Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
(Dollars in Thousands) Pre-Tax Amount Tax (Expense) Benefit Net of Tax Amount Pre-Tax Amount Tax (Expense) Benefit Net of Tax Amount
Net Unrealized (Losses) Gains Arising during the period $ (10,494) $ 2,204 $ (8,290) $ 2,004 $ (421) $ 1,583
Reclassification Adjustment for Gains included in Net Income (3,610) 758 (2,852) (1,214) 255 (959)
Other Comprehensive (Loss) Income $ (14,104) $ 2,962 $ (11,142) $ 790 $ (166) $ 624
CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help reader understand Carter Bankshares, Inc., ~~represents an overview of~~our operations, our present business environment, and our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations as of and for the three and nine month periods ended ~~March 31, 2021~~September 30, 2023 and ~~2020. Our~~September 30, 2022. The MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes ~~thereto.~~thereto contained in Item 1 of this Quarterly Report on Form 10-Q. Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods. The MD&A includes the following sections:

•Important Note Regarding Forward-Looking Statements

•Explanation of Use of Non-GAAP Financial Measures

•Critical Accounting Estimates

•Overview and Strategy

•Results of Operations and Financial Condition

◦Earnings Summary

◦Liquidity and Capital Resources

◦Regulatory Capital Requirements

◦Contractual Obligations

◦Off-Balance Sheet Arrangements

Important Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements ~~that we believe are “forward-looking statements”~~ within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements related to the COVID-19 pandemic and its potential impact on the Company, its markets and its customers, potential asset quality developments, and the Company’s efficiency initiatives and pending branch sales, and may otherwisethat relate to our financial condition, market conditions, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels and asset quality, ~~financial position,~~including but not limited to statements regarding the interest rate environment, the impact of future changes in interest rates, and ~~other matters regarding or affecting~~the impacts of the Company ~~and~~placing its ~~future business and operations.~~largest lending relationship on nonaccrual status. Forward looking statements are typically identified by words or phrases such as “will likely result,” “expect,” “anticipate,” “estimate,” “forecast,” “project,” “intend,” “ believe,” “assume,” “strategy,” “trend,” “plan,” “outlook,” “outcome,” “continue,” “remain,” “potential,” “opportunity,” ~~“believe,”~~ “comfortable,” “current,” “position,” “maintain,” “sustain,” “seek,” “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may.

These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumption that are difficult to predict and often are beyond the Company’s control. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements ~~depending on a variety of uncertainties or other factors~~ including, but not limited ~~to:~~ to the effects of:

•market interest rates and the impacts of market interest rates on economic conditions, customer behavior, and the Company’s loan and securities portfolios;

•inflation, market and monetary fluctuations;

•changes in trade, monetary and fiscal policies and laws of the U.S. Government, including policies of the Federal Reserve, FDIC and U.S. Department of the Treasury (the “Treasury Department”);

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CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (continued)

•changes in accounting policies, practices, or guidance, ~~including~~ for example, our adoption of Current Expected Credit ~~Loss~~Losses (“CECL”)~~; credit losses; technological risks and developments; cyber-security;~~ methodology, including potential volatility in the Company’s operating results due to application of the CECL methodology;

•cyber-security threats, attacks or events;

•rapid technological developments and changes;

•our ability to resolve our nonperforming assets, and our ability to secure collateral on loans that have entered nonaccrual status due to loan maturities and failure to pay in full;

•changes in the Company’s liquidity and capital positions;

•concentrations of loans secured by real estate, particularly commercial real estate, and the potential impacts of changes in market conditions on the value of real estate collateral;

•an insufficient allowance for credit losses;

•the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, war and other military conflicts (such as the war between Israel and Hamas and the ongoing war between Russia and Ukraine) or public health events (such as the ~~current~~ COVID-19 pandemic), and of any governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth; the effect of steps the Company takes or has taken in response to the COVID-19 pandemic, the severity and duration of the pandemic, the uncertainty regarding new variants of COVID-19 that have emerged, the speed and efficacy of vaccine and treatment developments, the impact of loosening or tightening of government restrictions, the pace of economic recovery when the pandemic subsides and the heightened impact it has on exacerbation of many of the risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2020; legislative or regulatory changes and requirements, including the impact of the Coronavirus

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~~CARTER BANKSHARES, INC.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~

Aid, Relief, and Economic Security Act (the “CARES Act”), as amended by the Consolidated Appropriations Act, of 2021 (the “CAA”), and other legislative and regulatory reactions to the COVID-19 pandemic; potential claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to the COVID-19 pandemic, including, among other things, under the CARES Act, as amended by the CAA; sensitivity to the interest rate environment including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve; •a change in spreads on interest-earning assets and interest-bearing liabilities;

•regulatory supervision and ~~oversight;~~ oversight, including our relationship with regulators and any actions that may be initiated by our regulators;

•legislation affecting the financial services industry as a whole (such as the Inflation Reduction Act of 2022), and the Company and the Bank, in particular;

•the outcome of pending and future litigation ~~and~~and/or governmental proceedings;

•increasing price and product/service competition;

•the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; ~~the Company’s strategic branch network optimization plan;~~

•managing our internal growth and acquisitions;

•the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or more costly than anticipated; ~~containing~~

•the soundness of other financial institutions and any indirect exposure related to the closings of Silicon Valley Bank (“SVB”), Signature Bank, Silvergate Bank and First Republic Bank and their impact on the broader market through other customers, suppliers and partners or that the conditions which resulted in the liquidity concerns with SVB, Signature Bank, Silvergate Bank and First Republic Bank may also adversely impact, directly or indirectly, other financial institutions and market participants with which the Company has commercial or deposit relationships with;

•our ability to successfully execute and achieve the expected results of our business, brand strategies, brand awareness programs and marketing programs in the markets we serve, including, but not limited to, the Company’s guiding principles, including our 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;

•material increases in costs and expenses;

•reliance on significant customer relationships;

•general economic or business ~~conditions;~~ conditions, including unemployment levels, continuing supply chain disruptions and slowdowns in economic growth;

•significant weakening of the local economies in which we operate;

•changes in customer behaviors, including consumer spending, borrowing and saving habits;

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CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (continued)

•changes in deposit flows and loan demand;

•our failure to attract or retain key employees;

•expansions or consolidations in the Company’s branch network, including any anticipated benefits of the Company’s ongoing branch network optimization project are not fully realized in a timely manner or at all;

•deterioration of the housing market and reduced demand for mortgages; ~~deterioration in the overall macroeconomic conditions or the state of the banking industry that could impact the~~ and

•re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses. ~~Many of these~~

Please also refer to such other factors as ~~well as other factors, are described~~discussed throughout ~~this Quarterly Report, including and in~~ Part I, Item 1A, “Risk Factors” in ~~our~~ the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2022, Part II, Item 1A, “Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the periods ended March 31, 2023 and June 30, 2023, and in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q, and any of our subsequent filings with the ~~SEC.~~Securities and Exchange Commission (“SEC”). All risk factors and uncertainties described herein and therein should be considered in evaluating the Company’s forward-looking statements. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are ~~made.~~prepared. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events are expressed in or implied by a forward-looking statement may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update, revise or clarify any forward-looking statement to reflect developments occurring after the statement is made.

Explanation of Use of Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with generally accepted accounting principles in the United States (“GAAP”), management uses, and this quarterly report references, interest and dividend income, yield on interest earning assets, net interest income and net interest margin on a fully taxable equivalent, (“FTE”) basis, which are non-GAAP financial measures. Management believes these measures provide information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. The Company believes the presentation of interest and dividend income, yield on interest earning assets, net interest income and net interest margin on an FTE basis ensures the comparability of interest and dividend income, yield on interest earning assets, net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice. 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.

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.

Critical Accounting ~~Policies and~~ Estimates

Our critical accounting ~~policies~~estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of ~~March 31, 2021~~September 30, 2023 have remained unchanged from the disclosures presented under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2022 under the section “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations” except we have updated our allowance for credit losses policy~~Operations,” and ~~included required disclosures in response to the adoption~~are incorporated herein by reference.

Table of ~~ASU 2016-13 Financial Instruments~~Contents

CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ~~Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Please refer to the CECL disclosure contained in Notes 1~~(continued)

Overview and ~~5 to the financial statements included in this Quarterly Report on Form 10-Q.~~

~~Overview~~Strategy

Carter Bankshares, Inc. (the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of ~~$4.1~~$4.5 billion at ~~March 31, 2021.~~September 30, 2023. The Company is the parent company of its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). The Bank is ana FDIC insured, Virginia state-chartered bank, which operates 64 branches in Virginia and North Carolina. The Company provides a full range of financial services with retail, and commercial banking products and insurance. Our common stock trades on the Nasdaq Global Select Market under the ticker symbol ~~“CARE.”~~“CARE”.

The Company earns revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. The Company incurs expenses for the cost of deposits, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and income tax ~~expense.~~provision.

~~Our mission is~~For the 2023-2025 fiscal year periods, the Company will focus on refining and enhancing its brand image and position in the markets it serves. To strengthen and further shape the culture of the Company, a new set of guiding principles were introduced to associates in June 2023. The guiding principles include a new purpose statement: To create opportunities for more people and businesses to prosper; supported by our new set of core values: Build Relationships, Earn Trust and Take Ownership. We believe these new guiding principles will help create alignment to support future growth by empowering our associates and igniting a passion for the Company.

The Company’s Board of Directors and management believe that the ~~Company strives~~Bank is at a turning point in its evolution and transformation. The Company’s goal will be to ~~be the preferred lifetime financial partner for our customers and shareholders, and the employer of choice in the communities the Company is privileged to serve. Our strategic plan focuses on~~shift from restructuring the balance sheet to ~~provide more diversification~~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 this initiative is viable given the Bank’s strong capital and ~~higher yielding assets~~liquidity positions. In addition to increase the net interest margin. Another area of focus is the transformation of the infrastructure of the Company to provide a foundation for operational efficiency and provide new products and services for our customers that will ultimately increase noninterest income.

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~~CARTER BANKSHARES, INC.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~

~~Our focus continues to be on~~ loan and deposit growth, ~~with a shift in~~ the ~~composition of deposits to more low cost core deposits with less dependence in higher cost certificates of deposits (“CDs”), as well as, implementing opportunities~~Company will seek to increase fee income while closely monitoring ~~our~~ operating expenses.

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

~~COVID-19~~

In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020. The CARES Act is an emergency stimulus measure providing assistance and relief in a variety of ways to certain individuals, businesses, and industries. The CARES Act established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the Small Business Administration (“SBA”), referred to as the Paycheck Protection Program (“PPP”). In addition to the general impact of the COVID-19 pandemic has had on the Company, certain provisions of the CARES Act,current markets as well as ~~other legislative and regulatory relief efforts,~~any new markets we may ~~have a material impact on our operations. The full extent~~enter. As part of ~~these impacts at~~executing this strategy, the ~~date of this filing is unknown; however, we have disclosed~~Company continues to dedicate significant resources to resolve the ~~material items~~Company’s nonaccrual loans, the significant majority of which we are ~~aware.~~

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions and will be implemented through rules and guidance adopted by federal agencies, including the U.S. Department of the Treasury, the Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System (“FRB” or “Federal Reserve”) and other federal bank regulatory authorities, including those with direct supervisory jurisdiction overrelated to a single large lending relationship at September 30, 2023, in a manner that best protects the Company and its shareholders.

Results of Operations and Financial Condition

Earnings Summary

Highlights for the ~~Bank.~~Three Months Ended September 30, 2023

~~Set forth below is a brief overview of certain provisions of~~•Net interest income decreased $10.3 million, or 27.4%, to $27.4 million for the ~~CARES Act and certain other regulations and supervisory guidance related~~three months ended September 30, 2023 compared to the ~~COVID-19 pandemic that are applicable~~same period in 2022 primarily due to a $9.3 million negative impact on interest income caused by placing the ~~operations~~Bank’s largest lending relationship in nonaccrual status during the three months ended June 30, 2023 and ~~activities~~by an increase of ~~the Company. The following description is qualified~~194 basis points in ~~its entirety~~funding costs, offset by ~~reference to the full text~~an increase of the CARES Act and the statutes, regulations, and policies described herein. Such statutes, regulations, and policies are subject to ongoing review by U.S. Congress and federal regulatory authorities. Future amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Bank could have a material effect on the Bank. Many of the requirements called for31 basis points in the CARES Act and related regulations and supervisory guidance will be implemented over time and most will be subject to implementing regulations over the course of the coming weeks. The Bank will continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

~~FRB Reserve Programs and Initiatives~~

The CARES Act encourages the FRB, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities, including (i) a Midsize Business/Nonprofit Organization Program to provide financing to banks and other lenders to make direct loans to eligible businesses and nonprofit organizations with between 500 and 10,000 employees and (ii) the Municipal Liquidity Facility, provide liquidity to the financial system that supports states and municipalities. On April 9, 2020, the FRB announced and solicited comments regarding the Main Street Lending Program, which would implement certain of these recommendations.

Separately and in response to the COVID-19 pandemic, the FRB’s Federal Open Market Committee (the “FOMC”) has set the federal funds target rate – i.e., the interest rate at which depository institutions such as the Company lend reserve balances to other depository institutions overnightyield on an uncollateralized basis – to a historic low. On March 16, 2020, the FOMC set the federal funds target rate at 0-0.25%. Consistent with FRB policy, the FRB has committed to the use of overnight reverse repurchase agreements as a supplementary policy tool, as necessary, to help control the federal funds rate and keep it in the target range set by the FOMC.

In addition, the FRB has expanded the size and scope of three existing programs to mitigate the economic impact of the COVID-19 pandemic: (i) the Primary Market Corporate Credit Facility; (ii) the Secondary Market Corporate Credit Facility; and (iii) the Term Asset-Backed Securities Loan Facility. The FRB has also established two new program facilities – the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility – to broaden its support for the flow of credit to households and businesses during the COVID-19 pandemic.

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~~CARTER BANKSHARES, INC.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~

~~Temporary Bank Secrecy Act (“BSA”) Reporting Relief~~

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has provided targeted relief from certain BSA reporting requirements and have provided updated guidance to financial institutions on complying with such requirements during the COVID-19 pandemic. Specifically, FinCEN has (i) granted targeted relief to financial institutions participating in the PPP, stating that PPP loans to existing customers will not require reverification under applicable BSA requirements, unless reverification is otherwise required under the financial institution’s risk-based BSA compliance program, (ii) acknowledged that there may be “reasonable delays in compliance”earning assets due to the ~~COVID-19 pandemic, and (iii) temporarily suspended implementation of its February 2020 ruling, which would have entailed significant changes~~rising interest rate environment;

•The provision for credit losses increased $1.2 million to ~~currency transaction reporting filing requirements~~$1.1 million for ~~transactions involving sole proprietorships and entities operating under a “doing business as” or other assumed name.~~

~~The Company’s Response to COVID-19~~

~~Lending Operations~~

~~The Company elected to take advantage of Section 4014 of~~ the ~~CARES Act provision to temporarily delay adoption of the CECL methodology. The Company was subject~~three months ended September 30, 2023, compared to the ~~adoption of~~same period in 2022;

•Total noninterest expense increased $3.8 million to $27.3 million for the CECL accounting method under the FASB ASU 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326) on January 1, 2020 and has since implemented CECL January 1, 2021. Refer to Note 1, Basis of Presentation and Note 5 Allowance for Credit Losses, of the Notes to Unaudited Consolidated Financial statements for additional disclosures related to CECL.

~~The Company quickly responded~~three months ended September 30, 2023 compared to the ~~pandemic~~same period in 2022; and

•Provision for income taxes decreased $4.2 million to $0.8 million for the ~~CARES Act, offering~~three months ended September 30, 2023 compared to $5.0 million for the ~~option of payment deferrals, participation~~same period in 2022 was primarily due to the ~~PPP, fee waivers and other relief actions~~decrease in pre-tax income due to ~~customers. Banks have been identified as essential services and have remained open~~the Company’s largest lending relationship moving into nonaccrual status during the COVID-19 pandemic. As of April 28, 2021, all of the Company’s branch lobbies are open. Every opportunity is being taken to protect both customers and employees through enhanced cleaning services, social distancing and personal protective equipment requirements for both. Approximately 20% of the Company’s workforce is working remotely.three months ended June 30, 2023.

Under the CARES Act, the PPP is an amendment to a program administered as part of the Small Business Administration’s (“SBA”) 7-A loan program. The Company became an approved SBA 7A lender in November 2019. The PPP is a guaranteed, unsecured loan program created to fund certain payroll and operating costs of eligible businesses, organizations and self-employed persons during the COVID-19 pandemic. Initially, $349 billion was approved and designatedHighlights for the PPP in order for the Small Business Administration (“SBA”) to guarantee 100% of collective loans made under the program to eligible small businesses, nonprofits, veteran’s organizations, and tribal businesses. The Company participated in the initial round of funding through a referral relationship with a third-party, non-bank lender. When an additional $310 billion in funds were approved and designated for the PPP, we opted to set up an internal, automated loan process utilizing our core system provider. As of March 31, 2021 we processed either through a third-party or internally 1,067 PPP loans totaling $66.0 million, represented by $17.9 million processed in round one, $39.9 million processed in round two and $8.2 million in round three. The Company has continued making PPP loans pursuant to the additional PPP authorization that was contained in the December 2020 COVID-19 relief law.

The FRB implemented a liquidity facility available to financial institutions participating in the PPP. However, the Company opted to fund all PPP loans through our internal liquidity sources. These loans are fully guaranteed by the SBA and do not represent a credit risk. We expect the vast majority of these PPP loans will be forgiven based upon a preliminary review of the loans. As of March 31, 2021, the Company thus far has had 295 loans totaling $19.4 million fully forgiven by the SBA.Nine Months Ended September 30, 2023

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CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

•Net interest income decreased $3.5 million, or 3.6%, to $94.9 million for the nine months ended September 30, 2023 compared to the same period in 2022 primarily due to an increase of 142 basis points in funding costs, partially offset by an increase of 79 basis points in the yield on earning assets due to the rising interest rate environment and the negative impact of placing the Bank’s largest lending relationship in nonaccrual status during the three months ended June 30, 2023;

•The ~~Company provides deferrals~~provision for credit losses increased $0.2 million to ~~customers under Section 4013~~$2.6 million for the nine months ended September 30, 2023, compared to the same period in 2022;

•Total noninterest income decreased $1.1 million to $15.0 million for the nine months ended September 30, 2023 compared to the same period in 2022;

•Total noninterest expense increased $7.0 million to $76.4 million for the nine months ended September 30, 2023 compared to the same period in 2022; and

•Provision for income taxes decreased $2.8 million to $5.3 million for the nine months ended September 30, 2023 compared to the same period in 2022.

Balance Sheet Highlights (period-end balances, September 30, 2023 compared to December 31, 2022)

•The securities portfolio decreased $42.9 million and is currently 17.8% of total assets compared to 19.9% of total assets;

•Total portfolio loans increased $262.0 million, or 11.1%, on an annualized basis, primarily due to loan growth in the ~~CARES Act~~commercial real estate (“CRE”), residential mortgage and ~~regulatory interagency statements on~~construction segments during the nine months ended September 30, 2023;

•The portfolio loans to deposit ratio was 95.9%, compared to 86.7%, due to loan ~~modifications, which suspends the requirement~~growth;

•Nonperforming loans as a percentage of total portfolio loans were 9.04% compared to ~~categorize these deferrals as Troubled Debt Restructuring (“TDRs”)~~0.21%. The Part I program was launched in March 2020 and expired at the end of August 2020. The deferrals in Part I typically provided deferral of both principal and interest through the expiry. The Part II program was launched in July 2020 and expired at the end of December 2020. The deferrals in this program were needs based and required the collection of updated financial information and in certain situations, the validation of liquiditysignificant increase is due to ~~support the business. Prior to the extension of the CARES Act, the Company launched the Part III program that offered borrowers~~loans contained in the Part II program an extension of deferrals through June 2021. For those borrowers who opted into the Part III program, they are required to provide monthly financial statements and remit payments on a quarterly basis based on excess cash flows, if any, up to their otherwise contractual payment. The majority of deferrals in the Part III program are principal only deferrals. At the end of the deferral period, for term loans, payments will be applied to accrued interest first and will resume principal payments once accrued interest is current. Deferred principal will be due at maturity. For interest only loans, such as lines of credit, deferred interest will be due at maturity.

~~As of March 31, 2021, we had 92 total customers opt for deferrals under Part III of the program, which continues through June 30, 2021,~~Other segment with an aggregate principal balance of ~~$407.0~~$301.9 million that were placed into nonaccrual status due to loan maturities and failure to pay in full during the second quarter of 2023. These loans comprise 97.9% of nonperforming loans at September 30, 2023;

•Total deposits decreased $74.2 million or ~~13.7%,~~2.0% to $3.6 billion at September 30, 2023 due to a decrease of $324.2 million in all deposit categories except CDs, which increased $250.0 million; and

•The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 2.77% compared to 2.98%. The ACL on portfolio loans totaled $94.5 million at September 30, 2023, compared to $93.9 million at December 31, 2022.

The Company reported net income of $3.6 million or $0.16 diluted earnings per common share (“EPS”) for the three months ended September 30, 2023 and ~~a weighted average deferment period~~$25.3 million, or $1.07 diluted EPS for the nine months ended September 30, 2023 compared to net income of ~~2.9 months. Approximately $320.4~~$14.4 million, ~~comprised of 58 loan modifications, were related~~or $0.59 diluted EPS and $34.5 million, or $1.38 diluted EPS, for the same periods in 2022.

The Company’s financial results for the three and nine months ended September 30, 2023, compared to the ~~hospitality industry. At the peak of the deferral programs, the company had 958~~same periods in 2022, were significantly impacted by placing commercial ~~and consumer customers opt for the program~~loans with an aggregate principal ~~balance~~value of ~~$1.2 billion, or 41.0% of total loans.~~

~~The following table provides detail~~$301.9 million in the Other segment of the ~~Company’s deferred loans as of March 31, 2021:~~Bank’s loan portfolio on nonaccrual status due to loan maturities and failure to pay in full. This nonaccrual classification had a $9.3 million and $20.6 million negative impact on interest income recognized by the Company for the three and nine months ended September 30, 2023.

(Dollars in Thousands) Number
of Loans Loan
Principal Percent of
Outstanding Weighted
Average
Deferment
Period
(months) Total Deferment
Principal Interest
Commercial Real Estate 85 $ 399,037 13.43 % 2.90 $ 280,451 $ 118,586
Commercial and Industrial 1 6,000 0.20 % 2.90 — 6,000
Residential Mortgages 5 1,828 0.06 % — 1,828 —
Other Consumer — — — % — — —
Construction 1 163 0.01 % 2.90 163 —
Other — — — % — — —
Total Aggregate Deferred Payments 92 $ 407,028 13.70 % 2.90 $ 282,442 $ 124,586

~~The following table provides detail of the Company’s deferred loans as of December 31, 2020:~~

(Dollars in Thousands) Number
of Loans Loan
Principal Percent of
Outstanding Weighted
Average
Deferment
Period
(months) Total Deferment
Principal Interest
Commercial
Commercial Real Estate 81 $ 382,437 12.98 % 6.0 $ 269,414 $ 113,023
Commercial and Industrial 1 6,000 0.20 % 6.0 — 6,000
Obligations of States and Political Subdivisions — — — % — — —
Commercial Construction 1 163 0.01 % 4.0 163 —
Total Commercial Loans 83 388,600 13.18 % 269,577 119,023
Consumer
Residential Mortgages — — — % — — —
Other Consumer — — — % — — —
Consumer Construction — — — % — — —
Total Consumer Loans — — — % — — —
Total Aggregate Deferred Payments 83 $ 388,600 13.18 % $ 5.9 $ 269,577 $ 119,023


	Three Months Ended September 30,				Nine Months Ended September 30,
PERFORMANCE RATIOS	2023		2022		2023		2022
Return on Average Assets	0.33	%	1.38	%	0.78	%	1.12	%
Return on Average Shareholders’ Equity	4.19	%	16.75	%	9.71	%	12.80	%
Portfolio Loans to Deposit Ratio	95.92	%	81.36	%	95.92	%	81.36	%
Allowance for Credit Losses to Total Portfolio Loans	2.77	%	3.11	%	2.77	%	3.11	%
Nonperforming Loans to Total Portfolio Loans	9.04	%	0.23	%	9.04	%	0.23	%

Table of Contents

CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

Our interest income could be reduced due to the COVID-19 pandemic. In keeping with guidance from regulators, we are actively working borrowers affected by the COVID-10 pandemic to defer their payments, interest, and fees. Interest and fees will still accrue to income through normal GAAP accounting. Should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the significance of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

Our exposure to hospitality at March 31, 2021 equated to approximately $501.5 million, or 16.9% of total portfolio loans, of which approximately $320.4 million on 58 loans are on deferral. These were mostly loans secured by upscale or top tier flagged hotels, which have historically exhibited low leverage and strong operating cash flows. However, we anticipate that a significant portion of our borrowers in the hotel industry will continue to operate at occupancy levels at or below breakeven which has caused, or will cause, them to draw on their existing lines of credit with other financial institutions or other sources of liquidity and may adversely affect their ability to repay existing indebtedness. These developments, together with the current economic conditions generally, may adversely impact the value of real estate collateral in hospitality and other commercial real estate exposure. These risk considerations were factored into qualitative adjustments included in the ACL. As a result, we anticipate that our financial condition, capital levels and results of operations could be adversely affected.

~~Retail Operations~~

The Company continues to promote digital banking options through our website. Customers are encouraged to utilize online and mobile banking tools and our customer contact center for personal and automated telephone banking services. Retail branches are staffed and available to assist customers by offering lobby appointments, drive-up and virtual servicing.

In March 2020, we closed all branch lobbies to customer activity, offering drive-up and appointment only services. On October 31, 2020, we opened 36 branch lobbies and as of April 28, 2021, we opened our remaining branch lobbies. Retail leadership continues to monitor branch traffic and local conditions daily and makes adjustments as needed. All branches are equipped with video conferencing and online tools that enable virtual servicing. We continue to pay all employees according to their normal work schedule, even if their hours have been reduced. No employees have been furloughed. Employees whose job responsibilities can be effectively carried out remotely are working from home. Employees whose critical duties require their continued presence on-site are utilizing personal protection equipment and observing social distancing and cleaning protocols.

Our fee income for 2020 was negatively impacted due to COVID-19 by approximately $1.5 million due to the COVID-19 pandemic. Beginning on July 20, 2020, certain account fees were reinstated. In keeping with guidance from regulators, we are actively working with customers effected by the COVID-10 pandemic to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees and account maintenance fees. We believe these reductions in fees are temporary in conjunction with the length of the economic crisis caused by the COVID-19 pandemic. The breadth of the economic impact is likely to continue to impact our fee income in future periods.

~~Capital Resources and Liquidity~~

As of March 31, 2021, all of the Company’s capital ratios were in excess of all regulatory requirements. The economic recession brought about by the COVID-19 pandemic has improved during the first quarter of 2021 and during the second quarter 2021 to date.

We maintain access to multiple sources of liquidity. Funding sources accessible to the Company include borrowing availability at the Federal Home Loan Bank (“FHLB”), equal to 25% of the Company’s assets approximating $1.0 billion, subject to the amount of eligible collateral pledged, and of which $506.1 million remains available at March 31, 2021, federal funds unsecured lines with six other correspondent financial institutions in the amount of $145.0 million and access to the institutional CD market through brokered CDs. In addition to the above resources, the Company also has $626.3 million of unpledged available-for-sale securities as an additional source of liquidity at March 31, 2021. 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.

~~Table of Contents~~

~~CARTER BANKSHARES, INC.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~

The Company is monitoring and will continue to monitor the impact of the COVID-19 pandemic and has taken and will continue to take steps to mitigate the potential risks and impact on our liquidity and capital resources. Due to the economic uncertainty, we are taking a prudent approach to capital management and have established access to the FRB’s PPP Lending Facility.

~~Earnings Summary~~

Net income increased $5.0 million, or 112.0%, for the three months ended March 31, 2021 compared to the same period in 2020. Net income for the three months ended March 31, 2021 was $9.4 million, or $0.36 diluted earnings per share, compared to net income of $4.4 million, or $0.17 diluted earnings per share, for the same period in 2020. The increase in net income was due to a lower provision for credit losses of $2.9 million, a $2.0 million increase in noninterest income and a decrease in noninterest expense of $1.1 million, offset by a decline in net interest income of $0.7 million and an increase in the provision for income taxes of $0.6 million.

Net interest income decreased $0.7 million, or 2.7%, to $26.5 million during the first three months of 2021 compared to the same period of 2020. The net interest margin, on a fully taxable equivalent (“FTE”) basis, which is non-GAAP measure, decreased 23 basis points to 2.78% in the first quarter of 2021 compared to 3.01% in the first quarter of 2020. The decreases in short-term interest rates had a negative impact on both net interest income and the net interest margin, but were partially offset by a lower cost of funds. The yield on interest-earning assets decreased 71 basis points for the three months ended March 31, 2021, partially offset by a 57 basis point decline in funding costs compared to the same period of 2020. Net interest margin is reconciled to net interest income adjusted to a FTE basis below in the “Net Interest Income” income section of the “Results of Operations - Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020 discussion below. Also refer to the “Explanation of Use of Non-GAAP Financial Measures” below for additional discussion of non-GAAP measures.

The provision for credit losses decreased $2.9 million to $1.9 million for the three months ended March 31, 2021 compared to $4.8 million for the same period of 2020 due to qualitative adjustments of $2.6 million for the decline in economic and market conditions as a result of COVID-19. The first quarter of 2021 provision for credit losses was primarily driven by adjustments to the CECL model to account for additional expected deterioration in credit quality with respect to loans on deferral. Management reviews and analyzes the monthly operating statements of commercial clients in the deferral program. During the first quarter of 2021, management observed continued deterioration on a loan in deferral with an aggregate principal balance of $8.1 million that was not previously recognized in the Day 1 model. This adjustment resulted in additional reserves of $1.5 million during the first quarter of 2021. Provision expense for the first quarter of 2021was impacted by net charge-offs totaling $0.7 million.

Prior to the adoption of CECL at January 1, 2021, the life-of-loss reserves on unfunded commitments was a component of noninterest expense and has not been reclassified for comparable periods. The life-of-loss reserves on unfunded commitments totaled $2.8 million at March 31, 2021.

Net charge-offs were $0.7 million in the first three months of 2021 compared to $0.6 million in the same period of 2020. As a percentage of average portfolio loans, on an annualized basis, net charge-offs were 0.10% for the three months ended March 31, 2021 and 0.09% for the same period in 2020. At March 31, 2021 and December 31, 2020, nonperforming loans were consistent at $32.0 million. Nonperforming loans as a percentage of total portfolio loans were 1.08%, 1.09% and 1.38% as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively.

Total noninterest income increased $2.0 million, or 28.8%, to $9.0 million for the three months ended March 31, 2021 compared to $7.0 million for the same period in 2020, primarily due to $3.6 million in net securities gains. Security gains increased by $2.4 million for the three months ended March 31, 2021 to $3.6 million compared to $1.2 million for the same period of 2020 due to the Company taking advantage of market opportunities, and repositioning and diversifying holdings in the securities portfolio. Other key factors that contributed to the increase in total noninterest income during the first quarter of 2021 were higher debit card interchange fees of $0.6 million, increased service charges on deposit accounts of $0.2 million and a $0.2 million increase in other noninterest income. These increases were offset by lower insurance commissions of $1.0 million and lower commercial loan swap fee income of $0.2 million due to declines in our interest rate swap contracts by our commercial customers.

~~Table of Contents~~

~~CARTER BANKSHARES, INC.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~

Total noninterest expense decreased $1.1 million, or 4.6%, for the first quarter of March 31, 2021 to $23.6 million compared to $24.7 million in the same period of 2020. The decrease was primarily driven by a decline of $1.0 million in salaries and employee benefits primarily attributable to our branch network optimization project, lower unfunded loan commitment expense of $1.0 million primarily due to the reclassification to the provision for credit losses in 2021 due to the adoption of CECL, a decrease of $0.4 million in advertising expenses due to the sunset of our deposit acquisition strategy in the fourth quarter of 2020 and a $0.5 million decrease in other noninterest expense. Offsetting these decreases were higher professional and legal fees of $0.8 million, higher data processing expenses of $0.4 million due to an increase in customer accounts and new modules added to our core processor, an increase of $0.3 million in occupancy expenses and a $0.2 million increase in the amortization of tax credits.

The provision for income taxes increased $0.7 million to $0.9 million for the three months ended March 31, 2021 compared to $0.2 million in the same period in 2020 as a result of an increase in pretax income of $5.6 million. Our effective tax rate increased to 9.0% for the three months ended March 31, 2021 compared to 5.3% for the same period in 2020. The increase in the effective tax rate is primarily due to a higher level of pretax income and a lower level of tax-exempt interest income. The Company ordinarily generates an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest income, tax credit projects and Bank Owned Life Insurance (“BOLI”), which are relatively consistent regardless of the level of pretax income.

~~Explanation of Use of Non-GAAP Financial Measures~~

In addition to the results of operations presented in accordance with generally accepted accounting principles (“GAAP”) in the United States, management uses, and this quarterly report references net interest income and net interest margin on a FTE basis, each of which is a non-GAAP financial measure. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. Although management believes that these non-GAAP financial measures enhance an investor’s understanding of our business and performance, these non-GAAP financial measure should not be considered an alternative to financial measures determined in accordance with GAAP or considered to be more important than financial measures determined in accordance with GAAP, nor is it necessarily comparable to similar non-GAAP financial measures which may be presented by us or other companies.

The Company believes the presentation of net interest income on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Net interest income per the Consolidated Statements of Income is reconciled to net interest income adjusted to an FTE basis in the Net Interest Income section of the "Results of Operations – Three Months Ended March 31, 2021 Compared to Three Months Ended March 31,2020."

~~RESULTS OF OPERATIONS~~

~~Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020~~

Net Interest Income

Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets, ~~and~~ interest-bearing liabilities, ~~and~~as well as changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee (“ALCO”), in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what the Company believes is an acceptable level of net interest income.

Net interest income and the net interest margin are presented on an FTE ~~basis, which are non-GAAP measures.~~basis. The FTE basis (non-GAAP) adjusts net interest income and net interest margin for the tax benefit of income on certain tax-exempt loans and securities using the applicable federal statutory tax rate for each period (which was 21% for the periods presented) and the dividend-received deduction for equity securities. The Company believes this FTE basis presentation provides a relevant comparison between taxable and non-taxable sources of interest income. Refer to the “Explanation of Use of Non-GAAP Financial Measures” above for additional discussion regarding the non-GAAP measures used in this Quarterly Report on Form 10-Q.

Total net interest income decreased $10.3 million to $27.4 million for the three months ended September 30, 2023 and decreased $3.5 million to $94.9 million for the nine months ended September 30, 2023 compared to the same periods in 2022. The decreases for the comparable periods was a result of ~~non-GAAP measures.~~the higher interest rate environment that benefited earning asset yields given the asset sensitive positioning of the balance sheet. The Company recognized higher yields on new loan originations and investment securities purchases, offset by the $9.3 million and $20.6 million negative impact on interest income related to the Company placing its largest lending relationship on nonaccrual status during the three and nine months ended September 30, 2023. Net interest income, on an FTE basis (non-GAAP), decreased $10.4 million to $27.6 million for the three months ended September 30, 2023 and decreased $3.6 million to $95.7 million for the nine months ended September 30, 2023, compared to $38.0 million and $99.3 million for the same periods in 2022, respectively.

For the three months ended September 30, 2023 the decrease in net interest income, on an FTE basis (non-GAAP) was driven by higher interest income of $6.5 million, offset by higher interest expense of $16.9 million compared to the same period last year. Net interest margin decreased 120 basis points and decreased 30 basis points to 2.52% and 2.98% for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. Net interest margin, on an FTE basis (non-GAAP), decreased 121 basis points and decreased 31 basis points to 2.54% and 3.00% for the three and nine months ended September 30, 2023 compared to the same periods in 2022, respectively.

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. In addition, rising market interest rates have begun to increase the Company’s funding costs, which we believe will likely continue in future periods and which would negatively impact the Company’s net interest income and net interest margin in future periods.

During the nine months ended September 30, 2023, the Company’s yield on earning assets continued to benefit from the rising interest rate environment. However, during the fourth quarter of 2023, the impacts of rising yields on earning assets may not be sufficient to offset the negative impacts of increased funding costs in the rising rate environment and the negative impacts on interest income related to the Company’s largest lending relationship being placed in nonaccrual status.

Positively impacting the nine months ended September 30, 2023 was the asset sensitivity of our balance sheet. Yields on a large portion of our loan and securities portfolios adjust as rates rise at a quicker rate than the rates our deposits and other funding sources adjust. Yields on our loan portfolio consist of 24.5% floating rates and 41.3% variable rates, while 47.3% of the securities portfolio is floating rate and adjust as interest rates increase. This positively impacts revenue and helps mitigate increased funding costs.

The following table 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

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CARTER BANKSHARES, INC.

ITEM 2. 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:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Thousands)	2023			2022			2023			2022
Interest Income (FTE)(Non-GAAP)
Interest and Dividend Income (GAAP)	$	48,886		$	42,327		$	144,557		$	111,966
Tax Equivalent Adjustment	247			279			768			870
Interest and Dividend Income (FTE) (Non-GAAP)	49,133			42,606			145,325			112,836
Average Earning Assets	$	4,320,390		$	4,024,880		$	4,256,560		$	4,006,788
Yield on Interest-earning Assets (GAAP)	4.49		%	4.17		%	4.54		%	3.74		%
Yield on Interest-earning Assets (FTE) (Non-GAAP)	4.51		%	4.20		%	4.56		%	3.77		%

Net Interest Income (GAAP)	$	27,394		$	37,725		$	94,890		$	98,406
Tax Equivalent Adjustment	247			279			768			870
Net Interest Income (FTE) (Non-GAAP)	27,641			38,004			95,658			99,276
Average Earning Assets	$	4,320,390		$	4,024,880		$	4,256,560		$	4,006,788
Net Interest Margin (GAAP)	2.52		%	3.72		%	2.98		%	3.28		%
Net Interest Margin (FTE) (Non-GAAP)	2.54		%	3.75		%	3.00		%	3.31		%

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CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

Average Balance Sheet and Net Interest Income Analysis (FTE)

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 periods presented:


	Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
(Dollars in Thousands)	Average Balance		Income/ Expense		Yield/Rate		Average Balance		Income/ Expense		Yield/Rate
ASSETS
Interest-Bearing Deposits with Banks	$	12,652	$	172	5.39	%	$	25,151	$	134	2.11	%
Tax-Free Investment Securities(2)	27,594		203		2.92	%	30,073		215		2.84	%
Taxable Investment Securities	893,386		7,793		3.46	%	942,571		5,466		2.30	%
Total Securities	920,980		7,996		3.44	%	972,644		5,681		2.32	%
Tax-Free Loans(1)(2)	120,670		972		3.20	%	141,082		1,115		3.14	%
Taxable Loans(3)	3,243,663		39,578		4.84	%	2,883,790		35,652		4.90	%
Total Loans	3,364,333		40,550		4.78	%	3,024,872		36,767		4.82	%
Federal Home Loan Bank Stock	22,425		415		7.34	%	2,213		24		4.30	%
Total Interest-Earning Assets	4,320,390		$	49,133	4.51	%	4,024,880		$	42,606	4.20	%
Noninterest Earning Assets	88,805						109,307
Total Assets	$	4,409,195					$	4,134,187

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Demand	$	475,939	$	720	0.60	%	$	500,281	$	462	0.37	%
Money Market	430,954		2,495		2.30	%	552,718		395		0.28	%
Savings	504,697		140		0.11	%	731,931		192		0.10	%
Certificates of Deposit	1,486,165		11,973		3.20	%	1,257,907		3,420		1.08	%
Total Interest-Bearing Deposits	2,897,755		15,328		2.10	%	3,042,837		4,469		0.58	%
Federal Home Loan Bank Borrowings	447,287		5,986		5.31	%	3,913		31		3.14	%
Federal Funds Purchased	7,550		107		5.62	%	3,432		23		2.66	%
Other Borrowings	6,131		71		4.59	%	6,326		79		4.95	%
Total Borrowings	460,968		6,164		5.31	%	13,671		133		3.86	%
Total Interest-Bearing Liabilities	3,358,723		21,492		2.54	%	3,056,508		4,602		0.60	%
Noninterest-Bearing Liabilities	707,445						736,441
Shareholders' Equity	343,027						341,238
Total Liabilities and Shareholders' Equity	$	4,409,195					$	4,134,187
Net Interest Income(2)			$	27,641					$	38,004
Net Interest Margin(2)					2.54	%					3.75	%

(1) Nonaccruing loans are included in the daily average loan amounts outstanding.

(2) Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

(3) Average loan balances include loans held-for-sale.

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CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

~~Total net interest~~


	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022
(Dollars in Thousands)	Average Balance		Income/ Expense		Yield/Rate		Average Balance		Income/ Expense		Yield/Rate
ASSETS
Interest-Bearing Deposits with Banks	$	15,550	$	587	5.05	%	$	64,858	$	257	0.53	%
Tax-Free Investment Securities(2)	28,189		618		2.93	%	30,188		663		2.94	%
Taxable Investment Securities	908,670		22,874		3.37	%	959,456		13,650		1.90	%
Total Securities	936,859		23,492		3.35	%	989,644		14,313		1.93	%
Tax-Free Loans(1)(2)	126,578		3,041		3.21	%	147,372		3,484		3.16	%
Taxable Loans(3)	3,158,888		117,235		4.96	%	2,802,692		94,716		4.52	%
Total Loans	3,285,466		120,276		4.89	%	2,950,064		98,201		4.45	%
Federal Home Loan Bank Stock	18,685		970		6.94	%	2,222		66		3.97	%
Total Interest-Earning Assets	4,256,560		$	145,325	4.56	%	4,006,788		$	112,836	3.77	%
Noninterest Earning Assets	92,613						128,105
Total Assets	$	4,349,173					$	4,134,893

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Demand	$	485,605	$	1,876	0.52	%	$	484,076	$	1,082	0.30	%
Money Market	440,700		5,607		1.70	%	530,560		989		0.25	%
Savings	570,538		456		0.11	%	724,472		559		0.10	%
Certificates of Deposit	1,388,773		26,690		2.57	%	1,278,905		10,650		1.11	%
Total Interest-Bearing Deposits	2,885,616		34,629		1.60	%	3,018,013		13,280		0.59	%
Federal Home Loan Bank Borrowings	380,023		14,461		5.09	%	3,978		47		1.58	%
Federal Funds Purchased	9,062		354		5.22	%	2,168		27		1.67	%
Other Borrowings	6,247		223		4.77	%	5,637		206		4.89	%
Total Borrowings	395,332		15,038		5.09	%	11,783		280		3.18	%
Total Interest-Bearing Liabilities	3,280,948		49,667		2.02	%	3,029,796		13,560		0.60	%
Noninterest-Bearing Liabilities	720,181						744,597
Shareholders' Equity	348,044						360,500
Total Liabilities and Shareholders' Equity	$	4,349,173					$	4,134,893
Net Interest Income(2)			$	95,658					$	99,276
Net Interest Margin(2)					3.00	%					3.31	%

(1) Nonaccruing loans are included in the daily average loan amounts outstanding.

(2) Tax-exempt income ~~decreased $0.7~~is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

(3) Average loan balances include loans held-for-sale.

Interest income increased $6.6 million ~~or 2.7%, to $26.5~~and $32.6 million for the three and nine months ended ~~March 31, 2021,~~September 30, 2023, respectively, compared to ~~$27.3 million for~~ the same ~~period~~periods in ~~2020 primarily due the decline in the interest rate environment, offset by an increase in the volume of interest-earning assets. Net interest~~2022. Interest income, on an FTE basis (non-GAAP), ~~decreased $0.9~~increased $6.5 million ~~or 3.1%,~~and $32.5 million for the three and nine months ended September 30, 2023, respectively, compared to ~~$27.0~~the same periods in 2022. The change was primarily due to increases in average interest-earning assets of $295.5 million and $249.8 million in the ~~first quarter of 2021~~three and nine months ended September 30, 2023, respectively, compared to ~~$27.9 million in~~ the same ~~period~~periods in ~~2020. The decrease~~2022. Also impacting the change was higher interest rate yields on interest-earning assets of 31 basis points and 79 basis points for the three and nine months ended September 30, 2023, respectively, compared to the same periods in ~~net~~2022 due to the rising interest rate environment. These changes were offset by the negative impact of $9.3 million and $20.6 million for the three and nine months ended September 30, 2023, respectively, to interest income related to placing the Company’s largest lending relationship on ~~an FTE~~nonaccrual status.

For the three and nine months ended September 30, 2023 compared to the same periods in 2022, average interest-bearing deposits with banks decreased $12.5 million and $49.3 million, respectively, as funds were deployed into higher yielding loans, and the average rate earned increased 328 basis ~~was driven by an $5.0~~points and 452 basis points, respectively. Average loan balances increased $339.5 million ~~decrease~~and $335.4 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. Loans provide the greatest impact on interest income ~~partially offset by a $4.1 million decrease in interest expense during~~and the yield on earning assets as they have the largest balance and the highest yield within major earning asset categories. The average rate earned on loans decreased four basis points for the three months ended ~~March 31, 2021~~September 30, 2023 compared to the same period ~~in 2020. The decreases in short-term interest rates had a negative impact on both net interest income and the net interest margin, but are partially offset by a lower cost~~ of ~~funds. Net interest margin decreased 21 basis points to 2.73% in the first quarter of 2021 compared to 2.94% for the same period in 2020~~2022, primarily due to the negative impact of ~~lower yields~~placing the Company’s largest lending relationship on ~~interest-earning assets, offset by a decline in the cost of interest-bearing liabilities. The net interest margin, on an FTE basis (non-GAAP), decreased 23~~nonaccrual status, and increased 44 basis points ~~to 2.78% in~~for the ~~first three~~nine months ended ~~2021~~September 30, 2023 compared to ~~3.01% for~~ the same period in ~~2020, primarily due~~2022.

Interest income was negatively impacted by placing the Company’s largest lending relationship on nonaccrual status during the second quarter of 2023, resulting in negative impacts to ~~the lower interest rate environment. The lower interest rate environment and the intentional runoff of higher cost CDs has significantly contributed to lower the overall cost of funds.~~

~~The following table reconciles net~~ interest income ~~per the Consolidated Statements~~ of ~~Income to net interest income on an FTE basis, and net interest margin to net interest margin on an FTE basis, for the periods presented:~~

For the Three Months Ended March 31,
(Dollars in Thousands) 2021 2020
Total Interest Income $ 32,957 $ 37,836
Total Interest Expense 6,428 10,572
Net Interest Income per Consolidated Statements of Net Income 26,529 27,264
Adjustment to FTE Basis 462 601
Net Interest Income (FTE)(non-GAAP) $ 26,991 $ 27,865
Net Interest Margin 2.73 % 2.94 %
Adjustment to FTE Basis 0.05 % 0.07 %
Net Interest Income (FTE)(non-GAAP) 2.78 % 3.01 %
by $20.6 million since June 30, 2023, including $9.3

Table of Contents

CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

~~Average Balance Sheet and Net Interest Income Analysis (FTE)~~

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 periods presented:

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
(Dollars in Thousands)
Average Balance(3)
Income/ Expense Rate Average Balance Income/ Expense Rate
ASSETS
Interest-bearing Deposits with Banks $ 174,731 $ 50 0.12 % $ 62,960 $ 210 1.34 %
Tax-free Investment Securities(2)
51,589 413 3.25 % 21,452 204 3.82 %
Taxable Investment Securities 708,250 2,987 1.71 % 712,104 4,502 2.54 %
Tax-free Loans(1)(2)
223,012 1,787 3.25 % 337,857 2,660 3.17 %
Taxable Loans(1)
2,777,423 28,145 4.11 % 2,584,917 30,797 4.79 %
Federal Home Loan Bank Stock 4,805 37 3.12 % 4,418 64 5.83 %
Total Interest-earning Assets $ 3,939,810 $ 33,419 3.44 % $ 3,723,708 $ 38,437 4.15 %
LIABILITIES
Deposits:
Interest-bearing Demand $ 378,886 $ 215 0.23 % $ 297,395 $ 446 0.60 %
Money Market 309,624 266 0.35 % 154,564 271 0.71 %
Savings 644,806 162 0.10 % 562,712 145 0.10 %
Certificates of Deposit 1,620,543 5,652 1.41 % 1,918,841 9,633 2.02 %
Total Interest-bearing Deposits 2,953,859 6,295 0.86 % 2,933,512 10,495 1.44 %
Borrowings:
Federal Funds Purchased — — — % 220 1 1.83 %
FHLB Borrowings 33,889 96 1.15 % 17,418 58 1.34 %
Other Borrowings 2,307 37 6.50 % 1,481 18 4.89 %
Total Borrowings 36,196 133 1.49 % 19,119 77 1.62 %
Total Interest-bearing Liabilities $ 2,990,055 6,428 0.87 % $ 2,952,631 10,572 1.44 %
Net Interest Income(2)
$ 26,991 $ 27,865
Net Interest Margin(2)
2.78 % 3.01 %

~~(1)Nonaccruing loans are included~~million in the ~~daily average loan amounts outstanding.~~

~~(2)Tax-exempt income is on an FTE basis using~~third quarter of 2023 and $11.3 million in 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.~~

Interest income, on an FTE basis (non-GAAP), decreased $5.0 million, or 13.1%, for the three months ended March 31, 2021, compared to the same period in 2020. We are currently maintaining higher liquidity levels as a result of COVID-19. The change was primarily due to an increase in average interest-earning assets of $216.1 million for the three months ended March 31, 2021 offset by lower short-term interest rates compared to the same period in 2020. Average interest-bearing deposits with banks increased $111.8 million and the average rate earned decreased 122 basis points compared to the same period in 2020. Average loan balances increased $77.7 million for the three months ended March 31, 2021 compared to the same period in 2020, which includes PPP loan production that began in second quarter of ~~2020. Average PPP loans for~~2023. These negative impacts represented an estimated negative effect on the ~~three months ended March 31, 2021 totaled $31.2 million. The average rate earned~~yield on ~~loans decreased 56 basis points for the first quarter~~earning assets of ~~2021 compared to the same period in 2020 primarily due to lower short-term interest rates. Average investment securities increased $26.3 million and the average rate earned decreased 77~~85 basis points for the three months ended ~~2021~~September 30, 2023 and 64 basis points for the nine months ended September 30, 2023.

At September 30, 2023 the loan portfolio was comprised of 24.5% floating rate loans which reprice monthly, 41.3% variable rate loans that reprice at least once during the life of the loan and 34.2% fixed rate loans that do not reprice during the life of the loan.

Average investment securities decreased $51.7 million and $52.8 million for the three and nine months ended September 30, 2023, respectively, compared to the same ~~period~~periods in ~~2020.~~2022. The average rate earned on investment securities increased 112 basis points and 142 basis points for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The change in investment securities is the result of active balance sheet management ~~as our~~to deploy the proceeds from securities maturities and principal payments into higher yielding loans, rather than reinvesting those proceeds back into the securities portfolio. The portfolio has been diversified as to bond types, maturities, and interest rate structures. ~~Overall,~~As of September 30, 2023, the ~~FTE~~securities portfolio was comprised of 47.3% variable rate securities with approximately 99.4% that will reprice at least once over the next 12 months. We believe having a significant percentage of variable rate securities is an important strategy during times of rising interest rates because fixed-rate bond prices generally fall when interest rates increase, which can result in unrealized losses. However, variable rate securities do not carry as much interest rate risk so there is much less price volatility. This variable rate strategy is expected to limit the impact of rising rates on ~~interest-earning assets (non-GAAP) decreased 71 basis points~~the Company’s unrealized losses on debt securities.

Interest expense increased $16.9 million and $36.1 million for the ~~first quarter of 2021~~three and nine months ended September 30, 2023, respectively, compared to the same ~~period~~periods in ~~2020.~~2022 due to increases in the cost of all interest-bearing liability categories, except savings accounts, in the higher rate environment. Also contributing to the increased interest expense is the shift to higher cost deposits and borrowings due to a decline and change in mix of deposits and the Company’s use of higher-cost borrowings to fund growth in the loan portfolio, including $145.1 million and $132.4 million declines in average interest-bearing deposits for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022.

The cost of interest-bearing liabilities increased by 194 basis points and 142 basis points to 2.54% and 2.02% for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. Interest expense ~~decreased $4.1~~on deposits increased $10.9 million and $21.3 million for the three and nine months ended ~~March 31, 2021~~September 30, 2023 compared to the same ~~period~~periods in ~~2020. The decrease was~~2022 primarily due to ~~lower short-term interest~~the rates on these deposits increasing 152 basis points and 101 basis points to 2.10% and 1.60%, respectively. The increases in ~~2021 as~~rates for the three and nine months ended September 30, 2023 compared to ~~2020 as well as~~ the ~~intentional runoff of~~same periods last year included interest-bearing demand deposits up by 23 basis points and 22 basis points, respectively, money market accounts up by 202 basis points and 145 basis points, respectively, and CDs up by 212 basis points and 146 basis points, respectively, in response to competitive pressures from higher ~~cost CDs. Interest expense~~market rates compared to the same periods in 2022. The average rates paid on ~~interest-bearing deposits decreased $4.2~~savings accounts increased by one basis point for both the three and nine months ended September 30, 2023 compared to the same periods in 2022.

The average balances on borrowings increased $447.3 million and $383.5 million for the three and nine months ended ~~March 31, 2021~~September 30, 2023, respectively, when compared to the same ~~period~~periods in ~~2020 primarily due to the decline in the average balance~~2022. The cost of ~~CDs~~borrowings increased 145 basis points and interest-bearing demand accounts. The decrease of $298.3 million in the average balance of CDs for the three months ended March 31, 2021 compared to the same period in 2020 was primarily due to the intentional runoff of these higher cost CDs. Interest-bearing demand accounts increased $81.5 million for the three months ended March 31, 2021 compared to the same period in 2020. The average rate paid on interest-bearing deposits decreased 58191 basis points for the three and nine months ended ~~March 31, 2021~~September 30, 2023, respectively, when compared to the same ~~period~~periods in ~~2020 primarily~~2022, largely due to ~~lower short-term~~increased balances and the higher interest ~~rates. Average total borrowings increased $17.1 million and~~rate environment.

Table of Contents

CARTER BANKSHARES, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)

the average rate paid decreased 13 basis points for the three months ended March 31, 2021 compared to the same period in 2020. Overall, the cost of interest-bearing liabilities decreased 57 basis points for the three months ended March 31, 2021 compared to the same period in 2020.

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:


		Three Month Ended March 31, 2021 Compared to March 31, 2020							Three Months Ended September 30, 2023 Compared to September 30, 2022						Nine Months Ended September 30, 2023 Compared to September 30, 2022
(Dollars in Thousands)	(Dollars in Thousands)	Volume(3)		Rate(3)		Increase/ (Decrease)		(Dollars in Thousands)	Volume(3)		Rate(3)		Increase/ (Decrease)		Volume(3)		Rate		Increase/ (Decrease)
ASSETS
Interest-bearing Deposits with Banks		$	146	$	(306)	$	(160)
Interest Earned on:								Interest Earned on:
Interest-Bearing Deposits with Banks								Interest-Bearing Deposits with Banks	$	(92)	$	130	$	38	$	(332)	$	662	$	330
Tax-free Investment Securities(2)	Tax-free Investment Securities(2)	244		(35)		209		Tax-free Investment Securities(2)	(18)		6		(12)		(44)		(1)		(45)
Taxable Investment Securities	Taxable Investment Securities	(25)		(1,490)		(1,515)		Taxable Investment Securities	(299)		2,626		2,327		(758)		9,982		9,224
Total Securities								Total Securities	(317)		2,632		2,315		(802)		9,981		9,179
Tax-free Loans(1)(2)	Tax-free Loans(1)(2)	(939)		66		(873)		Tax-free Loans(1)(2)	(165)		22		(143)		(499)		56		(443)
Taxable Loans(1)	Taxable Loans(1)	2,076		(4,728)		(2,652)		Taxable Loans(1)	4,397		(471)		3,926		12,704		9,815		22,519
Total Loans								Total Loans	4,232		(449)		3,783		12,205		9,870		22,075
Federal Home Loan Bank Stock	Federal Home Loan Bank Stock	22		(49)		(27)		Federal Home Loan Bank Stock	363		28		391		821		83		904
Total Interest-earning Assets		$	1,524	$	(6,542)	$	(5,018)
Total Interest-Earning Assets								Total Interest-Earning Assets	$	4,186	$	2,341	$	6,527	$	11,892	$	20,597	$	32,489

LIABILITIES
Deposits:
Interest-bearing Demand		$	97	$	(328)	$	(231)
Interest Paid on:								Interest Paid on:
Interest-Bearing Demand								Interest-Bearing Demand	$	(23)	$	281	$	258	$	3	$	791	$	794
Money Market	Money Market	177		(182)		(5)		Money Market	(106)		2,206		2,100		(195)		4,813		4,618
Savings	Savings	20		(3)		17		Savings	(62)		10		(52)		(122)		19		(103)
Certificates of Deposit	Certificates of Deposit	(1,360)		(2,621)		(3,981)		Certificates of Deposit	724		7,829		8,553		989		15,051		16,040
Total Interest-bearing Deposits		(1,066)		(3,134)		(4,200)
Borrowings:
Total Interest-Bearing Deposits								Total Interest-Bearing Deposits	533		10,326		10,859		675		20,674		21,349
Federal Home Loan Bank Borrowings								Federal Home Loan Bank Borrowings	5,919		36		5,955		14,083		331		14,414
Federal Funds Purchased	Federal Funds Purchased	1		(2)		(1)		Federal Funds Purchased	44		40		84		196		131		327
FHLB Borrowings		48		(10)		38
Other Borrowings	Other Borrowings	12		7		19		Other Borrowings	(2)		(6)		(8)		22		(5)		17
Total Borrowings	Total Borrowings	61		(5)		56		Total Borrowings	5,961		70		6,031		14,301		457		14,758
Total Interest-bearing Liabilities		$	(1,005)	$	(3,139)	$	(4,144)
Total Interest-Bearing Liabilities								Total Interest-Bearing Liabilities	6,494		10,396		16,890		14,976		21,131		36,107
Change in Net Interest Margin	Change in Net Interest Margin	$	2,529	$	(3,403)	$	(874)	Change in Net Interest Margin	$	(2,308)	$	(8,055)	$	(10,363)	$	(3,084)	$	(534)	$	(3,618)


Virginia			85-3365661
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
1300 Kings Mountain Road	Martinsville	Virginia	24112
(Address of principal executive offices)			(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value	CARE	Nasdaq Global Select Market


PART I - FINANCIAL INFORMATION			3
ITEM 1 – FINANCIAL STATEMENTS			3
Consolidated Balance Sheets - ~~March 31, 2021~~September 30, 2023 (unaudited) and December 31, ~~2020~~2022 (audited)			3
Consolidated Statements of Income - Three and Nine Months Ended ~~March 31, 2021~~September 30, 2023 and ~~2020~~2022 (unaudited)			4
Consolidated Statements of Comprehensive (Loss) Income - Three and Nine Months Ended ~~March 31, 2021~~September 30, 2023 and ~~2020~~2022 (unaudited)			5
Consolidated Statements of Changes in Shareholders' Equity - Three and Nine Months Ended ~~March 31, 2021~~September 30, 2023 and ~~2020~~2022 (unaudited)			6
Consolidated Statements of Cash Flows – ~~Three~~Nine Months Ended ~~March 31, 2021~~September 30, 2023 and ~~2020~~2022 (unaudited)			7
Notes to Unaudited Consolidated Financial Statements			8
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			36
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			6263
ITEM 4 - CONTROLS AND PROCEDURES			6364
PART II – OTHER INFORMATION			6465
ITEM 1 - LEGAL PROCEEDINGS			6465
ITEM 1A –- RISK FACTORS			6466
ITEM 2 –- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			6466
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES			6467
ITEM 4 ~~–MINE~~-MINE SAFETY DISCLOSURES			6467
ITEM 5 - OTHER INFORMATION			6467
ITEM 6 - EXHIBITS			6568
SIGNATURES			6669


(Dollars in Thousands Except per Share Data)	(Dollars in Thousands Except per Share Data)	March 31, 2021 (unaudited)		December 31, 2020 (audited)		(Dollars in Thousands Except per Share Data)	September 30, 2023 (unaudited)		December 31, 2022 (audited)
ASSETS	ASSETS					ASSETS
Cash and Due From Banks		$	42,899	$	38,535
Interest-Bearing Deposits in Other Financial Institutions		65,624		39,954
Federal Reserve Bank Excess Reserves		110,631		163,453
Cash and Due From Banks, including Interest-bearing Deposits of $17,438 at September 30, 2023 and $4,505 at December 31, 2022						Cash and Due From Banks, including Interest-bearing Deposits of $17,438 at September 30, 2023 and $4,505 at December 31, 2022	$	55,398	$	46,869

Total Cash and Cash Equivalents	Total Cash and Cash Equivalents	219,154		241,942		Total Cash and Cash Equivalents	55,398		46,869
Securities Available-for-Sale, at Fair Value		780,032		778,679

Securities Available-for-Sale, at Fair Value (amortized cost of $912,989 and $945,707, respectively)						Securities Available-for-Sale, at Fair Value (amortized cost of $912,989 and $945,707, respectively)	793,389		836,273
Loans Held-for-Sale	Loans Held-for-Sale	32,737		25,437		Loans Held-for-Sale	—		—
Loans Held-for-Sale in Connection with Sale of Bank Branches, at the lower of cost or fair value		9,423		9,835

Portfolio Loans	Portfolio Loans	2,971,875		2,947,170		Portfolio Loans	3,410,940		3,148,913
Allowance for Credit Losses	Allowance for Credit Losses	(116,872)		(54,074)		Allowance for Credit Losses	(94,474)		(93,852)
Portfolio Loans, net	Portfolio Loans, net	2,855,003		2,893,096		Portfolio Loans, net	3,316,466		3,055,061
Bank Premises and Equipment, net	Bank Premises and Equipment, net	85,349		85,307		Bank Premises and Equipment, net	73,932		72,114
Bank Premises and Equipment, Held-for-Sale, net		2,273		2,293

Other Real Estate Owned, net	Other Real Estate Owned, net	14,031		15,722		Other Real Estate Owned, net	3,765		8,393
Federal Home Loan Bank Stock, at Cost	Federal Home Loan Bank Stock, at Cost	3,215		5,093		Federal Home Loan Bank Stock, at Cost	27,361		9,740
Bank Owned Life Insurance	Bank Owned Life Insurance	54,337		53,997		Bank Owned Life Insurance	57,762		56,734
Other Assets	Other Assets	86,576		67,778		Other Assets	124,095		119,335
Total Assets	Total Assets	$	4,142,130	$	4,179,179	Total Assets	$	4,452,168	$	4,204,519

LIABILITIES	LIABILITIES					LIABILITIES
Deposits:	Deposits:					Deposits:
Noninterest-Bearing Demand	Noninterest-Bearing Demand	$	733,291	$	699,229	Noninterest-Bearing Demand	$	661,454	$	703,334
Interest-Bearing Demand	Interest-Bearing Demand	384,425		366,201		Interest-Bearing Demand	469,904		496,948
Money Market	Money Market	323,008		294,229		Money Market	426,172		484,238
Savings	Savings	646,722		625,482		Savings	487,105		684,287
Certificates of Deposit	Certificates of Deposit	1,522,510		1,614,770		Certificates of Deposit	1,511,554		1,261,526
Deposits Held-for-Assumption in Connection with Sale of Bank Branches		81,565		84,717

Total Deposits	Total Deposits	3,691,521		3,684,628		Total Deposits	3,556,189		3,630,333
Federal Home Loan Bank Borrowings	Federal Home Loan Bank Borrowings	30,000		35,000		Federal Home Loan Bank Borrowings	514,135		180,550
Federal Funds Purchased						Federal Funds Purchased	—		17,870
Other Liabilities	Other Liabilities	32,720		19,377		Other Liabilities	51,223		47,139
Total Liabilities	Total Liabilities	3,754,241		3,739,005		Total Liabilities	4,121,547		3,875,892

SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY					SHAREHOLDERS’ EQUITY
Common Stock, Par Value $1.00 per share, Authorized 100,000,000 Shares Outstanding 26,467,531 at March 31, 2021 and 26,385,041 at December 31, 2020		26,468		26,385
Common Stock, Par Value $1.00 per share, Authorized 100,000,000 Shares; Outstanding shares 22,955,753 at September 30, 2023 and 23,956,772 at December 31, 2022						Common Stock, Par Value $1.00 per share, Authorized 100,000,000 Shares; Outstanding shares 22,955,753 at September 30, 2023 and 23,956,772 at December 31, 2022	22,956		23,957
Additional Paid-in Capital	Additional Paid-in Capital	143,582		143,457		Additional Paid-in Capital	90,254		104,693
Retained Earnings	Retained Earnings	213,260		254,611		Retained Earnings	310,971		285,593
Accumulated Other Comprehensive Income		4,579		15,721
Accumulated Other Comprehensive Loss						Accumulated Other Comprehensive Loss	(93,560)		(85,616)
Total Shareholders’ Equity	Total Shareholders’ Equity	387,889		440,174		Total Shareholders’ Equity	330,621		328,627
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	4,142,130	$	4,179,179	Total Liabilities and Shareholders’ Equity	$	4,452,168	$	4,204,519


(Dollars in Thousands Except per Share Data)	(Dollars in Thousands Except per Share Data)	Three Months Ended March 31,				(Dollars in Thousands Except per Share Data)	Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020			2023		2022		2023		2022
INTEREST INCOME	INTEREST INCOME					INTEREST INCOME
Loans, including fees	Loans, including fees					Loans, including fees
Taxable	Taxable	$	28,145	$	30,797	Taxable	$	39,578	$	35,652	$	117,235	$	94,720
Non-Taxable	Non-Taxable	1,412		2,102		Non-Taxable	768		881		2,403		2,749
Investment Securities	Investment Securities					Investment Securities
Taxable	Taxable	2,987		4,502		Taxable	7,793		5,466		22,874		13,650
Non-Taxable	Non-Taxable	326		161		Non-Taxable	160		170		488		524
FRB Excess Reserves		26		136
Federal Reserve Bank Excess Reserves						Federal Reserve Bank Excess Reserves	165		134		553		229
Interest on Bank Deposits	Interest on Bank Deposits	24		74		Interest on Bank Deposits	6		—		33		28
Dividend Income	Dividend Income	37		64		Dividend Income	416		24		971		66
Total Interest Income	Total Interest Income	32,957		37,836		Total Interest Income	48,886		42,327		144,557		111,966
Interest Expense	Interest Expense					Interest Expense
Interest Expense on Deposits	Interest Expense on Deposits	6,295		10,495		Interest Expense on Deposits	15,328		4,469		34,629		13,280
Interest Expense on Federal Funds Purchased	Interest Expense on Federal Funds Purchased	0		1		Interest Expense on Federal Funds Purchased	107		23		354		27
Interest on Other Borrowings	Interest on Other Borrowings	133		76		Interest on Other Borrowings	6,057		110		14,684		253
Total Interest Expense	Total Interest Expense	6,428		10,572		Total Interest Expense	21,492		4,602		49,667		13,560
NET INTEREST INCOME	NET INTEREST INCOME	26,529		27,264		NET INTEREST INCOME	27,394		37,725		94,890		98,406
Provision for Credit Losses		1,857		4,798
Provision for Unfunded Commitments		(282)		0
Provision (Recovery) for Credit Losses						Provision (Recovery) for Credit Losses	1,105		(77)		2,605		2,367
(Recovery) Provision for Unfunded Commitments						(Recovery) Provision for Unfunded Commitments	(130)		157		314		190
Net Interest Income After Provision for Credit Losses	Net Interest Income After Provision for Credit Losses	24,954		22,466		Net Interest Income After Provision for Credit Losses	26,419		37,645		91,971		95,849
NONINTEREST INCOME	NONINTEREST INCOME					NONINTEREST INCOME
Gain on Sales of Securities, net		3,610		1,214
(Losses) Gains on Sales of Securities, net						(Losses) Gains on Sales of Securities, net	(1)		(4)		(10)		48
Service Charges, Commissions and Fees	Service Charges, Commissions and Fees	1,809		1,650		Service Charges, Commissions and Fees	1,783		1,750		5,380		5,452
Debit Card Interchange Fees	Debit Card Interchange Fees	1,831		1,243		Debit Card Interchange Fees	1,902		1,788		5,941		5,570
Insurance Commissions	Insurance Commissions	294		1,309		Insurance Commissions	868		876		1,550		1,713
Bank Owned Life Insurance Income	Bank Owned Life Insurance Income	340		353		Bank Owned Life Insurance Income	348		341		1,028		1,009
Other Real Estate Owned Income		71		139
(Losses) Gains on Sales and Write-downs of Bank Premises, net						(Losses) Gains on Sales and Write-downs of Bank Premises, net	—		(4)		—		342

Commercial Loan Swap Fee Income	Commercial Loan Swap Fee Income	219		422		Commercial Loan Swap Fee Income	—		18		114		774
Other	Other	778		622		Other	370		470		1,030		1,266
Total Noninterest Income	Total Noninterest Income	8,952		6,952		Total Noninterest Income	5,270		5,235		15,033		16,174
NONINTEREST EXPENSE	NONINTEREST EXPENSE					NONINTEREST EXPENSE
Salaries and Employee Benefits	Salaries and Employee Benefits	12,582		13,581		Salaries and Employee Benefits	13,956		13,520		41,257		37,721
Occupancy Expense, net	Occupancy Expense, net	3,514		3,249		Occupancy Expense, net	3,547		3,412		10,548		10,060
FDIC Insurance Expense	FDIC Insurance Expense	643		544		FDIC Insurance Expense	1,368		543		2,711		1,540
Other Taxes	Other Taxes	762		746		Other Taxes	846		848		2,436		2,471
Advertising Expense	Advertising Expense	170		612		Advertising Expense	363		368		1,133		874
Telephone Expense	Telephone Expense	600		574		Telephone Expense	500		448		1,339		1,390
Professional and Legal Fees	Professional and Legal Fees	1,224		437		Professional and Legal Fees	1,512		1,310		4,005		3,731
Data Processing	Data Processing	921		486		Data Processing	1,076		833		2,854		2,516
Losses on sales and Write-downs of Other Real Estate Owned, net		212		189
Losses on sale and Write-downs on Bank Premises, net		43		12

Debit Card Expense	Debit Card Expense	632		554		Debit Card Expense	816		797		2,066		2,089
Tax Credit Amortization	Tax Credit Amortization	427		272		Tax Credit Amortization	—		(764)		—		466
Unfunded Loan Commitment Expense		0		982
Other Real Estate Owned Expense		54		140

Other	Other	1,821		2,370		Other	3,298		2,148		8,045		6,526
Total Noninterest Expense	Total Noninterest Expense	23,605		24,748		Total Noninterest Expense	27,282		23,463		76,394		69,384
Income Before Income Taxes	Income Before Income Taxes	10,301		4,670		Income Before Income Taxes	4,407		19,417		30,610		42,639
Income Tax Provision	Income Tax Provision	926		247		Income Tax Provision	780		5,009		5,338		8,130
Net Income	Net Income	$	9,375	$	4,423	Net Income	$	3,627	$	14,408	$	25,272	$	34,509

Earnings per Common Share	Earnings per Common Share					Earnings per Common Share
Basic Earnings per Common Share	Basic Earnings per Common Share	$	0.36	$	0.17	Basic Earnings per Common Share	$	0.16	$	0.59	$	1.07	$	1.38
Diluted Earnings per Common Share	Diluted Earnings per Common Share	$	0.36	$	0.17	Diluted Earnings per Common Share	$	0.16	$	0.59	$	1.07	$	1.38
Average Shares Outstanding – Basic		26,276,890		26,362,649
Average Shares Outstanding – Diluted		26,408,319		26,460,523
Average Shares Outstanding – Basic & Diluted						Average Shares Outstanding – Basic & Diluted	22,946,179		24,265,075		23,407,071		24,827,143


	Three Months Ended March 31,
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
Balance December 31, 2019	$	26,334	$	142,492	$	304,158	$	127	$	473,111
Net Income	—		—		4,423		—		4,423
Other Comprehensive Income, Net of Tax	—		—		—		624		624
Dividends Declared ($0.14 per share)	—		—		(3,689)		—		(3,689)
Forfeitures of Restricted Stock (1,531 shares)	(2)		2		—		—		—
Recognition of Restricted Stock Compensation Expense	—		352		—		—		352
Issuance of Restricted Stock (53,056 shares)	54		(54)		—		—		—
Balance at March 31, 2020	$	26,386	$	142,792	$	304,892	$	751	$	474,821


	Three Months Ended September 30, 2022
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance at June 30, 2022	$	24,577	$	113,975	$	255,576	$	(59,986)	$	334,142
Net Income	—		—		14,408		—		14,408
Other Comprehensive Loss, Net of Tax	—		—		—		(26,324)		(26,324)
Repurchase of Common Stock (464,208 shares)	(464)		(7,252)		—		—		(7,716)
Forfeiture of Restricted Stock (2,098 shares)	(2)		2		—		—		—

Recognition of Restricted Stock Compensation Expense	—		306		—		—		306
Balance at September 30, 2022	$	24,111	$	107,031	$	269,984	$	(86,310)	$	314,816


	January 1, 2021
(Dollars in Thousands)	As Reported Under Topic 326		Pre Topic 326		Impact of Topic 326 Adoption
Assets
Allowance for Credit Losses on Loans
Commercial Real Estate	$	41,458	$	34,871	$	6,587
Commercial and Industrial	4,071		2,692		1,379
Obligations of States and Political Subdivisions	951		951		0
Residential Mortgages	5,356		2,000		3,356
Other Consumer	1,602		2,479		(877)
Construction	6,277		6,357		(80)
Other	56,001		4,724		51,277
Allowance for Credit Losses on Loans	115,716		54,074		61,642
Assets:
Total Loans Held for Investments, net	2,831,454		2,893,096		61,642
Net deferred tax asset	21,413		7,589		13,824
Liabilities:
Life-of-loss Reserve on Unfunded Loan Commitments	3,052		144		2,908
Equity:
Retained Earnings	$	203,885	$	254,611	$	(50,726)


		March 31, 2021									September 30, 2023
(Dollars in Thousands)	(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U. S. Government Agency Securities		$	2,454	$	0	$	(94)	$	2,360
U.S. Treasury Securities										U.S. Treasury Securities	$	14,383	$	—	$	(1,279)	$	13,104
U.S. Government Agency Securities										U.S. Government Agency Securities	48,197		454		(909)		47,742
Residential Mortgage-Backed Securities	Residential Mortgage-Backed Securities	33,348		304		(198)		33,454		Residential Mortgage-Backed Securities	111,550		—		(13,988)		97,562
Commercial Mortgage-Backed Securities	Commercial Mortgage-Backed Securities	5,181		104		0		5,285		Commercial Mortgage-Backed Securities	33,872		411		(955)		33,328
Other Commercial Mortgage-Backed Securities										Other Commercial Mortgage-Backed Securities	24,588		—		(3,484)		21,104
Asset Backed Securities	Asset Backed Securities	136,976		1,093		(570)		137,499		Asset Backed Securities	151,788		—		(14,713)		137,075
Collateralized Mortgage Obligations	Collateralized Mortgage Obligations	252,219		3,971		(1,340)		254,850		Collateralized Mortgage Obligations	178,559		—		(15,253)		163,306
Small Business Administration		107,320		487		(850)		106,957
States and Political Subdivisions	States and Political Subdivisions	207,738		4,883		(2,306)		210,315		States and Political Subdivisions	279,302		—		(56,658)		222,644
Corporate Notes	Corporate Notes	29,000		473		(161)		29,312		Corporate Notes	70,750		—		(13,226)		57,524
Total Debt Securities	Total Debt Securities	$	774,236	$	11,315	$	(5,519)	$	780,032	Total Debt Securities	$	912,989	$	865	$	(120,465)	$	793,389


											December 31, 2022
(Dollars in Thousands)	(Dollars in Thousands)	December 31, 2020								(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury Securities										U.S. Treasury Securities	$	19,318	$	—	$	(1,452)	$	17,866
U.S. Government Agency Securities										U.S. Government Agency Securities	50,334		218		(788)		49,764
Residential Mortgage-Backed Securities	Residential Mortgage-Backed Securities	$	44,057	$	1,008	$	(341)	$	44,724	Residential Mortgage-Backed Securities	115,694		—		(12,009)		103,685
Commercial Mortgage-Backed Securities	Commercial Mortgage-Backed Securities	5,194		253		0		5,447		Commercial Mortgage-Backed Securities	35,538		73		(936)		34,675
Other Commercial Mortgage-Backed Securities										Other Commercial Mortgage-Backed Securities	24,987		9		(2,597)		22,399
Asset Backed Securities	Asset Backed Securities	133,672		884		(999)		133,557		Asset Backed Securities	156,552		—		(15,169)		141,383
Collateralized Mortgage Obligations	Collateralized Mortgage Obligations	212,751		6,007		(399)		218,359		Collateralized Mortgage Obligations	190,781		—		(14,159)		176,622
Small Business Administration		99,604		346		(805)		99,145
States and Political Subdivisions	States and Political Subdivisions	239,251		13,490		(119)		252,622		States and Political Subdivisions	281,753		—		(53,607)		228,146
Corporate Notes	Corporate Notes	24,250		582		(7)		24,825		Corporate Notes	70,750		—		(9,017)		61,733
Total Debt Securities	Total Debt Securities	$	758,779	$	22,570	$	(2,670)	$	778,679	Total Debt Securities	$	945,707	$	300	$	(109,734)	$	836,273


		March 31, 2021																September 30, 2023
		Less Than 12 Months					12 Months or More					Total						Less Than 12 Months					12 Months or More					Total
(Dollars in Thousands)	(Dollars in Thousands)	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		(Dollars in Thousands)	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
U.S. Treasury Securities																	U.S. Treasury Securities	—	$	—	$	—	4	$	13,104	$	(1,279)	4	$	13,104	$	(1,279)
U.S. Government Agency Securities	U.S. Government Agency Securities	1	$	2,360	$	(94)	0	$	0	$	0	1	$	2,360	$	(94)	U.S. Government Agency Securities	6	5,562		(71)		14	16,450		(838)		20	22,012		(909)
Residential Mortgage-Backed Securities	Residential Mortgage-Backed Securities	7	20,574		(197)		3	34		(1)		10	20,608		(198)		Residential Mortgage-Backed Securities	—	—		—		43	97,562		(13,988)		43	97,562		(13,988)
Commercial Mortgage-Backed Securities																	Commercial Mortgage-Backed Securities	3	846		(4)		50	19,192		(951)		53	20,038		(955)
Other Commercial Mortgage-Backed Securities																	Other Commercial Mortgage-Backed Securities	1	1,844		(673)		8	19,260		(2,811)		9	21,104		(3,484)
Asset Backed Securities	Asset Backed Securities	6	13,332		(117)		19	41,825		(453)		25	55,157		(570)		Asset Backed Securities	2	2,535		(118)		52	134,540		(14,595)		54	137,075		(14,713)
Collateralized Mortgage Obligations	Collateralized Mortgage Obligations	18	65,912		(1,168)		9	21,246		(172)		27	87,158		(1,340)		Collateralized Mortgage Obligations	—	—		—		85	163,306		(15,253)		85	163,306		(15,253)
Small Business Administration		6	10,484		(153)		78	51,817		(697)		84	62,301		(850)
States and Political Subdivisions	States and Political Subdivisions	49	70,861		(2,206)		3	1,951		(100)		52	72,812		(2,306)		States and Political Subdivisions	1	1,190		(121)		160	221,254		(56,537)		161	222,444		(56,658)
Corporate Notes	Corporate Notes	4	9,590		(161)		0	0		0		4	9,590		(161)		Corporate Notes	—	—		—		21	57,524		(13,226)		21	57,524		(13,226)
Total Debt Securities	Total Debt Securities	91	$	193,113	$	(4,096)	112	$	116,873	$	(1,423)	203	$	309,986	$	(5,519)	Total Debt Securities	13	$	11,977	$	(987)	437	$	742,192	$	(119,478)	450	$	754,169	$	(120,465)


	Restructured Loans
	Three Months Ended September 30, 2022					Nine Months Ended September 30, 2022
(Dollars in Thousands)	Number of Contracts	Amortized Cost Basis(1)		% of Total Class of Financing Receivable		Number of Contracts	Amortized Cost Basis(1)		% of Total Class of Financing Receivable
Accruing Restructured Loans
Commercial Real Estate	—	$	—	—	%	1	$	326	0.02	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	1	137		0.04	%	1	137		0.04	%
Other	—	—		—	%	—	—		—	%
Total Accruing Restructured Loans	1	$	137	0.04	%	2	$	463	0.03	%

Nonaccrual Restructured Loans
Commercial Real Estate	—	$	—	—	%	—	$	—	—	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	—	—		—	%	—	—		—	%
Other	—	—		—	%	—	—		—	%
Total Nonaccrual Restructured Loans	—	$	—	—	%	—	$	—	—	%
Total Restructured Loans	1	$	137	0.04	%	2	$	463	0.03	%


	Nonperforming Assets
(Dollars in Thousands)	March 31, 2021		December 31, 2020
Nonperforming Assets
Nonaccrual loans	$	7,331	$	7,018
Nonaccrual TDRs	24,625		24,986
Total Nonaccrual Loans	31,956		32,004
OREO	14,031		15,722
Total Nonperforming Assets	$	45,987	$	47,726


	Risk Rating
(Dollars in Thousands)	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Total
Commercial Real Estate
Pass	$	37,319	$	171,101	$	210,835	$	319,788	$	118,743	$	369,614	$	76,261	$	1,303,661
Special Mention	0		0		0		8,143		3,070		968		0		12,181
Substandard	236		0		21,633		4,560		34,941		7,329		0		68,699

Total Commercial Real Estate	$	37,555	$	171,101	$	232,468	$	332,491	$	156,754	$	377,911	$	76,261	$	1,384,541
Commercial and Industrial
Pass	$	17,609	$	71,032	$	16,918	$	29,984	$	24,947	$	287,350	$	11,101	$	458,941
Special Mention	0		17		0		15		0		0		0		32
Substandard	0		253		881		0		0		0		157		1,291

Total Commercial and Industrial	$	17,609	$	71,302	$	17,799	$	29,999	$	24,947	$	287,350	$	11,258	$	460,264
Residential Mortgages
Pass	$	23,306	$	104,594	$	93,203	$	107,169	$	11,615	$	58,158	$	11,000	$	409,045
Special Mention	0		0		0		0		0		764		0		764
Substandard	0		0		1,085		1,394		228		1,991		0		4,698

Total Residential Mortgages	$	23,306	$	104,594	$	94,288	$	108,563	$	11,843	$	60,913	$	11,000	$	414,507
Other Consumer
Pass	$	1,684	$	15,626	$	2,450	$	1,032	$	325	$	27,922	$	332	$	49,371
Special Mention	0		0		5		0		0		0		0		5
Substandard	0		4		23		73		40		0		0		140

Total Other Consumer	$	1,684	$	15,630	$	2,478	$	1,105	$	365	$	27,922	$	332	$	49,516
Construction
Pass	$	27,306	$	83,356	$	116,456	$	15,532	$	8,924	$	6,151	$	25,734	$	283,459
Special Mention	0		0		185		0		0		446		0		631
Substandard	0		108		3,474		98		1,741		150		0		5,571

Total Construction	$	27,306	$	83,464	$	120,115	$	15,630	$	10,665	$	6,747	$	25,734	$	289,661
Other
Pass	$	0	$	0	$	0	$	0	$	3,544	$	0	$	1,090	$	4,634
Special Mention	0		0		0		0		119,389		61,683		0		181,072
Substandard	0		0		0		89,055		48,524		50,101		0		187,680

Total Other Loans	$	0	$	0	$	0	$	89,055	$	171,457	$	111,784	$	1,090	$	373,386
Total Loans
Pass	$	107,224	$	445,709	$	439,862	$	473,505	$	168,098	$	749,195	$	125,518	$	2,509,111
Special Mention	0		17		190		8,158		122,459		63,861		0		194,685
Substandard	236		365		27,096		95,180		85,474		59,571		157		268,079

Total Loans	$	107,460	$	446,091	$	467,148	$	576,843	$	376,031	$	872,627	$	125,675	$	2,971,875


	September 30, 2023
(Dollars in Thousands)	Current Loans		Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Total 30-89 Days Past Due		Past Due 90+ Days Still Accruing		Total Loans Past Due		Nonaccrual Loans		Total Portfolio Loans
Commercial Real Estate	$	1,686,768	$	234	$	—	$	234	$	680	$	914	$	1,265	$	1,688,947
Commercial and Industrial	264,197		57		5		62		—		62		70		264,329
Residential Mortgages	734,012		2,079		200		2,279		—		2,279		2,077		738,368
Other Consumer	36,033		249		183		432		—		432		22		36,487
Construction	374,574		—		48		48		—		48		2,954		377,576
Other	3,320		—		—		—		—		—		301,913		305,233
Total	$	3,098,904	$	2,619	$	436	$	3,055	$	680	$	3,735	$	308,301	$	3,410,940


	December 31, 2022
(Dollars in Thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Performing	$	418,939	$	186,444	$	139,148	$	130,521	$	225,416	$	336,441	$	31,349	$	1,468,258
Nonperforming	—		—		—		—		2,106		198		—		2,304
Total Commercial Real Estate	$	418,939	$	186,444	$	139,148	$	130,521	$	227,522	$	336,639	$	31,349	$	1,470,562
Commercial and Industrial
Performing	$	23,104	$	47,147	$	38,706	$	9,022	$	10,639	$	157,271	$	23,699	$	309,588
Nonperforming	—		46		—		18		97		2		41		204
Total Commercial and Industrial	$	23,104	$	47,193	$	38,706	$	9,040	$	10,736	$	157,273	$	23,740	$	309,792
Residential Mortgages
Performing	$	200,725	$	184,718	$	81,446	$	50,770	$	71,313	$	40,362	$	25,349	$	654,683
Nonperforming	—		1,212		—		865		219		969		—		3,265
Total Residential Mortgages	$	200,725	$	185,930	$	81,446	$	51,635	$	71,532	$	41,331	$	25,349	$	657,948
Other Consumer
Performing	$	24,100	$	10,045	$	7,323	$	1,999	$	512	$	276	$	299	$	44,554
Nonperforming	—		6		1		—		1		—		—		8
Total Other Consumer	$	24,100	$	10,051	$	7,324	$	1,999	$	513	$	276	$	299	$	44,562
Construction
Performing	$	149,535	$	117,466	$	41,808	$	4,938	$	25,615	$	7,271	$	6,056	$	352,689
Nonperforming	—		—		—		—		—		864		—		864
Total Construction	$	149,535	$	117,466	$	41,808	$	4,938	$	25,615	$	8,135	$	6,056	$	353,553
Other
Performing	$	—	$	—	$	—	$	—	$	74,050	$	238,446	$	—	$	312,496
Nonperforming	—		—		—				—		—		—		—
Total Other Loans	$	—	$	—	$	—	$	—	$	74,050	$	238,446	$	—	$	312,496
Total Portfolio Loans
Performing	$	816,403	$	545,820	$	308,431	$	197,250	$	407,545	$	780,067	$	86,752	$	3,142,268
Nonperforming	—		1,264		1		883		2,423		2,033		41		6,645
Total Portfolio Loans	$	816,403	$	547,084	$	308,432	$	198,133	$	409,968	$	782,100	$	86,793	$	3,148,913


	~~March 31, 2021~~
	~~Type of Collateral~~
~~(Dollars in Thousands)~~	~~Real Estate~~
~~Commercial Real Estate~~	$	~~24,220~~
~~Commercial and Industrial~~	0
~~Residential Mortgages~~	0
~~Other Consumer~~	0
~~Construction~~	~~5,060~~
~~Other~~	0
~~Total~~	$	~~29,280~~


	December 31, 2022
(Dollars in Thousands)	Nonaccrual without an Allowance for Credit Losses		Nonaccrual with an Allowance for Credit Losses		Total Nonaccrual Loans		Past Due 90+ Days Still Accruing
Commercial Real Estate	$	—	$	2,304	$	2,304	$	—
Commercial and Industrial	—		204		204		—
Residential Mortgages	—		3,265		3,265		—
Other Consumer	—		8		8		—
Construction	—		864		864		—
Other	—		—		—		—
Total	$	—	$	6,645	$	6,645	$	—


	Three Months Ended March 31, 2021
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other (1)		Total
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	34,871	$	3,643	$	2,000	$	2,479	$	6,357	$	4,724	$	54,074
Impact of CECL Adoption	6,587		1,379		3,356		(877)		(80)		51,277		61,642
Provision for Credit Losses on Loans	884		(117)		(156)		478		768		0		1,857
Charge-offs	0		(1)		(195)		(870)		0		0		(1,066)
Recoveries	0		1		166		137		61		0		365
Net (Charge-offs) / Recoveries	0		0		(29)		(733)		61		0		(701)
Balance at End of Period	$	42,342	$	4,905	$	5,171	$	1,347	$	7,106	$	56,001	$	116,872


	Three Months Ended March 31, 2020
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Construction		Residential Mortgage		Other Consumer		Total
Allowance for Loan Losses on Loans:
Balance at Beginning of Period	$	24,706	$	3,601	$	5,420	$	1,736	$	3,299	$	38,762
Provision for Loan Losses on Loans	660		426		1,914		80		1,718		4,798
Charge-offs	0		(38)		0		(5)		(1,527)		(1,570)
Recoveries	707		1		0		0		244		952
Net Recoveries / (Charge-offs)	707		(37)		0		(5)		(1,283)		(618)
Balance at End of Period	$	26,073	$	3,990	$	7,334	$	1,811	$	3,734	$	42,942


(Dollars in Thousands)	Unpaid Principal Balance		Recorded Balance		Specific Reserve
Loans without a Specific Valuation Allowance
Commercial Real Estate	$	3,236	$	3,236	$	—
Construction	55,248		55,248		—
Residential Mortgages	50,618		50,618		—
Loans with a Specific Valuation Allowance
Commercial Real Estate	24,430		24,430		13,773
Commercial & Industrial	0		0		0
Construction	1,739		1,739		1,477
Total by Category
Commercial Real Estate	27,666		27,666		13,773
Commercial & Industrial	0		0		0
Construction	56,987		56,987		1,477
Residential Mortgages	50,618		50,618		0
Total Impaired Loans	$	135,271	$	135,271	$	15,250


	Three Months Ended March 31, 2020
(Dollars in Thousands)	Average Investment on Individually Evaluated Loans		Interest Income Recognized
Loans without a Specific Valuation Allowance
Commercial Real Estate	$	3,992	$	32
Construction	58,104		413
Residential Mortgages	52,315		620
Loans with a Specific Valuation Allowance
Commercial Real Estate	28,748		0
Commercial & Industrial	340		0
Construction	870		0
Total by Category
Commercial Real Estate	32,740		32
Commercial & Industrial	340		0
Construction	58,974		413
Residential Mortgages	52,315		620
Total Individually Evaluated Loans	$	144,369	$	1,065


	December 31, 2020
(Dollars in Thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Securities Available-for-Sale	$	778,679	$	0	$	768,316	$	10,363
Derivatives	4,493		0		4,493		0
Total	$	783,172	$	0	$	772,809	$	10,363

Liabilities
Derivatives	$	4,756	$	0	$	4,756	$	0
Total	$	4,756	$	0	$	4,756	$	0


			Fair Value Measurements at March 31, 2021
(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Cash Equivalents	$	219,154	$	42,899	$	176,255	$	0	$	219,154
Securities Available-for-Sale	780,032		0		769,762		10,270		780,032
Loans Held-for-Sale	32,737		0		0		32,737		32,737
Portfolio Loans, net	2,855,003		0		0		2,813,058		2,813,058
Loans Held-for-Sale in Connection with Sale of Bank Branches, at the lower cost or fair value	9,423		0		0		9,423		9,423
Federal Home Loan Bank Stock, at Cost	3,215		0		0		NA		NA
Other Assets- Interest Rate Derivatives	3,295		0		3,295		0		3,295
Accrued Interest Receivable	31,737		0		2,833		28,904		31,737

Financial Liabilities:
Deposits	$	3,609,956	$	733,291	$	1,354,155	$	1,546,852	$	3,634,298
Deposits Held for Assumption in Connection with Sale of Bank Branches	81,565		9,010		20,166		52,389		81,565
Other Liabilities- Interest Rate Derivatives	3,129		0		3,129		0		3,129
FHLB Borrowings	30,000		0		0		30,249		30,249
Accrued Interest Payable	1,893		0		0		1,893		1,893


				Fair Value Measurements at December 31, 2020											Fair Value Measurements at September 30, 2023
(Dollars in Thousands)	(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total		(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:	Financial Assets:											Financial Assets:
Cash and Cash Equivalents	Cash and Cash Equivalents	$	241,942	$	38,535	$	203,407	$	0	$	241,942	Cash and Cash Equivalents	$	55,398	$	37,960	$	17,438	$	—	$	55,398
Securities Available-for-Sale	Securities Available-for-Sale	778,679		0		768,316		10,363		778,679		Securities Available-for-Sale	793,389		13,104		772,874		7,411		793,389
Loans Held-for-Sale		25,437		0		0		25,437		25,437

Portfolio Loans, net	Portfolio Loans, net	2,893,096		0		0		2,854,244		2,854,244		Portfolio Loans, net	3,316,466		—		—		3,208,543		3,208,543
Loans Held-for-Sale in Connection with Sale of Bank Branches, at the lower cost or fair value		9,835		0		0		9,835		9,835

Federal Home Loan Bank Stock, at Cost	Federal Home Loan Bank Stock, at Cost	5,093		0		0		NA		NA		Federal Home Loan Bank Stock, at Cost	27,361		—		—		NA		NA
Other Assets- Interest Rate Derivatives	Other Assets- Interest Rate Derivatives	4,493		0		4,493		0		4,493		Other Assets- Interest Rate Derivatives	25,296		—		25,296		—		25,296
Accrued Interest Receivable	Accrued Interest Receivable	32,157		0		2,887		29,270		32,157		Accrued Interest Receivable	17,713		39		5,401		12,273		17,713

Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Deposits	Deposits	$	3,599,911	$	699,229	$	1,285,912	$	1,640,587	$	3,625,728	Deposits	$	3,556,189	$	661,454	$	1,383,181	$	1,515,311	$	3,559,946
Deposits Held for Assumption in Connection with Sale of Bank Branches		84,717		9,506		18,699		56,512		84,717

Other Liabilities- Interest Rate Derivatives	Other Liabilities- Interest Rate Derivatives	4,756		0		4,756		0		4,756		Other Liabilities- Interest Rate Derivatives	24,775		—		24,775		—		24,775
FHLB Borrowings	FHLB Borrowings	35,000		0		0		35,461		35,461		FHLB Borrowings	514,135		—		—		512,282		512,282

Accrued Interest Payable	Accrued Interest Payable	2,131		0		0		2,131		2,131		Accrued Interest Payable	6,930		—		—		6,930		6,930


		Fair Values of Derivative Instruments Asset Derivatives (Included in Other Assets)											Fair Value of Derivative Assets (Included in Other Assets)
		March 31, 2021					December 31, 2020						September 30, 2023					December 31, 2022
(Dollars in Thousands)	(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value		(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments	Derivatives not Designated as Hedging Instruments											Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	Interest Rate Lock Commitments – Mortgage Loans	0	$	0	$	0	1	$	151	$	0	Interest Rate Lock Commitments – Mortgage Loans	6	$	899	$	5	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	Interest Rate Swap Contracts – Commercial Loans	44	268,708		3,295		38	255,572		4,493		Interest Rate Swap Contracts – Commercial Loans	58	390,408		25,291		62	432,984		22,973
Total Derivatives not Designated as Hedging Instruments	Total Derivatives not Designated as Hedging Instruments	44	$	268,708	$	3,295	39	$	255,723	$	4,493	Total Derivatives not Designated as Hedging Instruments	64	$	391,307	$	25,296	63	$	433,184	$	22,974


		Fair Values of Derivative Instruments Liability Derivatives (Included in Other Liabilities)											Fair Value of Derivative Liabilities (Included in Other Liabilities)
		March 31, 2021					December 31, 2020						September 30, 2023					December 31, 2022
(Dollars in Thousands)	(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value		(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments	Derivatives not Designated as Hedging Instruments											Derivatives not Designated as Hedging Instruments
Forward Sale Contracts – Mortgage Loans	Forward Sale Contracts – Mortgage Loans	0	$	0	$	0	1	$	151	$	0	Forward Sale Contracts – Mortgage Loans	6	$	899	$	5	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	Interest Rate Swap Contracts – Commercial Loans	44	268,708		3,129		38	255,572		4,756		Interest Rate Swap Contracts – Commercial Loans	58	390,408		24,770		62	432,984		22,542
Total Derivatives not Designated as Hedging Instruments	Total Derivatives not Designated as Hedging Instruments	44	$	268,708	$	3,129	39	$	255,723	$	4,756	Total Derivatives not Designated as Hedging Instruments	64	$	391,307	$	24,775	63	$	433,184	$	22,543


		For the Three Months Ended March 31,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in Thousands)	(Dollars in Thousands)	2021		2020		(Dollars in Thousands)	2023		2022		2023		2022
Derivatives not Designated as Hedging Instruments	Derivatives not Designated as Hedging Instruments					Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	Interest Rate Lock Commitments – Mortgage Loans	$	0	$	11	Interest Rate Lock Commitments – Mortgage Loans	$	(1)	$	2	$	4	$	20
Forward Sale Contracts – Mortgage Loans	Forward Sale Contracts – Mortgage Loans	0		(11)		Forward Sale Contracts – Mortgage Loans	1		(2)		(4)		(20)
Interest Rate Swap Contracts – Commercial Loans	Interest Rate Swap Contracts – Commercial Loans	429		(91)		Interest Rate Swap Contracts – Commercial Loans	234		295		90		738
Total Derivative Income (Loss)		$	429	$	(91)
Total Derivative Income						Total Derivative Income	$	234	$	295	$	90	$	738


		Asset Derivatives (Included in Other Assets)				Liability Derivatives (Included in Other Liabilities)					Derivative Assets (Included in Other Assets)				Derivative Liabilities (Included in Other Liabilities)
(Dollars in Thousands)	(Dollars in Thousands)	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		(Dollars in Thousands)	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Derivatives not Designated as Hedging Instruments	Derivatives not Designated as Hedging Instruments									Derivatives not Designated as Hedging Instruments
Gross Amounts Recognized	Gross Amounts Recognized	$	3,295	$	4,493	$	3,129	$	4,756	Gross Amounts Recognized	$	25,291	$	22,973	$	24,770	$	22,542
Gross Amounts Offset	Gross Amounts Offset	0		0		0		0		Gross Amounts Offset	—		—		—		—
Net Amounts Presented in the Consolidated Balance Sheets	Net Amounts Presented in the Consolidated Balance Sheets	3,295		4,493		3,129		4,756		Net Amounts Presented in the Consolidated Balance Sheets	25,291		22,973		24,770		22,542
Gross Amounts Not Offset ~~(1)~~	Gross Amounts Not Offset ~~(1)~~	0		0		(3,390)		(5,220)		Gross Amounts Not Offset ~~(1)~~	—		—		—		—
Net Amount	Net Amount	$	3,295	$	4,493	$	(261)	$	(464)	Net Amount	$	25,291	$	22,973	$	24,770	$	22,542


(Dollars in Thousands)	September 30, 2023
3 Months or Less	$	217,569
Over 3 Months through 12 Months	765,980
Over 1 Year Through 3 Years	456,579
Over 3 Years	71,426
Total	$	1,511,554


(Dollars in Thousands)	(Dollars in Thousands)	Balance		Weighted Average Rate		(Dollars in Thousands)	Balance		Weighted Average Rate
1 year	1 year	$	3,000	1.68	%	1 year	$	444,135	5.49	%
2 years	2 years	14,000		1.09	%	2 years	25,000		4.13	%
3 years	3 years	10,000		0.94	%	3 years	45,000		3.96	%
4 years	4 years	3,000		1.63	%	4 years	—		—	%
5 years	5 years	0		0	%	5 years	—		—	%
Thereafter	Thereafter	0		0	%	Thereafter	—		—	%
Total FHLB Borrowings	Total FHLB Borrowings	$	30,000	1.15	%	Total FHLB Borrowings	$	514,135	5.29	%


~~(Dollars in Thousands)~~	~~Three Months Ended March 31, 2021~~
~~Life-of-Loss Reserve on Unfunded Loan Commitments~~
~~Balance at beginning of period~~		$	~~144~~
~~Impact of Adopting ASU 2016-13~~		~~2,908~~
~~January 1, 2021~~		$	~~3,052~~
~~Provision for unfunded commitments~~		~~(282)~~
~~March 31, 2021~~		$	~~2,770~~


(Dollars in Thousands)	Number of Loans	Loan Principal		Percent of Outstanding		Weighted Average Deferment Period (months)	Total Deferment
							Principal		Interest
Commercial Real Estate	85	$	399,037	13.43	%	2.90	$	280,451	$	118,586
Commercial and Industrial	1	6,000		0.20	%	2.90	—		6,000
Residential Mortgages	5	1,828		0.06	%	—	1,828		—
Other Consumer	—	—		—	%	—	—		—
Construction	1	163		0.01	%	2.90	163		—
Other	—	—		—	%	—	—		—
Total Aggregate Deferred Payments	92	$	407,028	13.70	%	2.90	$	282,442	$	124,586


Dollars in Thousands	For the Periods Ending						Change			September 30, 2023		September 30, 2023
	September 30, 2023			December 31, 2022						% of Gross Loans		% of RBC
1. Hospitality, agriculture & energy	$	301,913		$	309,107		$	(7,194)		8.85	%	62.12	%
2. Retail real estate & food services	53,905			55,625			(1,720)			1.58	%	11.09	%
3. Industrial & retail real estate	40,351			41,725			(1,374)			1.18	%	8.30	%
4. Multifamily development	40,000			40,000			—			1.17	%	8.23	%
5. Retail real estate	39,448			37,679			1,769			1.16	%	8.12	%
6. Hospitality	37,633			35,255			2,378			1.10	%	7.74	%
7. Non-Owner Occupied/Commercial Real Estate	33,903			17,308			16,595			1.00	%	6.98	%
8. Multifamily & student housing	33,033			33,998			(965)			0.97	%	6.80	%
9. Hospitality	32,661			33,587			(926)			0.96	%	6.72	%
10. Multifamily / Construction Real Estate	32,000			24,000			8,000			0.94	%	6.58	%
Top Ten (10) Relationships	$	644,847		$	628,284		$	16,563		18.91	%	132.68	%
Total Gross Loans	$	3,410,940		$	3,148,913		$	262,027
% of Total Gross Loans	18.91		%	19.95		%	(1.04)		%
Concentration (25% of RBC)	$	121,508		$	120,863


	March 31, 2021			December 31, 2020
Net Charge-offs to Average Portfolio Loans	0.10	%	*	0.09	%
Allowance for Credit Losses to Total Portfolio Loans	3.93	%		1.83	%


	March 31, 2021			December 31, 2020
Nonaccrual Loans and Troubled Debt Restructurings to Total Portfolio Loans	1.08	%	*	1.09	%
Nonperforming Assets to Total Portfolio Loans plus Other Real Estate Owned	1.54	%		1.61	%


(Dollars in Thousands)	Amount		Percent
Three Months or Less	$	31,465	12.6	%
Over Three Months Through Twelve Months	136,656		54.9	%
Over Twelve Months Through Three Years	58,727		23.6	%
Over Three Years	22,076		8.9	%
Total	$	248,924	100.0	%