☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 CARTER BANKSHARES, INC. (Exact name of registrant as specified in its charter) 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) FORM 10-Q ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transitio ...

Shares of Carter Bankshares, Inc. (CARE) have gained 4.8% over the past four weeks to close the last trading session at $12.74, but there could still be a solid upside left in the stock if short-term price targets of Wall Street analysts are any indication. Going by the price targets, the mean estimate of $16.67 indicates a potential upside of 30.9%.The average comprises three short-term price targets ranging from a low of $13 to a high of $20, with a standard deviation of $3.51. While the lowest estimate i ...

Carter Bankshares, Inc. (CARE) reported $33.46 million in revenue for the quarter ended March 2024, representing a year-over-year decline of 26.5%. EPS of $0.24 for the same period compares to $0.68 a year ago.The reported revenue compares to the Zacks Consensus Estimate of $32.79 million, representing a surprise of +2.06%. The company delivered an EPS surprise of +140.00%, with the consensus EPS estimate being $0.10.While investors scrutinize revenue and earnings changes year-over-year and how they compare ...

[Executive Summary & Financial Highlights](index=1&type=section&id=Carter%20Bankshares%2C%20Inc.%20Announces%20First%20Quarter%202024%20Financial%20Results) Carter Bankshares, Inc. reported Q1 2024 net income of $5.8 million, an improvement from Q4 2023 but lower than Q1 2023, impacted by a nonaccrual loan [Q1 2024 Performance Overview](index=1&type=section&id=1.1.%20Q1%202024%20Performance%20Overview) Q1 2024 net income improved QoQ to $5.8 million but decreased YoY, with results significantly impacted by a large nonaccrual loan Net Income & EPS | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :-------------------- | :------ | :------ | :------ | | Net Income (Millions) | $5.8 | $(1.9) | $15.9 | | Diluted EPS | $0.25 | $(0.08) | $0.67 | | Pre-tax Pre-provision Income (Millions) | $7.2 | $1.6 | $21.9 | Net Interest Income & Margin (FTE) | Metric | Q1 2024 | Q4 2023 | Q1 2023 | Change QoQ | Change YoY | | :-------------------- | :------ | :------ | :------ | :--------- | :--------- | | Net Interest Income (Millions) | $28.4 | $27.4 | $40.785 | +3.6% | -30.3% | | Net Interest Margin (FTE) | 2.60% | 2.49% | 3.98% | +11 bps | -138 bps | Efficiency Ratio | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 78.5% | | December 31, 2023 | 94.8% | | March 31, 2023 | 51.8% | [Key Financial Metrics](index=1&type=section&id=1.2.%20Key%20Financial%20Metrics) Q1 2024 key metrics show slight loan growth and significant deposit growth, but nonperforming loans remain elevated due to a large relationship Nonperforming Loans (NPL) to Total Portfolio Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 8.76% | | December 31, 2023 | 8.83% | | March 31, 2023 | 0.26% | - Total portfolio loans increased **$3.2 million** to **$3.5 billion** at March 31, 2024, compared to December 31, 2023, but growth was muted by **$80.0 million** in loan payoffs of two large commercial real estate loans[11](index=11&type=chunk) - Total deposits increased **$108.6 million**, or **11.7%** on an annualized basis, compared to December 31, 2023, and increased **$293.5 million**, or **8.3%**, compared to March 31, 2023[63](index=63&type=chunk) [Operating Highlights](index=3&type=section&id=Operating%20Highlights) Operating highlights show mixed trends in net interest income, credit loss provision, and noninterest items, influenced by funding costs and a large nonaccrual loan [Net Interest Income](index=4&type=section&id=2.1.%20Net%20Interest%20Income) Net interest income increased QoQ but significantly decreased YoY, driven by higher funding costs and the impact of a large nonaccrual loan Net Interest Income | Period | Amount (Millions) | QoQ Change | YoY Change | | :-------------------- | :---------------- | :--------- | :--------- | | Q1 2024 | $28.4 | +3.6% | -30.3% | - Yield on earning assets increased **24 basis points** compared to Q4 2023, but decreased **12 basis points** compared to Q1 2023[2](index=2&type=chunk)[66](index=66&type=chunk)[58](index=58&type=chunk) - Funding costs increased **15 basis points** compared to Q4 2023 and increased **155 basis points** compared to Q1 2023[2](index=2&type=chunk)[5](index=5&type=chunk) - Interest income was negatively impacted by **$9.3 million** during Q1 2024 due to the large nonaccrual loan relationship[21](index=21&type=chunk)[58](index=58&type=chunk) - The increase in interest expense is due to the rising interest rate environment and customers migrating from lower-cost non-maturing deposits to higher-yielding money market and certificate of deposit ("CD") products. During Q1 2024, **$473.8 million** of CDs matured and repriced from an average rate of **4.28%** to **4.42%**[5](index=5&type=chunk) [Provision for Credit Losses](index=3&type=section&id=2.2.%20Provision%20for%20Credit%20Losses) Provision for credit losses decreased QoQ and YoY in Q1 2024, driven by lower loan growth and a recovery in unfunded commitments - The provision for credit losses decreased **$2.9 million** compared to Q4 2023 and **$1.4 million** compared to Q1 2023[4](index=4&type=chunk) - The (recovery) provision for unfunded commitments in Q1 2024 was a recovery of **$43.3 thousand**, compared to a provision of **$0.6 million** in Q4 2023 and **$0.1 million** in Q1 2023, due to decreased commitments in construction loans[4](index=4&type=chunk) [Noninterest Income](index=4&type=section&id=2.3.%20Noninterest%20Income) Total noninterest income increased substantially QoQ due to fewer security sale losses and higher commissions, with a modest YoY increase Total Noninterest Income | Period | Amount (Millions) | QoQ Change | YoY Change | | :-------------------- | :---------------- | :--------- | :--------- | | Q1 2024 | $5.0 | +55.5% | +6.5% | - The QoQ increase was primarily related to net losses on sales of securities of **$1.5 million** in Q4 2023 (not present in Q1 2024), an increase of **$0.2 million** in insurance commissions, and an increase of **$0.2 million** in debit card interchange fees[6](index=6&type=chunk) - The YoY variance was primarily due to a **$0.4 million** increase in insurance commissions, offset by a **$0.1 million** decrease in commercial loan swap fee income[68](index=68&type=chunk) [Noninterest Expense](index=6&type=section&id=2.4.%20Noninterest%20Expense) Total noninterest expense decreased QoQ due to lower various costs but increased YoY, mainly from higher FDIC insurance and legal fees related to a large NPL Total Noninterest Expense | Period | Amount (Millions) | QoQ Change | YoY Change | | :-------------------- | :---------------- | :--------- | :--------- | | Q1 2024 | $26.3 | -9.7% | +11.4% | - QoQ decreases included **$1.0 million** in other noninterest expense, **$0.7 million** in professional and legal fees, **$0.5 million** in FDIC insurance expense, and **$0.4 million** in salaries and employee benefits[60](index=60&type=chunk) - YoY increases were primarily **$1.0 million** higher FDIC insurance expenses and a **$0.7 million** increase in professional and legal fees, both attributed to the large nonperforming loan relationship[17](index=17&type=chunk) [Credit Quality](index=1&type=section&id=Credit%20Quality) Credit quality shows a slight QoQ decrease in NPLs but a significant YoY increase, driven by a large commercial loan relationship [Nonperforming Loans](index=3&type=section&id=3.1.%20Nonperforming%20Loans) NPLs slightly decreased QoQ but remain significantly higher YoY, with a large commercial loan relationship accounting for 98.2% of total NPLs - Total nonperforming loans decreased **$2.2 million** to **$307.3 million** at March 31, 2024, since December 31, 2023[13](index=13&type=chunk) Nonperforming Loans to Total Portfolio Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 8.76% | | December 31, 2023 | 8.83% | | March 31, 2023 | 0.26% | - A **$301.9 million** commercial loan relationship was placed on nonaccrual status during Q2 2023, representing **98.2%** of total nonperforming loans and **8.6%** of total portfolio loans at March 31, 2024[65](index=65&type=chunk) - The Company is pursuing all remedies to resolve the large NPL and has specific reserves of **$54.3 million** at March 31, 2024, with respect to these loans[27](index=27&type=chunk) [Allowance for Credit Losses](index=3&type=section&id=3.2.%20Allowance%20for%20Credit%20Losses) Allowance for credit losses to total portfolio loans slightly decreased QoQ and YoY, remaining low against NPLs due to a significant relationship Allowance for Credit Losses to Total Portfolio Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 2.75% | | December 31, 2023 | 2.77% | | March 31, 2023 | 2.91% | Allowance for Credit Losses to Nonperforming Loans | Date | Ratio | | :-------------------- | :------ | | March 31, 2024 | 31.41% | | December 31, 2023 | 31.35% | | March 31, 2023 | 1,131.62% | - The provision for credit losses decreased **$2.9 million** in Q1 2024 compared to Q4 2023 and **$1.4 million** compared to Q1 2023[4](index=4&type=chunk) [Financial Condition](index=6&type=section&id=Financial%20Condition) Financial condition in Q1 2024 shows increased assets and deposits, decreased FHLB borrowings, and maintained strong capitalization and liquidity [Assets](index=6&type=section&id=4.1.%20Assets) Total assets slightly increased in Q1 2024, driven by higher cash and modest loan growth, partially offset by a smaller securities portfolio - Total assets were **$4.6 billion** at March 31, 2024, increasing **$42.4 million** during Q1 2024 compared to December 31, 2023[8](index=8&type=chunk) - Cash and due from banks increased **$53.6 million** to **$108.1 million** at March 31, 2024[8](index=8&type=chunk) - Total portfolio loans increased **$3.2 million** to **$3.5 billion** at March 31, 2024, compared to December 31, 2023. Loan growth was muted by **$80.0 million** in loan payoffs of two large commercial real estate loans[8](index=8&type=chunk)[11](index=11&type=chunk) - The securities portfolio decreased **$10.2 million** and is currently **16.9%** of total assets at March 31, 2024 (compared to **17.3%** at December 31, 2023), due to maturities deployed into higher yielding loan assets[8](index=8&type=chunk) [Liabilities & Deposits](index=8&type=section&id=4.2.%20Liabilities%20%26%20Deposits) Total deposits significantly increased in Q1 2024, driven by CDs and interest-bearing demand accounts, leading to decreased FHLB borrowings - Total deposits increased **$108.6 million**, or **11.7%** on an annualized basis, to **$3.8 billion** at March 31, 2024, compared to December 31, 2023[61](index=61&type=chunk) - Deposit composition changes include an increase of **$108.0 million** in CDs (including **$45.6 million** in brokered CDs) and **$34.1 million** in interest-bearing demand accounts, offset by decreases of **$27.4 million** in savings accounts and **$13.2 million** in noninterest-bearing demand accounts[61](index=61&type=chunk)[70](index=70&type=chunk) Deposit Mix | Deposit Type | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------- | :------------- | :---------------- | :------------- | | Noninterest-Bearing Deposits | 17.5% | 18.4% | 19.5% | | Certificates of Deposit | 44.2% | 42.6% | 37.0% | - FHLB borrowings decreased **$82.9 million** to **$310.5 million** at March 31, 2024, compared to December 31, 2023, primarily due to deposit growth[72](index=72&type=chunk) [Capitalization and Liquidity](index=8&type=section&id=4.3.%20Capitalization%20and%20Liquidity) The company remained well capitalized in Q1 2024, with total capital increasing from net income and OCI, maintaining significant liquidity through FHLB and unpledged securities - Total capital of **$359.1 million** at March 31, 2024, reflects an increase of **$7.8 million** compared to December 31, 2023, primarily due to net income of **$5.8 million** and a **$1.6 million** increase in other comprehensive income[71](index=71&type=chunk) Company Capital Ratios (March 31, 2024) | Ratio | Value | | :-------------------- | :------ | | Tier 1 Capital Ratio | 10.89% | | Leverage Ratio | 9.34% | | Total Risk-Based Capital Ratio | 12.15% | - Funding sources accessible to the Company include FHLB borrowing availability of approximately **$1.1 billion** (eligible to borrow up to an additional **$593.8 million**), unsecured facilities totaling **$50.0 million**, a fully secured facility of **$45.0 million**, and **$465.4 million** in unpledged available-for-sale investment securities[20](index=20&type=chunk) [Company Information & Disclosures](index=8&type=section&id=Company%20Information%20%26%20Disclosures) This section covers Carter Bankshares, Inc. overview, non-GAAP measures, and disclosures on forward-looking statements and key risk factors [About Carter Bankshares, Inc.](index=8&type=section&id=5.1.%20About%20Carter%20Bankshares%2C%20Inc.) Carter Bankshares, Inc., based in Martinsville, VA, is a financial holding company with $4.6 billion in assets and 65 branches, offering diverse banking services - Carter Bankshares, Inc. (NASDAQ: CARE) is headquartered in Martinsville, VA[50](index=50&type=chunk) - The Company provides commercial banking, consumer banking, mortgage, and other services through its subsidiary Carter Bank & Trust[50](index=50&type=chunk) - The Company has **$4.6 billion** in assets and **65 branches** in Virginia and North Carolina[50](index=50&type=chunk) [Important Note Regarding Non-GAAP Financial Measures](index=9&type=section&id=5.2.%20Important%20Note%20Regarding%20Non-GAAP%20Financial%20Measures) Non-GAAP financial measures are used by management for performance evaluation but are not GAAP alternatives and may not be comparable to other companies - Non-GAAP financial measures are used by management and presented to investors to evaluate and compare the Company's operating results from period to period in a meaningful manner[52](index=52&type=chunk) - Non-GAAP measures should not be considered as an alternative to any measure of performance under GAAP, nor are they necessarily comparable to non-GAAP performance measures presented by other companies[52](index=52&type=chunk) [Important Note Regarding Forward-Looking Statements & Risk Factors](index=9&type=section&id=5.3.%20Important%20Note%20Regarding%20Forward-Looking%20Statements%20%26%20Risk%20Factors) Forward-looking statements are subject to risks and uncertainties, including market interest rates, inflation, regulatory changes, credit quality, and economic conditions - Forward-looking statements are not guarantees of future results and involve risks, uncertainties, and assumptions that are difficult to predict and often beyond the Company's control[54](index=54&type=chunk) - Key risk factors include market interest rates and their impacts, inflation, changes in government policies (Federal Reserve, FDIC, Treasury), changes in accounting policies (e.g., CECL methodology), and concentrations of loans secured by real estate[54](index=54&type=chunk)[9](index=9&type=chunk) - Additional risks include increased delinquency and foreclosure rates, insufficient allowance for credit losses, impacts of unusual events (weather, war, public health), ability to resolve nonperforming assets, regulatory oversight, litigation, cyber-security threats, and general economic conditions[9](index=9&type=chunk)[31](index=31&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk) [Consolidated Selected Financial Data](index=13&type=section&id=Consolidated%20Selected%20Financial%20Data) This section presents detailed consolidated financial statements, including income statements, balance sheets, and key performance ratios [Income Statements](index=14&type=section&id=6.1.%20Income%20Statements) This table details the consolidated income statement for Q1 2024, Q4 2023, and Q1 2023, covering interest, noninterest, and net income Income Statement Data (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Interest Income | $54,049 | $51,863 | $51,955 | | Interest Expense | $25,630 | $24,443 | $11,170 | | NET INTEREST INCOME | $28,419 | $27,420 | $40,785 | | Provision for Credit Losses | $16 | $2,895 | $1,415 | | (Recovery) Provision for Unfunded Commitments | $(43) | $587 | $84 | | TOTAL NONINTEREST INCOME | $5,045 | $3,245 | $4,735 | | TOTAL NONINTEREST EXPENSE | $26,257 | $29,072 | $23,576 | | INCOME (LOSS) BEFORE INCOME TAXES | $7,234 | $(1,889) | $20,445 | | NET INCOME (LOSS) | $5,811 | $(1,888) | $15,941 | | Basic Earnings (Loss) Per Common Share | $0.25 | $(0.08) | $0.67 | | Diluted Earnings (Loss) Per Common Share | $0.25 | $(0.08) | $0.67 | | Net Interest Margin | 2.58% | 2.47% | 3.95% | | Efficiency Ratio | 78.46% | 94.81% | 51.79% | [Net Interest Margin (FTE) (QTD Averages)](index=15&type=section&id=6.2.%20Net%20Interest%20Margin%20(FTE)%20(QTD%20Averages)) This table presents average balances, income/expense, and rates for interest-earning assets and liabilities, calculating FTE net interest income and margin Net Interest Margin (FTE) Data (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Total Interest-Earning Assets (Avg Balance) | $4,429,020 | $4,404,458 | $4,186,164 | | Total Interest-Bearing Liabilities (Avg Balance) | $3,471,027 | $3,439,815 | $3,197,486 | | Yield on Interest-earning Assets (FTE) | 4.93% | 4.69% | 5.06% | | Rate on Total Interest-Bearing Liabilities | 2.97% | 2.82% | 1.42% | | Net Interest Income (FTE) | $28,625 | $27,656 | $41,049 | | Net Interest Margin (FTE) | 2.60% | 2.49% | 3.98% | [Loans and Loans Held-for-Sale](index=15&type=section&id=6.3.%20Loans%20and%20Loans%20Held-for-Sale) This table details the company's loan portfolio composition by category for March 31, 2024, December 31, 2023, and March 31, 2023 Loan Portfolio Composition (Thousands) | Loan Type | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Commercial Real Estate | $1,728,929 | $1,670,631 | $1,575,675 | | Commercial and Industrial | $257,176 | $271,511 | $290,293 | | Residential Mortgages | $788,125 | $787,929 | $675,340 | | Other Consumer | $32,428 | $34,277 | $41,308 | | Construction | $397,219 | $436,349 | $361,003 | | Other | $305,194 | $305,213 | $305,279 | | **Total Portfolio Loans** | **$3,509,071** | **$3,505,910** | **$3,248,898** | [Asset Quality Data](index=16&type=section&id=6.4.%20Asset%20Quality%20Data) This table presents key asset quality metrics, including NPLs, OREO, total nonperforming assets, and related ratios for specified periods Asset Quality Metrics (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :---------------------------------------------------- | :------------- | :---------------- | :------------- | | Total Nonperforming Loans | $307,297 | $309,535 | $8,368 | | Other Real Estate Owned | $2,528 | $2,463 | $8,291 | | Total Nonperforming Assets | $309,825 | $311,998 | $16,659 | | Nonperforming Loans to Total Portfolio Loans | 8.76% | 8.83% | 0.26% | | Nonperforming Assets to Total Portfolio Loans plus OREO | 8.82% | 8.89% | 0.51% | | Allowance for Credit Losses to Total Portfolio Loans | 2.75% | 2.77% | 2.91% | | Allowance for Credit Losses to Nonperforming Loans | 31.41% | 31.35% | 1,131.62% | | Net Loan Charge-offs (Recoveries) QTD | $532 | $317 | $573 | [Allowance for Credit Losses](index=16&type=section&id=6.5.%20Allowance%20for%20Credit%20Losses) This table details the movement in the allowance for credit losses, including beginning balance, provision, charge-offs, and recoveries Allowance for Credit Losses Movement (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Balance Beginning of Period | $97,052 | $94,474 | $93,852 | | Provision for Credit Losses | $16 | $2,895 | $1,415 | | Total Charge-offs | $677 | $638 | $661 | | Total Recoveries | $145 | $321 | $88 | | Total Net Charge-offs | $532 | $317 | $573 | | Balance End of Period | $96,536 | $97,052 | $94,694 | [Balance Sheets](index=13&type=section&id=6.6.%20Balance%20Sheets) This table presents consolidated balance sheet data, including assets, liabilities, equity, and key performance/capitalization ratios Balance Sheet Data (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Total Assets | $4,554,946 | $4,512,539 | $4,365,655 | | Total Deposits | $3,830,521 | $3,721,915 | $3,536,988 | | Federal Home Loan Bank Borrowings | $310,500 | $393,400 | $435,135 | | Total Liabilities | $4,195,880 | $4,161,296 | $4,010,669 | | Total Shareholders' Equity | $359,066 | $351,243 | $354,986 | | Return on Average Assets (QTD Annualized) | 0.52% | (0.17)% | 1.51% | | Return on Average Shareholders' Equity (QTD Annualized) | 6.59% | (2.24)% | 18.88% | | Portfolio Loans to Deposit Ratio | 91.61% | 94.20% | 91.85% | | Shareholders' Equity to Assets | 7.88% | 7.78% | 8.13% | | Tier 1 Leverage Ratio | 9.34% | 9.48% | 10.09% | | Risk-Based Capital - Tier 1 | 10.89% | 11.08% | 12.28% | | Risk-Based Capital - Total | 12.15% | 12.34% | 13.55% | [Definitions and Reconciliation of GAAP to Non-GAAP Financial Measures](index=17&type=section&id=6.7.%20Definitions%20and%20Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Financial%20Measures) This section reconciles GAAP to non-GAAP financial measures, including pre-provision income, net income, FTE net interest income, and efficiency ratio Pre-provision Income (Non-GAAP) (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Pre-provision Income (GAAP) | $7,207 | $1,593 | $21,944 | | Pre-provision Income (Non-GAAP) | $6,858 | $3,495 | $22,088 | Net Income (Non-GAAP) (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Net Income (Loss) (GAAP) | $5,811 | $(1,888) | $15,941 | | Net Income (Loss) (Non-GAAP) | $5,535 | $(385) | $16,055 | | Diluted EPS (Non-GAAP) | $0.24 | $(0.02) | $0.68 | Net Interest Income (FTE) (Non-GAAP) (Thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Net Interest Income (GAAP) | $28,419 | $27,420 | $40,785 | | Tax Equivalent Adjustment | $206 | $236 | $264 | | Net Interest Income (FTE) (Non-GAAP) | $28,625 | $27,656 | $41,049 | | Net Interest Margin (FTE) (Non-GAAP) | 2.60% | 2.49% | 3.98% | Efficiency Ratio (Non-GAAP) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :-------------------------- | :------------- | :---------------- | :------------- | | Efficiency Ratio (GAAP) | 78.46% | 94.81% | 51.79% | | Efficiency Ratio (Non-GAAP) | 79.01% | 88.48% | 51.18% |

[PART I](index=6&type=section&id=PART%20I) [Business](index=6&type=section&id=Item%201.%20Business) Carter Bankshares, Inc. operates 65 branches in Virginia and North Carolina with **$4.5 billion in assets**, focusing on prudent growth and increased fee income - Carter Bankshares, Inc. is a holding company for Carter Bank & Trust, with **$4.5 billion in assets** and **65 branches** in Virginia and North Carolina as of December 31, 2023[178](index=178&type=chunk) - The company's strategic goal is to transition to a prudent growth strategy, emphasizing organic growth, increased fee income, and controlled operating expenses[183](index=183&type=chunk)[48](index=48&type=chunk) - The company's common stock is traded on the Nasdaq Global Select Market under the ticker symbol **"CARE"**[11](index=11&type=chunk) - As of December 31, 2023, the company employed **679 full-time associates**, with a voluntary separation turnover rate of **13.8%** for fiscal year 2023[207](index=207&type=chunk) - The company and its bank subsidiary are extensively regulated by authorities including the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), and Virginia State Corporation Commission (SCC)[214](index=214&type=chunk)[215](index=215&type=chunk)[321](index=321&type=chunk) [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant credit risk from a **$301.9 million nonperforming loan**, alongside concentrations in commercial real estate, operational, cybersecurity, market, liquidity, and regulatory risks - A single large lending relationship, placed on nonaccrual status in Q2 2023, comprises **$301.9 million** or **97.5%** of the company's nonperforming loans as of December 31, 2023[2](index=2&type=chunk) - The company's loan portfolio has a significant concentration in commercial real estate (CRE), making it sensitive to real estate market downturns, particularly in Virginia and North Carolina[283](index=283&type=chunk)[313](index=313&type=chunk) - Operational and security risks are significant due to heavy reliance on IT infrastructure, making the company vulnerable to cyber-attacks, system failures, and data breaches[135](index=135&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk) - The business is subject to market risks, including adverse effects of interest rate changes and inflation on net interest income, asset values, and borrower creditworthiness[118](index=118&type=chunk)[121](index=121&type=chunk)[154](index=154&type=chunk) - The company faces significant litigation risk, including collection actions and lawsuits related to its largest lending relationship, potentially resulting in substantial legal costs and losses[26](index=26&type=chunk)[363](index=363&type=chunk)[392](index=392&type=chunk) [Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[369](index=369&type=chunk) [Cybersecurity](index=32&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity plan, based on the NIST framework, is managed by the COO and IRT with Board oversight, utilizing risk assessments and testing to mitigate threats - The company's cybersecurity plan is based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework[31](index=31&type=chunk) - Cybersecurity governance is led by the Chief Operations Officer (COO) and an Incident Response Team (IRT), with oversight from the Board's IT Steering Committee and Audit Committee[31](index=31&type=chunk)[398](index=398&type=chunk)[400](index=400&type=chunk) - Key risk management strategies include risk assessments, independent third-party penetration testing, and continuous environment monitoring[61](index=61&type=chunk)[397](index=397&type=chunk) - Although the company has experienced past cybersecurity incidents, none have resulted in a material adverse effect on its business, financial condition, or operations[32](index=32&type=chunk) [Properties](index=33&type=section&id=Item%202.%20Properties) As of December 31, 2023, the company operates its principal executive office and **65 depository branches** across Virginia and North Carolina, primarily owned - The company operates **65 depository branches**, with **53 in Virginia** and **12 in North Carolina**, as of December 31, 2023[374](index=374&type=chunk) - The principal executive office is located at 1300 Kings Mountain Road in Martinsville, Virginia[374](index=374&type=chunk) [Legal Proceedings](index=33&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings, including significant pending litigation, is incorporated by reference from Note 18 of the financial statements - Information regarding legal proceedings is detailed in Note 18, "Commitments and Contingencies," of the financial statements[401](index=401&type=chunk) [Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - The company has no mine safety disclosures to report[375](index=375&type=chunk) [PART II](index=34&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under **"CARE"**, with no regular dividends since 2016, and a **$14.2 million** share repurchase program completed in 2023 - The company's common stock trades on NASDAQ under the ticker **"CARE"**, with **2,160 shareholders of record** as of March 4, 2024[403](index=403&type=chunk) - The company has not declared a regular quarterly cash dividend since **Q4 2016**, prioritizing resources for regulatory compliance and investments[376](index=376&type=chunk) - The 2023 share repurchase program of **1,000,000 shares** was completed as of August 31, 2023, at a total cost of **$14.2 million**, or an average price of **$14.16 per share**[38](index=38&type=chunk) - No shares of common stock were repurchased during the quarter ended December 31, 2023, as the 2023 program was fully exhausted[406](index=406&type=chunk) [Reserved](index=36&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income decreased to **$23.4 million** in 2023 due to lower net interest income and higher noninterest expense, while nonperforming loans surged to **8.83%** due to a large nonaccrual relationship 2023 Key Financial Highlights vs. 2022 (in millions, except EPS) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | **Net Income** | $23.4 million | $50.1 million | ($26.7 million) | | **Diluted EPS** | $1.00 | $2.03 | ($1.03) | | **Net Interest Income** | $122.3 million | $139.9 million | ($17.6 million) | | **Provision for Credit Losses** | $5.5 million | $2.4 million | $3.1 million | | **Noninterest Income** | $18.3 million | $21.7 million | ($3.4 million) | | **Noninterest Expense** | $105.5 million | $97.0 million | $8.5 million | Key Performance Ratios | Ratio | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Return on Average Assets | 0.53% | 1.21% | | Return on Average Shareholders' Equity | 6.79% | 14.30% | | Nonperforming Loans to Total Portfolio Loans | 8.83% | 0.21% | | Allowance for Credit Losses to Total Portfolio Loans | 2.77% | 2.98% | - The significant increase in nonperforming loans to **8.83%** is almost entirely due to placing the company's largest lending relationship, with a principal balance of **$301.9 million**, on nonaccrual status in Q2 2023[388](index=388&type=chunk)[88](index=88&type=chunk) - Total portfolio loans grew by **$357.0 million (11.3%)**, primarily in the commercial real estate, residential mortgage, and construction segments[51](index=51&type=chunk)[603](index=603&type=chunk) - Total deposits increased by **$89.4 million**, with a notable shift from noninterest-bearing and savings accounts into higher-yielding Certificates of Deposit (CDs), which grew by **$325.1 million**[78](index=78&type=chunk)[606](index=606&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with its balance sheet shifting to slightly liability-sensitive as of December 31, 2023, impacting net interest income sensitivity - The company's balance sheet shifted from asset-sensitive at year-end 2022 to slightly liability-sensitive at year-end 2023[799](index=799&type=chunk)[800](index=800&type=chunk) Net Interest Income Sensitivity Analysis (12-Month Horizon) | Change in Interest Rate (bps) | % Change in Pretax NII (as of Dec 31, 2023) | % Change in Pretax NII (as of Dec 31, 2022) | | :--- | :--- | :--- | | +200 | (1.1)% | 7.7% | | +100 | (0.3)% | 4.1% | | -100 | 2.4% | (5.1)% | | -200 | 4.4% | (10.7)% | Economic Value of Equity (EVE) Sensitivity Analysis | Change in Interest Rate (bps) | % Change in EVE (as of Dec 31, 2023) | % Change in EVE (as of Dec 31, 2022) | | :--- | :--- | :--- | | +200 | (4.7)% | (0.2)% | | +100 | (1.8)% | 0.8% | | -100 | 0.9% | (3.4)% | | -200 | 0.5% | (8.5)% | [Financial Statements and Supplementary Data](index=69&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the consolidated financial statements for Carter Bankshares, Inc. and its subsidiaries, along with the independent auditor's report and detailed notes on accounting policies and disclosures Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$4,512,539** | **$4,204,519** | | Portfolio Loans, net | $3,408,858 | $3,055,061 | | Securities Available-for-Sale | $779,003 | $836,273 | | **Total Liabilities** | **$4,161,296** | **$3,875,892** | | Total Deposits | $3,721,915 | $3,632,538 | | FHLB Borrowings | $393,400 | $180,550 | | **Total Shareholders' Equity** | **$351,243** | **$328,627** | - The independent auditor, Crowe LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of December 31, 2023[650](index=650&type=chunk) - A critical audit matter was identified concerning the allowance for credit losses for individually evaluated loans in the "Other" pool, due to significant and subjective judgments involved in estimating reserves, which totaled **$54.4 million**[658](index=658&type=chunk)[659](index=659&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=126&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - There were no disagreements with accountants on accounting and financial disclosures[666](index=666&type=chunk) [Controls and Procedures](index=126&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes in Q4 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[708](index=708&type=chunk) - Management's report on internal control over financial reporting concluded that the system was effective as of December 31, 2023, a conclusion supported by the independent auditor's report[669](index=669&type=chunk) - No material changes were made to the company's internal control over financial reporting during the quarter ended December 31, 2023[670](index=670&type=chunk) [Other Information](index=127&type=section&id=Item%209B.%20Other%20Information) No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023 - No directors or officers made changes to Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q4 2023[711](index=711&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=127&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section is not applicable to the company - This item is not applicable[712](index=712&type=chunk) [PART III](index=128&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=128&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement, including the company's Code of Conduct - Required information is incorporated by reference from the proxy statement for the 2024 annual meeting of shareholders[714](index=714&type=chunk) - The company has adopted a Code of Conduct for directors, executive officers, and associates, available on its website[715](index=715&type=chunk) [Executive Compensation](index=128&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the company's 2024 annual shareholders' meeting proxy statement - Required information is incorporated by reference from the "Executive Compensation" and "Director Compensation" sections of the 2024 proxy statement[716](index=716&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=128&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership details for beneficial owners and management are incorporated by reference from the 2024 proxy statement, with **30,630** securities issuable and **1,538,804** available for future issuance under equity plans - Required information on security ownership is incorporated by reference from the 2024 proxy statement[717](index=717&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2023) | Category | Number of Securities | | :--- | :--- | | Securities to be issued upon exercise of outstanding rights | 30,630 | | Securities remaining available for future issuance | 1,538,804 | [Certain Relationships and Related Transactions, and Director Independence](index=129&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related person transactions and director independence is incorporated by reference from the company's 2024 annual shareholders' meeting proxy statement - Required information is incorporated by reference from the "Related Person Transactions" and "Corporate Governance -- Director Independence" sections of the 2024 proxy statement[721](index=721&type=chunk) [Principal Accountant Fees and Services](index=129&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information concerning principal accountant fees and services is incorporated by reference from the company's 2024 annual shareholders' meeting proxy statement - Required information is incorporated by reference from the "Independent Registered Public Accounting Firm" section of the 2024 proxy statement[722](index=722&type=chunk) [PART IV](index=130&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=130&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K, including consolidated financial statements and various exhibits such as governance and compensation agreements - This item lists all financial statements and exhibits filed with the annual report, including governance documents, employment agreements, and compensation plans[724](index=724&type=chunk)[726](index=726&type=chunk) [Form 10-K Summary](index=133&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided for the Form 10-K - No summary is provided for the Form 10-K[765](index=765&type=chunk)

For the quarter ended December 2023, Carter Bankshares, Inc. (CARE) reported revenue of $30.67 million, down 34.9% over the same period last year. EPS came in at -$0.02, compared to $0.62 in the year-ago quarter.The reported revenue represents a surprise of -5.98% over the Zacks Consensus Estimate of $32.62 million. With the consensus EPS estimate being $0.17, the EPS surprise was -111.76%.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectatio ...

Financial Performance - For the nine months ended September 30, 2023, total interest income increased to $144.6 million, up 29% from $111.97 million in the same period of 2022[68]. - Net interest income after provision for credit losses was $91.97 million for the nine months ended September 30, 2023, compared to $95.85 million for the same period in 2022, reflecting a decrease of 4%[68]. - Net income for the three months ended September 30, 2023, was $3.63 million, a decrease of 75% from $14.41 million in the same period of 2022[68]. - Basic earnings per common share for the three months ended September 30, 2023, was $0.16, down from $0.59 in the same period of 2022, representing a decline of 73%[68]. - Total noninterest income for the nine months ended September 30, 2023, was $15.03 million, down 7% from $16.17 million in the same period of 2022[68]. - Net income for the nine months ended September 30, 2023, was $25,272,000, a decrease from $34,509,000 for the same period in 2022, representing a decline of approximately 26.5%[75]. - Net income for Q3 2023 was $3,627,000, down 74.8% from $14,408,000 in Q3 2022[68]. - Basic earnings per common share for Q3 2023 were $0.16, a decrease of 72.9% compared to $0.59 in Q3 2022[68]. Expenses and Losses - Total noninterest expense increased to $76.39 million for the nine months ended September 30, 2023, compared to $69.38 million in the same period of 2022, marking an increase of 10%[68]. - Total noninterest expense increased to $27,282,000 in Q3 2023 from $23,463,000 in Q3 2022, representing a rise of 16.0%[68]. - Interest expense on deposits surged to $34.63 million for the nine months ended September 30, 2023, compared to $13.28 million in the same period of 2022, reflecting a significant increase of 61%[68]. - Interest expense on deposits surged to $15,328,000 in Q3 2023 from $4,469,000 in Q3 2022, an increase of 243.5%[68]. - Provision for credit losses for the nine months ended September 30, 2023, was $2.61 million, compared to $2.37 million in the same period of 2022, indicating an increase of 10%[68]. - Provision for credit losses increased to $2,919,000 from $2,557,000, reflecting a rise of 14.2% year-over-year[75]. - Provision for credit losses was $1,105,000 in Q3 2023, compared to a recovery of $(77,000) in Q3 2022[68]. Shareholder Equity and Stock Repurchase - The company repurchased 2,433,801 shares of common stock, resulting in a total repurchase cost of $40.13 million[57]. - The balance of total shareholders' equity as of September 30, 2023, was $314.82 million, a decrease from $407.60 million as of December 31, 2022[57]. - Total shareholders' equity as of September 30, 2023, was $330,621,000, compared to $344,237,000 at June 30, 2023, indicating a decrease of about 4.0%[72]. - The company repurchased 1,132,232 shares of common stock for a total cost of $16,416,000 during the nine months ended September 30, 2023[71]. - The balance of total shareholders' equity as of September 30, 2023, was $330,621,000, reflecting changes from net income and stock repurchases[71]. Cash Flow and Liquidity - Cash and cash equivalents at the end of the period were $55,398,000, down from $65,708,000 at the end of the same period in 2022, reflecting a decrease of approximately 15.0%[75]. - Net cash provided by operating activities for the nine months ended September 30, 2023, was $38,855,000, down from $47,698,000 in the prior year, a decrease of approximately 18.6%[75]. - The company reported a net cash used in investing activities of $255,481,000 for the nine months ended September 30, 2023, compared to $270,111,000 in the prior year, a decrease of about 5.4%[75]. - Net cash provided by financing activities increased significantly to $225,155,000 from $10,322,000, marking a substantial rise[75]. - The total liquidity sources were reported at $1,215.8 million as of September 30, 2023[117]. - Total available liquidity to uninsured deposits was 306.8% at September 30, 2023[117]. - Highly liquid assets amounted to $597.8 million, resulting in a highly liquid assets to total assets ratio of 13.4% at September 30, 2023[115]. Loan Portfolio and Credit Quality - The company established a valuation allowance of $53.6 million as of September 30, 2023, based on discounted cash flow valuation techniques for borrowers in the hospitality, agriculture, and energy sectors[103]. - As of September 30, 2023, special mention, substandard, and doubtful loans increased by $157.1 million to $314.0 million compared to $156.9 million at December 31, 2022[109]. - The increase in substandard loans of $168.1 million is primarily related to a large nonaccrual lending relationship[109]. - The allowance for credit losses was established at $53.6 million as of September 30, 2023, reflecting the company's assessment of potential losses in its loan portfolio[103]. - The company has enhanced its underwriting standards since 2018 to mitigate potential credit losses[94]. Regulatory and Accounting Changes - The company recorded a transitional adjustment of $106,000 to retained earnings due to the early adoption of ASU 2023-02, effective January 1, 2023[79]. - The company adopted new accounting standards in 2023, resulting in a transitional adjustment of $0.1 million to retained earnings[79]. - The Company ceased originating new LIBOR-based variable rate loans as of December 31, 2021, and has transitioned to using the one-month term Secured Overnight Financing Rate (SOFR) as the replacement benchmark[81]. - The Company completed remediation efforts for existing LIBOR-based loans by September 30, 2023[81]. - The transition team is committed to working within the guidelines established by regulatory authorities to ensure a smooth transition away from LIBOR[81]. Market and Economic Impact - The economic value of equity decreased by 10.6% under a -300 basis points interest rate shock scenario as of September 30, 2023[123]. - A 200 basis point increase in interest rates would result in a 0.2% increase in pretax net interest income as of September 30, 2023[123]. - A 100 basis point decrease in interest rates would lead to a 1.6% increase in pretax net interest income[123]. - The economic value of equity would decrease by 3.6% with a 200 basis point increase in interest rates[123]. - A 400 basis point decrease in interest rates would result in a 17.1% decrease in economic value of equity[123].

Financial Performance - Net interest income for the three months ended June 30, 2023, was $26,711 thousand, a decrease of 18.5% from $32,459 thousand in the same period of 2022[186] - Net income for the six months ended June 30, 2023, was $21,645 thousand, an increase of 7.7% compared to $20,101 thousand for the same period in 2022[186] - The net income for the quarter ended June 30, 2023, was $5,704,000, compared to $20,101,000 for the same quarter in the previous year[190] - Basic earnings per common share for the three months ended June 30, 2023, was $0.24, unchanged from the same period in 2022[186] - The provision for credit losses decreased by $1.7 million to $0.1 million for the three months ended June 30, 2023, compared to the same period in 2022[262] - Total noninterest income decreased by $1.2 million to $9.8 million for the six months ended June 30, 2023, compared to the same period in 2022[263] - Total noninterest expense increased to $25,536 thousand for the three months ended June 30, 2023, compared to $23,410 thousand in the same period of 2022, marking an increase of 9.1%[186] Assets and Liabilities - Total assets increased to $4,383,990 thousand as of June 30, 2023, compared to $4,204,519 thousand at December 31, 2022, representing a growth of approximately 4.3%[185] - Total liabilities increased to $4,039,753 thousand as of June 30, 2023, from $3,875,892 thousand at December 31, 2022, reflecting a rise of approximately 4.2%[185] - As of June 30, 2023, total shareholders' equity was $344,237,000, a decrease from $354,986,000 as of March 31, 2023[189] - Total deposits decreased to $3,577,003 thousand as of June 30, 2023, from $3,630,333 thousand at December 31, 2022, a decline of about 1.5%[185] Share Repurchase and Equity - The company repurchased 583,824 shares of common stock during the quarter, resulting in a total repurchase cost of $8,153,000[189] - The Company has a common share repurchase program authorized to buy back up to 750,000 shares, effective August 1, 2022, subject to regulatory approval[248] - The Company repurchased 583,824 shares of common stock at a total cost of $8.2 million, averaging $13.96 per share, under the share repurchase program[268] Credit and Commitments - The balance of commitments to extend credit increased to $749,377,000 as of June 30, 2023, up from $630,619,000 as of December 31, 2022[225] - The Company has commitments to extend credit amounting to $749.4 million as of June 30, 2023, up from $630.6 million at December 31, 2022, with construction project lines of credit representing $395.6 million, or 52.8% of total commitments[239] - A provision for unfunded commitments of $0.4 million was recorded during the three months ended June 30, 2023, reflecting an increase compared to the same period in 2022[226] - The provision for unfunded commitments for the three months ended June 30, 2023, was $360,000, up from $269,000 in the same period of 2022[242] Market and Economic Conditions - Rising market interest rates have begun to increase the Company's funding costs, which are expected to continue negatively impacting net interest income and net interest margin in future periods[266] - The company has suspended +300 and +400 basis point rate shock analyses due to changes in the Federal Open Market Committee's rate increase projections[208] Litigation and Regulatory Changes - The Company is involved in litigation with the Justice Entities regarding approximately $301 million in promissory notes, with ongoing proceedings that may affect future financial outcomes[243] - The company has adopted new accounting standards effective June 30, 2023, which resulted in a transitional adjustment of $0.1 million to retained earnings[193] - The company is transitioning away from LIBOR and has selected one-month term SOFR as the replacement benchmark for LIBOR-based loans[195] Portfolio and Loan Performance - Total portfolio loans increased by $181.5 million, or 11.6%, on an annualized basis, primarily due to growth in commercial real estate and residential mortgage segments[264] - The company's largest lending relationship, with an aggregate principal amount of $301.9 million, was placed on nonaccrual status as of June 30, 2023[219] - The Company experienced a negative impact of $11.3 million on interest income due to placing commercial loans with an aggregate principal value of $301.9 million in nonaccrual status[264]

Financial Performance - Net income for the three months ended March 31, 2023, was $15.941 million, up from $9.323 million in the same period of 2022, representing a year-over-year increase of 70.5%[71] - Comprehensive income for the three months ended March 31, 2023, was $28.193 million, compared to a loss of $24.653 million in the same period of 2022[71] - Net interest income increased by $12.6 million, or 44.5%, to $40.8 million for the three months ended March 31, 2023, compared to the same period in 2022[251] - The Company reported net income of $15.9 million, or $0.67 diluted earnings per common share, for the three months ended March 31, 2023, compared to net income of $9.3 million, or $0.36 diluted earnings per common share, for the same period in 2022[252] - Total noninterest income decreased by $0.6 million to $4.7 million for the three months ended March 31, 2023, compared to $5.3 million for the same period in 2022[252] Loan Performance - Nonperforming loans (NPLs) increased by $1.7 million, or 25.9%, to $8.4 million as of March 31, 2023, compared to $6.7 million at December 31, 2022[37] - NPLs as a percentage of total portfolio loans rose to 0.26% at March 31, 2023, from 0.21% at December 31, 2022[37] - Total portfolio loans amounted to $3,248,898,000 as of March 31, 2023, up from $3,148,913,000 at the end of 2022, indicating a 3.2% growth[112] - Total commercial loans reached $1,865,968,000 as of March 31, 2023, an increase from $1,780,354,000 at the end of 2022, marking a 4.8% growth[112] - Total consumer loans increased to $716,648,000 as of March 31, 2023, compared to $702,510,000 at the end of 2022, showing a 2.0% increase[112] - The company reported no credit-related net investment impairment losses during the three months ended March 31, 2023, and 2022[111] - As of March 31, 2023, the company had $72,000 in residential real estate loans in the process of foreclosure, down from $902,000 at the end of 2022[117] - Loans past due 30 to 89 days decreased by $2.5 million to $2.3 million at March 31, 2023, compared to $4.8 million at December 31, 2022[157] - No loans were past due 90 days or more and still accruing as of March 31, 2023, and December 31, 2022, indicating strong loan performance[157] - Nonaccrual loans totaled $8,368,000 as of March 31, 2023, reflecting a stable status in loan performance[159] Credit Losses and Provisions - Provision for credit losses increased to $1.499 million for the three months ended March 31, 2023, compared to $0.394 million in the same period of 2022[71] - The allowance for credit losses has been adjusted to reflect the current economic conditions and risk assessments[152] - The allowance for credit losses on loans at the end of the period was $18,595,000, compared to $17,992,000 at the beginning of the period, indicating an increase of 3.4%[160] - The provision for credit losses on loans for the three months ended March 31, 2023, was $1,415,000, compared to a recovery of $630,000 for the same period in 2022[160] - The company recorded net charge-offs of $573,000 for the three months ended March 31, 2023, compared to net recoveries of $193,000 for the same period in 2022[160] Securities and Investments - The total debt securities amount to $956,645,000 with a fair value of $862,856,000, reflecting gross unrealized losses of $95,147,000[80] - The fair value of residential mortgage-backed securities is $103,884,000, with an amortized cost of $114,509,000, indicating unrealized losses of $10,625,000[80] - The company holds U.S. Treasury securities with an amortized cost of $19,336,000 and a fair value of $18,132,000, reflecting unrealized losses of $1,204,000[80] - The total corporate notes amount to $70,750,000, with a fair value of $61,733,000, showing unrealized losses of $9,017,000[80] - The total fair value of available-for-sale securities with unrealized losses was $791.528 million, with significant losses in residential mortgage-backed securities totaling $12.009 million[136] Cash Flow and Capital Management - Net cash provided by operating activities was $22.435 million for the three months ended March 31, 2023, compared to $12.470 million in the same period of 2022[71] - Net cash used in investing activities was $125.455 million for the three months ended March 31, 2023, compared to $181.671 million in the same period of 2022[71] - Net cash provided by financing activities was $137.529 million for the three months ended March 31, 2023, compared to a cash outflow of $0.562 million in the same period of 2022[71] - Cash and cash equivalents at the end of the period were $81.378 million as of March 31, 2023, compared to $108.036 million at the end of March 31, 2022[71] - The company repurchased 1,523,157 shares of common stock, totaling $24.626 million during the reporting period[71] Strategic Initiatives - The company is focusing on expanding its market presence and enhancing its product offerings in response to evolving customer needs[152] - Future guidance indicates a cautious outlook on loan growth, with an emphasis on maintaining credit quality amid economic uncertainties[152] - The Company announced a common share repurchase program to purchase up to 1,000,000 shares of common stock over a period of twelve months, effective May 1, 2023[261] - The Company is shifting its focus from restructuring the balance sheet to pursuing a prudent growth strategy, targeting organic growth and opportunistic acquisitions[250] - The Company aims to increase fee income while closely monitoring operating expenses as part of its growth strategy[250] Regulatory and Compliance - The company has not adopted any new Accounting Standards Updates during the three months ended March 31, 2023[99] - The transition away from LIBOR is being managed by a cross-functional team, ensuring compliance with guidelines established by the FCA and ARRC[103] - The company has selected one month term SOFR as the replacement benchmark for LIBOR-based loans, with the transition team having completed key milestones for a smooth transition[103]

Capital Ratios and Equity - The Tier 1 capital ratio decreased to 12.61% at December 31, 2022, down from 14.21% at December 31, 2021, primarily due to a common stock repurchase of $42.9 million [9]. - The common equity tier 1 ratio was 12.61% for 2022, down from 14.21% in 2021, while the total risk-based capital ratio was 13.86%, down from 15.46% [40]. - The company reported a leverage ratio of 10.29% for 2022, compared to 10.62% in 2021, remaining above the regulatory guideline of 5.00% [41]. - The total shareholders' equity decreased to $328,627 thousand in 2022 from $407,596 thousand in 2021, a decline of approximately 19.4% [110]. Loan Performance and Credit Quality - Nonperforming loans (NPLs) decreased by $0.8 million to $6.6 million at December 31, 2022, representing 0.21% of total portfolio loans compared to 0.26% in 2021 [25]. - Portfolio loans past due 30 to 89 days increased by $3.2 million to $4.8 million at December 31, 2022, primarily in the construction segment [27]. - The allowance for credit losses to total portfolio loans was 2.98% at the end of 2022, compared to 3.41% at the end of 2021 [30]. - The balance of the allowance for credit losses at the end of 2022 was $93.852 million, down from $95.939 million at the end of 2021 [31]. - The company recognized a provision for credit losses of $2,928 thousand in 2022, compared to $2,081 thousand in 2021, indicating a rise in credit loss provisions [115]. - The company maintains an allowance for credit losses (ACL) deemed adequate to absorb expected credit losses across various loan segments [196]. Income and Expenses - The company experienced an increase in net interest income due to rising yields on loans and investment securities in 2022 [51]. - Net interest income increased by $28.7 million, or 25.9%, to $139.9 million for the full year 2022 compared to $111.2 million for 2021 [73]. - Total noninterest income decreased by $7.2 million to $21.7 million for the full year 2022 compared to $28.9 million for 2021 [73]. - Total noninterest expense decreased by $5.3 million to $97.0 million for the full year 2022 compared to $102.3 million for 2021 [73]. - The company reported a net income of $50.1 million for the year ended December 31, 2022, compared to $31.6 million for 2021 [79]. - Net income for the year ended December 31, 2022, was $50,118,000, compared to $31,590,000 for the year ended December 31, 2021, representing a 58.5% increase [80]. Securities and Investments - Total debt securities decreased by $86.1 million to $836.3 million in 2022 from $922.4 million in 2021 [10]. - The unrealized losses on debt securities are considered temporary, primarily due to market value reductions from rising interest rates [12]. - The total fair value of debt securities was $284,547,000, with unrealized losses amounting to $(32,266,000) [155]. - The company evaluates debt securities for impairment at least quarterly, considering factors such as fair value decline duration and issuer's financial condition [121]. - The company regularly reviews debt securities for expected credit loss using both qualitative and quantitative criteria [157]. Deposits and Borrowings - The total deposits without a stated maturity were $2.368 billion at year-end 2022 [44]. - The company had $180.6 million in FHLB borrowings at December 31, 2022, an increase of $173.6 million from $7.0 million at December 31, 2021 [38]. - Total deposits decreased to $3,630,333 thousand in 2022 from $3,698,476 thousand in 2021, a decline of approximately 1.8% [110]. Strategic Focus and Future Outlook - The Company plans to focus on organic growth and consider opportunistic acquisitions to align with its strategic vision [71]. - The Company aims to enhance its guiding principles and expects to roll out a new mission and vision in 2023 [70]. Risk Management - The company actively manages credit risk by diversifying its loan portfolio across segments, geography, collateral, and industry [188]. - The company has a concentration of credit risk, with the majority of loans granted to customers in its market area [131]. Financial Reporting and Compliance - The company’s financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), which requires management to make estimates and assumptions affecting reported amounts [84]. - The company recognizes tax positions in financial statements when it is more likely than not that the position will be sustained upon examination [134].