (6,869) (6,882) Tax Effect 24,270 3,727 (4,145) Net Unrealized (Losses) Gains Recognized in Other Comprehensive (Loss) Income (87,318) (14,019) 15,594 Other Comprehensive (Loss) Income: (87,318) (14,019) 15,594 Comprehensive (Loss) Income $ (37,200) $ 17,571 $ (30,264) See accompanying notes to audited Consolidated Financial Statements. 68 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31, (Dollars in Thousands) 2023 2022 2021 Net Income $ 23,384 $ 50,118 $ 31,590 Other Comprehensive Income (Loss): Net Unrealized Gains (Losses) on Securities Available-for-Sale: Net Unrealized Gains (Losses) Arising during the Period 16,370 (111,542) (10,877) Reclassification Adjustment for Losses (Gains) included in Net Income 1,521 (46) (6,869) Tax Effect (3,714) 24,270 3,727 Net Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) 14,177 (87,318) (14,019) Other Comprehensive Income (Loss): 14,177 (87,318) (14,019) Comprehensive Income (Loss) $ 37,561 $ (37,200) $ 17,571 See accompanying notes to audited Consolidated Financial Statements. 72 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (Dollars in Thousands) 2022 2021 2020 OPERATING ACTIVITIES Net Income (Loss) $ 50,118 $ 31,590 $ (45,858) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities Provision for Credit Losses, including Provision (Recovery) for Unfunded Commitments 2,928 2,081 18,006 Goodwill Impairment — — 62,192 Origination of Loans Held-for-Sale (8,047) (480,372) (800,053) Proceeds From Loans Held-for-Sale 10,184 505,946 794,592 Depreciation/Amortization of Bank Premises and Equipment 6,063 6,229 6,142 Provision (Benefit) for Deferred Taxes 3,630 3,114 (1,627) Net Amortization of Securities 5,749 4,798 3,441 Tax Credit Amortization 621 1,708 1,088 Gains on Sales of Loans Held-for-Sale (396) (365) (262) Gains on Sales of Securities, net (46) (6,869) (6,882) Write-downs of Other Real Estate Owned 741 3,472 1,483 (Gains) Losses on Sales of Other Real Estate Owned, net (309) 150 (48) (Gains) Losses on Sales and Write-downs of Bank Premises, net (73) 231 99 Change in Fair Market Value of Commercial Loan Swap Derivative (605) (89) 214 Premiums on Branch Sales — (506) — Increase in the Value of Life Insurance Contracts (1,357) (1,380) (1,400) Recognition of Restricted Stock Compensation Expense 1,314 1,040 1,016 (Increase) Decrease in Other Assets (3,273) 8,361 (18,723) Increase (Decrease) in Other Liabilities 3,549 (1,601) (5,716) Net Cash Provided By Operating Activities 70,791 77,538 7,704 INVESTING ACTIVITIES Securities Available-for-Sale: Proceeds from Sales 19,777 197,056 188,169 Proceeds from Maturities, Redemptions, and Pay-downs 84,693 110,196 78,852 Purchases (135,634) (466,648) (277,644) Purchase of Bank Premises and Equipment, Net (5,890) (8,484) (10,120) Proceeds from Sales of Bank Premises and Equipment, net 408 — — Net Cash Paid in Branch Sales — (73,923) — Proceeds from Sale of Portfolio Loans — 52,320 — (Purchase) Redemption of Federal Home Loan Bank Stock, net (7,388) 2,741 (980) Loan (Originations) and Payments, net (342,877) 67,131 (75,688) Other Real Estate Owned Improvements — — (19) Proceeds from Sales and Payments of Other Real Estate Owned 4,840 13,256 4,162 Net Cash Used In Investing Activities (382,071) (106,355) (93,268) FINANCING ACTIVITIES Net Change in Demand, Money Markets and Savings Accounts 14,649 369,730 469,507 Decrease in Certificates of Deposits (82,792) (276,899) (289,124) Proceeds (Repayments) from Federal Home Loan Bank Borrowings, net 173,550 (28,000) 25,000 Proceeds (Repayments) from Federal Funds Purchased, net 17,870 — — Repurchase of Common Stock (42,927) (157) — Cash Dividends Paid — — (3,689) Net Cash Provided By Financing Activities 80,350 64,674 201,694 Net (Decrease) Increase in Cash and Cash Equivalents (230,930) 35,857 116,130 Cash and Cash Equivalents at Beginning of Period 277,799 241,942 125,812 Cash and Cash Equivalents at End of Period $ 46,869 $ 277,799 $ 241,942 See accompanying notes to audited Consolidated Financial Statements. 70 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (Dollars in Thousands) 2023 2022 2021 OPERATING ACTIVITIES Net Income $ 23,384 $ 50,118 $ 31,590 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Provision for Credit Losses, including Provision (Recovery) for Unfunded Commitments 6,401 2,928 2,081 Origination of Loans Held-for-Sale (6,758) (8,047) (480,372) Proceeds From Loans Held-for-Sale 6,867 10,184 505,946 Depreciation/Amortization of Bank Premises and Equipment 6,248 6,063 6,229 Provision for Deferred Taxes 884 3,630 3,114 Net Amortization of Securities 6,354 5,749 4,798 Tax Credit Amortization 2,101 621 1,708 Gains on Sales of Loans Held-for-Sale (109) (396) (365) Losses (Gains) on Sales of Securities, net 1,521 (46) (6,869) Write-downs of Other Real Estate Owned 1,117 741 3,472 (Gains) Losses on Sales of Other Real Estate Owned, net (17) (309) 150 Losses (Gains) on Sales and Write-downs of Bank Premises, net — (73) — Commercial Loan Swap Derivative Income 219 (605) (89) Premiums on Branch Sales — — (506) Increase in the Value of Life Insurance Contracts (1,381) (1,357) (1,380) Recognition of Restricted Stock Compensation Expense 1,561 1,314 1,040 (Increase) Decrease in Other Assets (5,465) (3,273) 8,592 Increase (Decrease) in Other Liabilities 3,803 3,549 (1,601) Net Cash Provided By Operating Activities 46,730 70,791 77,538 INVESTING ACTIVITIES Securities Available-for-Sale: Proceeds from Sales 43,323 19,777 197,056 Proceeds from Maturities, Redemptions, and Pay-downs 48,901 84,693 110,196 Purchases (24,938) (135,634) (466,648) Purchase of Bank Premises and Equipment, Net (9,798) (5,890) (8,484) Proceeds from Sales of Bank Premises and Equipment, net — 408 — Net Cash Paid in Branch Sales — — (73,923) Proceeds from Sale of Portfolio Loans — — 52,320 (Purchase) Redemption of Federal Home Loan Bank Stock, net (11,886) (7,388) 2,741 Loan (Originations) and Payments, net (359,407) (342,877) 67,131 Proceeds from Sales and Payments of Other Real Estate Owned 6,794 4,840 13,256 Net Cash Used In Investing Activities (307,011) (382,071) (106,355) FINANCING ACTIVITIES Net Change in Demand, Money Markets and Savings Accounts (235,748) 14,649 369,730 Increase (Decrease) in Certificates of Deposits 325,125 (82,792) (276,899) Proceeds (Repayments) from Federal Home Loan Bank Borrowings, net 212,850 173,550 (28,000) (Repayments) Proceeds from Federal Funds Purchased, net (17,870) 17,870 — Repurchase of Common Stock (16,416) (42,927) (157) Net Cash Provided By Financing Activities 267,941 80,350 64,674 Net Increase (Decrease) in Cash and Cash Equivalents 7,660 (230,930) 35,857 Cash and Cash Equivalents at Beginning of Period 46,869 277,799 241,942 Cash and Cash Equivalents at End of Period $ 54,529 $ 46,869 $ 277,799 See accompanying notes to audited Consolidated Financial Statements. 74 Table of Contents CARTER BANKSHARES, INC.
Conversely, in a declining interest rate environment, we are positioned to have decreased pretax net interest income for the same reasons discussed above.
However, in a declining interest rate environment, we are positioned to have a slightly more advantageous increase in net interest income for the same reasons discussed above.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years Ended December 31, (Dollars in Thousands) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholder's Equity Balance January 1, 2020 $ 26,334 $ 142,492 $ 304,158 $ 127 $ 473,111 Net Loss — — (45,858) — (45,858) Other Comprehensive Income, Net of Tax — — — 15,594 15,594 Dividends Declared ($0.14 per share) — — (3,689) — (3,689) Forfeiture of Restricted Stock (4,344 shares) (4) 4 — — — Issuance of Restricted Stock (55,156 shares) 55 (55) ) — — — Recognition of Restricted Stock Compensation Expense — 1,016 — — 1,016 Balance December 31, 2020 $ 26,385 $ 143,457 $ 254,611 $ 15,721 $ 440,174 Net Income — — 31,590 — 31,590 Other Comprehensive Loss, Net of Tax — — — (14,019) (14,019) Cumulative Effect For Adoption of Credit Losses — — (50,726) — (50,726) Repurchase of Common Stock (30,407 shares) (30) (433) — — (463) Forfeiture of Restricted Stock (6,205 shares) (6) ) 6 — — — Issuance of Restricted Stock (82,490 shares) 82 (82) ) — — — Recognition of Restricted Stock Compensation Expense — 1,040 — — 1,040 Balance December 31, 2021 $ 26,431 $ 143,988 $ 235,475 $ 1,702 $ 407,596 Net Income — — 50,118 ) — 50,118 Other Comprehensive Loss, Net of Tax — — — (87,318) (87,318) Repurchase of Common Stock (2,587,361 shares) (2,587) (40,340) — — (42,927) Forfeiture of Restricted Stock (14,141 shares) (14) ) (142) — — (156) Issuance of Restricted Stock (127,355 shares) 127 (127) — — — Recognition of Restricted Stock Compensation Expense — 1,314 — — 1,314 Balance December 31, 2022 $ 23,957 $ 104,693 $ 285,593 $ (85,616) $ 328,627 See accompanying notes to audited Consolidated Financial Statements. 69 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years Ended December 31, (Dollars in Thousands) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholder's Equity Balance at December 31, 2020 $ 26,385 $ 143,457 $ 254,611 $ 15,721 $ 440,174 Cumulative Effect of the Adoption of ASU 2016-13 — — (50,726) — (50,726) Balance January 1, 2021 $ 26,385 $ 143,457 $ 203,885 $ 15,721 $ 389,448 Net Income — — 31,590 — 31,590 Other Comprehensive Loss, Net of Tax — — — (14,019) (14,019) Repurchase of Common Stock (30,407 shares) (30) (433) — — (463) Forfeiture of Restricted Stock (6,205 shares) (6) 6 — — — Issuance of Restricted Stock (82,490 shares) 82 (82) — — — Recognition of Restricted Stock Compensation Expense — 1,040 — — 1,040 Balance December 31, 2021 $ 26,431 $ 143,988 $ 235,475 $ 1,702 $ 407,596 Net Income — — 50,118 — 50,118 Other Comprehensive Loss, Net of Tax — — — (87,318) (87,318) Repurchase of Common Stock (2,587,361 shares) (2,587) (40,340) — — (42,927) Forfeiture of Restricted Stock (14,141 shares) (14) (142) — — (156) Issuance of Restricted Stock (127,355 shares) 127 (127) — — — Recognition of Restricted Stock Compensation Expense — 1,314 — — 1,314 Balance December 31, 2022 $ 23,957 $ 104,693 $ 285,593 $ (85,616) $ 328,627 Cumulative Effect of the Adoption of ASU 2023-02 — — 106 — 106 Balance at January 1, 2023 23,957 104,693 285,699 (85,616) 328,733 Net Income — — 23,384 — 23,384 Other Comprehensive Income, Net of Tax — — — 14,177 14,177 1% Excise Tax on Stock Buybacks — (153) — — (153) Repurchase of Common Stock (1,132,232 shares) (1,132) (15,284) — — (16,416) Forfeiture of Restricted Stock (5,333 shares) (5) (38) — — (43) Issuance of Restricted Stock (137,097 shares) 137 (137) — — — Recognition of Restricted Stock Compensation Expense — 1,561 — — 1,561 Balance December 31, 2023 $ 22,957 $ 90,642 $ 309,083 $ (71,439) $ 351,243 See accompanying notes to audited Consolidated Financial Statements. 73 Table of Contents CARTER BANKSHARES, INC.
Based on the ALM results presented above for the quarters ending December 31, 2022 and December 31, 2021, the Company’s balance sheet is less asset sensitive at December 31, 2022 than it previously was at December 31, 2021.
Based on the ALM results presented above for the quarters ending December 31, 2023 and December 31, 2022, the Company’s balance sheet is slightly liability sensitive at December 31, 2023 versus assets sensitive at December 31, 2022.
This migration in asset sensitivity is due to 1) lower yielding, floating rate excess cash positions held in federal reserve bank and interest-bearing deposits in other financial institutions that are more sensitive to future market interest rate changes which were deployed into higher yielding, fixed and floating rate securities and portfolio loans that are less sensitive to future market interest rate changes, and 2) the recent shifts in the shape of the yield curve between the two periods presented above.
This migration from asset sensitivity to slightly liability sensitivity is due to 1) lower yielding, floating rate excess cash positions held in federal reserve bank and interest-bearing deposits in other financial institutions, that are more sensitive to future market interest rate changes which were deployed into higher yielding, fixed and variable rate securities and portfolio loans that are less sensitive to future market interest rate changes, 2) the addition of the Company’s largest lending relationship, with an aggregate principal amount of $301.9 million being placed on nonaccrual status as of June 30, 2023, 3) shortening maturities of the time deposit portfolio due to shorter term time deposit promotional campaigns related to the inverted yield curve, and 4) the recent shifts in the shape of the yield curve between the two periods presented above.
December 31, 2022 December 31, 2021 Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Economic Value of Equity % Change in Pretax Net Interest Income % Change in Economic Value of Equity 400 14.5 % (4.7) % 43.6 % 24.6 % 300 11.2 % (2.1) % 33.1 % 20.6 % 200 7.7 % (0.2) % 22.5 % 15.4 % 100 4.1 % 0.8 % 11.4 % 8.6 % -100 (5.1) % (3.4) % (2.4) % (7.0) % -200 (10.7) % (8.5) % (3.2) % (11.5) % -300 (17.3) % (16.0) % (3.3) % 0.9 % -400 (23.5) % (28.0) % (3.3) % 14.3 % The results from the net interest income rate shock analysis are consistent with having an asset sensitive balance sheet when adjusted for repricing correlations (betas).
December 31, 2023 December 31, 2022 Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income 200 (1.1)% 7.7% 100 (0.3)% 4.1% -100 2.4% (5.1)% -200 4.4% (10.7)% -300 5.6% (17.3)% -400 6.7% (23.5)% The results from the earnings simulation imply that the Company’s balance sheet has shifted from an asset sensitive balance sheet at December 31, 2022 to a slightly liability sensitive balance sheet when at December 31, 2023.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED BALANCE SHEETS (Dollars in Thousands Except Per Share Data) December 31, 2022 December 31, 2021 ASSETS Cash and Due From Banks, including Interest-Bearing Deposits of $4,505 at December 31, 2022 and $241,101 at December 31, 2021 $ 46,869 $ 277,799 Securities Available-for-Sale, at Fair Value 836,273 922,400 Loans Held-for-Sale — 228 Portfolio Loans 3,148,913 2,812,129 Allowance for Credit Losses (93,852) (95,939) Portfolio Loans, net 3,055,061 2,716,190 Bank Premises and Equipment, net 72,114 75,297 Other Real Estate Owned, net 8,393 10,916 Federal Home Loan Bank Stock, at Cost 9,740 2,352 Bank Owned Life Insurance 56,734 55,378 Other Assets 119,335 73,186 Total Assets $ 4,204,519 $ 4,133,746 LIABILITIES Deposits: Noninterest-Bearing Demand $ 703,334 $ 747,909 Interest-Bearing Demand 496,948 452,644 Money Market 484,238 463,056 Savings 684,287 690,549 Certificates of Deposit 1,261,526 1,344,318 Total Deposits 3,630,333 3,698,476 Federal Home Loan Bank Borrowings 180,550 7,000 Federal Funds Purchased 17,870 — Other Liabilities 47,139 20,674 Total Liabilities 3,875,892 3,726,150 SHAREHOLDERS' EQUITY Common Stock, Par Value $1.00 Per Share, Authorized 100,000,000 Shares; Outstanding - 23,956,772 shares at December 31, 2022, and 26,430,919 shares at December 31, 2021 23,957 26,431 Additional Paid-in Capital 104,693 143,988 Retained Earnings 285,593 235,475 Accumulated Other Comprehensive (Loss) Income (85,616) 1,702 Total Shareholders' Equity 328,627 407,596 Total Liabilities and Shareholders' Equity $ 4,204,519 $ 4,133,746 See accompanying notes to audited Consolidated Financial Statements. 65 Table of Contents CARTER BANKSHARES, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) CONSOLIDATED BALANCE SHEETS (Dollars in Thousands Except per Share Data) December 31, 2023 December 31, 2022 ASSETS Cash and Due From Banks, including Interest-Bearing Deposits of $14,853 at December 31, 2023 and $4,505 at December 31, 2022 $ 54,529 $ 46,869 Securities Available-for-Sale, at Fair Value (amortized cost of $870,546 and $945,707, respectively) 779,003 836,273 Loans Held-for-Sale — — Portfolio Loans 3,505,910 3,148,913 Allowance for Credit Losses (97,052) (93,852) Portfolio Loans, net 3,408,858 3,055,061 Bank Premises and Equipment, net 73,707 72,114 Other Real Estate Owned, net 2,463 8,393 Federal Home Loan Bank Stock, at Cost 21,626 9,740 Bank Owned Life Insurance 58,115 56,734 Other Assets 114,238 119,335 Total Assets $ 4,512,539 $ 4,204,519 LIABILITIES Deposits: Noninterest-Bearing Demand $ 685,218 $ 705,539 Interest-Bearing Demand 481,506 496,948 Money Market 513,664 484,238 Savings 454,876 684,287 Certificates of Deposit 1,586,651 1,261,526 Total Deposits 3,721,915 3,632,538 Federal Home Loan Bank Borrowings 393,400 180,550 Federal Funds Purchased — 17,870 Reserve for Unfunded Loan Commitments 3,193 2,292 Other Liabilities 42,788 42,642 Total Liabilities 4,161,296 3,875,892 Commitment and Contingencies - see N OTE 18.
Removed
In addition to rate shocks and EVE analyses, sensitivity analyses are performed to help us identify which model assumptions are critical and cause the greatest impact on pretax NII.
Added
Economic Value of Equity Modeling Economic value of equity simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. The ALM calculates the economic value of equity based on discounted cash flow analysis.
Removed
Sensitivity analyses include changing prepayment behavior of loans and securities with optionality, repricing correlations, and the impact of interest rate changes on non-maturity deposit products (decay rates). 63 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 8.
Added
The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value of equity over different rate environments is an indication of the longer-term earnings capability of the balance sheet.
Removed
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued) Net Income (Loss) $ 50,118 $ 31,590 $ (45,858) Earnings (Loss) per Common Share: Basic Earnings (Loss) per Common Share $ 2.03 $ 1.19 $ (1.74) Diluted Earnings (Loss) per Common Share $ 2.03 $ 1.19 $ (1.74) Average Shares Outstanding-Basic 24,595,789 26,342,729 26,379,774 Average Shares Outstanding-Diluted 24,595,789 26,342,729 26,379,774 See accompanying notes to audited Consolidated Financial Statements. 67 Table of Contents CARTER BANKSHARES, INC.
Added
The Company uses the same assumptions in the economic value of equity simulation model as in the earnings simulation model. The economic value of equity simulation model uses instantaneous rate shocks to the balance sheet.
Added
For economic value of equity simulation, our policy guidelines limit the change in economic value of equity given changes in rates of +/- 100, 200, 300, 400 basis points and for non-parallel yield curve shift scenarios. We have temporarily suspended the + 300 and + 400 basis point rate shock analyses.
Added
Due to FOMC’s slowing future rate increase projections coupled with the recent increase in the Fed Funds Target Rate of 5.25% since March 17, 2022, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position nor does it project a probable interest rate environment for the foreseeable future.
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Results for the economic value of equity modeling are driven primarily by the shape of the underlying yield curves and option-adjusted spreads used to discount the projected cash flows of assets and liabilities, and the assumed life span of the assets and liabilities being discounted. 67 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (continued) The following tables reflect the economic value of equity analyses results for the periods presented. All percentage changes presented are within prescribed ranges set by management.
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December 31, 2023 December 31, 2022 Change in Interest Rate (basis points) % Change in Economic Value of Equity % Change in Economic Value of Equity 200 (4.7)% (0.2)% 100 (1.8)% 0.8% -100 0.9% (3.4)% -200 0.5% (8.5)% -300 (2.7)% (16.0)% -400 (10.9)% (28.0)% 68 Table of Contents CARTER BANKSHARES, INC. AND SUBSIDIARIES ITEM 8.
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SHAREHOLDERS’ EQUITY Common Stock, Par Value $1.00 Per Share, Authorized 100,000,000 Shares; Outstanding - 22,956,304 shares at December 31, 2023, and 23,956,772 shares at December 31, 2022 22,957 23,957 Additional Paid-in Capital 90,642 104,693 Retained Earnings 309,083 285,593 Accumulated Other Comprehensive Loss (71,439) (85,616) Total Shareholders’ Equity 351,243 328,627 Total Liabilities and Shareholders’ Equity $ 4,512,539 $ 4,204,519 See accompanying notes to audited Consolidated Financial Statements. 70 Table of Contents CARTER BANKSHARES, INC.

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